Treasure and Trade Balances: The Mercantilist Problem

HEN the late Lord Keynes came to write his Notes on Mercantilism some thirteen years ago,' he felt bound to conclude that the g vY Classical School of economists had been unfair to those writers who for 200 years had seen 'a peculiar advantage' to their nations in a favourable balance of trade. '... we, the faculty of economists', he wrote, 'prove to have been guilty of presumptuous error in treating as a puerile obsession what for centuries has been a prime object of practical statecraft.'2 His argument, put briefly, ran as follows. The only practical inducement to investment (and therefore to the fuller exploitation of the economic resources of the nation) in the period in question was a reduced rate of interest. That, in turn, depended on increasing the quantity of precious metals in a particular country, which in turn depended on a favourable balance of trade. Lord Keynes was, of course, primarily interested in his inquiries in the relationship between state policy and employment. What he examined was an important aspect of mercantilist thought, though it is doubtful whether it was the most immediate one to those who wrote on these matters in the seventeenth and eighteenth centuries. Rereading the works of the mercantilists, one cannot avoid an uneasy feeling that employment was seen as a means to increasing bullion supplies rather than vice versa. At the same time, others were working on the broader aspects of mercantilism in greater detail. Professor Heckscher's work had appeared in English translation a year or so earlier, and had done much to modify the older view that mercantilist arguments were based-as Lord Keynes put it-'from start to finish, on an intellectual confusion '. On the particular aspect of mercantilism with which this note is concerned, and which is generally agreed to be of central importance to the whole argument-the importance of precious metals-Professor Heckscher was less satisfied than Lord Keynes with mercantilist logic. In particular he pointed out that little interest was shown in contemporary literature in the practical use of the precious metals, 'i.e. with regard to their final export'.4 It is the object of this note to suggest that nevertheless there were indispensable practical