International Commercial Policies

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CORNELLUNIVERSITYLIBRARY

BOUGHT WITH THE INCOMEOF THE SAGE ENDOWMENTFUND GIVEN IN 189I BYHENRY WILLIAMS SAGE


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The original of tliis book is intine Cornell University Library.

There are no known copyright restrictions inthe United States on the use of the text.

http://www.archive.org/details/cu31924031255098


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1

THE . CITIZEN'S LIBRARYOF

ECONOMICS, POLITICS, ANDSOCIOLOGYEDITED BY

RICHARD T. ELY, Ph.D. , LL.D.PROFESSOR OF POLITICAL ECONOMY,

UNIVERSITY OF WISCONSIN

INTERNATIONAL COMMERCIALPOLICIESWITH SPECIAL REFERENCE TO THE

UNITED STATESA TEXT BOOK


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THE CITIZEN-S LIBRARY

InternationalCommercial PoliciesWITH SPECIAL REFERENCE TO THE

United Statesa Cejt TBoofeBY

GEORGE MYGATT FISK, Ph. D.Peqfessox of Comuerce, University of Illinois.

Formerly Second Secretary of Am-erican Embassy at BerlinAUTHOR OF

Deutsch-Amerikanische Handelsbeziehungen;Handelspolitik der Vereinigten Staaten 1890-1900;

Middle-European Tariff Union, Etc.

THE MACMILLAN COMPANYLONDON: MACMILLAN & CO., Lid.

1907All rights reserved :

, ,1 . r | 1 1 j^ U.WJVIKOri Y


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Jp-^ n A ^5-

COFVEIGHT, 1907By THE MACMILLAN COMPANYSet up and electrotyped. Published November, 1907.

The MASON.HENRY PressSyracuse, New Yorx


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ToANDREW D. WHITEassociation with whom duringnearly four years of official lifeat Berlin has been a permanentsource of inspiration to the author.


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PREFACEAn effort has been made in the present volume

to bring together in a form available for studentsof economics as, well as for general readers, a sys-tematic treatment of the politics of internationalcommerce. Such an effort is beset with manydifficulties. In the first place no method of treat-ment is entirely free from all objections. Againwhile there is an abundance of literature on someof the topics considered in the following pages, theliterature is very meagre as regards other topics.As to general works no English books cover theentire field of international commercial politics al-though some German writersnotably Roscher,Cohn, Lexis, van der Borght and Grunzel^havetreated the subject in a scholarly way. The authorwishes to make special acknowledgments to thelast named author for frequent use which he hasmade of his excellent work, System der Handels-politik. For services rendered he wishes also toexpress his appreciation to the officers and attend-ants of the libraries of Congress, University ofIllinois, University of Wisconsin and WisconsinHistorical Society and to his colleagues, professorsN. A. Weston, M. H. Robinson and J. W. Garner.Professors Weston and Robinson read the manu-script and their criticisms were invaluable. Pro-fessor Garner furnished valuable assistance in the


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CONTENTSCHAPTER I.Introduction

1. General Statement2. Meaning of Commerce3. Materials of Commerce4. Classification of Commerce5. Politics of Commerce6. Political Control of Commerce7. General Character of Ancient Commerce8. Development of Ancient Commerce9. Commercial Policy of the Middle Ages

10. Development of Mediaeval CommerceBibliography, Suggestive Topics and Questions

PAGE3S6789

II121416

CHAPTER II.Development of Modern Commercial Politics :

The Mercantile System11. General Character of Early Modern Period 2112. General Character of Mercantilism 2313. First and Second Phases of Mercantilism 2414. Third Phase of Mercantilism . 2515. Criticism of Mercantilism . 2716. Portugal and Spain 2917. The Netherlands . 318. France , . . 3219. England . ... 33

Bibliography, Suggestive Topics and Questions 34


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CONTENTSCHAPTER HI.

Development of Modern Commercial Politics:Free Trade

20.


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CONTENTSCHAPTER VI.

CustomsExport and Transit Duties : ProhibitionsPAGE

41. Definition and Classification of Export Duties 7342. Revenue Export Duties ... 7443. Protection Export Duties . . 7544. Transit Duties ... 7645- Import, Export and Transit Prohibitions . ^^46. Protection and Revenue Prohibitions . 7847. Prohibitions based on Sanitary Grounds . 7948. Prohibitions based on Moral or Religious Grounds 8149. Prohibitions based on Grounds of Public Security 82


CHAPTER VII.CustomsTariffs and Tariff Systems

so. Introduction ... 8651. Contents of the American Tariff Act . 8752. The Free List . . .8953. Tariff Enactment and Administration . 8954. Territorial Scope of Tariff Laws . . 90SS- Revenue Effect of Anticipated Tariff Changes 9156. General or Autonomous Tariff System . 9257. General and Conventional Tariff System . 9258. Maximum and Minimum Tariff System 94


CHAPTER VIII.CustomsAd Valorem, Specific and Differential Duties

59. Introduction ... 9860. Advantages and Disadvantages of Ad Valorem

Duties . 9961. Advantages and Disadvantages of Specific Duties loi62. General Method of Tariff Administration 10263. PajTnent of Customs Duties . . 104


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CONTENTSPAGE

64. Discriminating Duties on Vessels and theirCargoes ... . 105

65. Interstate Preferential Duties . . 10766. Colonial Preferential Duties . 10867. Countervailing Duties . . 10968. Retaliatory Duties . . . .110


CHAPTER IX.CustomsAdministrative Institutions

69. Ports of Entry and Ports of Delivery 11570. Meaning and Advantages of Bonded Warehouses 11571. United States Bonded Warehouses for Imported

Goods . . . . 11672. General Regulations regarding United States

Bonded Warehouses for Imported Goods 11873. Free Ports . . . .11874. Free Districts . . 120yZ. Proposed American Free Districts 12176. Frontier Traffic in the Narrower Sense 122yy. Mexican Free Zone . . . 12378. Treaty Ports . . 124

Bibliography, Suggestive Topics and Questions 125CHAPTER X.

CustomsInternal Taxation : Export and ImportFavors79-80.81

82.83.848586.

Internal Taxes . . . 127Internal Taxes on Imported Merchandise 128Internal Taxes on Domestic Products destinedfor Exportation .... 129Drawbacks . . . 130Drawback System in the United States . 131Direct or Open Bounties . 132Indirect or Concealed Export Bounties 134International Sugar-Bounty Question 136

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CONTENTSPAGE

87. Free Re-Importation of Unaltered DomesticArticles ..... 137

88. Free Importation of Foreign Articles to be Re-exported after Alteration or Repair: General 139

89. Free Importation of Foreign Articles to be Re-exported after Alteration or Repair: UnitedStates . ... 140

90. Miscellaneous Free List Articles . 140Bibliography, Suggestive Topics and Questions 142

CHAPTER XICommercial Tre:atiesTheir Nature^ Form andContents

91. Definitions ..... 14592. Development of Commercial Treaties . 14593. European Commercial Treaties of the Free Trade

Era . . . 14794- European Commercial Treaties of the ProtectionEra . . . 14795. What States may negotiate Commercial Treaties ? 14896. Who may negotiate Commercial Treaties? 14997. Duration of Commercial Treaties . 150

iSiiSi152154

98. Protocol99. Subject Matter of Commercial Treaties

100. Groups of Commercial Treatiesloi. Provisions of Commercial TreatiesBibliography, Suggestive Topics and Questions 158

CHAPTER XII.Commercial TreatiesReciprocity and the Most

Favored Nation ClauseIG2. Meaning of Reciprocity103. First Phase of American Reciprocity104. Second Phase of American Reciprocity105. Third Phase of American Reciprocity106. Fourth Phase of American Reciprocity

161162162163164


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CONTENTSPAGE

107. Fifth Phase of American Reciprocity . 165108. Sixth Phase of American Reciprocity . 166109. Seventh Phase of American Reciprocity . 167no. Eighth or Final Phase of American Reciprocity 168111. Meaning of the Most Favored Nation Clause 169112. Restricted (or American) Most Favored Nation

Policy . . .170113. Unrestricted (or European) Most Favored Na-

tion Policy . . . 171114. Scope of the Most Favored Nation Clause 171

Bibliography, Suggestive Topics and Questions 173CHAPTER XIII.

Public Trade-Promoting Institutionslis. General . . . 177116. United States Department of State . 178117. General Consular Service 179118. Development of the American Consular Service 181119. Present American Consular Law . . 182120. Recent Regulations Governing Appointments

and Promotions .... 185121. Present Regulations Governing Appointments

and Promotions . . 186122. Regulations Governing Examinations 187123. Criticism of the Present American Consular

Service . . . . 189Bibliography, Suggestive Topics and Questions 191

CHAPTER XIV.Public Trade-Promoting Institutions (Continued)

124. Commercial Attaches . _, 192125. Proposal for Commercial Attaches in theAmerican Diplomatic Service . 192126. United States Treasury Department . 194127. United States Department of Agriculture 195


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CONTENTSPAGE

128. United States Department of Commerce andLabor (a) Bureau of Statistics: (b) Bureauof Manufactures . . 197

129. United States War Department 200130. Trade Commissions . . 201


CHAPTER XV.Quasi-Public and Private Trade-Promoting Institutions131. General ..... 206132. Commercial Museums and Bureaus of Infor-mation . . . 207133. The Philadelphia Commercial Museum . 208134. Export Sample Warehouses . 209135. Domestic Chambers of Commerce in Foreign

Countries . 210136. Export Syndicates . . . 211137. Miscellaneous Trade-Promoting Institutions 213


CHAPTER XVI.Commercial Statistics: Balance of Tra.de and ForeignExchange138. Definition of Commercial Statistics 216139. Classification of Commercial Statistics . 217140. General Methods of Obtaining Commercial

Statistics . . . 220.141. American Methods of Obtaining Commercial

Statistics . ... 219142. Difficulties of Statistical Comparisons 221143. Methods of Statistical Comparisons 222144. Meaning of Balance of Trade . . 224145. Visible Exports and Imports . 225146. Invisible Exports and Imports 226147. How Balance are Adjusted 228



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CONTENTSCHAPTER XVII.Navigation Politics

PAGE148. General . . . . 233149. Mare Clausum .... 234150. Freedom of Navigation . . . 235151. Navigation Laws . 236152. English Navigation Policy . 237153. Navigation Policy of the United States . 238154. Character of Shipping Subsidies . . 24015s. History of Foreign Shipping Subsidies 241156. Early American Shipping Subsidy Policy 242157. Postal Subsidy Act of 1891 . 244158. Arguments for and against Navigation Laws 247


CHAPTER XVIII.Public Navigation-Promoting Institutions

159. General . .251160. Bureau of Navigation and Shipping Com-

missioners . . 252161. Steamboat-Inspection Service . 253162. Light-House Board . 253163. Coast and Geodetic Survey . 254164. Public Health and Marine Hospital Service 255165. Life-Saving Service . 256166. Revenue Cutter Service . 256167. Navy Department . . 257

Bibliography, Suggestive Topics and Questions 258General Bibliography .... 259Index ,..,,. 273


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INTERNATIONALCOMMERCIAL POLICIES


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CHAPTER I.INTRODUCTION

I, General Statement.There run through thewritings of early authors on economic subjects twoprominent ideas regarding commerce, one relatingto its value and the other to its content. As re-gards the former Montesquieu, the immortal writerof the Spirit of Laws, has tersely said: theeffect of commerce is riches; the consequence ofriches, luxury; and that of luxury, the perfectionof arts. The emphasis laid on not only the ma-terial but also the cultural value of commerce byearly writersa characteristic almost lacking ineconomic literature of the present dayis not diffi-cult to understand. Trade among early civilizedpeoples, especially among the Greeks and, to agreater extent, the Romans was largely in thehands of foreigners and was essentially piraticalin character. These conditions stamped trade asan unworthy occupation and perpetuated traditionsand prejudices which have taken centuries to eradi-cate. The civilized world has, however, beengradually converted and but few writers of thepresent time think it worth while to demonstratethat the material advantages of trade are mutualand that commercial intercourse is civilizing in itseffects.

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COMMERCIAL POLICIESAs regards the second characteristic, the content

of commerce, it may be stated that the ancients didnot discriminate between commerce in its restrictedand in its general sense; that is, they did not dif-ferentiate commerce from navigation, transportationand communication, money and banking, and even,in some instances, from general industry or frompolitical economy. They used the term in muchthe same sense in which in modern phraseology wespeak of commercial education and schools of com-merce, meaning thereby much more than merestudies of trade or even of general economics.The complex character of modern industrial life has

' led to a high degree of specialization not only in artbut also in science. Such subjects as transporta-tion and communication, or money and banking,have become so important and also so complex that,although of course recognized as perhaps the mostimportant instruments of commerce, they are treatedas special subjects in themselves rather than assynonymous with commerce. It should also benoted in this connection that there is a legal con-ception of commerce which may be, and in factusually is, different from the economic use of theterm. While economically considered the meaningof commerce tends to become more and more re-stricted, legally considered the opposite tendency isobservable at least so far as the federal governmentof the United States is concerned, since the inter-pretation given by the Supreme Court to the mean-ing of commerce as used in the Constitution ismuch more extensive now than formerly. This

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INTRODUCTIONdiscussion naturally brings us to a consideration ofthe meaning of commerce and its relation to eco-nomics and industry. In the treatment of the sub-ject in the present text the term commerce is usedin its restricted rather than in its broad meaning.

2. Meaning of Commerce.Political economy,or economics, deals with those activities of manwhich are directed toward getting a living. Ithas often been defined as the science of wealth.Wealth in the economic sense consists of thosegoods and services which are useful to man, whichpossess utilities. These may be classified into ele-mentary or material, form, time, place and quantityutilities. Both industry and commerce are impot-tant parts of the economic life of society. Theformer is primarily concerned with the creation ofform utilities and the latter with those of time.place and quantity. The agent in industry is themanufacturer; in commerce, the merchant. Theseparation between the two is never complete eitherin theory or in practice. Theoretically, many mod-ern economists treat commerce as merely a part ofeconomic production on the ground that the latteris incomplete until goods which have been manu-factured or produced are put into the hands offinal consumers. In practice there are many occu-pations in which the manufacturer and distributoror merchant are united. A simple illustration isthat of the baker who not only makes the bread, butoften offers it for sale to final consumers. Whilethe development of the division of labor has tendedtoward a differentiation of industry and commerce,

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COMMERCIAL POLICIESthe latest phase of industrial consolidation has ledin many instances to a closer union. Giant con-cerns like the United States Steel Corporation andthe Standard Oil Company are both industrial andcommercial institutions. They are engaged notonly in the creation of form, but also of place, timeand quantity utilities.Commerce is defined in the dictionary as the

exchange or buying and selling of commodities,especially the exchange of merchandise on a largescale. It is characterized as trade in its mostextended form. The terms commerce andtrade mean very much the same thing, althoughthe former often refers to commercial dealingsbetween nations, while the latter is more often ap-plied to internal mercantile intercourse. Thus wespeak, on the one hand, of the foreign commerce orcommercial relations of the United States and, onthe other hand, of the wholesale or retail trade ofindividual merchants.When goods have been manufactured they mustbe distributed to those places where consumers areto be found, held until they are wanted and fur-nished in desired quantities. That branch of eco-nomics which thus serves as a bridge betweeninitial producers and final consumers by creatingthe necessary place, time and quantity utilities, iscommerce.

3. Materials of Commerce.The materials ofcommerce are variously designated as goods, com-modities, merchandise, wares or products. Whilethese terms are often used indiscriminately, their sig-

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INTRODUCTIONnificance is not always the same. Owing to the dif-ference in usage in different countries or even indifferent parts of the same country, fixed definitionsare difficult to frame. The term goods usually meanstransferable articles of portable or personal prop-erty such as are intended for sale or might realizea money value if sold. Thus we speak of dry-goods, fancy goods, high-priced goods, the goodsof the merchant and the like. A commodity is any-thing movable that is a subject of trade or of ac-quisition. Goods and commodities are nearly syn-onymous. The former term is somewhat morecomprehensive than the latter which usually, butnot always, refers to articles of necessity. Mer-chandise As the generic term for all portable articlesof trade considered as such in the aggregate. TheAmerican trade statistics, for instance, refer to theexportation of articles of domestic merchandise,meaning thereby the sum total of all articles ofdomestic production exported to other countries.The term ware or wares designates the sum of arti-cles of a particular kind or class. It is often usedin composition as in hardware, glassware or tin-ware. Webster defines a product as anything thatis produced, whether as the result of generation,growth, labor or thought, or by the operation ofinvoluntary causes. We speak of the products ofthe season or of the farm, the products of manu-factures, the products of the brain, etc.

4. Classification of Commerce.Trade is eitherwholesale or retail. The latter may be defined assales to the final consumer and the former as mer-

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COMMERCIAL POLICIEScantile transactions among all classes except thefinal consumer. Usually, but not always, wholesaletrade is in larger values than retail trade. Com-merce is also divided into domestic trade, carried onentirely within the boundaries of a particular coun-try, and foreign or international trade between in-dividuals of different nations. The present workhas to do primarily with foreign commerce whichis divided into various classes. Import trade com-prises dealings in those goods brought into a coun-try from foreign localities; export trade refers toshipments sent out of a country ; and transit tradeis traffic passing through third countries en routefrom one country to another. Trade passing be-tween two countries via third countries is charac-terized as indirect trade in contradistinction todirect trade, or trade passing directly between twocountries. Foreign commerce is also classified asland trade and sea trade. Where a country em-ploys home capital and labor in carrying on its for-eign trade its commerce is called active, while onthe other hand, if its foreign trade is carried on byforeign merchants its trade is characterized aspassive. The foreign commerce of all countries,taken in its entirety, is called world commerce.

5. Politics of Commerce.Political science isthe science of government; politics is the art ofgoverning. The former deals with principles,while the latter has to do with practice, and findsformal expression in law. While good governmentis a necessity for commercial development andnearly all governmental regulations, such as those


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INTRODUCTIONrelating to education, private property, revenue orcommunication, influence commerce more or less,only those affecting it directly and consciouslybelong to the sphere of commercial politics. Com-mercial politics, therefore, comprises the laws, in-stitutions and executive methods by means of whichthe sovereign will controls commerce. While theactivities of the government are generally directedtoward increasing commerce, this is not always thecase. In fact, many laws such as protective tariffregulations often aim to discourage commerce;others, especially those of a police, moral or sani-tary character, as, for example, laws relating to thesale of fire arms, intoxicating liquors or adulteratedfoods are often prohibitory. The aim of all lawsregulating commerce should be to benefit society atlarge. There is no other justification for law,whether it be to regulate commerce or any otheractivity.

6. Political Control of Commerce.In the Mid-dle Ages the political control of commerce was vestedtheoretically in the central government representedby the king. Owing, however, to the lack of effec-tive centralization the power to regulate commercecame more and more under the control of local quasi-public corporations or guilds. This control becamenearly absolute and extended over both domesticand foreign commerce. In strongly centralizedgovernments, such as those of modern England,France or Italy, the control of commerce is largelyconcentrated in the hands of the central govern-ment; but in federal states, like the United States

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COMMERCIAL POLICIESor the German Empire, where there is a division ofpower between central and local authority, foreigncommerce is largely under the control of the formerwhile domestic commerce comes more naturallyunder the purview of the latter. The situation inthe United States in this particular is interesting.Although the American colonies were constantlyinterfered with by the mother country, the politicaltroubles of England at home and on the Continent,coupled with the dangers of navigating the broadAtlantic which lay between her and her colonists,resulted in the latter having, in a large measure,their own way in matters of government. Theirconstant struggle, however, for both economic andpolitical existence developed in the English resi-dents of the New World strong sentiments of self-government. When separation from the mothercountry came, the several states retained controlover commerce, only the shadow of power beingdelegated to the so-called central governmentoperating under the Articles of Confederation. Itwas the lack of effective central control over com-merce which was one of the most decisive factorsin giving birth to the Constitution. By this in-strument Congress was given the power to regu-late commerce with foreign nations and among theseveral states and with the Indians. In otherwords, the federal government of the United Stateshas control over foreign and interstate commerce,while control over strictly domestic commerce isretained by the several states.

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INTRODUCTION7. General Character of Ancient Commerce.

Early trading peoples were organized on a municipalor local basis as is suiiSciently suggested by the namesof Tyre, Carthage, Athens, Rhodes and, in more re-cent time, Venice and many other cities of WesternEurope. Later city-lpagues, such as Hansa, wereorganized on a quasi-national basis for purposes ofcommercial protection and expansion. Finally na-tional life began with the dawn of modern history.Early civilization usually lacked the three essentialsfor the development of commerce on a large scalemeans of transportation and communication,security and freedom of labor and of exchange.The absence of transportation and communicationfacilities caused the materials of commerce to beconfined largely to objects of great value and smallbulk. As regards freedom of labor and exchangeit may be said that the political institutions of theancient world were utterly neglectful of the liberty,industry and property of the masses. Insecuritycaused commerce to be carried on by armed forcesin the form of caravans on the land and the con-voy on the sea. Ancient commerce was largelytrade of civilized with less civilized or barbarouspeoples. The latter distrusted and feared theformer, and warfare ending in annihilation, slaveryor a state of colonial dependence was generally thefate of the less civilized combatant. This distrustof the foreigner was a characteristic of the ancientworld and was strengthened by the fact that muchof the trade in those times was, as already stated,carried on by non-residents and partook more or


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COMMERCIAL POLICIESless of the nature of plunder and piracy. Com-merce in early times was, however, favored by onemollifying factorthe ancient right of hospitalitywhich extended a protecting arm to the stranger,and was about the only form of personal contactamong foreigners. Its origin is uncertain, butprobably is traceable to the Phoenicians.

8. Development of Ancient Commerce.Theearliest civilizations in historic times were thosecentering about the great river valleys of the Nile,the Tigris, and Euphrates, and perhaps also aboutthe river valleys of Southern and South EasternAsia. The desert between Egypt on the West andthe civilized nations to the East was pierced by theArabs who were the great land merchants of an-tiquity. They were organized in caravans and wereunder no other form of government than the regu-lations which the members of the caravan imposedupon themselves. The Phoenicians were the great-est commercial people of antiquity. Centrally lo-cated on the eastern coast of the Mediterraneanbetween the raw producing countries to the Westand the manufacturing producing countries to theEast, they developed an enormous land and seatrade. The former was carried on to the eastwardby means of caravans with regularly establishedresting and trading stations. Their sea trade ex-tended along the littorals of the Mediterranean,Black and Red Seas as well as along the coasts ofthe Atlantic and Indian oceans, and was carried onby convoysarmed ships of war accompanyingmerchant vessels which were likewise armed for


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INTRODUCTIONprotection. Trading posts were established alongthe coasts, some of which, such as Carthage, becameimportant cities. They were controlled for the mostpart by officers sent out by the home government.The entire commerce of Phoenicia was highly or-ganized by and centralized in the government of thePhoenician cities of Tyre and Sidon, and thesecities became not only great commercial but alsogreat industrial centres.Both the Greeks and the Romans had a strong

antipathy against commerce. The former largelyovercame this prejudice, but the latter never did.Early Greek commerce was largely carried on byforeigners, especially by the Phoenicians, but asthe Greeks developed their trade by establishingcolonies along the shores of neighboring seas, theybecame more and more actively engaged in com-merce. The Greeks inherited the general com-mercial policy of the Phoenicians, but they hardlyimproved upon it because while Phoenician com-merce was highly centralized for many centuries inone or at most two cities, Greek commerce waspolitically dominated at different intervals by differ-ent Greek cities. While Roman colonial policywas one of ruthless exploitation, her general com-mercial policy was largely passive. She establishedconditions of peace and security upon the sea bysuppressing piracy throughout the Mediterranean,and upon the land by means of her roads and hersuperb military system; but her commercethesupplying of her large population with articles of

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COMMERCIAL POLICIESnecessity and luxurywas largely in the hands offoreigners, especially the Greeks.

9. Commercial Policy of the Middle Ages.No national commercial policy was evolved in an-tiquity or during the Middle Ages. In both periodsthe policy, as has been said, was essentially mu-nicipal in character. The Mediaeval city policy,nevertheless, showed some advancement over thepolicy of the earlier period, both in domestic affairscentering in the market regulations and in foreignaffairs, relating especially to fairs, factories, consuls,and, during the latter part of the Middle Ages, tothe organization of city leagues. Commercial cen-tres were much more numerous in the Middle Agesthan in antiquity and developed not only along thecoast as in the earlier period, but at numerous in-land points. The city leagues were quasi-nationalin character and may be regarded as forerunners ofthe modern state or nation. The general characterof Mediaeval commercial politics is reflected invarious governmental regulations more or less com-mon in Western Europe. These regulations re-lated to both foreign and domestic trade. An im-portant institution affecting primarily the formerwas the factory located in foreign countries. Thiswas usually a single warehouse at first, but oftendeveloped to include whole quarters in a foreigncity. In these factories home merchants dwelt,carried on trade and administered law throughofficers, known as consuls, selected sometimes bythemselves, but more often by the home govern-ment. The rights which these merchants enjoyed

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INTRODUCTIONwere usually based upon concessions granted bythe sovereign in whose territory the factory waslocated. At home all matters relating to foreigntrade were most minutely regulated, svich as thetime of departure of vessels, the order en route, theobject of the trip, the return voyage, the armament,etc. Every effort was made to keep trade as muchas possible in the hands of native citizens. For ex-ample, the Venetians forbade the Germans fromengaging in trade with the East by way of Venice,and the citizens of Lubeck strove to keep the Baltictrade from the Dutch.

In the more domestic commercial politics thespirit of exclusiveness also prevailed. Foreignerswere mistrusted and partnerships with them wereforbidden. Foreign visitors were restricted inmany ways in their commercial dealings with nativecitizens. Many occupations were closed to them

;

the length of their sojourn and the number of theirvisits were limited; they could not pass a townwithout exposing their wares for sale and payingthe required market dues. The wants of the con-sumer took precedence over those of the produceror merchant. At the weekly markets consumerscould supply their needs before the baker or mer-chant was allowed to make purchases. There wasa community interest in the supplies of necessitiesand often their exportation was prohibited. Thetrade of neighboring peasants was restricted to thehome city, and laws regulating price, weight, meas-ure and quality were common. This restrictivemunicipal policy was very much relaxed at the

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COMMERCIAL POLICIESgreat fairs which were held periodically in variousparts of Europe.

ID. Development of Mediaeval Commerce.After the Roman Empire of the West came to anend, nominally in 476 A. D., and all WesternEurope was overrun by barbarian hordes, commercewas in a more or less chaotic state for the next fivehundred years. Such trade as remained was cen-tered in the Mediterranean countries and waslargely in the hands of the Greeks and, after theMohammedan conquests, of the Arabs. Duringthis period the growth of feudalism and the rise oftowns both fostered decentralization, while the onlycentralizing force was in the Church. The mostimportant factor in causing a reawakening of com-merce was the Crusades. Toward the close of thetenth century the Turks overran Western Asia andcaptured Jerusalem. Fired by religious fanaticism,by the spirit of adventure and by the fear lest theremnants of trade between the East and the Westwould be destroyed, the peoples of Western Europeundertook a series of Crusades against the In-fidels, covering a period of about two hundredyears and involving the transportation of millionsof human beings toward the East. The effects ofthe Crusades were far-reaching. Politically, theybroke the backbone of feudalism by attracting tothe Orient large numbers of the nobility, many ofwhom failed to come back or who returned bank-rupt. This great movement, therefore, increasedthe power of the Crown and of the burgher class inthe cities. Contact with the more advanced By-

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INTRODUCTIONzantine and Arabic culture for two hundred yearstaught Western Europe many lessons in civilization.It gave an enormous impetus to commerce and in-dustry not only by the direct demands it made formeans of transportation and for general equipmentin the w^ay of food, clothing and munitions of war,but also indirectly by increasing the wants of thepeople for Eastern commodities. To meet thesenew requirements old commercial centres grewinto new life and many new cities sprang up inWestern Europe. Flanders became the great in-dustrial centre of Northwestern Europe, while thecities of Northern Italy, especially Venice, centrallysituated along the new lines of trade between theEast and West, became rich and powerful. It wasduring this period also that the great city leagueswere formed, the most important of which wasHansa. This was originally a league formedbetween Hamburg and Liibeck in the early part ofthe thirteenth century for the purpose of protectingthe trade between these two centres. It grew veryrapidly and soon numbered nearly one hundredcities in Northern Europe. Its government was aconfederacy with its capital at Liibeck. Organizedat first as a purely protective commercial associa-tion, it soon assumed important political preroga-tives. It possessed a powerful fleet and an armyand these, together with its factories at London,Bruges, Bergen, Novgorod and at other places,where special trading privileges were enjoyed,enabled it to protect effectively its own interestsand to dominate commercial and industrial activity

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COMMERCIAL POLICIESin the North of Europe as Venice did in the South.In spite of its monopoHstic tendencies it did muchfor the civiHzation of Western Europe. The se-curity which it gave to commerce and industry, notonly among its own members but among foreignerswith whom it traded, did much to increase thewealth, standard of living and art impulses ofEurope and to accustom its inhabitants to the prin-ciples of orderly government, thereby paving theway for constitutional government. With thegrowth of effective national governments in thefifteenth and sixteenth centuries, the services of thecity leagues became unnecessary and they did notlong outlive their usefulness.

BIBLIOGRAPHYNote, (i) For a general bibliography on the subject

of international commercial politics; (2) for an explana-tion of the arrangement of the special bibliographies atthe close of each chapter; (3) for an interpretation of allabbreviations in the special bibliographies, consult theGeneral Bibliography at the end of the book. Booksmarked (*) are regarded as specially desirable and thosemarked (**) as indispensable.

C. Commerce in (a) Dictionaries and Encyclopaedias(*Am. and Eng. Encyc. Law, Bouvier's Law Diet., Con-rad's Handw. der Staatsw., Elster's Worterb, der Volksw.,*Encyc. Brit., Guyot et RaflFalovich Diet, du Com., Harp-er's Diet., Larned's Hist, for Ready Ref., Lalor's Cyclop,and Palg. Diet.) (b) *Economics, texts on (Bullock, Ely,Fawcett, Fetter, Gide, Mill, Nys, Ricardo, Seager, Selig-man. Smith, Walker, et al.). (c) English Indus. His-tories (Ashley, Cheyney, Cunningham, Gibbins, Price,Rogers), (d) Writings of various authors (Aristotle,Cicero, Hume, MacchiavelH, **Montesquieu, Bk. XX,

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INTRODUCTIONPlato). For additional writers on Commerce consultCossa's Introd. and *Ingram's Hist. Pol. Econ.). (e)Poole's Index and other indexes to periodical literature.D. Adams Com. Geog., Adam's Relation of State toIndus. Action, Beers, Gesch. des Welth., Biicher's Indus.Evol., van der Borght, Handel u. Handelsp., Ch. I.-II.,Chisholm's Com. Geog., Clow's Introd., Cohn's Handels.,Cunningham's Western Civil., *Day's Hist, of Com., Gan-nett, Garrison and Houston's Com. Geog., Ehrenberg'sDer Handel and Zeitalt. d. Fiigger, Farrer's State, Gib-bin's Hist, of Com., Griinzel's Handelsp., pp. 1-12, Hobson'sInter. Trade, Prentice and Egan, Com. Clause, Pigon-neau's Hist, du Com., Roscher's Handel, PI Ch. I., Seeley'sExp. of Eng., Speck's Handslsg. der Alt., Stickney's StateControl, Trotter's Geog. of Com., Webster's Hist, of Com.

SUGGESTIVE TOPICS AND QUESTIONS1. What is the meaning of Commerce as used in the

American Constitution (Art Commerce ' in Am. and Eng.Encyc. Law; also Bouvier's Law Diet., Prentice and Egan,Com. Clause.) Make careful abstract of one of the deci-sions of' the Supreme Court on this point.

2, Is the division of labor the c_use of commerce?(Bticher Indus. Evol., 303 et seq).

3. Is there any way of estimating the service of com-merce in preparing a modern dinner? (Outlook Mar.13th, 1897: quoted in Clow's Introd., pp. 193-194).

4. Define ancient right of hospitality'' (Cohn's Han-del.s, p. 28; Biicher Indus. Evol., p. 62).

5. Give examples of laws aimed to discourage tradein certain articles; exar.iples of trade prohibitions. Canyou give examples of one state encouraging the sale of anarticle which another state prohibits the buying or sellingof?

6. What power over commerce did the central govern-ment of the United States have prior to 1789? (Articlesof Confederation.)

7. How does war affect commerce? Do commercial19


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COMMERCIAL POLICIESnations generally oppose war? (Seeley's Exp. of Eng.,Ch. VI., Scrib. M., Mar. '02).

8. What is the position of the United States as apeace maker? (World's Work, May. 1902).9. Compare Anglo-Saxon and German attitude as re-

gards State regulation (Adam's Relation of State to Indus.Action).

10. Give examples to show how commerce is influencedby climate, soil, navigable rivers, mountains, coast line,religion, government (Consult any text on Com. Geog.also Montesquieu Bk. xx).

11. May the same trade be at one time domestic andat another time foreign? Examples.

12. How does the domestic trade of the United Statescompare in value with its foreign trade? (Adam's Com.Geog., p. 163; Gide, p. 346, Seager, p. 368.)

13. Oj^ an average ho.v many times will an article beexchanged on its way from he producer to the final con-sumer? (Walker's Discussion, Vol. II., p. 8). On thisbasis what would be the ratio between the value of Amer-ican domestic and foreign commerce?

14. Homer relates in the Odyssey that Ulysses be-came indignant, when skirting the coast of Phoenicia, atbeing taken for a merchant by the Phoenicians whowished to trade with Lim. What does this show as to theP'obable attitude of the Greeks and Phoenicians towardcommerce?

15. Is it strictly correct to speak of commerce betweennations? What do we really mean by the phrase?

16. What did the former German Chancellor vonCaprivi mean when he said that Germany had reached anindustrial position where she must either export men orgoods? What does this show as to the relative value ofGerman domestic and foreign trade?

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CHAPTER II.DEVELOPMENT OF MODERN COMMERCIAL

POLITICS: THE MERCANTILE SYSTEMII. General Character of the Early Modern

Period. There are several marked characteristicswhich distinguish European civilization of the pastfour hundred years from that of the precedingthousand years. The power and wealth of the com-mercial and industrial classes had been increased,largely as a result of the Crusades. Wealth haddeveloped a leisure class and wealth and leisurehad furnished the proper basis for the growth ofthe finer tastes. The literary phase of this generalmovement found expression in the so-called Ren-aissance or revival of the almost forgotten literaryclassics of the Graeco-Roman world. Dante, Pe-trarch, Colet, Erasmus and More figure prominentlyin this connection. Artistically the movement ex-pressed itself in the building of magnificent cathe-drals, in sculpture and in painting. A galaxy ofgreat names, such as Michelangelo, Leonardo daVinci, Raphael, Titian and Rembrandt belongs tothis phase of the movement. The religious side ofthis development showed itself in the ProtestantReformation with Martin Luther as the centralfigure, while the political expression was reflectedin the growth of nationality. As has been stated.


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COMMERCIAL POLICIESthe Crusades hastened the downfall of feudalismby. enlisting the services of the feudal barons manyof whom lost their lives in the expeditions or re-turned with empty purses. Their power at firstlargely monopolized by the rich burghers of thecities was gradually taken over by the central gov-ernments. States like Spain, France and Englandbecame nations in the modern sense. Finally thecommercial phase was characterized by three far-reaching eventsthe discovery of America byColumbus (1492), the finding of an all-water routeto the Indies via the Cape of Good Hope by Vascada Gama (1498) and the circumnavigation of theglobe by Magellan and his followers (1519-1522).These discoveries changed the great trade routesbetween the East and the West, which the Turksby their conquests culminating in the capture ofConstantinople (1453) had greatly interfered with,and shifted the great commercial centres of Europefrom the Mediterranean to the Atlantic shores.They brought into general use many new productssuch as tobacco, potatoes and Indian corn, and in-creased enormously the supply of the preciousmetals. They also cheapened transportation bysubstituting ocean trade for commerce which waslargely over-land or confined to inland seas. Finallythey gave added importance to the industrial andcommercial classes and led to two hundred years ofwarfare for commercial supremacy. The entiregeneral movement was powerfully aided by threeimportant inventionsthose of gunpowder, theprinting press and the mariner's compass.


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THE MERCANTILE SYSTEM12. General Characteristics of Mercantilism.

The changes which characterize the beginnings ofmodern history brought about important modifica-tions in economic thought and action. Mercantilismis the term used to designate this general movement.It represented an effort to theorize and legislatealong national rather than local or municipal lines.R)th theoretically and practically it was intensivelyprotective and derived much inspiration from thecity economic policy of the Middle Ages. Whilemercantilism possessed no universal theorems orregulations, it did have several more or less generalcharacteristics, one of the most prominent of whichwas its over-estimation of the importance of money.This is easy to understand. The precious metalshad been drained off to the East during precedingcenturies in payment for Eastern articles of trade,especially since the period of the Crusades. Thiswas contemporaneous with an enormously growingdemand for money payments for large standingarmies, expensive courts and salaried officials.The practical economic problem was how to meetthese increasing expenses. Not to meet themmeant a loss of sovereignty. Under such condi-tions and at a time when the principles of politicaleconomy were poorly understood it was natural foreconomic wnters and statesmen to reason that thewealth of a country was largely in proportion to theamount of the precious metals in its possession.Fortunate was the country possessing gold andsilver mines, but as none of the more advancedcountries of Western Europe were thus favored

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COMMERCIAL POLICIESforeign trade must be resorted to in order to obtainthe necessary supplies. This led to another im-portant characteristic of mercantilisman over-estimation of the value of foreign as compared w^iththe value of domestic commerce.

13. First and Second Phases of Mercantilism.When nations succeeded in obtaining the preciousmetals the problem was how to keep them fromleaving the country. This led to strenuous govern-mental activity. Cossa, the Italian economist, dis-tinguishes three phases of mercantilism, all of thembeing characterized by governmental efforts tomaintain or increase the nation's supply of goldand silver. The characteristics of the first andearliest phase of mercantilism were prohibition ofspecie exportation, debasement of coinage and de-termination by law of the course of exchange.Many nations resorted to such measures, especiallySpain and Portugal, but their inutility was earlydemonstrated. The second phase of the MercantileSystem, the so-called Balance of Bargains, foundits fullest play in England. This scheme was ineffect a complex mass of provisions minutely regu-lating individual contracts between English andforeign traders with a view to making them asource of increase to the volume of coin circulatingat home. Of course the usual prohibition of specieexports was a part of the scheme which furtherregulated the proceedings of English merchantsselling at 'staple towns' such as Bruges, Antwerpand Calais in particular. They were bound bylaw to bring back in cash from these places, which

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THE MERCANTILE SYSTEMas staple towns enjoyed a monopoly of the exporttrade in manufactured goods, a fixed proportion ofthe prices paid them by aliens. Furthermore, therewere the 'statutes of employment' which requiredalien traders selling goods in England to invest themoney in English produce. To guarantee the exactobservance of these minute prescriptions, traderswere subjected to a special supervision by officersof finance, called Customers, upon whom devolvedthe collection of tariff dues in staple towns. Thiscollection involved intervention on the part of stillanother public officer, called the Royal Exchanger,who exchanged foreign coins intrusted to theCustomers for coin of the English realm.

14. Third Phase of Mercantilism (The Balanceof Trade.)The practical application of the prin-ciples held by the earlier Mercantilists proved ahindrance to trade. Modifications were advocatedespecially by. English writers who asserted that itwas not the individual but the aggregate or nationalbalance which was the important thing. Onlyone thing really enriches the state and that is sucha shaping of complex commercial transactions asshall secure that the value of all imports shall beless than that of all exports. In this case therewould be a balance payable in money. Such abalance became known as a favorable balance oftrade, while on the other hand, if the total valueof a country's imports exceeded the total value ofits exports so that a nation must pay a moneybalance, such a condition was designated an un-favorable balance of trade. The task of the law-

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COMMERCIAL POLICIESmaking power was to create a favorable balanceof trade and in the carrying out of this policycertain general tenets were more or less adhered to.In the first place it was held that foreign commercewas most profitable when exchange of domesticand foreign products was by means of native shipsand sailors. The most noteworthy legislation inthis respect was the English Navigation acts ofthe seventeenth century. Domestic manufactureswere especially favored and their importation aswell as the exportation of raw materials were oftendiscouraged or even prohibited, while on the otherhand their exportation and the importation of rawmaterials were facilitated. The principal reasonswhich led the Mercantilists to regard domesticmanufactures with such favor were two-foldex-ports of manufactures represented proportionatelygreater values than the exports of raw materials,and therefore tended to create a favorable balanceof trade; they also gave greater employment tolabor and made a denser population possiblecondition deemed very desirable by the Mercan-tilists. Holding, as they did, the view that theadvantages of trade were largely one-sided andaccrued especially to those nations which could sellmore than they bought, it was natural that theMercantilists should strive to exercise politicalpower over other countries in order to control moreeffectively the course of their trade.

This struggle led to a colonial policy of exploita-tionbased upon the principle that the purpose ofcolonies was to enrich the mother land, especially

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THE MERCANTILE SYSTEMas suppliers of raw materials and as purchasers ofof manufactured products. While mercantilism asa foreign policy was especially emphasized it wasalso a domestic policy. In its latter capacity it hadto do with the creation and maintenance of effectivepeace conditions which had been impossible underthe feudal system, with the supplanting of citymonopolies by state monopolies; with the abolitionor diminution of inland tolls, taxes and other localrestrictions and in general with all those regulationscalculated to unify on a national rather than on amunicipal basis all internal economic matters.

15. Criticism of Mercantilism.One of the bestbrief criticisms of mercantilism is given by Cossa.Theoretically viewed, he says, mercantilism, inits doctrines about the balance of trade and thefunctions of customs duties, is the first regular at-tempt at explaining the phenomena of the circula-tion of wealth, and being the first it was not thebest, but necessarily had its imperfections. Pro-duction was not clearly understood in those days,because capital had never been defined and was stillconfused with money, money being the most ob-vious and permanent shape which accumulatedwealth assumed. Undoubtedly the mercantilistsgrossly exaggerated the importance of money, notconsidering that its function was purely instru-mental; not all of them grasped the rudimentaryfact that without selling there could be no buying

;

many of them were at pains to invent means whichaccomplished just what they never dreamed of.Money they considered to be merchandise, but a

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COMMERCIAL POLICIESmerchandise siii generis, and here they were right.They were also right in deploring the evils ofpoverty, but their remedy was ill considered, sinceit is possible to have too much even of such a goodthing as money. Its excessive abundance raisesprices and stops exportation. They could appre-ciate the value of money in mass, but not of moneyin movement. They could not see that it was justas important to have it circulate freely and quicklyas to have much of it. They considered that thebalance of trade and the balance of debits andcredits were convertible; and it therefore neverdawned upon them that a nation might go on for along time importing goods of greater value thanthose it exported without the least danger of ex-hausting its store of the precious metals in theprocess. Their impenetrability in this respect re-sulted from their not being aware that a large pro-portion of payments is made, not in money but inmerchandise, and from their ignoring the materialcircumstance that an excess in value of importsover exports is often covered by drafts upon for-eign ports for amounts there due to the importingcountry. Again, the Mercantilists were totally atsea with their chimerical notion that a balancefavorable to a given country could be maintainedcontinuously at every given moment. Furthermore,they never made room in their minds for the leastcomprehension of what a gross self-deceptionlurked in the so-called principle of reciprocity uponwhich commercial treaties were so constantly based.Their mental processes could not cope with the fact


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THE MERCANTILE SYSTEMthat a country which refuses admission to foreigngoods, on the plea that the foreigner shuts out itsown, occupies the ridiculous position of a man whodeclines something that he needs because his neigh-bors are treating themselves in the same shabbymanner.The Mercantilists did not perceive that nations

as well as individuals grow rich in one way, andone way only,^by producing more than they con-sume,chiefly because external commerce andmanufactures, being of course the chief source ofwealth, engrossed their whole attention. Hencetheir doctrine that exports must exceed im-ports, which involved the absurd identification ofthe interests of the nation at large with those of oneclass only, the trading class. This monstrous errorbore its fatal fruit in rivalries and wars betweenEngland, France and Holland, each belaboring theother two with tarifif assaults and reprisals, eachbent on economic primacy.A proper understanding of the development ofcommerce during the sixteenth, seventeenth andeighteenth centuries is impossible without an intel-ligent appreciation of the general principles of mer-cantilism. During this period these principlesguided the economic policy of Western Europeancountries and each in turn played an importantrole in the contest for commercial supremacy.First Portugal, then Spain, followed by the Nether-lands, France and England.

i6. Portugal and Spain. Portuguese were thefirst people in Modern Europe to make long voyages

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COMMERCIAL POLICIESand important discoveries, which were begun inthe early part of the fifteenth century under Henrythe Navigator. India was reached by Vasca daGama in 1498, and in 1500 the Portuguese tookpossession of Brazil. Her power was overshad-owed by Spain which became a united kingdom inthe latter part of the fifteenth century and underCharles V., by means of successful wars, brilliantdiscoveries and fortunate marriages, her empirecomprised most of western continental Europe ex-cepting France and also embraced a large part ofthe New World and important colonies in the East.For a period of about half a century Spain enjoyeda great industrial awakening, but in spite of astrenuous application of the principles characteristicof the earlier stages of mercantilism large quantitiesof her precious metals left the country. The abun-dance of these metals had caused a depreciation intheir value as reflected in the rise of prices andlarge quantities of manufactured goods were im-ported. The search for gold in the New Worldhad developed the spirit of adventure and hadcrippled the industrial life of the people. The suc-cessful revolt of the Netherlands and unfortunatewars with England and France deprived her ofmany of her important possessions and left herloaded with debts. Spain ceased playing a leadingrole in European commercial politics after the mid-dle of the seventeenth century.

17. The Netherlands. The inhabitants of theNetherlandsthe countries now known as Belgiumand Hollandhad been very industrious people

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THE MERCANTILE SYSTEMfor centuries. Flanders (Modern Belgium and theNortheastern part of France) furnished the worldwith many manufactures, especially woolen tex-tiles, and her workmen taught Western Europemany industrial arts. Bruges was for a long timethe leading city, but later Antwerp became the greatemporium for Northern Europe. War againstPhilip II., who attempted to wipe out Protestantismin the Netherlands, was disastrous to Antwerp.Her most energetic burghers emigrated and settledlargely in the northern provinces (Holland). AfterSpain had lost her naval supremacy to England bythe destruction of the Spanish Armada (1588),Holland attempted to develop her East India tradeby sending out several expeditions. Smaller com-panies were united into the Dutch East India Com-pany in 1602 with a state charter granting it acomplete monopoly of East Indian commerce. Ina few years many of the best possessions of thePortuguese and English in the East came under itscontrol. In 1621 the Dutch West- India Companywas chartered to carry on trade along the westcoast of Africa and in the New World. Its mostimportant settlement was at New Amsterdam (nowNew York). The success of this company was notmarked. The independence of the Netherlandswas recognized by the Peace of Westphalia in 1648.At that time she was the first commercial power ofEurope with her trade centered at Amsterdam.The Dutch did not long maintain their supremacy.Much of their trade was diverted to EngHsh shipsby the English navigation acts and by their naval

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COMMERCIAL POLICIESdefeat at the hands of the English in 1672. TheDutch also suffered in warfare with other powersand from internal dissensions.18. France. The great discoveries were at firstunfavorable to the growth of French commercebecause, by changing the routes of trade, they cutoff much of her overland traffic between Northernand Southern Europe. The great French fairsand the port of Marseilles were most disadvan-tageously affected. The great wars during thesixteenth century also handicapped the growth ofFrench commerce. During the one hundred yearsfollowing the latter part of the sixteenth century,however, France made great industrial and com-mercial strides largely because of the energy of hergreat statesmenSully, Richelieu, Mazarin, andespecially Colbert. This is the classic period ofmercantilism and the name of Colbert has been soprominently associated with this system that manyhave given it the name of Colbertism. Mercantil-ism as a domestic policy was especially prominentin the measures enacted by this great statesman.The immigration of skilled craftsmen and theformation of new industries were encouraged. Theaim was industrial self-sufficiency and this was ina measure realized by the removal of inland tollsand the enactment of a national customs tariff.Taxation was lowered and equahzed, canals andbridges built, the navy subsidized and the transittrade encouraged. Commercial companies were or-ganized after the plan of the English and Dutchcompanies and colonies were established in all parts

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THE MERCANTILE SYSTEMof the world, especially in North America and inIndia. At the time of the death of Colbert (1683)France was the foremost commercial and politicalpower in Europe. Then followed several decadesof expensive wars, costly courts, unjust taxationand religious intolerance under Louis XIV. fromwhich France never recovered. In her strugglewith the English for commercial supremacy duringthe eighteenth century she lost most of her colonies,including Canada, which was surrendered to Eng-land at the close of the Seven Years (French andIndian) war in 1763.

ig. England. England's industrial conditionwas primitive until about the fifteenth century.She exported raw materials, especially wool andminerals, and imported manufactures. Her com-merce and navigation were largely controlled byforeigners, especially Jewish, Dutch and Hanseaticmerchants. Her industrial development began tobe more active in the fifteenth century. She en-gaged energetically in foreign trade, made im-portant maritime discoveries and settlements inboth hemispheres and organized important tradingcompanies, the most famous being the East IndiaCompany (1600), after which I>utch, French andother trading companies were largely modelled.England's industrial and commercial progress waschecked during the first half of the seventeenth cen-tury by the civil and religious wars under theStuarts, but during the century following her com-mercial and industrial expansion was continuous.Mercantilism held full sway and found expression

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COMMERCIAL POLICIESin laws encouraging the growth of home manu-factures by means of customs duties or import pro-hibitions and in inducements offered skilled workmento settle in England. The principal aim of Eng-land's foreign commercial policy was to make hermerchant marine the carrying power of the world.The most important legislation which aimed torealize this is found in the navigation acts passedin the middle of the seventeenth century alreadyreferred to. The international commercial rivalryculminating in the latter part of the eighteenth cen-tury resulted in England's becoming the virtualdictator on the high seas and the possessor of im-portant colonies in all parts of the world. Hervast colonial empire, founded upon the mercantileidea that the purpose of colonies was to enrich themother country with little regard to the interestsof the colonies, was more or less shattered whensubjected to the changed economic conditions andpolitical ideals at the close of the eighteenth century.

BIBLIOGRAPHYC. (a) Dictionaries and Encyclopaedias (Conrad'sHandw. der Staatsw., Elster's Worterb. der Volksw., La-

lor's Cydop., New Inter. Encyc, Palg. Diet.) (b) Econo-mics, All texts on (especially Cossa, pp. 193-210, List, Bk.HI., Ch. II., A. Smith, Bk. IV., Cli. i, 3, & 8). (c)English Indus. Histories, Ch. I. (d) Histories of Polit-ical Economy or of Economic Doctrines (Blanqui Ch.XXIV-XXIX, Damaschke, Espinas, *Ingram, Ch. IV.,Rambaud) ; (e) Histories of special countries.D. Acton, Lord. Cambridge Mod. Hist., Vol. I.;Bastable's Com. of Nations, Ch. IV; Child's Brief Ob-servations; *Cunningham's Growth, etc. (Modern Times

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THE MERCANTILE SYSTEMPart I. Mercantile System) ; Day's Hist, of Com., Ch.XVni. et fol. ch. ; Ehrenberg's Hamburg and England;Grunzel's Handelsp., pp. 307-322; Held's Carey's Socialw.;Hewens England's Trade, etc. ; Locke's Some Observa-tions; *Mun's Eng. Treasure; North's Discourses; Petty'sPol. Surveys; *Sargent's Econ. Pol. of Colbert; Schauz'Eng. Handelsp; *Schmoller's Mercantile System; See-ley's Exp. of Eng., Ch. IV.

E. Dilke, Lady, France under Colbert, Fortn. XLV.,204, 1886; Keller, A. G., Portuguese Colonization in Brazil,Yale R., Feb., '06; Moses, B., Econ. Condition of Spainin Sixteenth Cent. g. Pol. Econ. I., pp. 513-534.

SUGGESTIVE TOPICS AND QUESTIONS1. How did the invention of gunpowder, the compass

and the printing press influence commercial development?2. What other products besides Indian corn, tobacco and

potatoes came into new or more general use after the greatdiscoveries ?

3. Make an outline of the most characteristic mercan-tile legislation during the Sixteenth, Seventeenth andEighteenth centuries in any one of the following coun-tries : Portugal, Spain, Netherlands, France, Germany,England. (Consult general and special political and in-dustrial histories).

4. Can you recall the names of any early American ex-plorers who searched primarily for gold? Had their de-sire for gold any connection with mercantilism?

5. What was the Edict of Nantes and what were theeconomic effects of its revocation in 1865?

6. Why is religious intolerance unfavorable to the de-velopment of commerce and industry? Give examples.

7. Can you give any illustrations to show the preval-ence of local restrictions in western Europe during theperiod of mercantilism. (Consult special histories; see al-so The Story of a Peasant by Erkmann-Chatrian, Pt. I.,Ch. 2 and 5).

8. Are there any examples of such restrictions in early35


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COMMERCIAL POLICIESAmerican history? (Indus. Hist, of U. S., Bogart; alsoComan; Fiske's Crit. Period of Amer. Hist.)

9. Are you a mercanLilist? Would you be a mercan-tilist were you living in Western Europe two hundredyears ago?

10. What is socialism? Is there any connection be-tween socialism and mercantilism? (See art. Socialismin Palg. Diet).

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CHAPTER III.DEVELOPMENT OF MODERN COMMERCIAL

POLITICS: FREE TRADE20. Political and Economic Revolt Against

Mercantilism. From the foregoing chapter it isclear that mercantilism was the economic expres-sion of an effort to offset the decentralizing tend-encies characteristic of the Middle Ages. Theconditions which characterized the beginnings ofthe modern period demanded strenuous state activityalong national lines, but in proportion as effectivepolitical and economic nationality was realized theneed of governmental activity of the mercantilisti^variety lessened and the accumulated networWSfantiquated regulations tended to retard coniniercialand industrial expansion. A political and economicreaction arose both in England apdon the Conti-nent during the eighteenth century. The politicalreaction received its inspiration from English phil-osophers, especially John Locke, was popularizedby French writers, especially Rousseau and Vol-taire, and received its classical expression inAmerica and Francein the former country in theDeclaration of Independence wherein it is statedthat all men are created equal; that they are en-dowed by their creator with certain unalienablerights; that among these are life, liberty and the

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COMMERCIAL POLICIESpursuit of happiness, in the latter country underthe banner of the great Revolution of 1789lib-erty, equality, and fraternity. The economic re-action which was centered in France received thename of the Physiocratic System, while a similarmovement, centered in England, became known asthe Free Trade System.

21. The Physiocratic System.The founderof this system was the French economist, Quesnay,while Turgot, the French statesman, was its mostbrilliant expositor. There were two distinct ideasof this school, both being opposed to mercan-tilism. In the first place the Physiocrats believedin the superiority of agriculture over commerce andindustry. They regarded agriculture as the onlysource of increments of wealth because it aloneproduced a net product, that is, an excess overthe cost of production. Farmers and land ownersalone were productive ; all other classes were un-productive or sterile. In the second place thePhysiocrats held to the belief in a natural order ofsociety and thought it useless to devise laws andregulations. They proclaimed the doctrine thatthings should be let alone {laissez-faire, laisses-passer). The first of these principles was an ex-aggeration and did not long survive as an importanteconomic doctrine. The second principle, however,became dominant in political economy for nearly acentury. Although the Physiocrats had manygifted adherents they never obtained a popular holdeven in France itself.

22. The Free Trade System.In England where38


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FREE TRADEcommerce and industry were more important eco-nomic factors than on the Continent the reactionagainst the restrictive system took a somewhat dif-ferent form. This movement, as already stated,became known by the name of Free Trade. Itsmost important forerunner was David Hume, butits most prominent expositor was Adam Smith.His epoch-making book, WeaUh of Nations,which appeared in 1776, is the gospel on whichmodern political economy is based. Smith's entirework is pervaded by the spirit of individualism.The Mercantile System had, he claimed, favoredthe producer at the expense of the consumer. Bothshould be cared for. He agreed in the main withthe Imssez-faire principle of the Physiocrats, but didnot agree with them that agriculture alone was pro-ductive. He emphasized the importance of com-merce and industry. Free trade was a necessarycondition of economic development because it en-abled every land to produce those things which itcould produce at least cost. He refuted the ideaof the Mercantilists that trade is not mutually ad-vantageous to both parties. If nations or individ-uals exchange the things they can produce at leastcost for other goods less easily produced, societyas a whole gains thereby. Furthermore, every saneman knows his own interest and if left to himselfwill strive to maintain or better his economic con-dition. His prosperity is not only an individual,but also a social gain.

23. England.The principle of non-interferencein trade and industry, taught in the Wealth of

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COMMERCIAL POLICIESNations, was quite in keeping with the changedand changing economic conditions in England atthe close of the eighteenth and the beginning of thenineteenth century. England lost the political con-trol over her most important colonies in the NewWorld, although economic dependence was largely-retained. A movement in the direction of laissez-faire showed itself in mollifying changes in hercolonial policy, in the tariff reforms inaugurated bythe younger Pitt and in her commercial treaty in1786 with France. This movement, however, wasvery much disturbed by the great political revolu-tion centered in France and the great industrialrevolution focused in England. In the few de-cades following 1760 English industry was com-pletely revolutionized by a series of remarkableinventions, especially in the textile and iron manu-factures, as well as in the general application ofsteam to industry and to land and water transporta-tion. Some of the results of this revolution werethe supplanting of home industry by the factorysystem, the removal of restrictions on domesticindustry, such as those regulating wages and theprice of commodities, and the establishment of com-petition as the ruling economic principle. Englandbecame the dominant industrial nation of the world.The French Revolution and the Napoleonic wars(1789-1814) favored her industrial supremacy bydiverting the energies of the people on the Conti-nent from peaceful pursuits and by making com-merce and navigation more profitable thanmanufacturing industry to the great neutral nation

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FREE TRADEthe United States. It is easy, therefore, to un-derstand that the growing manufacturing interestsof Great Britain looked with favor upon the policyof free trade since such a policy would tend tocheapen her manufactures and thereby strengthenher industrial supremacy, both at home and abroad,by permitting the free importation of raw materialsused either directly in manufactures or indirectlyas food for the working classes. The first modi-fication of the English tariff (generally spoken ofas a change of the Corn Laws, because the importduty on wheat formed the centre of controversy)occurred during the twenties under the leadershipof Huskisson. The Anti-Corn Law League wasformed in 1838 by Richard Cobden, secretary ofthe chamber of commerce at Manchester, and underthe inspiration of its leader, carried on a strenuousagitation in England which led to a practical repealof the Corn Laws in 1846 under the premiership ofPeel. The finishing touches were given by therepeal of the Navigation Laws in 1849, the Coast-wise Navigation Law in 1854, the negotiation ofthe commercial treaty, known as the Cobden treaty,between England and France in i860, and laterlegislation during the first premiership of Glad-stone (1868-1874). Since then England has madepractically no use of customs duties excepting thoseof a purely revenue character.

24. The United States.Broadly speaking, thedominant principle in American commercial politicsup to the period of the Civil War, excepting theperiod from about 181 5 to 1830, was laissez-faire.

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COMMERCIAL POLICIESEarly protection so far as it did exist referred moreto navigation than to industry. There were at firstbut few manufactures, while the most importantinterests were shipping in New England and agri-culture in the Middle and Southern states. As theonly important neutral nation during the Napoleonicwars, the United States became the great carriernation of the world, but when the British Ordersin Council and Napoleon's Berlin and Milan decreesdrove American ships into American ports, andJefferson's Embargo and the War of 1812 detainedthem there, the United States lost her supremacyon the high seas. Surplus American labor andcapital were diverted from commercial into agri-cultural and industrial pursuits. The agriculturaldevelopment expressed itself in a westward move-ment of the population; the industrial, in the rapidgrowth of manufactures, especially of the textilesin New England. The effort to protect the latterfrom the ruinous competition of British manu-facturers gave birth to the first era of industrialprotection in the United States from about 181 5 to1830. From the latter date, or more particularly,from the tariff act of 1833 to the Civil War (ex-cepting a slight temporary reaction from 1842 to1846), the characteristic feature of the Americancommercial policy was a tariff whose primary pur-pose was that of revenue.

25. Continental Europe. The economic situa-tion in Western Continental Europe during the firstsixty years of the nineteenth century differed fromthe conditions both in the United States and in

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FREE TRADEEngland. In the United States, broadly speaking,the free trade idea was generally favored by allclasses excepting in the decade or so following theclose of the War of 1812. In England it foundfavor among the industrial and commercial classes,but was opposed by the agriculturists. On theContinent it received at first only an academic ac-ceptance. The Napoleonic wars had left Europeangovernments in a state of bankruptcy. Many oldand new industries, which had been stimulated bythe restrictive Continental System of Napoleon,found themselves subjected to the ruinous competi-tion of England at the close of the war. The effecton the Continent was similar to the effect in theUnited Statesa general enhancement of customsduties. This was especially marked in some coun-tries like France, while the movement in Germanywas more moderate and culminated in 1834 in theformation of the German Zollverein, or tariff union,of most of the German states. Nevertheless, theindustrial revolution in England and the loweringof her import duties on raw materials, tended toenlist the continental agrarian classes in favor offree trade since they, like the cotton planters in theUnited States, wanted no restriction on their salesof agricultural products to England and their pur-chase of English manufactured goods in return.Likewise English economic theory invaded theContinent. The ofificial and academic classes ac-cepted very generally the doctrine of the Englishschool of political economy as expounded by Smithand his followers among whom Ricardo and Mill

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COMMERCIAL POLICIESwere the most conspicuous. These interests com-bined with the efforts of the agriculturists and ofthose industriaHsts who had little to fear from Eng-lish competition, brought about a reaction in thedirection of free trade which found expression inthe Cobden commercial treaty between England andFrance in i860. This was followed by similartreaties negotiated by England and France withother European countries. These treaties providedfor a marked lowering of customs duties and it waspresaged by many that the era of free trade hadbecome, or was about to become, the universalpolicy. Cobden himself seemed to have no doubton this point, for after signing the treaty whichbears his name he is reported to have said : Youmight as well tell me the sun will not rise tomorowas tell me that foreign nations will not adopt FreeTrade in less than ten years from now. Thedream of the free traders has not been realized.In less than ten years from the signing of the treatyof i860 there were signs of a reaction in the di-rection of higher duties.

BIBLIOGRAPHYC. Free Trade, Laissez-Faire and Physiocrats

in (a) Dictionaries and Encyc. (especially *Palg. Diet.) ;(b) **Economics, Texts on, (Cairns, Pt. III., Ch. IV.,Cossa, Ch. VII.-VIIL, Ricardo, Sidgwick, Ch. V., Smith,Bk. IV., et al) ; (c) Indus. Histories of England (see Ch.I.) ; (d) ^Histories of Pol. Economy, Blanqui, Ch., XXXII-XXXIV., Cohn, Ch. III.-V., Ingram, Ch. V.; (e) Hist,of various countries (especially of England) ; (f) Poole'sIndex.

D. Armitage-Smith, Free Trade movement; Bastable's44


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FREE TRADETheory of Inter-Trade; *Bright's Speeches; *Cobden'sSpeeches; Cunningham's Free Trade Movement; *Faw-cett's Free Trade ; Grunzel's Handelsp, pp. 322-332 ; *Higg'sPhysiocrats; Hume's Essays, Vol. II.; Levi's Hist, ofBrit. Com.; *Mongredien's Hist, of Free Trade; Morley'sLife of Cobden; Nicholson's Hist, of Eng. Corn Laws;Peel's Speeches (Hansard's Debates 1842-1846) ; Ques-nay's Tableau; Rand's Econ. Hist.; Seligman's Shiftingof Inc. Tax, pp. 95-112; Turgot's Reflections.

E. Ashley, W. J., Tory Origin of Free Trade Policy,Q. J. Econ. Jl., 1893; Higgs, H., Cantillon's Place inEconomics Q. J. Econ. VI. 436, 1891-2; Jevons, W. S.,Cantillon and the Nationality of Pol. Econ. Contemp.XXXIX., 61, 1880; Molesworth, G. L., Effect of the CornLaws, Nineteenth Cent. LIIL, Mar. 1903; Molesworth, G.L., Real Object of the Corn Laws, Nineteenth Cent. D.1902; Smith, C. E., Peel and his Measures, N. Am. R.,LXXXV., 442, 1857; Smith, G., Peel and Cobden, Nine-teenth Cent., XL, 869, 1882.

SUGGESTIVE TOPICS AND QUESTIONS1. What free trade arguments were used by the fol-

lowing English statesmen? Huskisson, Peel, Cobden andGladstone (consult parliamentary debates ; also editedworks of the above statesmen) ?

2. Do economic conditions change in a country? Arewe justified in changing our opinions on economic sub-jects when conditions change? Are we justified in chang-ing such opinions when conditions have not changed?

3. Can you cite any great statesmen who havechanged their views in regard to the tariff? Give theirreasons for so changing? (Consult speeches of Webster,Calhoun, Bismarck, Chamberlain.)

4. What is the position of the democratic party in theUnited States regarding free trade? (Consult platformsof 1896, igoo and 1904).

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COMMERCIAL POLICIES5. What is individualism? Is there any relation be-

tween individualism and free trade?6. In what sense may free trade in England be said

to be negative protection?7. Might you believe in the theory of free trade and

yet be a protectionist? Explain.8. In the free trade and protection controversy in 1889

between Gladstone and Blaine what arguments werebrought out by the former in favor of free trade? (N.Am. R., CL., 1889.)

9. What has the term free trade meant at differentperiods? Bastable's Theory of Inter. Trade, p. 128; Selig-man, p. 501 ; see also Free Trade in Palg. Diet.

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CHAPTER IV.DEVELOPMENT OF MODERN COMMERCIAL

POLITICS: PROTECTION26. General Character of Protection. Protec-

tion is the poHcy of encouraging home industries,usually by the imposition of customs duties or bybounties paid to domestic producers. It is there-fore opposed to the principle of free trade. It issometimes characterized as a return to mercantilism.Under protection, however, export duties are largelydone away with, while prohibitions, either on ex-ports or on imports, are the exception and not therule. The level of duties is lower than under mer--cantilism, and discriminating navigation laws, boun-ties, and subsidies are less frequently employed.War, often resorted to under mercantilism in orderto promote or repress commerce, is now less oftenused for such purposes. More peaceful means areat hand. Neutral rights are more respected and 'great advances have been made in internationallaw. Better means of transportation and communi-cation, improved banking facilities, more reliablestatistical information, more accurate knowledgeregarding international, political and economic con-ditions, and in general a wider and better under-standing and appreciation of social and economiclaws make mercantilism an impossibility.

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COMMERCIAL POLICIES27. Causes of Recent Growth of Protection.

The growth of protection, almost universal duringthe past few decades, is explained on severalgrounds. In the first place it is due in part to ageneral reaction against the purely negative char-acter of English political economy. This reaction-ary movement originated in Germany about themiddle of the last century and its advocates becameknown as the historical school. It differs fromthe classical, or free trade school, by interpretingthe complex phenomena of industrial life in thelight of history rather than by deductions based onisolated facts. It also regards the state as anethical factor and as an organ for the promotionof all social aims which cannot be adequatelyrealized by voluntary individual effort, rather thanas an institution whose functions were merely toprotect life and property. In other words, whilethe classical school stands for individualism andfree trade, the historical school represents nationaland protective tendencies.The second factor which helps to explain the de-

velopment of protection is a number of costly warsduring the sixties and seventies, especially theAmerican Civil War and the Franco-Prussian con-

' flict. Wars arouse the sentiment of nationality andare extremely costly, or as one writer expressed it,the exigencies of finance give support to the senti-ment of protection. In times of war all forms oftaxes are submitted to with little opposition, butupon the return of peace when tariff reductions aredemanded these are generally made along the lines

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PROTECTIONof least resistance, that is, on unprotected arti-cles, or on such as are not produced at home.

Finally the recent growth of protection is due,,in a large measure, to intense international compe-tition caused by greatly improved means of trans-portation and communication coupled with theenormous industrial development, especially inWestern Europe, and with an equally prominentagricultural development in the central part of theUnited States, in Eastern Europe, in Argentine andin other parts of the world. Western Europe isdeluging the rest of the world with her manufac-tured goods, and many countries which are attempt-ing to develop their own manufactures, are showingresentment in the form of high import duties, whilethe agricultural classes of Western Europe areshowing a similar resentment against the influx ofagricultural products from countries which are in-dustrially less advanced.

28. Main Arguments for Protection.Englandis the classic land of free trade, not only becauselaissez-faire finds its most practical application inBritish politics of the first part of the nineteenthcentury, but also because British writersSmith,Ricardo, Mill and othersare among its best ex-positors. Similarly the United States is the classicland of protection because the policy has been triedin this country in all its phases, and its best exposi-tion has perhaps been given by American writersHamilton, Carey, Patten and List. The last namedwas, of course, a German and is mentioned hereonly because he spent several years of exile in the

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COMMERCIAL POLICIESUnited States and received his inspiration in partfrom the writings of Hamilton and from the eco-nomic policy of the United, States, for his residencein this country (1825-30) was during the highwater mark of the early period of American pro-tection.

Various arguments have been advanced fromtime to time in favor of protection. The nationalindependence argument, based upon the idea thata variety of industries is desirable for a country inorder to make a nation economically independent,a condition especially desirable in case of war, andto develop its spirit of nationality was the keynoteof Hamilton's argument. It was advanced at atime when the American federal government hadhardly passed the experimental stage, and the de-velopment of a stronger central government wasof the greatest necessity. Hamilton's argumentwas, therefore, more essentially political than economic.American industries that had sprung up during

the period of the Embargo, Non-intercourse Actand the War of 1812 were protected by the tariffof 1816 and by later tariffs largely on the groundthat they were infant industries and needed thetemporary fostering care of the government inorder to tide over domestic disadvantages in pro-duction. The infant industry argument was also,the keynote to List's writings, and the argumentwhich he used effectively in his advocacy of aGerman tariff union, or Zollverein, which wasformed, as previously stated, in 1834 and which

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PROTECTIONbecame the economic forerunner of German politicalunion.The vested interest argument, the plea that it isbetter to leave well enough alone and not disturb

existing vested rights, has been employed probablyin every customs tariff act that ever came into thearena of discussion. This argument is especiallyprominent at the present ti

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