Mercantilism in England

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This article is excerpted from An
Austrian Perspective on the History of Economic Thought, vol. 1, Economic
Thought Before Adam Smith
. An MP3 audio file of this article,
read by Jeff Riggenbach, is available
for download
.

It was in
the 16th century that England began its meteoric rise to the top
of the economic and industrial heap. The English Crown in effect
tried its best to hobble this development by mercantilist laws
and regulations but was thwarted because, for various reasons,
the interventionist edicts proved unenforceable.

Raw wool
had for several centuries been England’s most important product,
and hence its most important export. Wool was shipped largely
to Flanders and to Florence to be made into fine cloth. By the
early 14th century, the flourishing wool trade had reached a height
of an average annual export of 35,000 sacks. The state naturally
then entered the picture, taxing, regulating, and restricting.

The principal
fiscal weapon to build the nation-state in England was the "poundage,"
a tax on the export of wool and a tariff on the import of woolen
cloth. The poundage kept increasing to pay for continuing wars.
In the 1340s, King Edward III granted the monopoly of wool exporting
to small groups of merchants, in return for their agreeing to
collect the wool taxes on the king’s behalf. This monopoly grant
served to put out of business Italian and other foreign merchants
who had predominated in the wool export trade.

By the 1350s,
however, these monopoly merchants had gone bankrupt, and King
Edward finally resolved the issue by widening the monopoly privilege
and extending it to a group of several hundred called the "Merchants
of the Staple." All wool exported had to go through a fixed
town under the auspices of the company of the Staple, and be exported
to a fixed point on the continent, by the end of the 14th century
at Calais, then under English control. The monopoly of the Staple
did not apply to Italy, but it did apply to Flanders, the major
place of import for English wool.

The Merchants
of the Staple soon proceeded to use their privileged monopoly
in the time-honored manner of all monopolists: to force lower
prices upon English wool growers, and higher prices upon Calais
and Flemish importers. In the short run, this system was quite
pleasant for the Staplers, who were able to more than recoup their
payments to the king, but in the long run, the great English wool
trade was crippled beyond repair. The artificial gap between domestic
and foreign wool prices discouraged the production of English
wool while it also injured the demand for wool abroad. By the
mid-15th century, average annual exports of wool had fallen greatly
to only 8,000 sacks.

The only benefit
to Englishmen from this disastrous policy (apart from the joint
short-term gains to King Edward and to the Staplers) was to give
an unintended boost to the English production of woolen cloth. English
cloth-makers could now benefit from their artificially lower prices
of wool in England, coupled with the artificially high prices of
wool abroad. Once again, the market managed to get a leg up in its
unending, zigzag struggle with power. By the mid-15th century, fine,
expensive, broadcloth "woolens" were being produced abundantly
in England, centering in the West Country, where swift rivers made
water plentiful for fulling the woven cloth, and where Bristol could
serve as the major port of export and entry.

During the
mid-16th century, a new form of woolen-cloth manufacture sprang
up in England, soon to become dominant in the textile industry.
This was the "new draperies," or worsteds, cheaper and
lighter-weight cloth that could be exported to warmer climates
and was far more suitable for dyeing and decoration, since each
individual strand of yarn was now visible in the cloth.

Since the
worsted was not fulled, the draperies did not need to be situated
near running water, and so new textile manufacturers and workshops
sprang up in the countryside – and in new towns such as Norwich
and Rye – all round London. London was the largest market
for the cloths, so transportation costs were now cheaper, and
furthermore, the southeast was a centre for sheep bearing the
coarse, long-stapled wool particularly suitable for worsted production.
The new rural firms around London were also able to hire skilled
Protestant textile artisans who had fled the religious persecution
in France and the Netherlands. Most important, going to the countryside
or to new towns meant that the expanding and innovating textile
industry could escape from the stifling guild restrictions and
frozen technology of the old towns.

Now that
over 100,000 cloths were exported annually, compared to a few
thousand two centuries earlier, sophisticated production and marketing
innovations took place. Establishing a "putting-out"
system, merchants paid artisans by the piece to work on cloth
owned by the former. In addition, marketing middlemen sprang up,
yarn brokers serving as middlemen between spinners and weavers,
and drapers specializing in selling the cloth at the end of the
production chain.

Seeing the
rise of effective new competition, the older urban and broadcloth
artisans and manufacturers turned to the state apparatus to try
to shackle the efficient upstarts.

As
Professor Miskimin puts it,

As often
happens during an evolutionary period, the older, vested interests
turned to the state for protection against the innovative elements
within the industry and sought regulation that would preserve
their traditional monopoly.[1]

In response,
the English government passed the Weavers’ Act in 1555, which
drastically limited the number of looms per establishment outside
the towns to only one or two. Numerous exemptions, however, vitiated
the effect of the act and other statutes placing maximum controls
on wages; restricting competition in order to preserve the old
broadcloth industry came to naught from systemic lack of enforcement.

The English
government then turned to the alternative of propping up and tightening
the urban guild structure to exclude competition. These measures
succeeded, however, only in isolating and hastening the decay of
the old urban broadcloth firms. For the new rural firms, especially
the new draperies, were beyond guild jurisdiction. Queen Elizabeth
then went national, with the Statute of Artificers in 1563, which
placed the nation-state squarely behind guild power. The number
of apprentices each master could employ was severely limited, a
measure calculated to stifle the growth of any one firm, and to
decisively cartelize the wool industry and cripple competition.
The number of years of apprenticeship, before the apprentice could
rise to become a master, was universally extended by the statute
to seven years, and maximum wage rates for apprenticeships were
imposed throughout England.

Beneficiaries
of the Statute of Artificers were not only the old, inefficient
urban broadcloth guilds, but also the large landlords, who had been
losing rural workers to the new, high-paying clothing industry.
One announced aim of the Statute of Artificers was compulsory full
employment, with labor directed to work according to a system of
"priorities"; top priority was accorded to the state,
which attempted to force workers to remain in rural and farm work
and not leave the farm for glittering opportunities elsewhere. To
enter commercial or professional fields, on the other hand, required
a graded series of qualifications such that the occupations were
happy in having entry restricted by this cartelizing statute, while
the landlords were delighted to have workers forced to remain on
the farm at lower wages than they could achieve elsewhere.

If the Statute
of Artificers had been strictly enforced, industrial growth might
have been permanently arrested in England. But fortunately, England
was far more anarchic than France, and the statute was not well
enforced, particularly where it counted, in the new and fast-growing
worsted industry.

Not only was
the countryside beyond the grasp of the urban guilds and their nation-state
ally, but so too was fast-growing London, where custom decreed that
any guild member could engage in any sort of trade, and no guild
could exercise restrictive control over any line of production.

London’s
position as the great export centre for the new draperies –
largely to Antwerp – partially accounted for the enormous
growth of this city during the 16th century. London’s population
grew at three times the rate of England’s as a whole over the
century, specifically from 30–40,000 at the beginning of
the 16th century to a quarter of a million early in the next.
The London merchants were not, however, content with free-market
development, and power began to move in on the market. Specifically,
the London merchants began to reach for export monopoly.

In 1486 the
City of London created the Fellowship of the Merchant Adventurers
of London, which claimed exclusive rights to the export of woolens
to its members. For provincial merchants (outside of London) to
join required a stiff fee. Eleven years later the king and parliament
decreed that any merchant exporting to the Netherlands had to
pay a fee to the Merchant Adventurers and obey its restrictionist
regulations.

The state tightened
the monopoly of the merchant adventurers in the mid-16th century.
First in 1552, the Hanseatic merchants were deprived of their ancient
rights to export cloth to the Netherlands. Five years later, customs
duties were raised on the import of cloth, thereby conferring more
special privileges on the domestic cloth trade and increasing the
financial ties of the Crown to the cloth merchants. And finally,
in 1564, in Queen Elizabeth’s reign, the merchant adventurers were
reconstituted under tighter and more oligarchic control.

In the late
16th century, however, the mighty merchant adventurers began to
decline. The English war with Spain and the Spanish Netherlands
lost the Adventurers the city of Antwerp, and at the turn of the
17th century they were formally expelled from Germany. The English
monopoly of woolen exports to the Netherlands and the German coast
was finally abolished after the revolution of 1688.

It is instructive
to note what happened to printed calico in England as compared
to the suppression of the industry in France. The powerful woolen
industry managed to get the importation of calicoes banned from
England in 1700, a decade or so after France, but in this case
domestic manufacture was still permitted. As a result, domestic
manufactures of calico spurted ahead, and when the woolen interests
managed to get a prohibition-of-calico-consumption act passed
in 1720 (the Calico Act), the domestic calico industry was already
powerful and could continue to export its wares.

In the meanwhile,
calico smuggling continued, as did domestic use – all stimulated
by the fact that prohibition was not enforced nearly as strictly
in England as in France. Then, in 1735, the English cotton industry
won an exemption for the domestic printing and use of "fustians,"
a mixed cotton and linen cloth, which were the most popular form
of calico in England in any case. As a result, the domestic cotton-textile
industry was able to grow and flourish in England throughout the
18th century.

Prominent
in English mercantilism was the pervasive creation by the Crown
of grants of monopoly privilege: exclusive power to produce and
sell in domestic and in foreign trade. The creation of monopolies
reached its climax in the reign of Queen Elizabeth (1558–1603),
in the latter half of the 16th century. In the words of historian
Professor S.T. Bindoff, "… the restrictive principle
had, like some giant squid, fastened its embracing tentacles round
many branches of domestic trade and manufacture," and "in
the last decade of Elizabeth’s reign scarcely an article in common
use – coal, soap, starch, iron, leather, books, wine, fruit
– was unaffected by patents of monopoly."[2]

In sparkling
prose, Bindoff writes how lobbyists, using the lure of monetary
gain, obtained royal courtiers to sponsor their petitions for
grants of monopoly: "their sponsorship was usually a mere
episode in the great game of place-and-fortune-hunting which swayed
and swirled incessantly around the steps of the throne."
Once granted their privileges, the monopolists got themselves
armed by the state with powers of search-and-seizure to root out
all instances of now-illegal competition. As Bindoff writes,

The "saltpetre
men of the gunpowder contract dug in every man’s house"
for the nitrate-laden soil which was their raw material. The
minions of the playing-card monopoly invaded shops in search
of cards lacking its seal and browbeat their owners, under threat
of summons to a distant court, into compounding for their offences.
The search-warrant was, indeed, indispensable to the monopolist
if he were to eliminate competition and leave himself free to
fix the price of his wares.[3]

The result
of this expulsion of competition, as we might expect, was the lowering
of quality and the raising of price, sometimes by as much as 400
percent.

Notes

[1]
Harry A. Miskimin, The Economy of Later Renaissance Europe:
1460–1600 (Cambridge: Cambridge University Press, 1977),
p. 92.

[2]
S.T. Bindoff, Tudor England (Baltimore: Penguin Books,
1950), p. 228.

[3]
Ibid., p. 291.

Reprinted
from Mises.org.

Murray
N. Rothbard
(1926–1995) was dean of the Austrian
School, founder of modern libertarianism, and academic
vice president of the Mises
Institute
. He was also editor — with Lew Rockwell —
of The
Rothbard-Rockwell Report
, and appointed Lew as his
literary executor.

The
Best of Murray Rothbard

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