CH. 23

NOTES ON MERCANTILISM, ETC.

335

intelligible account was available; and we were broughtup to believe that it was little better than nonsense.So absolutely overwhelming and complete has been thedomination of the classical school.

11

Let me first state in my own terms what now seemsto me to be the element of scientific truth in mercan-tilist doctrine. We will then compare this with theactual arguments of the mercantilists. It should beunderstood that the advantages claimed are avowedlynational advantages and are unlikely to benefit theworld as a whole.

When a country is growing in wealth somewhatrapidly, the further progress of this happy state ofaffairs is liable to be interrupted, in conditions oflaissez-faire, by the insufficiency of the inducementsto new investment. Given the social and political en-vironment and the national characteristics which de-termine the propensity to consume, the well-being ofa progressive state essentially depends, for the reasonswe have already explained, on the sufficiency of suchinducements. They may be found either in homeinvestment or in foreign investment (including in thelatter the accumulation of the precious metals), which,between them, make up aggregate investment. Inconditions in which the quantity of aggregate invest-ment is determined by the profit motive alone, theopportunities for home investment will be governed, inthe long run, by the domestic rate of interest; whilstthe volume of foreign investment is necessarily deter-mined by the size of the favourable balance of trade.Thus, in a society where there is no question of directinvestment under the aegis of public authority, theeconomic objects, with which it is reasonable for thegovernment to be preoccupied, are the domestic rateof interest and the balance of foreign trade.