“Mercantilism” describes the economic philosophy prevailing at the time of New World Settlement. One of the key idea of mercantilism held that wealth was finite.
“Wealth” consisted of tangible physical goods, especially land and precious metals. The world contained only so much gold or silver, only so much fertile land or forests; only so much “real wealth,” according to mercantilism.
The English looked at all the gold and silver Spain was pulling out of the New World and wanted a piece of the action. The only way to gain some of that wealth was by piracy; robbing the Spanish, or by finding gold in Virginia and Massachusetts. They didn’t find gold, but they did find timber and furs and land for growing real crops. The key piece for mercantilists was the finite nature of wealth. There is only so much gold on the earth, only so much arable land. Wealth is finite. It seems like common sense.
Mercantilism gradually stopped making common sense in the 1700s, as the power of money and credit—capitalism—replaced mercantilist notions with new visions of wealth as something less tangible, something more like “standard of living.” Who today believes in any natural limit to how rich a corporation can grow, for example? Industry, making vast quantities of goods amazingly cheaply, complicated the idea of wealth.
Ben Franklin famously argued, in 1729, that “The Riches of a Country are to be valued by the Quantity of Labour its inhabitants are able to purchase, and not by the Quantity of Silver and Gold they possess.” Franklin called for issues of paper money to stimulate trade and labor. Trade itself “being nothing else but the exchange of Labour for Labour,” Franklin concluded, “the Value of all Things…is most justly measured by Labour” itself. Human labor isn’t a limited quantity: human industry and creativity are practically boundless. These are real wealth, not gold or silver; these things are not finite.
Material resources are finite, but wealth is not the same as material resources, in the same way that happiness is not the same as material resources, even though possessing material goods might make you happy. Is there a limit to the amount of happiness the world can contain?
Today we probably tend to think of “wealth” as the fantastic products of human ingenuity, like digital devices or mortgage bonds or private equity firms, rather than acres of timber or national gold reserves. Acres of timber, or bars of gold, are still good to have, but they aren’t the only measure of “real” wealth. Unless you’re a libertarian, and want to turn the clock back to 1608.
You see mercantilism lingering throughout American history. Jefferson’s famous quotes on banks, for example: “I have ever been the enemy of banks… [and] the tribe of bank-mongers, who were seeking to filch from the public their swindling, and barren gains.” “Shall we build an altar to the old paper money of the revolution,” he asked John Adams, “and burn on that all the bank charters present and future, and their notes with them? ”
Adams largely agreed: “”Every dollar of a bank bill that is issued beyond the quantity of gold and silver in the vaults represents nothing and is therefore a cheat upon somebody.”
You’ll find both these quotes extensively vented on libertarian websites as part of a critique of paper money and banking.1
Adams and Jefferson both responded to the rise of fractional reserve lending. This is the now universal practice whereby a bank holds, say, $5000 in gold, but lends out $10, 000 in paper notes. It’s pretty odd, if you think about it: the bank makes money out of nothing. It holds real money but issues “fake money.” But it’s absolutely essential to modern capitalism, as Jimmy Stewart will tell you.
The bank, of course, is betting on the productive labors of the people who borrow the money. Their labor and creativity will generate wealth. But the wealth won’t take the form of gold, it’ll take the form of society with more of the stuff people want.
Libertarians profess to love the market, and profess it with a great deal of chest-thumpery, but what they love is mercantilism–the opposite of capitalism, a precapitalist time where value was imagined as something real. In the same way that libertarians often have a kind of simple minded notion of freedom, understood simply as the possession of property, they also have a simple minded notion of value, and yearn for the days when money made a heavy thumping sound as it fell into the cashbox.
What’s particularly irritating is the way libertarians shy away from the basic implication of capitalism—that every thing is for sale, everything is constantly negotiable—while simultaneously holding themselves up as the champions of capitalism. Jefferson was not a capitalist: he was a slaveholder who hated banks and loved the idea that his slaves, like gold, had a fixed place in a natural hierarchy.