The Science of Trade as the “Systeme des conmiercants” or “Mercantile System”: From Quesnay and Smith to McCulloch

The idea that writers in the period between the early seventeenth century and the second third of the eighteenth century shared a common doctrine was put forward by Quesnay, Mirabeau and Smith.

In the Annual Register, Edmund Burke (1762 [1787]: 179-80) still referred to a “science of trade”, albeit in a critical way. He opposed two visions of trade, the first which per­ceived it as a “science of individuals”, namely, an understanding of “the interests and connexions of individuals, together with the quality and value of each commodity”, and the second, the so-called “science of trade”, whose aim was to establish the “general direction of trade” at government level. Defined in a negative way, the latter was nothing more than an incorrect systematisation of wrong principles, whose consequences were harmful for individuals and their economic freedom. While Burke repeated the vocabu­lary in common use, Smith (1776 [1976], IV.i.2) used the expression “commercial or mercantile system” and more rarely “system of commerce”.

Smith devoted eight chapters of the Wealth of Nations to this system. It was, of course, the alleged confusion between money and wealth, which, prima facie, characterised it. He (1776 [1976], IV.i.3) pointed first of all to John Locke’s alleged fixation on bullion and that of some unspecified writers who were in favour of the accumulation of precious metals (to finance war) and the prohibition of their export.

Smith thus put forward three ideas. First, merchants can be expected to act in their own interests, but they strive to persuade politicians and public opinion that these inter­ests are identical to the interests of the nation. Second, merchants’ knowledge rests on an erroneous identification of the causes of private enrichment with the causes of public enrichment and pretends that the wealth of a nation depends mainly on foreign trade. Moreover, this knowledge is established as a system, entirely constructed from Mun’s work (Smith 1776 [1976], IV.i.10). Third, there is reason to doubt the merchants’ aspi­rations for freedom. While Mun tolerates a degree of freedom regarding the export of precious metals, this is insufficient according to Smith, who advocates a more compre­hensive “system of natural liberty” (ibid., IV.ix.51).

Alfred Coats (1976: 222) notes that Smith was both very suspicious of the merchants and full of praise for the fourth commercial stage of the history of mankind, considered to be the most civilised, the most beneficial and which offers the best governments (1776 [1976], III.iv.4). This implies that trade promotes two attitudes: to act through a “love for freedom” or through a “love for commerce and gain” (see also Cropsey 1957: 95). If, despite everything, the mercantile system suggests a progress towards the commercial society, why does Smith denigrate it? The reason is that this system cannot fully achieve this society, in the Smithian meaning of the word, namely, a society governed by natural liberty alone.

The flaw of the mercantile system was not so much that it confused money and wealth, but that it corrupted commercial society through its insistent demands for privileges and monopolies. Yet Smith did not seem to exclude on principle the merchants from the government, since “every man thus lives by exchanging, or become in some measure a merchant” (1776 [1976], I.iv.1). But the question of government was not asked in the same way for all the nations that have reached the commercial stage. Britain was not Holland. He admitted (ibid., V.ii.k.80) that Holland was ruled by merchants since it was largely made up of merchants. He conceded that its form of the government was rather oligarchic, plutocratic, and had a very distant relationship with the ancient republic, for the reason - a commonplace of English republicanism in the seventeenth century - that the ancient republic was not fully compatible with commerce. Furthermore, Smith thought that this modern republic declined if its ruling class did not manage to have a solid public ethos, promoting a certain rejection of immediate private interests and the commitment to a moderate and thrifty behaviour. The danger was the development of the “sneaking arts of underling tradesmen” and the “monopolizing spirit of merchants and manufacturers” (ibid., IV.ii.c.9). Britain fortunately had another constitution in which powers balanced each other out, and also a landed aristocracy, which was loyal to its country and in fact governed, at least partly. However, the difficulty with the British constitution was that the balance of powers, which was so virtuous, allowed the interplay of lobbies, parties and separate interests within the House of Commons, particularly those of the wholesale merchants and manufacturers.

Thus Smith retained only one of the two criticisms expressed by Quesnay and Mirabeau. For it seemed indisputable for him that the mercantile system favoured the accumulation of capital and contributed to the rise of the modern trading society. On the other hand, it clearly reflected the conspiracy of international merchants and manufac­turers against the nation’s interest. It is this defective side of the system that forms the core of the interpretation of Robert Ekelund and Robert Tollison (1981) who define it as the expression of rent-seeking behaviour inside government institutions.

Smith (1776 [1976], IV.iii.c.2, 9) pointed out another absurdity of the mercantile system besides the confusion between money and wealth: the belief that trade is a zero-sum game. These absurdities, these prejudices and an ambivalent use of the concept of freedom that mark this system were also criticised by Smith’s successors, notably John Ramsay McCulloch (1828 [1863]: xxix). McCulloch presented it less as a system than as a series of opinions that matched the spirit of the times and he hastened to exempt a few authors from this erroneous alleged system in order to make them the predecessors of Smith. This is the case of Dudley North who first demonstrated the benefits of free-trade for all the nations (ibid.: xxix) and Locke who clearly understood that labour is the source of the greatest part of the value and of increasing wealth, thus anticipating the conditions of a potentially indefinite growth. However, McCulloch added (ibid.: xxxii), Locke did not fully perceive the consequences of his assertion, especially that an increase in wealth may be maintained indefinitely thanks to the division of labour. He was still reasoning in a world of scarcity - of land and natural resources - and consequently of rivalries.