[This article is excerpted from An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith. An audio version of this Mises Daily, read by Jeff Riggenbach, is available as a free download.]
In France — which was to become in the 17th century the home par excellence of the despotic nation-state — the promising cloth trade and other commerce and industry in Lyon and the Languedoc region in the south were crippled by the devastating religious wars in the last four decades of the 16th century. In addition to the devastation and the killing and emigration of skilled Huguenot craftsmen to England, high taxes to finance the war served to cripple French economic growth. Then the politique party, riding to power on the promise of ending religious strife, ushered in the unchecked reign of royal absolutism.
Crippling regulation of French industry had begun in the late 15th century, when the king issued scores of guild charters, conferring the power to control and to set standards of quality in the different occupations upon urban guilds and their officials. The Crown conferred cartelizing privileges on the guilds while levying taxes upon them in exchange. A major reason why Lyon had flourished during the 16th century was that it was granted a special exemption from guild rule and guild restrictions.
By the end of the 16th century and the religious wars, the old regulations were still in place, ready to be enforced. The new absolute monarchy was ready to enforce them and carry them further. Thus, in 1581, King Henry III ordered all the artisans of France to join and group themselves into guilds, whose orders were to be enforced. All except Parisian and Lyonnaise craftsmen were forced to confine their activity to their current towns; in that way, mobility in French industry was brought to an end. In 1597, Henry IV re-enacted and strengthened these laws, and proceeded to enforce them thoroughly.
The result of this network of restriction was the total crippling of economic and industrial growth in France. The typical ploy of preserving "standards of quality" meant that competition was hobbled, production and imports limited, and prices kept high. It meant, in short, that consumers were not allowed the option of paying less money for lower-quality products. State-privileged monopolies grew as well, with similar effects; and upon the guilds and the monopolies the state levied increasing and stifling taxes.
Growing inspection fees for quality also exacted a great burden on the French economy. Furthermore, luxury production was particularly subsidized, and the profits of expanding industries diverted to subsidize the weak. Capital accumulation was thereby slowed and the growth of promising and strong industries crippled. The subsidizing and privileging of luxury industries meant a shift of resources away from cost-cutting innovations in new mass-production industries, and towards such areas of high-cost craftsmanship as glass and tapestries.
The increasingly powerful French monarchy and aristocracy were large consumers of luxury goods and were therefore particularly interested in fostering them and maintaining their quality. Price was no great object since the monarchy and nobility lived off compulsory levies in any case. Thus, in May 1665, the king established monopoly privileges for a group of French lace manufacturers, using the transparently canting argument that this was done to prevent "the export of money and to give employment to the people." Actually, the point was to prohibit anyone other than the privileged licensees from making lace, in return for hefty fees paid to the Crown.
Domestic cartels are worthless if the consumer is allowed to buy cheaper substitutes from abroad, and so protective tariffs were levied on imported lace. But apparently smuggling abounded, and so in 1667, the government made enforcement easier by prohibiting all foreign lace whatsoever. In addition, to prevent unlicensed competition, it was necessary for the French Crown to prohibit any lace work at home, and to force all lace work to occur at fixed, visible points of manufacture. Thus, as the finance and commerce minister and general economic czar Jean-Baptiste Colbert wrote to a government lace supervisor: "I beg you to note with care that no girl must be allowed to work at the home of her parents and that you must oblige them all to go to the house of the manufactures."
Perhaps the most important of the numerous mercantile restrictions on the French economy imposed in the 17th century was the enforcing of "quality" standards on production and trade. This tended to mean a freezing of the French economy at the level of the early or mid-17th century. That coerced freeze effectively hobbled or even prevented the innovation — new products, new technologies, new methods of handling production and exchange — so necessary to economic and industrial development.
One example was the loom, invented in the early 17th century, at first used principally for the production of the luxury item, silk stockings. When looms began to be applied to relatively mass-consumption woolen and linen goods, the hand-knitters balked at the efficient competition, and persuaded Colbert, in 1680, to outlaw the use of the loom on any article except silk. Fortunately, in the case of the loom, the excluded woolen and linen manufacturers were politically powerful enough to get the prohibition repealed four years later, and to get themselves included in the protectionist/cartelist system of advantage.
All these tendencies of French mercantilism reached a climax in the era of Jean-Baptiste Colbert (1619–83), so much so that he gave the name Colbertisme to the most hypertrophied embodiment of mercantilism. The son of a merchant born at Reims, Colbert early in life joined the French central bureaucracy. By 1651, he had become a leading bureaucrat in the service of the Crown, and from 1661 to his death 22 years later, Colbert was the virtual economic czar — absorbing such offices as superintendent of finance, of commerce, and secretary of state — under the great Sun King, that epitome of absolutist despotism, Louis XIV.
Colbert engaged in a virtual orgy of grants of monopoly, subsidies of luxury, and cartelizing privilege, and built up a mighty system of central bureaucracy, of officials known as intendants, to enforce the network of controls and regulations. He also created a formidable system of inspections, marks, and measurements to be able to identify all those straying from the detailed list of state regulations. The intendants employed a network of spies and informers to ferret out all violations of the cartel restrictions and regulations. In the classic mode of spies everywhere, they also spied on each other, including the intendants themselves.
Penalties for violations ranged from confiscation and destruction of the "inferior" production to heavy fines, public mockery, and deprivation of one's license to stay in business. As the major historian of mercantilism summed up French enforcement: "No measure of control was considered too severe where it served to secure the greatest possible respect for the regulations."
Two of the most extreme examples of the suppression of innovation in France occurred shortly after the death of Colbert during the lengthy reign of Louis XIV. Button-making in France had been controlled by various guilds, depending on the material used, the most important part belonging to the cord and button makers' guild, who made cord buttons by hand. By the 1690s, tailors and dealers launched the innovation of weaving buttons from the material used in the garment. The outrage of the inefficient hand-button-makers brought the state leaping to their defense.
In the late 1690s, fines were imposed on the production, sale, and even the wearing of the new buttons, and the fines were continually increased. The local guild wardens even obtained the right to search people's houses and to arrest anyone in the street who wore the evil and illegal buttons. In a few years, however, the state and the hand-button-makers had to give up the fight, since everyone in France was using the new buttons.
More important in stunting France's industrial growth was the disastrous prohibition of the popular new cloth, printed calicoes. Cotton textiles were not yet of supreme importance in this era, but cottons were to be the spark of the Industrial Revolution in 18th century England. France's strictly enforced policy made sure that cottons would not be flourishing there.
The new cloth, printed calicoes, began to be imported from India in the 1660s, and became highly popular, useful for an inexpensive mass market, as well as for high fashion. As a result, calico printing was launched in France. By the 1680s, the indignant woolen, cloth, silk, and linen industries all complained to the state of "unfair competition" by the highly popular upstart. The printed colors were readily outcompeting the older cloths. And so the French state responded in 1686 by total prohibition of printed calicoes: their import or their domestic production.
In 1700, the French government went all the way: an absolute ban on every aspect of calicoes including their use in consumption. Government spies had a hysterical field day: "peering into coaches and private houses and reporting that the governess of the Marquis de Cormoy had been seen at her window clothed in calico of a white background with big red flowers, almost new, or that the wife of a lemonade-seller had been seen in her shop in a casquin of calico." Literally thousands of Frenchmen died in the calico struggles, either being executed for wearing calicoes or in armed raids against calico users.
Calicoes were so popular, however, especially among French ladies, that the fight was eventually lost, even though the prohibition stayed on the books until the late 18th century. The smuggling of calicoes simply could not be stopped. But it was of course easier to enforce the prohibition against domestic calico manufacture than against the entire French consuming population, and so the result of the near-century of prohibition was to put a total stop to any domestic calico-printing industry in France. The calico entrepreneurs and skilled craftsmen, many of them Huguenots oppressed by the French state, emigrated to Holland and England, strengthening the calico industry in those countries.
Furthermore, pervasive maximum-wage controls discouraged workers from moving or, in particular, entering industry, and tended to keep workers on the farm. Apprenticeship requirements of three or four years greatly restricted labor mobility and prevented entrance into crafts. Each master was limited to one or two apprentices, thereby preventing the growth of any single firm.
Before Colbert, most French revenue came from taxation, but grants of monopoly proliferated so much during the Colbert regime to try to pay for swelling expenditures that monopoly-grant revenue came to more than one-half of all state income.
Most onerous and strictly enforced was the government's salt monopoly. Salt producers were required to sell all salt produced to certain royal storehouses at fixed prices. The consumers were then forced to purchase salt and, to expand state income and deprive smugglers of revenue, to purchase a fixed amount at four times the free-market price and divide it among the inhabitants.
Despite the enormous increase in monopoly-grant revenue, taxes rose greatly in France as well. The land tax, or taille réelle, was the single largest source of revenue for the state, and in the early part of his regime, Colbert tried to expand the burden of the taille still further. But the taille was hampered by a network of exemptions, especially including all the nobility. Colbert tried his best to spy on the exempt, to ferret out "false" nobles, and to stop the network of bribes of the tax-collectors. An attempt to lower the taille slightly and greatly to increase the aides — indirect internal taxes at wholesale and retail, particularly on beverages — came a cropper on the bribery and corruption of the tax farmers. And then there was the gabelle (tax on salt), revenue from which rose tenfold in real terms between the early 16th and mid-17th centuries. During the Colbert era, gabelle revenues rose not so much from an increase in tax rates as from the tightening of enforcement of the existing steep taxes.
The land and consumption taxes fell heavily upon the poor and upon the middle class, gravely crippling saving and investment, especially, as we have seen, in the mass-production industries. The parlous state of the French economy may be seen by the fact that, in 1640, just as King Charles I of England was facing a successful revolution largely brought about by his imposition of high taxes, the French Crown was collecting three to four times as much taxes per capita as did King Charles.
As a result of all these factors, even though the population of France was six times that of England during the 16th century, and its early industrial development had seemed promising, French absolutism and strictly enforced mercantilism managed to put that country out of the running as a leading nation in industrial or economic growth.
 Editor's Note: A Catholic group that urged toleration for Huguenots in the name of national unity.
 Eli F. Heckscher, Mercantilism (1935, 2nd ed., New York: Macmillan, 1955) vol. I, p. 162.
 Charles Woolsey Cole, French Mercantilism, 1683–1700 (New York: Columbia University Press, 1943), p. 176.