181. Growth of modern states under the influence of commerce.—If the modern reader is impressed, in studying the history of Europe before 1500, with the influence on commerce of the lack of strong government, he will be equally impressed, in the period from 1500 to 1800, with the strength of government and with the important part it played in commercial development. We have here to sketch in brief the changes in political conditions, leaving to later chapters a consideration of the details as they appear in the history of different countries. Commerce itself was the great force that broke the power of feudalism. Commerce crept through the barriers that kept localities apart; it established a circulation of wares through a large area of country; and it concentrated wealth in the cities which it built up. These were the very changes needed to allow the world to escape from feudal anarchy, and to construct a system of government similar to that which the Romans had employed. Kings had now subjects able and willing to pay taxes, and, by means of commerce, they could transport their taxes, turn the proceeds into any shape they chose, and apply them wherever it was necessary.

182. Decline of feudal power with the rise of mercenary armies.—A large part of the new revenues was spent by governments in strengthening their military position. Feudal lords were good fighters in the old-fashioned way, and would not give up their local power without a struggle. They had to yield finally, however, before the standing armies which kings called into existence towards the close of the Middle Ages. Feudal lords loved to fight, but they were only amateurs, after all, and did not make fighting a business. The mercenaries, on the other hand, whom kings collected as soon as they could afford the expense, were professionals, who submitted to a certain amount of discipline because they could make a living by doing so. Enterprising men collected a number of recruits, taught them to use their arms, and drilled them until they counted for far more than an equal number of untrained men; the leaders studied tactics and strategy, and knew how to make the most of their superiority. The leaders were perfectly willing to let their troops to any one who could pay the price, but as feudal lords were always in want of ready money the advantages of the new armies went almost entirely to the kings. The introduction of gunpowder in warfare increased the superiority of the mercenary armies, by adding to the value of training, and here again the kings, with ready money to invest in the latest improvements, had an advantage.

183. Growth in power of the central government as shown in the development of taxation.—By the year 1500 the process had gone so far that many of the states of Europe had assumed a shape substantially like that which they have to-day; and feudalism as a great political force was dead. Government could now proceed to develop on the basis of an extended territory. Some measure of the gain of the central government in power can be had by noting the increase of its resources from taxation. English taxes yielded about half a million pounds in the sixteenth century, seven and a half million in the next century, and about forty million towards 1800. In little over a hundred years the yield of taxes in Prussia increased twenty-eight fold. The revenue system was still crude and wasteful. Every European state followed at one time or another the practice of raising money by selling the right to hold an office. Every European state lost money, not only by the inefficiency of the revenue system, but also by corruption of officials; often half or more of money that the people paid in taxes never reached the treasury. In spite, however, of these inevitable faults, national resources were concentrated as they had never been before, and the central government gained a power before unknown.

184. Persistence of medieval conditions in the modern period.—From the modern standpoint no better field could be found for the use of this power than in the reform of internal conditions. Centuries after feudalism had lost its controlling position the local differences and the spirit of separatism which marked the feudal period remained to plague the merchant and the statesman. Commerce was hindered by local variations in laws and in weights and measures; by the persistence of barriers to the development of trade and manufacture which had grown up in the medieval system of tolls and gilds; by the maintenance of the class distinctions marking feudal society, and putting on a different basis the merchant, the agriculturist, and the noble. A country like England, which early threw off the most oppressive of its medieval institutions, gained a great start over countries where they were allowed to continue. Statesmen in these other countries recognized the need of reform, and made attempts to realize it from time to time; they made slow progress, not only because the task of reforming old customs was at best tedious and expensive, but also because their attention was distracted from the task for much of the time by the pressure of foreign affairs.

185. Attempts at reform, leading in many cases to over-regulation.—All the European governments in this period did pay attention to the development of internal resources. One of the chief features of the mercantilist theory, that animated government policy during the seventeenth and eighteenth centuries, was the emphasis laid on the circulation of money and wares inside the country. The new national governments helped to further internal commerce by repressing disorder, and by reforming, to some extent at least, the system of laws and courts to which business men could appeal for the settlement of disputes. Most of the governments paid considerable attention also to the development of the postal system.

Governments could serve their people well in ways like these, but unfortunately they expended their energy on other objects that were useless or harmful. “The state moulds men into whatever shape it pleases,” was an idea of the time, which led to an enormous amount of government regulation. In few states of the Continent was a man free to seek his profit where he would; he was entangled in a network of government regulations that fixed the rules of his trade, the prices of his wares, even the articles which he might or might not consume. An excellent example is furnished by the grain trade, which governments regulated so strictly that in many cases laws caused the very famines which they were designed to prevent.

186. Attention distracted from internal reforms by foreign interests.—A consciousness that government regulation had gone too far for the interests of commerce grew strong before the end of the eighteenth century, when a school of thinkers, the physiocrats, protested earnestly against it. Their formulas, “don’t govern too much,” “let things alone” (laisser faire), were to be realized in the nineteenth century. At the time, however, they had little effect; the faith in the power of government was still strong in the minds of rulers, and their attention was distracted by other interests. When rulers had crushed the resistance of their subjects, and established their absolute authority, they had a surplus of power which they were inclined to apply abroad. The period from the sixteenth to the eighteenth centuries is filled with strife between the European states, each attempting to get possession of some of the territory and power of a rival. The states of Europe were still young, with all the vigor and all the inexperience of youth, and not until they had tried conclusions with each other were they willing to settle down as they have done in the nineteenth century. It was said above that internal reform was the best object of government expenditure “from the modern standpoint.” Kings and peoples were not modern, and to a king of the time one of the best objects appeared to be a war with another king by which he might get more people under his power.

187. Wars occasioned by religious and dynastic interests.—In tracing later the commercial histories of the different countries it will be necessary to refer occasionally to these wars, but it will conduce to clearness if we stop a moment here to examine their causes and character. Some of the wars were religious, growing out of the Protestant revolution. The states of the South remained Catholic, and those of the North became Protestant with comparatively little opposition, but in the center, in France and Germany especially, where neither side had at first a clear supremacy, the Protestant movement led to disastrous civil wars.

Another series of wars may be called dynastic, as they grew out of the ambitions of rulers to extend their power in Europe at the expense of other ruling families. In the sixteenth century the chief contestants were Spain and France. Spain dropped from the first rank, and France and Austria continued the struggle for supremacy through the seventeenth and eighteenth centuries. The dynastic wars seem to the student of the history of commerce as unfortunate as those that came from religious differences. They diverted men and resources from production to destruction; they checked at the same time commercial development and the reform of government.

188. Wars occasioned by commercial interests; military aspect of commerce in this period.—Still another class of wars can be distinguished in which the religious or dynastic motive might enter to some extent, but in which the commercial motive was predominant. The reader should be cautioned against an extravagant idea of the power of government to extend commerce. At the present time this power seems very slight indeed. It was, however, far greater in the period under consideration. References in preceding sections to the prevalence of piracy and to the warlike attitude of merchants of different nations toward each other have suggested the military character of commerce, inviting the armed protection of the state. “One fact stands out clearly,” says a recent authority on the history of India, “No European nation has won the supremacy of the East which did not make it a national concern.” The prize in distant commerce went not to the best producers and merchants, but to the group of the best fighters; not size and resources, but ability to organize and willingness to risk resources in conflict, determined the question of success. The little state of Holland made her fortune by an eighty years’ war, in which she broke the power of the Portuguese and Spanish in the East. The English were still unready to embark their national resources in distant ventures, but they won their position in continental India in the eighteenth century by military support which the French kings refused their subjects.

189. Wars arising from the conflict of colonial interests in the New World.—Between 1600 and 1815 was a constant succession of wars, arising from the fact that five European powers had colonies in the New World which they were seeking to maintain or to extend. Holland and Portugal lacked the territorial basis to maintain their struggle when larger states armed for the conflict; France and Spain found their best energies absorbed by dynastic interests in Europe which tied their hands abroad; England emerged victorious from the conflict and found herself repaid, by a position of commercial supremacy, for the expense to which she had been put. Out of the one hundred and twenty-six years between 1688 and 1815 she had spent more than half, sixty-four, in wars ranging from seven to twelve years in length.

190. Political importance of commerce in this period, connected with the desire of governments for ready money.—Commercial expansion in this period depended, as said above, on the political power of the home country. Did not, on the other hand, the political power of the state depend on commerce? A statesman of the time would have answered this question in the affirmative, and with an emphasis which would seem strange now. We think nowadays that the resources of a state depend upon the prosperity of the people, no matter whether this prosperity comes from agriculture or from manufactures, from internal trade or from foreign trade. Statesmen, however, of the period under discussion, set a peculiarly high value on foreign commerce, and regarded it as a more important branch of industry than any other.

The chief reason for this view lay in the fact that most of the European states produced little or none of the precious metals, and could get them only by trade with a neighbor or with a distant country. Now money is “the sinews of war,” and when states were constantly at war with each other, a good supply of money seemed to the statesman a matter of the first necessity. We regard money nowadays only as a means of procuring other forms of capital by exchange, and do not worry about the money supply so long as capital in other forms is abundant. It may have been the fact, however, that in the early period of the modern state the fiscal and military systems operated more smoothly when the stock of money in the country was abundant.

191. The mercantile system, aiming to increase the stock of ready money in the country.—Whether rulers were justified or not in the anxiety that they showed about the money supply, they made it a cardinal point in their policy to regulate commerce so as to increase, if possible, the stock of the precious metals in the country. They argued that the country would make money if it sold more merchandise to foreigners than it bought of them, for then the foreigners would have to make up the balance in coin or bullion. This was called “a favorable balance of trade,” as tending to bring money into the country. On the other hand, if the country became indebted for foreign merchandise to an amount greater than could be offset by the exports, the country would owe a cash balance abroad, and this was an “unfavorable” balance of trade. At the beginning of the period the government tried to effect its object simply by prohibiting the export of bullion (gold and silver); this was the “bullionist” policy.

Prohibitions were found to be ineffective, however, and were a serious hindrance to some branches of commerce, that with the East especially, in which the foreigners demanded considerable supplies of the precious metals. The export of bullion, therefore, was generally permitted, and the government contented itself with a regulation of the commerce in merchandise which, it hoped, would bring more bullion into the country than was carried out.

192. Features of the mercantile system; restriction of imports.—If the student will remember that the main object of the mercantile system, as it was expressed in the commercial policy of the seventeenth and eighteenth centuries, was to increase the credits in a country’s foreign trade, and diminish the debits, so as to get a balance in cash, the main features of the policy will be easily intelligible.

In the first place, imports were discouraged. A Spanish mercantilist thought that his country suffered “an infinite wrong” from the importation of fish from abroad, which, by his reckoning, cost the country three million piasters a year; he suggested either that home fisheries should be built up so that the money need not leave the country, or that permission be obtained from the Pope to eat meat on Saturdays, which would diminish the necessity for importation. A typical example of the ideas underlying the policy is furnished by an appeal of the English salt-makers in the seventeenth century, urging that the use of foreign salt in the curing of fish be prohibited on the ground that it was the “wisdom of a kingdom or nation to prevent the importation of any manufacture from abroad which might be a detriment to their own at home, for if the coin of the nation be carried out to pay for foreign manufactures and our own people left unemployed, then in case a war happen with our potent neighbours, the people are incapacitated to pay taxes for the support of the same.”

Mercantilism and modern protectionism easily ran together, as is apparent in the quotation, but the spirit animating restrictions was in this period mainly mercantilist, based, that is, on consideration of the flow of precious metals. The methods of tariff regulation, moreover, differed from those of modern protectionism; statesmen did not, in most cases, attempt to scale the duties so as just to balance the advantages of the foreign producer, but resorted to downright prohibition of the wares which they desired to exclude from the home market.

193. Encouragement of exports, manufactures, and shipping.—In the second place, exports were encouraged, for they represented the credit items in a country’s trade, and might bring home a balance in cash. Even imports could be tolerated if they led to a more than corresponding increase in exports. The trade with East India was looked on with suspicion for some time because, as said above, it required the export of considerable bullion; but finally it established itself in public esteem, on the ground that a large part of the eastern wares was transshipped in England and exported to other European countries, so that the bullion was recovered from them. Altogether the best kind of imports, however, was held to be the raw materials of manufacture; if these could be worked up in England and exported, the country cleared not only the sum originally due for the imported material, but also the extra charge for the manufacture. Home industries were given various privileges by the government, because they either spared the importation or increased the exportation of the wares which they produced.

Shipping and the fisheries were regarded with special favor, not only because they helped to produce a favorable balance of trade, but also because they were feeders for the national navy, and thus augmented the strength of the country in war.

194. Failure of the mercantile system to affect the distribution of the precious metals.—Such were, in brief, the characteristics of commercial policy in the time of the mercantile system. The word “system” may give a false impression, for though the main ideas of mercantilism were generally accepted during the seventeenth and eighteenth centuries, they were greatly modified in their practical application, and were seldom carried to their logical conclusions. For example, though statesmen professed a desire to stimulate exports, yet export duties were generally retained in this period for the revenue that they returned, and they hurt in some cases, without question, the sale of wares abroad.

After this review of the characteristics of commercial policy the reader will naturally inquire what were its effects. On one point an answer can be given with considerable assurance; the policy had no important effect on the distribution of the precious metals. Gold and silver were brought from America, the chief source of supply, to Spain, and flowed from Spain to the countries where they were needed in business; it seemed as though all the people of the world were in an unconscious conspiracy to defeat the plans of statesmen for checking or directing the flow. It is noteworthy that Spain, the country which had the best chance apparently to accumulate treasure and which pursued a policy of exaggerated mercantilism, was always complaining of the dearth of gold and silver, while Oriental states, which had never heard of mercantilism, accumulated large stores of bullion. The attempts of European countries to rob other countries of their treasure by legislation present, from one point of view, an absurd spectacle, for they were all applying the same principles in much the same way, action and reaction were equal, and no amount of political straining affected the distribution due to economic demand.

195. Important effects of the mercantile system in other ways.—The commercial policy of the mercantilist period had effects in other directions, if it did miss the mark at which it aimed. It was important, considered merely as a policy of restriction, in checking the exchange of commodities between states. Just as manors and the districts centering around a city had aimed at self-sufficiency in an earlier period, so the states of this period were led by their dislike of imports to attempt the production of everything possible within their borders; and an international organization, in which each state would specialize in the products for which it was best fitted, and would depend on commerce with others for supplying deficiencies, was hindered from developing. The mercantile system furnished a natural basis for the system of national protection, which grew up from it, and which has not entirely outgrown even yet its mercantilist origins. One of the most obvious effects of mercantilist commercial policy can be traced in its influence on the foreign relations of states. It was not, as is often said, the chief cause of the many wars which vexed Europe at this period; their cause lay deeper than any theory of favorable or unfavorable balances of trade. The balance of trade theory did, however, affect the political grouping of countries to a considerable extent, and inclined statesmen to look for friends or foes in the countries with which the balance was favorable or unfavorable. England, for example, made herself the ally of Portugal through a large part of the modern period, because Portugal bought her manufactures, and sold in return wines and other commodities which could not be produced at home; and England kept alive the traditional hostility toward France because the trade with that country showed regularly an unfavorable balance.

196. Colonial policy.—Based on considerations like the preceding, the colonial policy of this period was marked by restrictions entirely opposed to modern ideas of commercial freedom. A government which permitted or encouraged the establishment of colonies in distant lands, considered it a duty to itself to see that other governments or the colonists themselves did not rob it of the rewards of success. The colonial policy of the period has sometimes been pictured as purely one-sided, selfishly sacrificing the colonists to the interests of the people at home. This view leaves out of account not only the generous help given by European governments to their dependencies, but also a great mass of legislation aiming to benefit the colonists by assuring them a market in the home country, and imposing sometimes serious restrictions on the inhabitants there. A government did no more than hold resolutely to the idea that emigrants, wherever they might be, were still citizens of their native state and bound to help maintain its power. The government tried ordinarily to frame its regulations so that mother country and dependency would devote themselves to different lines of production, and so supplement rather than compete with each other. It considered it only natural and proper that the colony should trade mainly or entirely with the mother country. As said above, this was a period of bitter conflict among the European states, and a country’s commerce was thought to be one of the mainstays of its military and naval power; it seemed, therefore, to be the plain duty of colonists to contribute by their commerce to the resources on which the independent existence of the whole nation was thought to depend.

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