The Wealth of Nations

Book 4, Chapter 8

Conclusion of the Mercantile System

Download Preston's Free Checklist

Download Preston's free checklist. His checklist was developed after spending countless hours studying billionaires like, Warren Buffett, Carl Icahn, and Ray Dalio. With his checklist, you can find safe picks that protect and grow your principal. Additionally, Preston reads a lot of books and writes an executive summary for each book he reads. If you download his checklist, you will be added to his monthly e-mail list where he sends his book summaries. There are never any advertisements...ever. Here's an example of one of Preston's executive summaries, based on the book written by Billionaire Charlies Koch.

Chapter 8 Summary

The mercantile system, by encouraging exportation and discouraging importation, gives a country’s laborers an advantage, enabling them to undersell those in foreign markets.

Measures used to encourage the importation of materials for manufacture include exemption from duties to which other goods are subject, and bounties for goods from the British colonies, mainly restricted to American plantations.

The first such bounties were granted on the importation of naval stores from America, which included timber for masts, yards, and bowsprits; hemp, tar, pitch, and turpentine. The second bounty was on indigo from the British plantations. Others, which were granted at the time Britain started to experience problems with its American colonies, were on the importation of hemp, undressed flax and wood from America; raw silk, pipe, hogshead, and barrel-staves from the British plantations; and hemp from Ireland. Britain viewed the wealth of its American colonies as belonging to the mother country.

Some of the measures used to discourage the exportation of materials for manufacture include full prohibitions and high duties. The inland wool trade, for example, is subject to onerous and heavy restrictions; for instance, wool can only be packaged in packs of leather or pack-cloth, labeled “WOOL” or “YARN;” it cannot be loaded on any horse or cart, or physically transported by land within five miles of the coast at night. These regulations are in force throughout Britain.

The effect of these regulations has been to lower the price of British wool − which, indeed, was the purpose of the regulations. To negatively affect the interests of one group of citizens just to promote another, however, is unjust.

The exportation of all goods for manufacture was rendered duty free, except for instruments of trade. In the case of coal, which is used both in manufacture and as an instrument of trade, heavy export duties were imposed—which in fact amounted to more than the original value of the commodity at the coalmine.

The exportation of instruments of trade was restrained by prohibitions; the exportation of frames and engines for knitting woolen goods was prohibited, as were tools used in the manufacture of cotton, linen, woolen and silk.

A person who poaches a skilled craftsman from a British manufacturer to go and work abroad, whether to exercise or teach his trade, is liable to be fined up to a thousand pounds and subject to two years’ imprisonment. Any craftsman who moves abroad to exercise or teach his trade must return within six months—otherwise he will forfeit his land, goods, and chattels to the king and will be declared an alien in every respect, no longer eligible for the king's protection.

Man’s liberty is so plainly sacrificed by the futile interests of our merchants and manufacturers. The motive of all these regulations is to extend our country’s industries—not by improving them but by repressing our neighbors and destroying competition.

But the laws governing our American and West Indian colonies sacrifice the interests of the home consumer in favor of those of the producer. Indeed, a whole empire has been established for the sole purpose of obliging consumers to buy from the homeland’s producers, to benefit these producers. But the slight profit this monopoly ensures our producers is paid for heavily by the home consumers, who contribute towards the maintenance and defense of the empire.

As a result, the last two last wars incurred expenses of over two hundred million with a new debt of over a hundred and seventy million over and above that spent during previous wars. The interest of this debt alone amounts to more than the profit made through the monopoly of the colony trade—indeed, it surpasses the entire value of the colony trade, or the whole value of the goods annually exported to the colonies.

Next Chapter

Don't get lost in the Wall Street Fee-Factory

It's taken us a few years to finally figure out the right mix of tools that get results and save money. If you click on the toolbox, you'll see an article we wrote that lays-out the brokers and research tools we personally use.

Got Questions?

The Investor's PODcast

Get a free autographed copy of the Warren Buffett Accounting Book or Warren Buffett's Three Favorite Books. Simply submit your question to The Investor's PODcast. If your question gets answered on the air, the founders of this site, Preston Pysh and Stig Brodersen, will send you a free signed copy of their book!

The Warren Buffett Forum

Ask your question at the Buffett's Books money forum and interact with other smart investors like yourself. You won't find any day traders on this forum! Here's the link to The Warren Buffett Forum.