ABSTRACT
The Reaction against Mercantilism.—The intellectual revolt against mercantilism was initiated by two Scotsmen, David Hume and Adam Smith. Hume, in his Political Discourses (1752), exposed the fallacies of the doctrine of the balance of trade; Adam Smith in Book IV of his Wealth of Nations (1776) refuted mercantilism point by point. Seldom has an intellectual system been more effectively demolished. Adam Smith showed how impossible it was for a country to have a permanently favourable balance of trade, since this would drain other countries of their bullion and make the balance automatically unfavourable again. He demonstrated further the uselessness of aiming at such a favourable balance, since the ordinary course of trade would supply a country with all the bullion it required for currency purposes and anything beyond that was superfluous, if not harmful. Finally he proved the unwisdom of placing artificial restraints on trade, and expounded at length the advantages of international division of labour, by which, he said, ‘the different states into which a great continent was divided would so far resemble the different provinces of a great empire’. 1 Adam Smith did not anticipate an easy victory for these ideas. ‘To expect’, he wrote, ‘that the freedom of trade should ever be entirely restored in Great Britain is as absurd as to expect that an Oceana or Utopia should ever be established in it.’ 2 Yet within ten years of the publication of his epoch-making work, a Tory prime minister was busy applying its principles. The Younger Pitt, following the traditional policy of his party, desired to relax the restrictions on the French trade. In 1786, he negotiated the Eden commercial treaty, by which France undertook to reduce the duties on British cottons, woollens, hardware and hosiery, while Britain agreed to admit French wines at the same rates as Portuguese. At one stroke, the two chief supports of mercantilism in England were removed. The embargo on the French trade was lifted and the Methuen treaty was virtually abrogated. Within the next three years, the trade with France tripled. Across the Channel, however, the treaty was less popular than in England. French manufactures suffered severely from English competition, and though this was offset by an expansion in French agricultural exports, especially wines, the French public remained unconvinced of the benefits of reciprocity. The treaty was automatically cancelled by the outbreak of war in 1793, but even if peace had been maintained, it is almost certain that the agreement would have been abrogated or drastically amended by the French legislature.
