Freeman

ARTICLE

Progress or Regress

APRIL 01, 1966 by HANS SENNHOLZ

Not long ago, a small Pennsyl­vania corporation received the Presidential “E” award for its contribution to export trade and the nation’s balance of payments. In its fiscal year, 1965, the com­pany sold more than $16 million of its products to foreign cus­tomers. Since 1960, its sales abroad returned $55 million to the United States.

It seems that some American policies are reverting to the prin­ciples and doctrines of the seven­teenth century. Others are repeat­ing the errors and follies of the dark Middle Ages. In 1628 the best known mercantilist writer, Thomas Mun, urged his country­men always “to sell more to strangers yearly than we consume of theirs in value.” In 1667 the most famous of German mercantil­ist writers, Becher, advocated as a most important economic rule and axiom “that it is always better to sell goods to others than to buy goods from others, for the former brings a certain advantage and the latter inevitable damage.” In 1712, Charles King in The British Merchant declared the export of finished products “in the highest degree beneficial,” the export of natural products “so much clear gain,” and the corresponding im­port “so much real loss.”

Napoleon Bonaparte applied this idea on a huge scale in his Continental System. He gave pub­lic recognition, bestowed medals, and issued citations to Frenchmen who exported manufactured goods to England.

In recent years our foreign trade policies gradually have fallen under the sway of seven­teenth century economic thought. Our “unfavorable” balance of pay­ments caused the Eisenhower Ad­ministration to prohibit American ownership of gold in foreign coun­tries. Since then, the United States government added a “voluntary” program that restricts bank and business investments abroad in order to keep money and gold in the United States. Furthermore, a punitive tax on American pur­chases of foreign securities aims to curb our heavy losses of gold. Those are some of the steps al­ready taken toward comprehen­sive government control over all our foreign trade and transactions.

In England, comprehensive for­eign exchange control dates back to the darkness of the Middle Ages. Until the reign of Charles I (1628) the office of Royal Ex­changer handled all exchange op­erations and all trade in precious metals.’ Exportation of bullion and coin was summarily outlawed until 1663 when the prohibition was narrowed to English coins only.

In France exportation of gold and silver was outlawed from the Middle Ages until the eighteenth century. The usual penalty for taking coins out of the realm was death. In Spain and Portugal the export of bullion and coins went on undisturbed for more than 200 years as if no prohibitions existed, even though the penalty was death.

The “Spending” Multiplier

In recent months we have wit­nessed a marked increase in gov­ernment and private spending and a strong rise in economic activity. The demand for goods and serv­ices has been stimulated by ex­pansionary government and Fed­eral Reserve actions. Spending, whether by governments or citi­zens. is considered the powerful engine of economic progress and prosperity.

Spendthrifts of all ages have advanced similar economic doc­trines. In 1686, for instance, the Austrian writer, Wilhelm Schrötter, Thomas Mun’s pupil, wrote: “The more a manufacturer causes money to pass from one hand to another, the more useful it is to the country, for so many people does it maintain.” And at another place: “Through the exchange of money the sustenance of so many people is multiplied.”

Thrift was regarded as the cause of unemployment, for real income was thought to diminish if money were withdrawn from circulation. For this reason Schrötter wrote a long discussion on “How a Prince Should Limit his Thrift.” In 1695 the English writer, Cary, advo­cated the same principle with even greater clarity. He stated that everybody’s spending causes in­come to rise. If everybody in­creases his spending, according to Cary, everybody “might then live more plentifully.”2

Export Embargoes

On Jan. 21, 1966, the United States and British governments placed curbs on exportation of copper in order to protect their shares of dwindling world supplies of the metal. The United States Commerce Department sharply ex­panded its controls over exports of copper from the United States and clamped tight limits on a broad range of categories, includ­ing shipments overseas of copper ores and refined copper.

In England, this policy of “pro­vision” dated back to the twelfth century and lasted until the nine­teenth. Export prohibitions on iron, copper, and bell metal were repealed in 1694. Other restric­tions that were imposed by Henry II, in 1176 and 1177, lasted until 1822. The high-water mark was reached under Edward III about the middle of the fourteenth cen­tury.

In France, export restrictions were first imposed during the thir­teenth and fourteenth centuries. They aimed at keeping essential materials, particularly foodstuffs, within the country. At the begin­ning of the nineteenth century, Napoleon still conducted a “policy of provision” with regard to food­stuffs. The first French law that permitted their exportation was enacted in 1819.3

Early “Poor Laws”

Even our war on poverty de­clared by the present administration is not new at all. During the period of the Stuarts and of the Tudors, the English government endeavored to aid the low income classes of society. The avowed aim of an act of Parliament in 1603 was to raise the wages of textile workers. Minimum wage rates were fixed, and manufacturers were fined one shilling for every penny of wages paid below the prescribed rates. Especially in the years 1629 to 1640, a wide “policy of welfare” was pursued.

In order to prevent unemploy­ment, businessmen were com­pelled to continue their operations even when suffering losses. They had to keep wages high, and were imprisoned in case of disobedi­ence. For the benefit of the poor, food prices were intensively con­trolled. Grain was to be sold under cost price.

Already in 1563, the Eliza­bethan Statute of Artificers tried to regulate labor conditions in all details, and it remained on the books until 1814. In order to as­sure “just” wages to the working population, wage rates were fixed anew each year by the Justices of the Peace according “to the plenty or scarcity of the time.” The Justices in turn had to con­sider the cost of living by refer­ring to “the prices of all kind of victuals, fuel, raiment and ap­parel, both linen and woolen, and also house rent.” Wage fixing in sixteenth-century London was similar in many respects to wage fixing in London today.

Regulation of Business

If you believe that government regulations of commerce and in­dustry are new and progressive, you should study the twelfth cen­tury English industrial regula­tions. At least since 1197, the English state had tried to regulate the technique of manufacture. For the cloth industry, for instance, the English government pre­scribed the various dimensions of cloth, technique of production, dye­ing, stretching, finishing, the tools of trade, the packaging and label­ing, and so on. Similar regula­tions, more or less complete, were imposed on all other industries.

In France, Louis XIV, the Sun King, appointed intendants and inspectors who were charged with the regulation of industry. From the handling of raw materials to all subsequent stages of produc­tion, these servants of the king controlled the production process.

The system of control obviously necessitated a variety of penalties. Frequently, “defective” goods were confiscated or cut to pieces, money fines were imposed, or the right to practice the craft or con­duct the business was withdrawn. According to a decree of 1670, the name of the offending merchant was to be posted, and the offender himself could be placed in a pillory for public derision.

In spite of countless regulations and limitations that aimed to achieve uniform standards, cor­ruption and personal favoritism blunted the controls. The govern­ment could make individual ex­ceptions to any prescription. Per­sonal influence was as important as it is today.

Mercantilism Persists

For instance, the medical pro­fession today labors under the professional discipline of several regulatory agencies. Under the ancien regime, training and ex­amination of physicians also was a serious government matter. Un­der the watchful eyes of the gov­ernment, ancient quackery was to be perpetuated. In some cases, per­sons with no training whatsoever were practicing the business of healing and offering salves and medicaments because they curried favor with the inspectors, or suc­ceeded in winning over the lack­eys, valets, mistresses, and adven­turesses of the Court. Royal char­ters, permits from princes, and acquired titles of physicians of the king or queen, of surgeons of the navy, and the like, sanctioned all kinds of quackery.

The methods of favoritism, cur­rying favors, obtaining fran­chises, licenses, or government or­ders have not changed materially since the seventeenth century. Diamonds and minks, personal connections and right contacts, government positions and offices, seem to retain their significance for professional success and finan­cial reward.

How modern and progressive are our prevailing doctrines and official policies? A historian who attempts to dissect the so-called modern version of political econ­omy may be surprised to discover its true age. Despite claims of originality, many of the modern are of ancient origin. Some stem from the armory of Marxism and Fabian socialism as they were de­veloped during the nineteenth cen­tury. Others date back to the age of Mercantilism that prevailed in Western Europe from the six­teenth to the eighteenth century. And still others have survived from the darkness of the Middle Ages. Much that passes for prog­ress today is but a regression into the follies of the past.

—FOOTNOTES—

1 Cf. Eli F. Heckscher, Mercantilism, Vol. II, p. 246.

2 An Essay on the State of England, in relation to its Trade, London, 1695, p. 148 ff; cited in Heckscher, Vol II, p. 209.

3 Ibid, p. 92.

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April 1966

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