History of Political Economy

Rudolf Hilferding on
English Mercantilism
Daniel Gaido

Rudolf Hilferding’s Early Political

and Intellectual Life
Rudolf Hilferding (1877–1941) was born in Vienna into a prosperous mid-
dle-class Jewish family. He joined the Austrian Social-Democratic Work-
ers’ Party (Sozialdemokratische Arbeiterpartei Österreichs or SDAP) in
his student days, while studying medicine at the University of Vienna. By
1902, however, his brilliance in economics was such that Karl Kautsky
invited him to become a contributor to Die neue Zeit, the theoretical organ
of the Social Democratic Party of Germany (Sozialdemokratische Partei
Deutschlands or SPD).
In 1904, together with socialist friends from university days—Max
Adler, Otto Bauer, and Karl Renner—Hilferding founded a socialist pub-
lishing enterprise called the Marx-Studien (Marxist Studies) series. This
joint effort was the foundation of what later came to be known as Austro-
Marxism, a socialist point of view midway between Russian Marxism and
the reformism of the Social Democratic parties during the first three
decades of the twentieth century.1 The first published volume of Marx-
Studien was Hilferding’s reply to Eugen von Böhm-Bawerk’s Karl Marx
and the Close of His System (Hilferding [1904] 1949).

Correspondence may be addressed to Daniel Gaido, CIECS-CONICET UNC, Rondeau St. 467
Primer Piso, Nueva Córdoba, X5000AVI Córdoba, Argentina; e-mail: danielgaid@gmail.com.
1. For anthologies of Austro-Marxist writings, see Bottomore and Goode 1978, and Blum
and Smaldone 2015.
History of Political Economy 48:3  DOI 10.1215/00182702-3638631
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Hilferding moved in 1906, at Kautsky’s initiative, to Berlin, where he

taught political economy at the SPD’s party school. He was forced to give
up this job because of a law forbidding the employment of teachers with-
out German citizenship, but he remained in Berlin as editor of the SPD
central daily paper Vorwärts and a regular contributor to both Die neue
Zeit and Der Kampf, the theoretical organ of Austrian Social Democracy.
In Berlin, Hilferding completed his major work, Finance Capital: A Study
of the Latest Phase of Capitalist Development ([1910] 1981), which ini-
tially appeared as the fifth volume in the series of Marx-Studien. At the
time, Finance Capital was widely regarded as one of the most important
publications in Marxist economics since Capital (see the contemporary
reviews by Bauer [1910, (1910) 2012], Marchlewski [1910, (1910) 2012],
and Kautsky [1911]).
In 1911, Hilferding published an article on the history of English mer-
cantilism in Die neue Zeit called “The Early Days of English Political
Economy,” previously available only in German, which we now make
available to the English-reading public. (See the next item in this issue of
History of Political Economy.) In order to facilitate its understanding, we
will offer here a short overview of mercantilist literature based on Isaac
Ilych Rubin’s outstanding History of Economic Thought ([1929] 1979).2

The Evolution of Mercantilist Policy

and Economic Theory
The economy of the later Middle Ages, from the twelfth to the fifteenth
centuries, had an overwhelmingly natural character. Most people were
engaged in what is today called subsistence farming, that is to say, most of
what the peasants produced was consumed by them or was given over to
the landlords, who also consumed a large part of it, leaving only a small
proportion to be exchanged for the products of city craftsmen or for the
luxury items brought in by traders. The city artisans, in turn, were orga-
nized in guilds and corporations, which placed strict limitations on the
employment of wage labor and the expansion of production. This system

2. For a collection of thirty-eight essays on mercantilism by historians of economic thought,

see Blaug 1991a and 1991b. The key article on Mun is, however, Lynn Muchmore’s “A Note on
Thomas Mun’s ‘England’s Treasure by Forraign Trade,’” which concludes that “Mun’s basic
analysis was commissioned by the East India Company as a defence against political charges,”
and that “the ‘balance of trade’ was designed to divert attention from short-run specie outflow
and to emphasize the long-run profitability of the East India traffic” (Muchmore 1970, 503).

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began to break down in the sixteenth and seventeenth centuries, the age of
merchant capital or early capitalism, characterized by the rapid develop-
ment of a monetary economy and the growing strength of the commercial
bourgeoisie. The old Levantine trade with the East across the Mediterra-
nean gave way to an ocean-going commerce in two directions: eastward
to India, and westward to America. International commercial hegemony
passed out of the hands of the Italians and the Hanseatic cities to the coun-
tries situated along the Atlantic Ocean: first to Spain and Portugal, after-
ward to Holland, and finally to England. Those centuries also saw the
development of colonial trade and plunder, which together with improve-
ments in the technology of silver extraction (the amalgamation of silver
with mercury) sharply increased the stock of precious metals in Europe,
bringing about a “price revolution.” This resulted in sharp changes in the
relations of the different classes and in the rapid enrichment of the com-
mercial bourgeoisie. Colonial trade, conducted by monopolistic chartered
companies like the Virginia Company in 1607, was accompanied by a
series of wars for colonial possessions between Holland and England in
the seventeenth century and between England and France in the eigh-
teenth century. In England the period was characterized by the “clearing”
of estates from small-scale peasants and tenants, the decline of guild
handicrafts, and the rise of cottage industry and the putting-out system. It
was in this context of transition from a feudal to a capitalist economy that
mercantilist policy and literature developed.
Mercantilist policy, which strove to accelerate the transition from a
natural to a money economy by reinforcing the influx of precious metals
into the country, corresponded to the interests of the commercial bour-
geoisie. The age of merchant capital was also the age of absolute monar-
chy, resulting in a close alliance between the state and the commercial
bourgeoisie, an alliance which found expression in mercantilist policy. As
summarized by Rubin ([1929] 1979, 26),
The basic feature of mercantilist policy was that the state actively used
its powers to help implant and develop a young capitalist trade and
industry and, through the use of protectionist measures, diligently
defended it from foreign competition. While mercantilist policy served
the interests of both these social forces, it was dependent upon which
partner in this union proved the stronger—the state or the merchant
bourgeoisie—as to whether its fiscal or its economic aspect gained the
upper hand. In its opening phase mercantilism had above all to foster

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the fiscal aims of enriching the state coffers and augmenting state rev-
enues, and this it did by making the population bear a heavier tax bur-
den and by attracting precious metals into the country (early mercantil-
ism, or the monetary balance system). But as the bourgeoisie grew in
strength, mercantilism became increasingly transformed into a means
of bolstering capitalist trade and industry and defending it through pro-
tectionism. Here we have developed mercantilism, or the balance of
trade system.
The first stage of mercantilism, which Marx called the monetary sys-
tem and Richard Jones the “balance-of-bargain system,” coincided with
the “price revolution” brought about by the inflow of precious metals from
America and by the debasement of metal coins by the kings, and was
therefore concerned above all with monetary policy. It sought to avoid the
worsening of the currency’s rate of exchange and the outflow of coins to
other countries through compulsory governmental regulation over the cir-
culation of money. In particular, the early mercantilists demanded an
absolute prohibition on the export of metal coins, hoping in this way to
improve the country’s “monetary balance” (Rubin [1929] 1979, 366).
The second stage of mercantilism, which Marx called the mercantile
system and Richard Jones the “balance-of-trade system,” started in the
seventeenth century, when the later mercantilists understood that fluctua-
tions within the sphere of monetary circulation (a deteriorating rate of
exchange and the export of metal coins) resulted from the country’s unfa-
vorable balance of trade. They did not believe it possible to regulate the
flow of money directly, and so advised the king to focus on regulating the
country’s balance of trade by stimulating its commodity exports to other
countries. In particular they recommended the development of export
industries (fully fledged mercantilism was above all a policy of protec-
tionism for nascent industries, such as the textile industry, which produced
cloth products that were increasingly replacing wool as the main item in
English exports) and the transit trade (particularly colonial trade, as
reflected in the Navigation Acts).

Marx’s Remarks on Mercantilism

Hilferding based his 1911 analysis of mercantilism, first of all, on Marx’s
scattered remarks on the subject. In the third volume of Capital, Marx
([1894] 1992, 455) had noted that

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the first theoretical treatment of the modern mode of production—mer-

cantilism—necessarily proceeded from the superficial phenomena of
the circulation process, as these acquire autonomy in the movement of
commercial capital. Hence it only grasped the semblance of things.
This was partly because commercial capital is the first independent
mode of existence of capital in general. And partly on account of the
overwhelming influence that commercial capital exercised in the period
when feudal production was first overthrown, the period of the rise of
modern production. The genuine science of modern economics begins
only when theoretical discussion moves from the circulation process to
the production process.
For the mercantilists, the profit of the individual capitalist was relative
profit, “profit upon alienation,” always derived from the excess of the price
of the commodity over its real value, from its sale above its value. If there-
fore all commodities were sold at their value, no profit would exist (Marx
[1862–63] 1968–72, 1:42). Since in the mercantile system surplus value
was only relative—what one wins, the other loses—it followed that
within a country, if we consider the total capital, no creation of surplus-
value in fact takes place. It can only arise in the relations between one
nation and other nations. And the surplus realised by one nation as
against the other takes the form of money (the balance of trade), because
it is precisely money that is the direct and independent form of
exchange-value. In opposition to this—for the Mercantile system in fact
denies the creation of absolute surplus-value—the Physiocrats seek to
explain absolute surplus-value: the net produce. And since the net prod-
uct is fixed in their minds as use-value, agriculture [is for them] the sole
creator of it. (1:66)
Marx believed that the great contribution of the physiocrats, in contrast
to the monetary and mercantile system, was to have derived value and
surplus value not from circulation but from production: “Thus the
Physiocrats saw the production of surplus-value as the essence of capital-
ist production. It was this phenomenon that they had to explain. And it
remained the problem, after they had eliminated the profit upon alienation
of the Mercantile system” (1:62–63).
In his analysis of the circulation process in the second volume of Capi-
tal, Marx remarked that the mercantile system—which he described as a
“variant” of the monetary system—was based on the formula for the circuit

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of money capital. This formula starts with money (M), which is then con-
verted into commodities (C, i.e., labor power and the means of production
required for production). The production process (P) then results in com-
modities bearing a greater value than at the beginning of the circuit, a
value that is realized in a sum of money larger than the capital sum origi-
nally advanced:
The formula M—C . . . P . . . C′—M′, with the result M′ = M + m, con-
tains in its form a certain deception; it bears an illusory character that
derives from the existence of the advanced and valorized value in its
equivalent form, in money. What is emphasized is not the valorization
of the value, but the money form of this process, the fact that more
value in the money form is finally withdrawn from the circulation
sphere than was originally advanced to it, i.e. the increase in the mass
of gold and silver belonging to the capitalist. The so-called Monetary
System is simply the expression of the superficial form M—C—M′, a
movement that proceeds exclusively in the circulation sphere, and
hence can only explain the two acts (1) M—C and (2) C—M′ by saying
that C in the second act is sold above its value, and therefore withdraws
more money from the circulation sphere than was cast into it by its pur-
chase. On the other hand, however, M—C . . . P . . . C′—M′, when
regarded as the exclusive form, is the basis for the more developed Mer-
cantile System, in which it is not simply the circulation of commodities
but also their production that appears as a necessary element. (Marx
[1893] 1978, 141)
Marx ([1894] 1992, 920–21) develops this idea in the third volume of
Capital:
The Monetary System correctly proclaims that production for the world
market and the transformation of the product into a commodity, hence
into money, is the precondition and requirement for capitalist produc-
tion. In its continuation as the Mercantile System, it is no longer the
transformation of commodity value into money that is decisive, but
instead the production of surplus-value—albeit from the irrational
standpoint of the circulation sphere, and at the same time in such a way
that this surplus-value is expressed in surplus money, in a favourable
balance of trade. But it is also the characteristic feature of the self-inter-
ested merchants and manufacturers of that time, and belongs to the
period of capitalist development that they represent, that the transforma-

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tion of feudal agricultural societies into industrial societies, and the

resulting industrial struggle of nations on the world market, involves an
accelerated development of capital which cannot be attained in the so-
called natural way but only by compulsion. It makes a substantial differ-
ence whether the national capital is transformed into industrial capital
gradually and slowly, or whether this transformation is accelerated in
time by the taxes they impose via protective duties, principally on the
landowners, small and middle peasants and artisans, by the accelerated
expropriation of independent direct producers, by the forcibly acceler-
ated accumulation and concentration of capital, in short, by the acceler-
ated production of the conditions of the capitalist mode of production. It
also makes an enormous difference in the capitalist and industrial
exploitation of the nation’s natural productive power. The national char-
acter of the Mercantile System is therefore not a mere slogan in the
mouths of its spokesmen. Under the pretext of being concerned only
with the wealth of the nation and the sources of assistance for the state,
they actually declare that the interests of the capitalist class, and enrich-
ment in general, are the final purpose of the state, and proclaim bour-
geois society as against the old supernatural state. At the same time,
however, they show their awareness that the development of the interests
of capital and the capitalist class, of capitalist production, has become
the basis of a nation’s power and predominance in modern society.
Marx’s most extensive comments on mercantilism appeared in his work
A Contribution to the Critique of Political Economy, published in 1859, in
a paragraph quoted at length by Hilferding at the end of his article (Marx
[1859] 1975, 388–89).

Hilferding on Richard Jones

In early 1911–12, Hilferding wrote for Die neue Zeit a four-part review of
the third volume of Marx’s Theories of Surplus-Value, which had
appeared the previous year under the editorship of Karl Kautsky, thus
completing the publication of Marx’s economic manuscripts (the Grun-
drisse was not published until much later, in 1939–41) (Marx 1910).3

3. The first volume of Theories of Surplus-Value, containing Marx’s observations on the

mercantilists, had been published in 1905 and was reviewed in Die neue Zeit by Heinrich
Cunow (Cunow 1905, [1905] 2016). For another review of the first volume of Theories of Sur-
plus-Value by an SPD theoretician, see Mehring [1905] 1980.

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The fourth and last installment of Hilferding’s review dealt with Marx’s
treatment of Richard Jones (1790–1855), an Anglican priest and politi-
cally conservative lecturer at Cambridge University, whom Hilferding
considered “one of the most important precursors of the materialist con-
ception of history,” because of all the economists who preceded Marx,
“Jones was the one who most clearly recognised and enunciated the his-
torical character of capitalism” (Hilferding 1911–12, 346–47). He pointed
out that “Marx praised Jones’ first book [An Essay on the Distribution of
Wealth and on the Sources of Taxation, Part I: Rent, published in 1831]
because it was characterised by what is lacking in all English economists
since Sir James Steuart, namely, a sense of the historical difference in
modes of production” (343).
In his commentary on Jones in Theories of Surplus-Value, Marx
([1862–63] 1968–72, 3:429) wrote that “the real science of political econ-
omy ends by regarding the bourgeois production relations as merely his-
torical ones, leading to higher relations in which the antagonism on which
they are based is resolved.” In Hilferding’s (1911–12, 352) terms, this
meant that “with Jones, political economy arrives at the point where its
previous conscious or unconscious assumption—the necessity, or the
implicitly assumed existence, of the bourgeois form of production—had
to be dropped in order to make possible further progress of the science.”
Moreover, Jones not only revealed the historically conditioned charac-
ter of capitalism, but investigated its historical development. As an exam-
ple, Hilferding pointed out that
in his book on rents, he showed that capitalist rents, to which alone
Ricardo’s laws apply to a certain extent, presuppose capitalist landed
property, and that this in turn presupposes capitalist industry, the trans-
formation of the labourer into a wage worker, the appearance of an
independent capitalist class, and equalisation of the rates of profit. Fol-
lowing rents in all their transformations, from their crudest form as
forced labour to modern monetary rent (farmers’ rent), he set earlier
forms of society against capitalist social relations and everywhere
found that a specific form of labour and its conditions corresponded to
a certain form of rent, i.e. to a certain form of landed property. In all
previous forms, the landlord was the direct appropriator of the surplus
labour; only in capitalist society does the capitalist take his place. (346)
Jones’s writings were posthumously collected in 1859 under the title
Literary Remains: Consisting of Lectures and Tracts on Political Econ-

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omy of the Late Rev. Richard Jones. This volume contained a reprint of
the article “Primitive Political Economy of England,” published by Jones
in the Edinburgh Review in April 1847 (Jones 1847) and that, as the foot-
notes to “The Early Days of English Political Economy” make clear, evi-
dently prompted Hilferding’s interest in the history of English mercantil-
ism. To this influence should be added the coincidental publication of a
German version of the “bible of mercantilism”: Thomas Mun’s England’s
Treasure by Forraign Trade, or the Ballance of Our Forraign Trade Is the
Rule of Our Treasure (Mun [1664] 1911).
In his review of the third volume of Theories of Surplus-Value, Hilferd-
ing argued that “the fundamentally new element in Marx” was that he
attempted “to combine the historical conception that Jones counterposes
to Ricardo’s ‘abstract method’ with the latter.” Jones continued to operate
indistinctly with Ricardo’s or even Malthus’s theory of value, without
worrying much about their differences, which seemed to him irrelevant;
he did not try “to go beyond historical description to theoretical compre-
hension” (Hilferding 1911–12, 350–51). Hilferding leveled a similar accu-
sation against the German historical school in his review of Werner Som-
bart’s Der moderne Kapitalismus (Hilferding 1903, [1903] 2016), a book
from which he took some of the terminology for his essay on mercantil-
ism, like the notion of a subsistence economy or an economy for the satis-
faction of needs (Bedarfdeckungswirtschaft) as opposed to a market or
profit-oriented economy (Erwerbswirtschaft).

Richard Jones on Mercantilism

While Marx had pointed out the main aspects of mercantilism and offered
a periodization of its history into the monetary and mercantile systems, it
was Jones’s work that gave Hilferding a more detailed view of mercantil-
ism’s early historical development, whose origins Jones traced back to the
fourteenth century. According to Jones (1847, 427), the problem was that
“England possessed no mines of the precious metals which could be
worked on such a scale as seriously to affect the amount of national riches,
according to the then received notion of riches. It was clear, therefore, that
the riches of the country must come from abroad; and how to draw them
thence, was the problem our statesmen wished to understand, and very
roughly and characteristically attempted practically to solve.”
Jones found that one of the earliest indications of mercantilist views
occurred in the reign of Richard II (1377–99), when the king and his

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counselors, worried by the drain of bullion abroad, decided, upon the

advice of the city of London, that it was necessary to buy less from for-
eigners and to sell them more. As Jones explains,
The peculiarities of our earlier legislation sprang at once out of these
convictions. The politicians of the day determined that the state should
be actually present, by its agents, at every bargain made in the chief
articles exported from the country; and should forcibly make such bar-
gains directly productive of bullion. When they had thus got the bul-
lion, they determined with equal firmness that it should never leave the
country; and that they would watch the details of every transaction
which might lead to its escape with jealous and never-sleeping eyes.
To effect their purposes, they adopted a very complicated system,
which we may call the balance-of-bargain system; and which, though
its object was precisely the same with that of the balance-of-trade sys-
tem, long subsequently established, yet sought to attain that object by
very different means. The later and more thoughtful speculators for-
mally eschewed all inspection of the dealings of individuals; and only
sought, by foreign negotiation and domestic legislation, so to influence
the productions and general commerce of the country, as indirectly to
achieve their purpose of selling more to foreigners than they bought
from them; and distinctly rejected all the ingenious and all the fero-
cious provisions of that earlier balance-of-bargain system which we are
about to describe. (428)
The provisions of that earlier system were of two kinds: measures that
sought to bring bullion into the country, and measures destined to prevent
it from going out. Two instruments were used for the first purpose—the
staple towns, and the corporation of the mayor and constables of the sta-
ple. This incorporated body had two purposes: to ensure the collection of
the customs due to the king on the export of wool and to see that those
exports were paid for in bullion destined for England. This policy was first
adopted in 1313. Accordingly, Antwerp and Bruges, and, as subordinate
to Antwerp, St. Omer and Lisle, became the only points at which foreign
clothiers could buy English wool. According to Jones, these duties on the
export of wool enabled Edward III (1327–77) to finance his wars with
France. From the reign of Henry VI (1422–61) until its capture by the
French in 1558, Calais continued to be the sole English staple town. Hav-
ing thus confined to one spot the dealings in wool, and other staple arti-
cles, and so enabled itself, by its officers, to be present at every transaction

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in those commodities, the English government made it certain that a con-

stant stream of the precious metals would flow into England. In order to
keep it within the realm, it resorted to four main measures: the mint, the
searchers and customers (as the customs house officers were called) of
ports from which goods were exported, the king’s exchanger and his staff,
and the so-called Statutes of Employment (433).
The legislation of the time stipulated that no foreign coin could be used
in England for any other purpose than being exchanged for English money
at the official exchange rate.4 To carry out this policy, a king’s exchanger
was appointed, with vast powers over the money transactions of the coun-
try. The stranger who landed with foreign money in his possession was
bound to go to the nearest place at which an officer of the royal exchanger
could be found, in order to exchange his money for as much English coin
as the exchanger told him it was worth; otherwise his money was seized,
and he was subjected to harsh penalties. The foreign coin received at the
staple towns, and that which got into the hands of the king’s exchangers,
was all sent to the mint and recoined. The negotiation of foreign bills of
exchange was also strictly controlled by the royal exchanger and his agents.
To this legislation aimed at preventing the exportation of money should
be added the various Statutes of Employments, which stipulated that
before they left the country, foreign traders should provide proof that they
had employed all the money they had received for their imported cargoes
in the purchase of English commodities for exportation, so that no money
remained in their hands to be carried away. For instance, the Statute of the
18th of Henry VI, adopted in 1438, provided that all foreign traders com-
ing to traffic in any port in England should be under the surveying of
certain people called hosts, to be assigned to them by the officers of the
town. These hosts were themselves merchants who, however, were
required not to trade in the commodities of their guests. They supervised
every transaction made by the foreign traders, and made sure that within
eight months they sold all their cargo and reinvested the proceeds in Eng-
lish goods. They kept an accurate book of every transaction made by the
foreign merchant, and twice a year they sent a transcript of that book to
the exchequer. Of course, they charged their guests for this work. If any
merchant neglected to report himself to take a host, he was sent to prison.

4. This belief that money had no intrinsic value, and that it was the sovereign’s prerogative to
determine it, induced Hilferding to compare the early mercantilists’ views on money to Georg
Friedrich Knapp’s “chartalism,” according to which government-issued tokens, recalled through
taxation—i.e., fiat money—could be used as monetary units.

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According to Jones, this policy was gradually dismantled due to four

reasons: the establishment of the Company of Merchant Adventurers of
London, a body formed in order to deal with the exportation of cloth that
put an end to the supremacy of the staple towns and merchant staplers by
making it virtually impossible to control every sale in staple commodities
to foreign merchants; the growing use of foreign bills of exchange; the
degradation of the currency under Henry VIII (1509–47); and the capture
of Calais by the French in 1558.
Jones then described, in a paragraph quoted by Hilferding, the reign of
Elizabeth (1558–1603) as an interregnum between the balance-of-bargain
system and the balance-of-trade system (444). The economic literature of
the reign of Elizabeth gave the impression “that the nation was passing
through a period of gloom and peril” due to “the universal dearth, as it
was called, which resulted from the joint action of the influx of the pre-
cious metals from America, and the debasement of the currency; the
decay of the ancient borough towns; the distress of the agriculturists from
enclosures, and the clearing away of the occupying peasant tenantry,” as
well as the cessation of the old mercantile policy (444). Of this literature
Jones—and after him Hilferding—reviewed the works of Thomas Milles,
Malynes, Misselden, and William Stafford (444–46).
Jones then proceeded to examine the work of Thomas Mun, England’s
Treasure by Foreign Trade, or the Balance of Our Foreign Trade Is the
Rule of Our Treasure, published in 1664, in which the second stage of
mercantilist policy received its classical expression. According to Jones,
the new system “had still the same object with the old—the increasing the
treasure, that is, the coin and bullion of the country, through its foreign
trade. But the new differed from the old, in discarding entirely all the
provisions and machinery of earlier ages; abandoning all interference
with the bargains of individuals, and confining its attempts to guide the
trade of the country to measures of general policy” (447).
The immediate cause for writing England’s Treasure was the need of
the East India Company (of which Mun was one of the directors) to export
bullion in order to buy Indian commodities, since there was no demand
for English wares there. Mun tried to show, by tracing the worldwide route
of bullion and wares, that, although the East India trade “began by export-
ing some bullion, it might end by importing much more; and thus add to
the treasure and vitality of the country, instead of exhausting them” (Jones
1847, 448).

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Jones concluded that, after the publication of Mun’s work, the old bal-
ance-of-bargain system was definitely discarded, although the new system
was, like the old one, based on the presupposition that bullion alone con-
stituted real riches—an affirmation contested by Adam Smith in his work
An Inquiry into the Nature and Causes of the Wealth of Nations, first
published in 1776, which contained a famous refutation of mercantilism.

Hilferding on the Beginnings of

Mercantilism in England
Hilferding summarized the contents of the essay that we now make avail-
able to the English-reading public, for the theoretical organ of the Aus-
trian Social Democratic Party, Der Kampf, under the title “The Begin-
nings of Mercantilism in England” (Hilferding 1911b).
According to Hilferding’s account of the rise of mercantilism, the time
of primitive accumulation, the beginning of capitalism, was at the same
time the beginning of modern economic research. The Middle Ages had
considered economic phenomena mainly from an ethical viewpoint. The
focus of canonical doctrine, decisive also for the economy, was the ques-
tion of the justum pretium, the “fair price.” Church jurisprudence, as
summed up by Thomas Aquinas, rejected usury, since money was consid-
ered unproductive. The Canonists were even hostile to trade, whose striv-
ing after profit had a dissolving effect on traditional ties. Their ideal was
drawn from the medieval town economy, where the craftsman worked
alone or with one or two journeymen and apprentices. According to the
Canonists, craftsmen had to receive the “fair price” for the product of
their labor, but no more. Strict guild rules protected consumers against
cheating through unreasonable prices while at the same time protecting
artisans from competition, guaranteeing them equality of conditions with
all their fellow guildsmen in purchasing their raw materials and selling
their goods, and always putting supply and demand in the appropriate
proportion so that the price of the product would correspond to the labor
expenditure.
As early as the late Middle Ages, the canonical doctrine awoke grow-
ing opposition. With the increasing importance of trade grew also the
possibility of investing money in large-scale commercial enterprises.
Money no longer appeared unproductive, once trade outgrew shopkeeping
and peddling and became a source of enrichment. The prohibition of

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interest appeared unfair, an obstacle to make the gradually accumulating

money wealth available to growing trade, especially to trade with foreign
countries, which required large amounts of capital. Thus a rising opposi-
tion to the old teachings, an opposition that fought the doctrine of the ste-
rility of money and the prohibition of interest and praised trade as a source
of wealth formation, grew out of the changed economic conditions.
The economic revolution that occurred as a result of the discovery of
America and the sea route to the East Indies gave rise to a new point of
view. A stream of gold and silver poured over Europe from the newly dis-
covered countries. And the costs of production of the new mines were
significantly lower than the cost price of the precious metals in Europe,
reducing their value. A general rise in prices was the result, whose eco-
nomic effect was exacerbated by government intervention. The many
wars of that period placed the rulers into increasingly difficult financial
straits. The state’s right to mint coins was universally abused by rulers.
The debasement of coinage became rampant; coins contained less and
less valuable metal, and the prices of commodities again increased in
accordance with the reduction in the value of money, while the exchange
value of English coins deteriorated.
The influx of precious metals depended on the possession of colonies.
And the colonies at the same time provided luxury items such as spices,
which fetched high prices in Europe. The monopolistic trading compa-
nies, mainly from Holland and England, were not only merchants but also
the conquerors of the new colonial territories.
In England at the same time the great agrarian revolution took place.
The rising demand for English wool and cloth made it profitable for land-
owners to shift from the cultivation of cereals to sheep breeding. The big
landowners appropriated the common lands, the former grain land was
fenced for grazing, and the peasants were driven away and began to wan-
der as landless proletarians, until they were gradually absorbed by the
emerging manufactories.
The economic revolution posed for economic observers the question of
the causes of those phenomena, prompting them to shift from ethical
judgments to causal, scientific research. The new doctrines no longer
inquired whether economic facts corresponded to Christian or other
moral teachings; the problem of “fair price,” of the “sterility of money,”
disappeared from serious investigations, which now looked for the causes
that brought about the new conditions. Economic policy began to rely on
economic theory.

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Gaido / Hilferding on English Mercantilism 463

According to Hilferding, this new spirit found expression with particular

clarity in an anonymous writing published in London in 1581, for a long
time attributed to William Stafford, which recognized that the main cause
of the rise in prices was the changed value of money (Stafford [1581] 1876).
It condemned the debasement of English currency, in the process develop-
ing important insights into the nature of money. But while the anonymous
writing attributed to Stafford initiated an important theoretical advance in
this field, it left the basis of traditional economic policy measures
untouched. This theoretical revolution took place almost a century later
with the publication of Thomas Mun’s England’s Treasure by Forraign
Trade, written in 1630 but published posthumously (Mun 1664). According
to Hilferding, Mun is rightly regarded as the father of mercantilism.
The possession of money was crucial to the power of the centralized
monarchies. If the English kings wanted to become independent of the
landlords, they needed their own army and officials, and they could pay
for them only if they had constantly flowing sources of money. And they
needed gold to wage war, especially with foreign countries. Foreign trade
was regarded as the only way to increase the monetary treasure of a coun-
try that did not have gold and silver mines. Thus, a system of rules devel-
oped whose object was to regulate trade in such a way that it would bring
gold into the country and hold the money thus obtained within it.
Hilferding then summarized the contents of Jones’s article on early
mercantilism, pointing out that the main export goods were allowed to be
sold only at a certain place abroad, the staple town. Duties were imposed
on the export of every commodity, and it was decreed that a certain share
of the proceeds must be brought into the country as coin or bullion, in
order to turn it into coin at the Royal Mint. In contrast, the export of gold
was strictly forbidden. Foreign merchants were required by the Statutes of
Employment to provide evidence that they exported British goods rather
than English money for the same amount for which they had sold in Eng-
land imported goods, and a monitoring system ensured implementation.
In short, the state ordered and supervised through its own officers every
single exchange of goods and money, in order to compel traders to sell
abroad more than they imported, thus forcing a constant increase of the
domestic monetary treasure.
Developed mercantilist policy also proclaimed, like the monetary bal-
ance system, that gold was the only true wealth, but it argued that only
foreign trade could be the source of this wealth, and that therefore it had
to be regulated in such a way as to yield a positive balance of trade. This

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led to the important insight that monetary circulation is a product of com-

modity circulation, and that therefore the quantity of metallic money in
circulation depends on the needs of commodity circulation.
The monitoring of individual transactions, the prohibition of monetary
exports, and the use of coercion were annoying traffic inhibitions for
developed mercantilism. Not the individual act of exchange had to be con-
sidered, but the totality of trade. The supervision of individual transac-
tions had to be replaced by a national trade policy. Mun required the aboli-
tion of those restrictions; trade had to be free, albeit within certain limits.
Foreign manufactured products, especially luxury items, would certainly
be subject to customs duties; on the other hand, the export of domestic
manufactured products had to be promoted, domestic shipping encour-
aged, and the transit trade exempted from all restrictions. The ban on the
exportation of money had to be removed, because the English merchants
in India could not even begin to trade other than by purchasing with
money goods which would then be sold at great profit in Europe, so that
the exported money would finally return to England. The prohibition of
usury was nonsensical, because it harmed foreign trade, which was the
source of all wealth (domestic trade was regarded only as a complement of
foreign trade, which made the country neither richer nor poorer). In other
words, compulsory governmental regulation over the circulation of money
and the absolute ban on the export of metal coins had to leave its place to
the balance-of-trade system, which found its legal expression in the Navi-
gation Acts.
According to Hilferding, the principles that Mun developed systemati-
cally corresponded to the needs of the emerging capitalism. Fostering the
rapid growth of foreign trade not only reinforced the influx of precious
metals into the country but also accelerated the transition from a natural
to a money economy. Support of foreign trade meant state promotion of
the large colonial monopolist companies, the conquest and plundering of
colonies, and the transfer of the newfound wealth into the hands of a lim-
ited number of capitalists. Support of shipping was also the most effective
preparation to fight for naval supremacy, which in the end was the decisive
factor in the competition for colonies. The development of domestic indus-
try was fostered by the imposition of protective tariffs on the importation
of foreign manufactured products, while foreign raw materials remained
free of duty. This domestic industry, in turn, produced the commodities
that merchants could then sell as exports in the world market. The new
commercial bourgeoisie placed the state at the service of its interests.

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Gaido / Hilferding on English Mercantilism 465

The interests of merchant capital, still prevailing at the beginning of

capitalism, were increasingly pushed back by the interests of industrial
capital. With the end of the seventeenth century an opposition to mercan-
tilism had already begun to appear. Dudley North (1641–1691) was one of
the first free traders. He called on the state to refrain from exercising com-
pulsory regulation both over the flow of money to and from other coun-
tries, and over the circulation of commodities between them. North
demanded full freedom of foreign trade and believed it beneficial for both
monetary and commodity circulation to be self-regulating (Rubin [1929]
1979, 367). From the middle of the eighteenth century, when strict state
regulation and the monopolies of the trading companies began to put a
brake on the growth of industrial capitalism, a widespread opposition to
mercantilist ideas developed. The foremost representative of this develop-
ment was Adam Smith, the founder of the classical school, which victori-
ously wrestled against mercantilist doctrine and policy.

Mercantilism and Economic Theory

In Finance Capital, Rudolf Hilferding ([1910] 1981, 301) said this about
the end of the mercantilist era:
The bourgeois conception of the state has its origins in the struggle
against mercantilist policy and against the centralized and privilege-
dispensing state power. It represents the interests of the nascent capital-
ist manufacturing and factory system in opposition to the privileges and
monopolies of the large trading and colonial companies on the one
hand, and of the closed handicraft guilds on the other. The struggle
against state intervention could only be carried on, however, when it
could be shown that economic legislation by the state was unnecessary
and harmful. The ascendancy of the laws regulating the economic sys-
tem itself over state legislation had to be demonstrated.
And he added in a footnote:
Since the essence of political economy is the discovery of economic
laws, the struggle against mercantilist economic policy became one of
the most powerful driving forces in the development of economic the-
ory. The other stimulus, antedating it, and of greater fundamental
importance, was the attempt to solve the key problem of economic leg-
islation at the beginning of modern capitalism, that of establishing a
sound monetary system. By raising the problem of money Petty became

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466  History of Political Economy 48:3 (2016)

the founder of classical political economy, because this question leads

directly to the problem of value, and hence to the basic law of political
economy. (424)
During the age of merchant capital the formation of prices via regulation
gradually ceded to the spontaneous formation of prices through the mar-
ket. The economists of the seventeenth century therefore tried to find the
laws that governed the formation of prices. John Locke (1632–1704) argued
that the movement of prices depended on alterations in supply and demand:
“All Things that are Bought and Sold, raise and fall their price in propor-
tion, as there are more Buyers or Sellers” (Locke 1692, 58). Nicholas Bar-
bon (1637–1698), his contemporary, advanced the theory of subjective util-
ity: in his words, “The Value of all Wares arise from their Use; Things of
no Use, have no Value,” and value depends on the “Wants and Necessities”
of those who consume them (Barbon [1690] 1903, 13). A more profound
attempt to find a law-determined regularity in the movement of prices was
made by James Steuart (1713–1780), a late mercantilist. In his view, a com-
modity had a “real value” equal to its production costs, and it was sold at a
price higher than this real value, the surplus comprising the industrialist’s
“profit”: “In the price of goods, I consider two things as really existing, and
quite different from one another; to wit, the real value of the commodity,
and the profit upon alienation” (Steuart 1767, 1:181). Profit, therefore, was
something added onto the commodity’s value—hence Marx’s ([1862–63]
1968–72, 1:43) definition of Steuart’s work as “the rational expression of
the Monetary and Mercantile systems.” But from a theoretical point of
view, the doctrine of “profit upon alienation” could not solve the problem
of profit and surplus value (unpaid labor, from which Marx derived all the
categories of income of the dominant classes such as profit, interest, and
ground rent) in general.
A more sophisticated solution to the problem of value was proposed by
William Petty (1623–1687). According to Petty, a product’s “natural price”
or value is determined by the quantity of labor expended on its production.
In his own words, “If a man can bring to London an ounce of silver out of
the earth in Peru, in the same time that he can produce a bushel of corn,
then one is the natural price of the other” (Petty [1662] 1769, 38). The value
of a product resolves itself into two components: wages, which equal the
worker’s necessary minimum of means of subsistence; and ground rent,
which Petty identified with surplus value in general (a view later explicitly
adopted by the physiocrats). According to Rubin ([1929] 1979, 368), “In his

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Gaido / Hilferding on English Mercantilism 467

labour theory of value Petty laid the foundation on which the Classics and
Marx were later to construct the theory of surplus value. . . . Petty’s theory
of value is the most valuable theoretical legacy, that mercantilist literature
was to bequeath.” This view was shared by Hilferding, who at the end of
his article remarked that the mercantilists “posed the question of the nature
of money and began the analysis of the relationship between commodity
and money, whose common denominator Petty, himself a mercantilist, rec-
ognised in labour.”
The other theoretical problem besides the theory of value that attracted
the mercantilists’ attention was that of money. The entire body of old mer-
cantilist literature had revolved around the practical problems of mone-
tary circulation: debasement of metal coins, the export of money abroad,
etc. Mun arrived at a theory of the determination of monetary movements
by commodity circulation and of the exchange rate by the balance of
trade. By the end of the mercantilist period, Hume and Steuart formulated
the outlines of the two main theories of money. David Hume (1711–1776)
advanced the “quantity theory” of money, according to which the value of
a monetary unit depends upon the quantity of money in circulation and
the value of money changes inversely to variations in its quantity (Hume
1752). Hume’s opponent on this question was James Steuart, who argued
that the amount of metallic money in circulation depends on the needs of
commodity circulation (Steuart 1767, chap. 28). Steuart’s ideas were later
taken over by Thomas Tooke (1774–1858) in the first half of the nine-
teenth century (Tooke 1838) and subsequently developed by Marx (Rubin
[1929] 1979, 369).

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