have the organization of the Hanseatic League in the
north of Europe. Independent cities entered into a
league to protect their trade from pirates and to facili-
tate the exchange of goods. The number of these cities
finally reached eighty -five, of which Hamburg, Liibeck,
Bremen, and Cologne were among the important ones.
These cities were connected by inland trade with Italian
cities, and while the cities of the League grew rapidly
in wealth, their prosperity only added to the increase of
wealth of the Italian cities, which were gateways to the
Oriental trade.
The Hanseatic League established rules for the regula-
tion of trade and developed commerce to a great extent.
Primarily established to prevent piracy, to prevent the
extortion of lords, and to stimulate production and trade,
the League laid the foundation of mercantile law and
began the policy of reciprocity and freedom. For four
hundred years it was prominent in the control of com-
merce, and during this time practically monopolized the
commerce of northern Europe. It maintained armies
and navies and carried on war against kings. But its
arbitrary power finally became intolerable and its exist-
ence a menace to trade. It began to decline in the latter
part of the fourteenth century, and by the end of the fif-
teenth century it had lost its power. The decline of
feudalism and the rise of national life, coupled with the
determination of each nation to control its own com-
merce, and the competition aroused by a developing
trade, swept away all concessions and left the League
helpless.
ECONOMICS. 427
Nature of Mediaeval Commerce.
The traders of the Middle Ages to a great extent dis-
posed of their goods through markets and fairs which
were established on certain days of the week. These
originated from the fact that it would be advertised that
a certain caravan or ship laden with goods would appear
at a certain time, and in order to obtain the goods the
people came from all parts of the country. As the cities
developed, these became regular markets. Finally the
traders who attended to the sale of these goods estab-
lished regular shops to take care of the surplus goods.
As trade became more extended and regular, these shops
became continuous and the transporters delivered their
goods to the shops. Gradually the shopkeepers became
regular importers of goods. From that time on the lines
were gradually drawn between the wholesale merchant,
importer or jobber, and the retail merchants. The com-
petition in trade led to various restrictions among the
cities and towns engaged in trading, and had a tendency
to create certain privileges and monopolies. There was
much jealousy among the towns, especially among the
Italian towns, and much rivalry, which caused bitter
feeling. Their salvation, however, lay in the fact that
they developed manufactures very, rapidly. While the
nations or countries that have the carrying trade of
commerce have tremendous advantages, no nation has
ever built up an extended commerce without having a
large amount of raw materials or manufactured products
to export to other nations.
The gild merchant, a mediaeval institution for the
control of trade, was a protective association which
428 ECONOMICS.
included all those who were engaged in buying and selling
goods within a given town. Only those who were mem-
bers of the gild had the privilege of trade. In this way
local merchants protected themselves against traders of
other towns and foreign traders as well. Following this
protective idea, there came in vogue a body of laws and
regulations of trade known as the "law merchant." Mer-
chants made their own rules controlling trade, to suit
their own needs. The " gild merchant " was represented
in several types. Besides the gild type, the law of the
municipality, the central national law, and the law of vol-
untary, arbitrary bodies included the chief sources of the
gild merchant. It laid the foundation of mercantile law.
In England the local gild merchant became prominent
at an early period, but subsequently the foreign trade of
England fell into the hands of foreigners. Real English
commerce began at the appearance of the English traders
or "merchants adventurers," as they were called, who
began to compete for the carrying trade. Originally
the term was applied to merchants who undertook to
export goods to new or unrecognized markets, or to mer-
chants of various towns who were organized for their
own protection. Finally the company of " Merchants
Adventurers " was incorporated, which became a power-
ful and wealthy association. In 1564 they received a
royal charter from Henry VII., under the title of " The
Merchants Adventurers of England." This gave a great
impetus to an independent national commerce.
Modern Commerce.
Mediaeval commerce resembled the ancient commerce
in the concentration of trade in towns and cities. The
ECONOMICS. 429
chief difference existed in the more widely extended area
over which it operated, having longer routes of travel
and a larger number of stations. It also differed in the
larger number of articles for exchange, arising chiefly on
account of the development of manufactures and the in-
creased interchange of goods. Modern commerce, which
may be said to date from 1492, is marked by oceanic
transportation. It was the era of discovery and coloniza-
tion. First, the invention of the mariner's compass gave
an impetus to sea travel. The use of gunpowder brought
new means of defense to commerce. The discovery of
America opened up new inducements to oceanic travel,
and the discovery of a route around the southern part
of Africa to the East Indies and another route around
the southern part of South America to the Philippine
Islands, opened up great ocean highways of travel. This
occurred at the period of the rise of modern nations.
Portugal, Spain, The Netherlands, England, and France
began to compete for the commerce of the world.
The Mercantile System.
During the period of the rise of national commerce
there came into existence a system of trade so important
as to mark an epoch of history. It has been known as
the Mercantile System, and represents a doctrine of trade
which has its advocates in modern times. Mercantilism
was a distinct step in the evolution of commerce just as
monarchy was in the evolution of government. In the
fifteenth century there was great confusion of trade,
caused by the local jealousies and rivalries among the
local and foreign merchants, the Merchants Adventurers,
and the Hanse Merchants. A movement was started
430 ECONOMICS.
which had a double purpose, to bring about unity in
domestic affairs and to develop national defense in trade.
It was the monarchical principle applied to commercial
affairs. It was a process of " state-making and national
economy-making at the same time." * Mercantilism rep-
resents the transformation and reorganization of indus-
trial society as well as the rise of national commerce. It
not only transformed and united the municipal, industrial,
and commercial interests, but set up barriers of trade
against the encroachments of other nations. To subject
local interests to national interests, and to advance the
latter beyond the interests of other nations, were the
prime motives of the mercantilist doctrine. In the sub-
sequent development of mercantilism it stood for govern-
ment restrictions on commerce and trade. Restrictions
on imports or exports, limitation of the carrying trade
to national ships, the tariff on exports and imports, and
the attempt to make a favorable balance of trade so as to
leave gold and silver in a given country, were some of
the cardinal points in its later history. While defective
in many of its general tenets, mercantilism was service-
able in building national life and national commerce. Its
policy, especially in England and France, had a tre-
mendous power in establishing national supremacy. It
subsequently affected The Netherlands, and later, Italy
and Germany. In the nineteenth century there was a
great reaction from the policy, especially in England;
but in more recent times it has revived, so that each
nation seeks to protect its foreign commerce either by
tariff, subsidy, or reciprocity treaty.
* Schmoller, The Mercantile System.
ECONOMICS. 431
National Competition.
Portugal at first became prominent and obtained a
monopoly of the East India trade, especially in the trade
in spices, but war with Spain furnished an opportunity
for the Dutch, which they readily seized. The early mari-
time enterprise of Portugal, stimulated by the genius and
daring of Prince Henry the Navigator, led to discoveries
and an extended commerce. The result was the com-
mercial supremacy of Portugal in India and China and
the competition with the Dutch in trade. At the open-
ing of the modern period (1495-1521) Lisbon was the
chief emporium for the distribution of Oriental goods,
and Portugal reached her zenith of commercial power.
The decline of her prestige in the East was followed by
her forced union with Spain. After her freedom was ob-
tained (1640), war with The Netherlands further weak-
ened her power; but a commercial treaty with England
resulted in the transference of her trade from the Dutch
to the English and strengthened the already powerful
nation. Spain had a tremendous trade in the Western
Hemisphere on account of her colonization and produc-
tion of the precious metals. This gave her great pres-
tige in the commercial world, but her policy eventually
caused her ruin. She failed to develop home manufac-
tures, and the silver obtained from America passed out of
Spain into France and The Netherlands to pay for the
manufactured articles used by Spain in home consumption
and foreign trade.
The rise of the Dutch, whose central cities were Ant-
werp and Amsterdam, shifted the monopoly of trade to
The Netherlands. They soon secured the monopoly of
432 ECONOMICS.
the East India trade from Portugal. The Dutch were
thrifty people who understood the art of commerce. At
home they not only developed manufactures, but estab-
lished a system of banking and finance which was of
great service on their own account and also on account
of the commerce of the world. The Dutch had a strong
mercantile policy which established great fleets for carry-
ing on commerce, for they made commerce an end in
itself ; but their commercial development had extended
beyond their national and political life, and therefore
they were not able to hold their own in the competition
of nations for trade. Subsequently they lost this trade
in the development of the East and West India Com-
panies, which came into competition with them and
obtained a monopoly of the trade.
The French and the English.
Down to the time of Henry VIII. the Lombard, Dutch,
and Hanse merchants monopolized the most profitable
branches of trade. In England, shipping was almost
wholly in foreign hands, but the Tudor kings had a
special object in exalting wealth and the maritime power
of England. A feeling of resentment continued to grow
against foreign merchants until it was expressed against
the Hanseatic League, whose factory at the Steel Yard
operated independent of the laws and social order of
England. It was in the reign of Edward VI., in 1552,
that the shackles of British trade were broken by placing
the Hanse factory on the same basis as other merchants
so far as commerce duties were concerned. Subsequently,
in the time of Elizabeth, the Steel Yard factory was closed.
From this time on British trade was promoted by every
ECONOMICS. 433
effort of government. The explorations and discoveries
by the English during the sixteenth century widely ex-
tended commerce. Companies were formed for trade,
including the East India Companies and the company of
Merchants Adventurers. They controlled a large portion
of the export trade, but the whole development of manu-
factures and trade were under a system of monopolies.
These monopolies eventually became oppressive.
But Cromwell, by the celebrated act of 1651, suppressed
private monopoly and made a gigantic monopoly of the
British government. The law forbade the carrying of
goods to or from England or her colonies in any except
British vessels. As a result, ship-building sprang up,
and subsequently a tremendous trade was developed ; but
more than all, the great work of English development
during the Tudor period was made secure by this act.
In France the same system of restriction was instituted
under Colbert, for mercantilism had culminated in France
more than in any other country. The idea prevailed
that a country grew rich only through its trade balance,
and every effort was made to secure the favorable balance
of trade through the restriction of exports and imports.
But England had become mistress of the seas because of
her immense carrying trade and the consequent develop-
ment of her manufactures and agricultural products.*
Recent Commerce.
The main courses of English trade continued to en-
large down to the end of the Napoleonic wars in 1815,
but a new era of commercial development seemed to date
from this event. Industrial revolution, brought about
* See p. 366, Economics.
28
434 ECONOMICS.
by the introduction of power manufacture, changed the
course of commerce by the introduction of machinery in
the making of cotton and woolen goods, the building of
ship canals, the division of labor, and the development of
the factory system. The use of steam and water power,
and the quickening of manufactures and of domestic
commerce gave a great impetus to foreign trade in Eng-
land, and her commerce continued to extend. The intro-
duction of the laissez-faire doctrine through the teachings
of the early economists advocated the removal of restric-
tions on trade. The Physiocratic doctrine in France had
a similar influence in that country. But nations that
had gained such prestige under restrictive measures were
able to advance without government aid. The commer-
cial supremacy of England continued on account of her
large manufacturing interests and her immense carrying
trade on the ocean. This was aided by the repeal of the
Corn Laws and the development of free trade. By these
measures England had a cheaper food with which to feed
her army of workers. Having built up her commerce,
having become mistress of the seas, having developed a
foundation for manufactures, England entered upon free
trade at the opportune moment. Her commerce and
trade went forward with a bound.
American Carrying Trade.
In the nineteenth century, America became England's
great competitor in the carrying trade. Down to 1857
the carrying trade of the United States increased rapidly ;
since that time it has relatively declined. This can be
attributed to several causes : first, the Civil War, which
absorbed all the energies of the United States for several
ECONOMICS.
435
years, had a tendency to destroy merchant marine rather
than develop it. England also had an advantage, since
1860, in the construction of steel vessels. The tariff has
prevented a development of American shipping, and the
immense internal improvement of the United States has
absorbed capital that otherwise might have gone into
the international commerce. The accompanying table
shows the relative decline of the carrying trade.
THE VALUE OF UNITED STATES IMPORTS AND EXPORTS AND THE
PERCENTAGE CARRIED IN AMERICAN VESSELS.
Exports and Imports
Per Cent.
1857
$ 723,850,823
70.5
1860
762,288,550
66.5
1870
991,896,899
35.6
1880
1,503,593,404
17.42
1890
1,647,139,093
12.85
1900
2,089,528,616
9.3
Yet, during this period, the United States has become
the greatest export nation in the world. Her enormous
supply of raw material, agricultural products, and the
recent development of manufactures under the adminis-
tration of a protective tariff have advanced her foreign
trade. The following table gives the exports of the four
chief industries and shows the rapid development of
export trade in recent years.
PRINCIPAL EXPORTS FROM THE UNITED STATES.
1898
1899
1900
1905
Cotton
$247,977,311
333,987,119
167,340,960
70,441,109
$233,656,490
273,999,699
175,508,608
93,782,431
$266,922,065
262,744,078
184,453,055
121,992,590
$379,965,014
107,732,916
169,965,873
134,728,363
Bread stuffs . . .
Provisions
(Including meat
and dairy prod-
ucts)
Iron, steel, and
manufactures.
436 ECONOMICS.
Development of American Commerce.
Having recovered from the Civil War, the internal com-
merce of the United States began to expand and subse-
quently her international trade. Since 1885, she has
become a formidable competitor of France, England,
and Germany in the world's markets. She has become
the greatest manufacturing nation in the world, as well
as the greatest export nation. In 1905 the value of her
manufactures was about fifteen thousand millions, or
greater than the estimated manufactures of the United
Kingdom. Germany, and France. The total value of
manufactures entering the world's market is estimated
at four thousand million ; of this the United States sup-
plies but five hundred million, or 12J per cent. It indi-
cates that there is a vast opportunity for the United
States to develop the exportation of manufactured goods.
But the discrepancy between the amount of the product
and the international trade is not necessarily indicative
of an impoverished condition of the United States; in-
deed, it represents just the opposite. The rapid devel-
opment of the United States has enabled her to absorb
over twelve thousand five hundred millions of her own
manufactures and to export less than five hundred mil-
lions. This is evidence of tremendous wealth and pros-
perity; also, it is evidence of the principle that domestic
commerce is of far greater importance to the nation than
foreign commerce, and that periods of prosperity of the
nation cannot be estimated by the amount of its foreign
trade. Nevertheless, America is to-day in sharp competi-
tion with England, France, and Germany for the markets
of the Old World and for the newer markets of Africa,
South America, and the Orient.
ECONOMICS.
437
EXPORTS OF THE UNITED STATES BY SOURCES OF PRODUCTION.
Percentage
I860
190U
Agriculture
81.13
12.76
1.41
1.31
3.26
.13
59.48
31.52
.40
.60
4.80
3.20
Domestic manu
Haw products (
f acture
miscel.)
Forests
Alining
100.00
100.00
Causes of Commercial Success.
The commercial success of a nation depends primarily
upon the amount of raw materials and manufactured arti-
cles that it has to export after the home consumption has
been abundantly supplied ; upon transportation by land
and water from the interior to the seaboard ; a cheap
and bountiful food supply for a thrifty and vigorous
labor population ; the development of the merchant ma-
rine, and the successful choice of trade routes whereby
vessels may be laden with marketable goods for the
return voyage. Moreover, it is necessary in modern
times that merchants promote and advertise their inter-
ests in the countries in which they are seeking market.
The question, too, of the good will of nations is very im-
portant, and commercial treaties which promote favorable
terms of trade are exceedingly valuable. The tariff may
be a detriment to foreign trade, but it may also be used at
times, like other restrictive measures, to temporarily pro-
mote the welfare of a nation. However, to the nation
that has large resources of raw material and abundant
food supply, first-class labor power, abundant opportuni-
ties for steam, water, and electric power, free international
438 ECONOMICS.
trade would be a great advantage in the long run. Some
nations have advanced their carrying trade by giving sub-
sidies to the ship companies. This may develop for a
time the number of the ships owned by the exporting
nation giving the subsidy, but in the long run it is detri-
mental to national welfare and development. *
Principles of International Trade.
Commerce is an instrument by which commodities are
placed in the hands of consumers, and that system of
commerce which will do this the most effectually and at
the least cost is of greatest benefit to the consumer. In
the thrifty nation, domestic commerce is of far greater
importance than international. In modern times, through
universality of invention, through steam and electricity
applied to machinery, each nation becomes more and more
self-sufficient and independent in the supply of manu-
factured goods. The agricultural product is limited by
the soil and climate, and a nation must import what it
cannot raise. The exportation of the surplus goods of a
nation has a great influence on its prosperity, but the
power to consume all of its raw materials and manufac-
tured products may be evidence of greater financial
prosperity, for it is only a small number of workers of
any nation who are putting labor power into products
for international trade. It is estimated that between
one-fifth and one-sixth of the wage-earners of Great
Britain are putting labor power into goods for exporta-
tion to foreign markets. Sooner or later, as all foreign
trade must balance, the imports and exports of all the na-
tions combined must be the same. There is a theory that
* See Chapter III., Book IV.
ECONOMICS. 439
the wealth of a nation is made by its trade balance and that
the extent to which exports exceed imports is evidence
of national prosperity and power. But this is a false
assumption, for if a nation imports goods, it is an evi-
dence that it has means to pay for them and also assumes
that there is some advantage to be gained in the importa-
tion of these goods.* In other words, the nation that
purchases abroad has added to its own stock of wealth ;
on the other hand, it may be selling goods that might be
consumed at home but are put upon the market to satisfy
some more urgent demand of indebtedness. Yet, in the
long run, a nation could not continue to import goods
without loss unless it should be followed by a period of
export trade. However, international trade may bene-
fit all nations engaged in it just as domestic trade
may benefit all individuals engaged in it. The gains,
however, in international trade, are of the same nature
as the gains of domestic trade, that is, they are merely
relative.
References: Adams, C. C., Commercial Geography; Lynd, L. W.,
Commercial Geography ; Price, L. L., English Commercial Industry ;
Trotter, Spencer, The Geography of Commerce ; United States
Statistical Abstract ; Yeats, John, The Growth and Vicissitudes of
Commerce.
* See Chapter VI., Book III.
BOOK IV.
PUBLIC ECONOMICS.
(441)
CHAPTER L
RESTRICTIVE MEASURES.
Free Trade and Free Competition.
As has been previously stated, the laws of pure eco-
nomics are based upon the condition of free trade and
free competition. That is, if laws act with precision the
condition of free trade and free competition must be ful-
filled without hindrance. There must be no monopoly
to prevent the competition, or other hindering restrictions
on trade. All philosophical discussions of political econ-
omy recognize these principles. That these conditions are
the best for economic society is not necessarily true.
Mercantilists.
The first great group of economists were the Mercan-
tilists, who advocated among other things restrictive meas-
ures, in trade. They held that all gains in a nation arose
from trade, and that certain laws should be established for
keeping money in the country and preventing its going out,
as the amount of money was an indication of the amount
of wealth of a community. This principle extends re-
strictive measures in trade and attempts to control certain
industries. The advocacy of restriction was carried to
such an extent as almost to exclude the consideration of
freedom of trade and industry.
Physiocrats.
There followed a group of people who advocated among
other things the principle that all values arise ultimately
(443)
444 ECONOMICS.
from the soil, and they sought to promote agriculture and
industry, and to place little value upon trade as a means
of developing wealth. They advocated also the freedom of
trade, and that all restrictions should be taken from it.
This led later to the development of the laissez-faire doc-
trine.
Adam Smith followed, with his Wealth of Nations,
which really established the principle of freedom of