Quotation of the Day…

by Don Boudreaux on November 28, 2011

in Seen and Unseen, Trade

… is from page 30 of Jacob Viner’s classic 1937 Studies in the Theory of International Trade; in particular, the following quotation is from the opening chapter on the history of mercantilist thought, entitled “English Theories of Foreign Trade, Before Adam Smith I”:

Also if Englishmen were sparing in their consumption of even domestic goods, there would result, it was claimed [by mercantilist thinkers], either unemployment or the piling-up of unsold and perishable commodities, unless the surplus stocks of domestic goods were exported abroad.  Small imports and large exports were therefore a necessary adjunct of thrift and enrichment….

Protests against the importation of “apes and peacocks,” “toys and baubles” recur throughout the mercantilist period and were already common in the sixteenth century.

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kyle8 November 28, 2011 at 11:14 am

Did it never occur to them that if there is no importation then there will scarcely be any exportation? To some extent trade must be reciprocal.
You could try to only receive specie for your goods but the supply of gold in any county is limited.

In absence of paper currency and instruments. If much more gold and silver flows outward than comes in, then the money supply shrinks thus driving up prices.

Daniel Kuehn November 28, 2011 at 11:31 am

Yes, if you read the mercantilists rather than Viner, they do write this. As in any age, of course, you’re going to find more and less vulgar versions of it. But if you read the leaders of mercantilist thought – Mun, Misselden, etc. – they all made exactly this point. Smith criticized the mercantilists as being “partly solid and partly sophistical”. What he said was “solid” about them was precisely this point you make here – their claim that exports bought imports and imports enabled exports by the re-export trade (which Britain played an important role in) as well as the provision of important inputs into production.

Where people go very wrong on the mercantilists is in mistaking their acknowledgement of the importance of increasing net exports as an advocacy of protectionism – an assertion that William Grampp refuted several decades ago. It’s imperative to keep in mind that when the mercantilists were writing, there was no Bank of England yet and the money supply was not nearly as elastic or responsive to the needs of traders as it was by the time Smith was writing his criticism. Smith’s oversight on this point (this is what he calls “sophistical” in Mun) is almost funny. He cites Mun talking about a scarcity of money and the need for net exports as a source of specie, and then “refutes” Mun by noting the elasticity of the supply of paper money, “exchequer notes, navy bills, and bank bills… issued upon such occasions” (p. 441 of the Liberty Fund edition). What Smith apparently forgets is that none of these things were around when Mun was writing in in the 1630s.

The mercantilist were right to note that exports were required to pay for imports, and even Adam Smith acknowledges they were right about this.

The mercantilists were also right, given their historical circumstances, to think about trade in terms of its impact on the money supply. That concern of theirs was, of course, less important by the late 18th century when Smith was writing.

And the mercantilists were ahead of Smith (and Say, and Ricardo) in recognizing the negative impact of money that was neither used for consumption or investment.

Dismissing mercantilists on the basis of second-hand caricatures is a pastime among economists. It’s probably a mostly harmless pastime (it’s not like there are any mercantilists around to be offended). But the mercantilists themselves – while not always right – were a lot sharper than we give them credit for.

Randy November 28, 2011 at 12:44 pm

“The mercantilist were right to note that exports were required to pay for imports…”

I don’t follow. From personal experience I don’t export anything, and yet I import much. Nor do I see that my experience is unusual.

Don Boudreaux November 28, 2011 at 12:53 pm

Randy: You likely do export your services (assuming that you work). Otherwise, perhaps someone else – your parents, for example – exported something in order to allow you now to import. But you (or someone on your behalf) produces in order that you might consume – which is to say “exports” so that you may “import.”

Randy November 28, 2011 at 1:01 pm

Got it Don. But if I understand the point of the mercantilists the idea of imports and exports was “international”. My point is that there is only trade, and that “international” is irrelevant.

Don Boudreaux November 28, 2011 at 1:37 pm

Randy: You are right about that, and Daniel is mistaken to suggest (as he seems to suggest) that an essential component of mercantilist thought – perhaps even an advance that they pioneered – is the recognition that “exports were required to pay for imports.” (Of course exports are required to pay for imports. And of course Adam Smith – who unlike mercantilists emphasized the importance of imports and the fact that consuming goods, rather than accumulating money, is the ultimate goal of economic activity – agreed with this claim.)

I can’t quite make out what Daniel is driving at here. The true essence of mercantilist doctrine – as Daniel apparently recognizes elsewhere in his comment(s) – is the overriding importance to a nation’s prosperity of inflows of money. Exports were valued by mercantilists NOT because they paid for imports but, rather, because – and chiefly to the extent that – they brought in specie.

It was Adam Smith and the classical economists who emphasized that exports are valuable chiefly because they bring in imports (i.e., foreign-made products), and who criticized mercantilists for their confusion of money (or specie) with wealth – for their belief that trade is beneficial the greater is the proportion of specie-to-goods brought in from exports.

Here, btw, is a still-living pro-Keynesian economist’s favorable description of Doug Irwin’s summary of mercantilism; this passage below is from a review of Doug’s important 1996 book Against the Tide:

“It is hard from our current perspective to make much sense of the mercantilist writers. They were aggressively pro-export–sharply critical of restrictions that limited export. Irwin sees their doctrines as having four components:

“A moral argument that foreign-produced luxuries were not worth consuming, and that the state should (for the good of those who would buy French fripperies if unrestrained) restrict imports of foreign-produced luxuries.

“An unemployment-equilibrium argument that allowing imports to increase would throw people out of work.

“A belief that manufacturing should be promoted to enhance economic development–perhaps with some recognition that this argument required that the benefits to society from expanding manufacturing be greater than the profits to the manufacturer.

“Non-economic goals: ‘defense more important than opulence.’”

That’s a decent summary, which is consistent with the interpretation of mercantilism offered by Viner – although, ironically enough, this summary description of mercantilism gives less emphasis to mercantilists’ monetary concerns than Viner gave. (It is a mystery where Daniel gets the idea that Viner missed the fact that mercantilists – proto-Keynesians that they were – were consumed with the allegedly beneficial role of an expanding money supply in the domestic economy. They clearly were so concerned, and Viner recognizes this point again and again. Perhaps Daniel should read Viner first before casting him onto the heap of “dated” historians of thought.)

Oh – the economist quoted above who reviewed Doug Irwin’s book is Brad DeLong:


Daniel Kuehn November 28, 2011 at 5:28 pm

re: “Exports were valued by mercantilists NOT because they paid for imports but, rather, because – and chiefly to the extent that – they brought in specie.”

Both are emphasized. I’m not sure why you’re acting like these are mutually exclusive, Don. You know they aren’t.

re: “It was Adam Smith and the classical economists who emphasized that exports are valuable chiefly because they bring in imports”

Yes – I don’t want to give the impression that I don’t think they held this view. They absolutely did.

I’m not sure where I said Viner missed this. My opening line was a little harsh because reading the mercantilists themselves would give kyle8 insight into his question. Clearly the Viner quote you provided to kyle8 left him thinking he mercantilists missed something that they most definitely didn’t miss.

There is a lot that the mercantilists missed, there is a lot to criticize the mercantilists for, and there is simply a lot of different views that get grouped under “mercantilists”. I’m simply:

1. Noting that the leading mercantilists were not ignorant at all of the question that kyle8 raised – indeed Smith praises their treatment of that question, and

2. Promoting the idea that one really misses out when one dismisses the mercantilists as protectionists who thought that treasure was the only thing that mattered for the wealth of nations.

Those two points should not be controversial. Those two points are highlighted by a large literature after Viner, but don’t turn my comment into some kind of screed against Viner.

Josh S November 28, 2011 at 6:49 pm

“The mercantilists were also right, given their historical circumstances, to think about trade in terms of its impact on the money supply.”

No, they weren’t, and Smith identifies the problem with this thinking–real expenditures dwarf the entire amount of net bullion imported. He observes that even during wartime, countries with low gold stocks but high productivity have no trouble procuring the gold they need. Smith is able to do this because he recognizes that money is, in the end, just another good–if having a lot of money means you can buy the corn you need, then having a lot of corn means you can buy the money you need. Hence concern over the balance of trade and the stock of bullion is as unwarranted as concern over the stock of wool.

Nuke Nemesis November 29, 2011 at 10:13 am

In mercantilism, it was not reciprocal trade. Raw materials were imported and more expensive finished goods were exported. The idea was also to keep the colonies from producing their own finished goods, and also to limit who could transport the items each way.

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