England suffered a severe recession in the early 1620s, and Gerard Malynes returned to the attack, publishing a series of tracts repeating his well-known views, and calling for stringent measures to curb the Merchant Adventurers and especially the East India Company, as well as any other traders who dared to export bullion from the kingdom. His influence was bolstered by having been a member of the royal commission on the exchanges in 1621.
Taking up the torch in defence of the Merchant Adventurers was one of its members, Edward Misselden (d. 1654). In a tract entitled Free Trade or the Means to Make Trade Flourish (1622), following service on a Privy Council committee of inquiry on the depression of trade, Misselden advanced somewhat beyond Malynes's analysis. He acknowledged that bullion was exported from England, not due to the machinations of wicked exchange dealers, but from imports exceeding exports, from what would later be called an ‘unfavourable balance of trade’. Misselden, then, was not concerned with regulating the exchanges. But he did want the state to force a favourable balance into being by subsidizing exports, restricting or prohibiting imports, and cracking down on the export of bullion. In short, he called for the usual set of mercantilist measures. Misselden was largely concerned to defend his Merchant Adventurers. Like Wheeler a generation earlier, he maintained that his company was not at all a monopolist, but simply the organization of orderly and structured competition. Besides, wrote Misselden, his Merchant Adventurers exported cloth to Europe and therefore fitted in with the interests of England. The truly evil firm was the privileged East India Company, which had a decidedly unfavourable balance of trade of its own with the Indies, and which continually exported bullion abroad.
Misselden now entered into a series of angry pamphlet debates with Malynes, who replied in the same year with The Maintenance of Free Trade. (Neither party, of course, had the slightest interest in what would now be called ‘free trade’.) In 1623, Misselden accepted a post as deputy governor of the Merchant Adventurers in Holland, perhaps as a reward for his stirring defence of the company in the public prints. But, in addition, the East India Company, seeing in Misselden an effective champion and a troublesome foe, made him a member and one of their commissioners in Holland during the same year. As a result, when his second pamphlet, The Circle of Commerce, was published in 1623, Misselden displayed a miraculous change of heart. For the East India Company had been suddenly transformed from villain to hero. Misselden, quite sensibly, now pointed out that while the East India Company did export specie in exchange for products from the Indies, it can and does re-export these goods in exchange for specie.
The outstanding defender of the East India Company in the early seventeenth century was one of its prominent directors, Sir Thomas Mun (1571– 1641). Mun was early engaged as a merchant in the Mediterranean trade, especially with Italy and the Middle East. In 1615, Mun was elected a director of the East India Company, and after that he ‘spent his life in actively promoting its interests’. He entered the lists on behalf of the company in 1621, with his tract, A Discourse of Trade from England unto the East-Indies. The following year he and Misselden were both members of the Privy Council committee of inquiry. Mun's second and major work, England's Treasure by Forraign Trade, or the Balance of Forraign Trade is the Rule of our Treasure, taking a broader view of the economy, was written about 1630 and published posthumously by Mun's son John in 1664. When published, it carried the stamp of approval of Henry Bennett, secretary of state in the Restoration government, and also an architect of England's mercantilist policy against the Dutch. The pamphlet was highly influential and was reprinted in several editions, the last being published in 1986.
Thomas Mun set forth what would become the standard mercantilist line. He pointed out that there was nothing particularly evil about the East India Company trade. The company imported valuable drugs, spices, dyes and cloth from the Indies, and it re-exported most of these products to other countries. Overall, in fact, the company has actually imported more specie than it has exported. In any case, the focus of English policy should not be on the specific trade of one company or with one country, but on the overall or general balance of trade. There it must make sure that the country exports more than it purchases from abroad, thereby also increasing the wealth of the nation. As Mun succinctly put it at the beginning of England's Treasure: ‘The ordinary means to increase our wealth and treasure is by foreign trade, wherein we must ever observe this rule: to sell more to strangers yearly than we consume of theirs in value’. To that end, Mun advocated sumptuary laws banning consumption of imported goods, protective tariffs, and subsidies and directives to consume domestic manufactures. Mun, on the other hand, opposed any direct restrictions on the export of bullion, such as conducted by the East India Company.
Mun was wise enough in combating the fallacies of Malynes and Misselden. Against Malynes, he pointed out that the movements of the exchange rate reflect, not the manipulations of bankers and dealers, but the supply and demand of currencies: ‘That which causes an under or overvaluing of monies by exchange is the plenty or scarcity thereof’. Misselden had advocated debasement of the currency as a means of increasing the price level. Such increase, Misselden had argued in pre-Keynesian fashion, ‘will be abundantly recompensed unto all in the plenty of money, and quickening of trade, in every man's hand’. As a leader of the Merchant Adventurers, Misselden was undoubtedly highly interested in the spur that debasement would give to exports. But Mun denounced debasement, first, as bringing confusion by changing the measure of value, and second by increasing prices all around: ‘If the common measure be changed, our lands, leases, wares both foreign and domestic, must alter in proportion’.
Neither did Mun bend his energies towards an export surplus because he was enamoured of the idea of accumulating specie in England. Adhering to the quantity theory of money, Mun realized that such accumulation would simply drive prices up, which would not only be to no avail but would discourage exports. Mun wanted to accumulate specie not for its own sake, nor to drive up prices at home, but to ‘drive trade’, to increase foreign trade still further. An expansion of foreign trade per se seems to be Thomas Mun's main objective. And this overriding goal is not very puzzling from a leader of the great East India Company.
Furthermore, foreign trade, for Thomas Mun fully as much as for Montaigne, increased the national power – as well as the power of English traders – at the expense of other nations. England and her inhabitants only wax great at the expense of foreigners. As Mun put it succinctly, in trade ‘one man's necessity becomes another man's opportunity’, and ‘one man's loss is another man's gain’. In an odd prefigurement of the Keynesian view that national debt held at home is immaterial because ‘we only owe it to ourselves’, Mun and his fellow mercantilists considered internal trade unimportant because there we only transfer wealth among ourselves. The export balance in foreign trade then becomes of crucial importance, so that the export merchant becomes by far the most productive occupation in the economy.
That Mun was far from being a primitive inflationist is seen by the scorn he properly and contemptuously heaped upon the common plea – and favourite mercantilist complaint – that business and the economy were suffering from a ‘scarcity of money’. (The conclusion invariably drawn from such analysis is that the government was duty-bound to do something quickly to augment the money stock.) Mun wittily riposted in his Discourse of Trade:
concerning the evil or want of silver, I think it hath been, and is a general disease of all nations, and so will continue until the end of the world; for poor and rich complain they never have enough; but it seems that the malady is grown mortal here with us, and therefore it cries out for remedy. Well, I hope it is but imagination maketh us sick, when all our parts be sound and strong...
Thomas Mun may have been the most prominent and sophisticated of the early seventeenth century mercantilists in England. Yet, as Schumpeter points out, these were all pamphleteers not particularly interested in analysis of the economy, special pleaders rather than aspiring scientists.
Perhaps the best economic analyst of all in this period was Rice Vaughn, whose A Discourse of Coin and Coinage, though published in 1675, was written in the mid-1620s. Vaughn, in the first place, held that the disappearance of silver during this period was the effect of what we now call ‘Gresham's law’: the bimetallic undervaluation by the English government of silver as against gold. Since silver, rather than gold, was the money for most transactions, this undervaluation had a certain deflationary effect. In the course of his tract, Vaughn pointed out that an export surplus will not have the desired effect of bringing precious metals into the kingdom, if the value of the gold or silver pound in England is low in terms of purchasing power; for then goods will be imported instead of the monetary metals, and the export surplus will disappear.8 Vaughn was also astute enough to recognize that prices do not all move together when the value of money changes; for example, that domestic prices usually lag behind the debasement or devaluation of money standards.
Most importantly, Rice Vaughn, remarkably, harked back to the scholastic continental subjective utility and scarcity tradition in the determination of the values and prices of goods. Vaughn concisely pointed out that the value of a good is dependent on its subjective utility and hence demand by consumers (‘Use and delight, or the opinion of them, are the true causes why all things have a Value and Price set upon them’), while the actual price is determined by the interaction of this subjective utility with the relative scarcity of the good (‘the proportion of that value and price is wholly governed by rarity and abundance’)