Mercantilism in England
[This article is excerpted from An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith. An MP3 audio file of this article, read by Jeff Riggenbach, is available for download.]
It was in the 16th century that England began its meteoric rise to the top of the economic and industrial heap. The English Crown in effect tried its best to hobble this development by mercantilist laws and regulations but was thwarted because, for various reasons, the interventionist edicts proved unenforceable.
Raw wool had for several centuries been England's most important product, and hence its most important export. Wool was shipped largely to Flanders and to Florence to be made into fine cloth. By the early 14th century, the flourishing wool trade had reached a height of an average annual export of 35,000 sacks. The state naturally then entered the picture, taxing, regulating, and restricting.
The principal fiscal weapon to build the nation-state in England was the "poundage," a tax on the export of wool and a tariff on the import of woolen cloth. The poundage kept increasing to pay for continuing wars. In the 1340s, King Edward III granted the monopoly of wool exporting to small groups of merchants, in return for their agreeing to collect the wool taxes on the king's behalf. This monopoly grant served to put out of business Italian and other foreign merchants who had predominated in the wool export trade.
By the 1350s, however, these monopoly merchants had gone bankrupt, and King Edward finally resolved the issue by widening the monopoly privilege and extending it to a group of several hundred called the "Merchants of the Staple." All wool exported had to go through a fixed town under the auspices of the company of the Staple, and be exported to a fixed point on the continent, by the end of the 14th century at Calais, then under English control. The monopoly of the Staple did not apply to Italy, but it did apply to Flanders, the major place of import for English wool.
The Merchants of the Staple soon proceeded to use their privileged monopoly in the time-honored manner of all monopolists: to force lower prices upon English wool growers, and higher prices upon Calais and Flemish importers. In the short run, this system was quite pleasant for the Staplers, who were able to more than recoup their payments to the king, but in the long run, the great English wool trade was crippled beyond repair. The artificial gap between domestic and foreign wool prices discouraged the production of English wool while it also injured the demand for wool abroad. By the mid-15th century, average annual exports of wool had fallen greatly to only 8,000 sacks.
The only benefit to Englishmen from this disastrous policy (apart from the joint short-term gains to King Edward and to the Staplers) was to give an unintended boost to the English production of woolen cloth. English cloth-makers could now benefit from their artificially lower prices of wool in England, coupled with the artificially high prices of wool abroad. Once again, the market managed to get a leg up in its unending, zigzag struggle with power. By the mid-15th century, fine, expensive, broadcloth "woolens" were being produced abundantly in England, centering in the West Country, where swift rivers made water plentiful for fulling the woven cloth, and where Bristol could serve as the major port of export and entry.
During the mid-16th century, a new form of woolen-cloth manufacture sprang up in England, soon to become dominant in the textile industry. This was the "new draperies," or worsteds, cheaper and lighter-weight cloth that could be exported to warmer climates and was far more suitable for dyeing and decoration, since each individual strand of yarn was now visible in the cloth.
Since the worsted was not fulled, the draperies did not need to be situated near running water, and so new textile manufacturers and workshops sprang up in the countryside — and in new towns such as Norwich and Rye — all round London. London was the largest market for the cloths, so transportation costs were now cheaper, and furthermore, the southeast was a centre for sheep bearing the coarse, long-stapled wool particularly suitable for worsted production. The new rural firms around London were also able to hire skilled Protestant textile artisans who had fled the religious persecution in France and the Netherlands. Most important, going to the countryside or to new towns meant that the expanding and innovating textile industry could escape from the stifling guild restrictions and frozen technology of the old towns.
Now that over 100,000 cloths were exported annually, compared to a few thousand two centuries earlier, sophisticated production and marketing innovations took place. Establishing a "putting-out" system, merchants paid artisans by the piece to work on cloth owned by the former. In addition, marketing middlemen sprang up, yarn brokers serving as middlemen between spinners and weavers, and drapers specializing in selling the cloth at the end of the production chain.
Seeing the rise of effective new competition, the older urban and broadcloth artisans and manufacturers turned to the state apparatus to try to shackle the efficient upstarts.
As Professor Miskimin puts it,
As often happens during an evolutionary period, the older, vested interests turned to the state for protection against the innovative elements within the industry and sought regulation that would preserve their traditional monopoly.
In response, the English government passed the Weavers' Act in 1555, which drastically limited the number of looms per establishment outside the towns to only one or two. Numerous exemptions, however, vitiated the effect of the act and other statutes placing maximum controls on wages; restricting competition in order to preserve the old broadcloth industry came to naught from systemic lack of enforcement.
The English government then turned to the alternative of propping up and tightening the urban guild structure to exclude competition. These measures succeeded, however, only in isolating and hastening the decay of the old urban broadcloth firms. For the new rural firms, especially the new draperies, were beyond guild jurisdiction. Queen Elizabeth then went national, with the Statute of Artificers in 1563, which placed the nation-state squarely behind guild power. The number of apprentices each master could employ was severely limited, a measure calculated to stifle the growth of any one firm, and to decisively cartelize the wool industry and cripple competition. The number of years of apprenticeship, before the apprentice could rise to become a master, was universally extended by the statute to seven years, and maximum wage rates for apprenticeships were imposed throughout England.
Beneficiaries of the Statute of Artificers were not only the old, inefficient urban broadcloth guilds, but also the large landlords, who had been losing rural workers to the new, high-paying clothing industry. One announced aim of the Statute of Artificers was compulsory full employment, with labor directed to work according to a system of "priorities"; top priority was accorded to the state, which attempted to force workers to remain in rural and farm work and not leave the farm for glittering opportunities elsewhere. To enter commercial or professional fields, on the other hand, required a graded series of qualifications such that the occupations were happy in having entry restricted by this cartelizing statute, while the landlords were delighted to have workers forced to remain on the farm at lower wages than they could achieve elsewhere.
If the Statute of Artificers had been strictly enforced, industrial growth might have been permanently arrested in England. But fortunately, England was far more anarchic than France, and the statute was not well enforced, particularly where it counted, in the new and fast-growing worsted industry.
Not only was the countryside beyond the grasp of the urban guilds and their nation-state ally, but so too was fast-growing London, where custom decreed that any guild member could engage in any sort of trade, and no guild could exercise restrictive control over any line of production.
London's position as the great export centre for the new draperies — largely to Antwerp — partially accounted for the enormous growth of this city during the 16th century. London's population grew at three times the rate of England's as a whole over the century, specifically from 30–40,000 at the beginning of the 16th century to a quarter of a million early in the next. The London merchants were not, however, content with free-market development, and power began to move in on the market. Specifically, the London merchants began to reach for export monopoly.
In 1486 the City of London created the Fellowship of the Merchant Adventurers of London, which claimed exclusive rights to the export of woolens to its members. For provincial merchants (outside of London) to join required a stiff fee. Eleven years later the king and parliament decreed that any merchant exporting to the Netherlands had to pay a fee to the Merchant Adventurers and obey its restrictionist regulations.
The state tightened the monopoly of the merchant adventurers in the mid-16th century. First in 1552, the Hanseatic merchants were deprived of their ancient rights to export cloth to the Netherlands. Five years later, customs duties were raised on the import of cloth, thereby conferring more special privileges on the domestic cloth trade and increasing the financial ties of the Crown to the cloth merchants. And finally, in 1564, in Queen Elizabeth's reign, the merchant adventurers were reconstituted under tighter and more oligarchic control.
In the late 16th century, however, the mighty merchant adventurers began to decline. The English war with Spain and the Spanish Netherlands lost the Adventurers the city of Antwerp, and at the turn of the 17th century they were formally expelled from Germany. The English monopoly of woolen exports to the Netherlands and the German coast was finally abolished after the revolution of 1688.
It is instructive to note what happened to printed calico in England as compared to the suppression of the industry in France. The powerful woolen industry managed to get the importation of calicoes banned from England in 1700, a decade or so after France, but in this case domestic manufacture was still permitted. As a result, domestic manufactures of calico spurted ahead, and when the woolen interests managed to get a prohibition-of-calico-consumption act passed in 1720 (the Calico Act), the domestic calico industry was already powerful and could continue to export its wares.
In the meanwhile, calico smuggling continued, as did domestic use — all stimulated by the fact that prohibition was not enforced nearly as strictly in England as in France. Then, in 1735, the English cotton industry won an exemption for the domestic printing and use of "fustians," a mixed cotton and linen cloth, which were the most popular form of calico in England in any case. As a result, the domestic cotton-textile industry was able to grow and flourish in England throughout the 18th century.
Prominent in English mercantilism was the pervasive creation by the Crown of grants of monopoly privilege: exclusive power to produce and sell in domestic and in foreign trade. The creation of monopolies reached its climax in the reign of Queen Elizabeth (1558–1603), in the latter half of the 16th century. In the words of historian Professor S.T. Bindoff, "… the restrictive principle had, like some giant squid, fastened its embracing tentacles round many branches of domestic trade and manufacture," and "in the last decade of Elizabeth's reign scarcely an article in common use — coal, soap, starch, iron, leather, books, wine, fruit — was unaffected by patents of monopoly."
In sparkling prose, Bindoff writes how lobbyists, using the lure of monetary gain, obtained royal courtiers to sponsor their petitions for grants of monopoly: "their sponsorship was usually a mere episode in the great game of place-and-fortune-hunting which swayed and swirled incessantly around the steps of the throne." Once granted their privileges, the monopolists got themselves armed by the state with powers of search-and-seizure to root out all instances of now-illegal competition. As Bindoff writes,
The "saltpetre men of the gunpowder contract dug in every man's house" for the nitrate-laden soil which was their raw material. The minions of the playing-card monopoly invaded shops in search of cards lacking its seal and browbeat their owners, under threat of summons to a distant court, into compounding for their offences. The search-warrant was, indeed, indispensable to the monopolist if he were to eliminate competition and leave himself free to fix the price of his wares.
The result of this expulsion of competition, as we might expect, was the lowering of quality and the raising of price, sometimes by as much as 400 percent.