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Thomas Mun - "The mercantilists"

Thomas Mun is the best known member of a group of seventeenth-century British merchant-economists called “the mercantilists.” (Magnusson, 12) This group proposed that England run trade surpluses in order to prosper economically. As set forth by Mun ([1664] 1954, p. 125),

The ordinary means…to increase our wealth and treasure is by Forraign Trade, wherein wee must ever observe this rule; to sell more to strangers yearly than wee consume of theirs in value. …[T]hat part of our stock which is not returned to us in wares must necessarily be brought home in treasure.

Little is known about the life of Mun. His grandfather worked for the Royal Mint; his father was a textile trader. Mun himself became a merchant early in life, lived in Italy for many years and quickly accumulated a great deal of wealth. His early experience as a merchant was acquired in Italy and in the Levant. (Johnson, 73)

He later became involved with the East India Company, a large British joint-stock company that traded, primarily, in the Far East.

In 1615 Mun was elected to be a Director of the East India Company, and he remained a Director of the firm for the rest of his life. After Mun achieved wealth and social status he was appointed to several British committees and commissions. Most of these commissions issued reports containing Mun’s name as part of a long list of committee members; but Mun himself wrote only two economic tracts.

In 1628 the highly criticized India Company invoked the protection of the House of Commons, and Mun, as supposes Johnson, was responsible for The Petition and Remonstrance of the Governor and Company of Merchants of London trading to the East-Indies. At any rate, he claims that “much of the argument used in this petition reappeared in Mun famous book, England’s Treasure by Forraign Trade”, which was published posthumously by his son, Sir John Mun, in 1664. (Johnson, 73-74). It was this book rather than his first essay that made Thomas Mun famous as an economic writer; in comparison with it, Mun earlier Discourse of Trade From England unto the East-Indies was a “crude, shallow, and awkward attempt to exonerate the India Company”. (Johnson, 74)

His first work (Mun, 1621) defended the East India Company against critics who claimed that the firm was exporting gold and silver to the Orient (in exchange for spices) and that this loss of precious metals was hurting the British economy. A Discourse of Trade was rather unmercantilist in its orientation. Rather than advocating a trade surplus and the accumulation of gold, Mun advanced any and all arguments he could think up to support the East India Company.

He claimed that nations become wealthy for the same reasons that families become wealthy-by frugality and by making more than they spend. Likewise, nations and families become poor by spending too much money. (Mun, ([1621] 1930, p. 1-2). Thus, Mun reasoned, as long as the East Indian Company made money it could not make Britain poorer. Mun also pointed out that food, clothing, and munitions were necessities, so importing these goods as also all goods which sustain health or encourage the arts, improved the welfare of England. (Mun, ([1621] 1930, p. 3)

On the other hand, importing luxury goods was harmful to the nation. Mun then went on to argue that the East India Company was importing only items necessary for consumption. Taking yet another line of defense, Mun argued that trade with India provided a market for English exports. In addition, trade with India was good for Britain because it eliminated trade with Turkey; had the same goods been imported from Turkey, Mun pointed out, the cost to Britain would have been much greater. (Mun, ([1621] 1930, p. 9, 12, 43)

Finally, Mun argued that not all luxury imports were harmful; some imports were improved by British firms and re-exported, thus leading to a net influx of precious metals into England. The goods imported by the East India Company, Mun claimed, were generally goods needed by British exporters. There were still a few charges levied against the India Company that its defender sought to refute.

To the charge that timber was wasted in building India Company ships, Mun ingenuously replied that trees were not mere objects to look at, but raw materials which ought to be used; moreover, shipbuilding gave employment to shipwrights. But, said the critics, the India Company ships were never in English waters and hence not useful for naval strength. The India Company had large stocks of timber and naval stores in its yards, Mun replied, and those things were available in case of emergency. ([1621] 1930, p. 30-32)

And so, one by one, every objection to the India trade was answered, sometimes with skill, sometimes with naïveté. With a few explanations for the economic condition of the nation, Mun concludes his first writing. He attributes the loss of specie to overvaluation of money abroad, ([1621] 1930, p. 51) to the abuse of the exchanges (53) whereby exchange operations have “become rather a Trade for some great monyed men, then a furtherance and accomodation of reall Trade to Merchants as it ought to be.” Because of imperfect minting, heavy coins have been exported or melted into plate, while, meantime, unskillful merchants have overthrown trade. All these factors have combined to produce an excess of imports.

While the Discourse made Mun an apologist for the East Indian Company, his second book, published posthumously (1664), established Mun as an important early economic thinker. What is most noteworthy about England’s Treasure by Forraign Trade is its much broader perspective. No longer does Mun try to defend the East India Company; rather he adopts the viewpoint of the nation as a whole. He looks at trade in general, rather than trade by the East India Company, and he makes the case that foreign trade enriches a nation whenever it leads to a trade surplus. Mun also examines the factors that cause a country to run trade surpluses.

Finally, Mun advances a set of proposals that British leaders could implement if they wished to improve the national trade position. England’s Treasure was profound analytical work, and in it many concepts, as Johnson notes, were developed with care and often with real insight. Many his contemporaries like Hales, Malynes, or Misselden as well as successors were concerned with it and Adam Smith even unconsciously used Mun’s work as a pattern model for his book, Wealth of Nations. (Johnson, 77)

The first seven chapters of England’s Treasure may, for purposes of analysis, be considered as a separate segment because they set forth the principles underlying Mun’s theory of national opulence. From the doctrine of the balance of trade, Mun concludes that foreign trade is the “ordinary means” whereby a nation increases its wealth and treasure. The trade balance is merely the difference between what a nation exports and what it imports. When a nation runs a trade surplus, its exports exceed its imports.

Sales abroad, over and above what is bought from foreign countries, must be paid for by foreigners. In the seventeenth century these payments were made with precious metals-gold and silver. Trade surpluses thus enabled a nation to accumulate wealth and enrich a country. In contrast, domestic trade could not make England wealthier because the gain in precious metals by one citizen would equal the loss of another citizen. To generate trade surpluses, Mun noted, England must become more self-sufficient and reduce its need for foreign-made goods. Britain must also become more frugal so that more goods were available for export. Mun especially looked down on and discouraged the consumption of luxury goods.

With the domestic money supply rising as a result of these trade surpluses, a danger lurks that people might try to purchase more goods. This would cause domestic prices to increase and would eventually lead to the loss of exports, since domestically produced goods would become too expensive to sell abroad. But these consequences, Mun noted, could easily be avoided. To make sure that the inflow of money from abroad actually goes to benefit a nation, all new money must be re-invested. Reinvestment would also create more goods to be exported in the future. Here Mun recognized the importance of capital investment, and he viewed a positive trade balance as a way to accumulate productive capital.

Besides explaining the benefits of trade surpluses, Mun also explained what could be done to encourage such surpluses. First, there was price policy. Mun wanted exports sold at the “best price”; that is, the price that brings in the most revenue and wealth. Where England had a monopoly in world trade, or something close to a monopoly, her goods should be sold at high prices. But when foreign competition was great, British goods should be priced as low as possible.

This would result in more sales for Britain and help drive out foreign competitors. When foreign competitors disappeared, Mun recommended that prices be raised, but not to the point that competitors are enticed to come back into the market. On the concept of the balance of trade and on the concept of financial capital, Mun builds his economic theory and justifies his economic policy. By the proper employment of capital (provided there is adequate domestic industry and frugality) a favorable balance can be obtained which in turn will provide more capital.

Second, Mun explained that higher quality goods would be in greater demand throughout the world and would also lead to greater exports for Britain. He then explained how the British government could help improve product quality. Mun wanted the government to regulate manufacturers and to establish a council of trade (similar to the functions now performed by the US Department of Commerce) which would advise the government in matters pertaining to the regulation of trade and industrial activity. These regulations on British manufacturers should be quite strict in order to ensure that Britain produced high quality goods.

Finally, Mun explained how national tax policy could help generate trade surpluses. He recognized that (in opposition to the national interest) some firms might want to import luxury goods. In such a case, government policies must bring private and national interests into harmony. Mun looked to taxation to achieve this end. Export duties were to be discouraged because they would cost Britain sales in foreign countries. Import duties should be low on goods that are subsequently exported and high on goods that tend to be consumed by British citizens.

Excise or sales taxes, Mun argued, did little harm. Although they raised the price of food and clothing, Mun believed that these taxes would lead to higher wages and thus be shifted to employers. When higher prices for necessities lead to higher wages, the standard of living for British workers remains the same and the excise tax is paid by the wealthy. In order to avoid paying this tax the rich had only two options-they could work longer and harder or they could reduce luxury consumption. In either case, Mun argued, the nation would benefit.

Mun, however, did not want the state to collect tax revenues and then engage in lavish or wasteful spending. Tax collections had to be saved so that they were available for national emergencies, such as wars. At the same time, the state should not accumulate so much tax revenue that the national supply of capital falls. As a compromise, Mun proposed that each year the state accumulates a surplus of taxes over spending that was equal to the annual trade surplus.

The moral of Mun’s general theory of opulence was therefore that wise nations should maximize their exporting power by fostering the growth of both “natural” and “artificial” wealth but particularly the latter; meantime imports should be held to a minimum by curtailing “excessive consumption.” (Mun, ([1664] 1954, p. 9)

Perhaps the greatest shortcoming of Mun’s monetary theory, as specified by Angell, lies in the failure to connect his price theory with his explanation of the forces which distribute the world stock of specie among nations. (Angell, 15) The later chapters of Mun’s book fail to maintain the analytical merits of the preceding part. Lapsing into his earlier style, Mun asserts more often than he proves.

There are, however, a few theoretical elements which deserve attention. Mun points out that since the standard money of a nation measures not only the value of domestic goods but also that of foreign goods, any alterations in weight, fineness, or value of coins perforce create “confusion.” He points out that although the king may benefit temporarily from debasement, this gain is cancelled out when the king’s revenues are received in debased coin. At just this point, Mun adds one item to the older analysis of debasement: he tries to show that the kingdom loses more in the first stages of debasement than the king gains, and that, for this reason, there is a net national loss.

Mun’s explanation is not wholly successful because he fails to distinguish clearly between debtors and creditors. Although he is correct in pointing out that losses from debasement will fall heavily on landlords and debtors, and although he properly observes that the king would gain only on the “new coined” money, Mun fails to take into consideration the gains of the debtors, and this omission necessarily qualifies his theory of national loss.

Mun and mercantilism came in for sharp criticism from other economists during the eighteenth and nineteenth centuries. Adam Smith in the fourth book of the Wealth of Nations refuted the theory which Mun and other balance-of-trade exponents had developed. Adam Smith sharply criticized the mercantilists, and argued that less government restrictions on businesses would spur domestic production.

All these anti-mercantilist views were quickly taken to heart by most economists. Mercantilist thinking, however, experienced a revival of sorts in the twentieth century. John Maynard Keynes praised the mercantilists for recognizing that the demand generated by trade surpluses would increase economic growth. Chapter 23 of The General Theory entitled “Notes on Mercantilism,” credits the mercantilists with understanding that countries could create jobs and incomes for its own citizens by generating a trade surplus, while the influx of money would increase business investment. (Keynes 1936, 344)

Although Mun is not highly regarded by economists today, and although Mun did not make any path-breaking discoveries, he did leave his mark on the history of economics. The idea that government economic policy should be used to generate a trade surplus, and the idea that the way to achieve economic growth is through the growth of exports, constitute his two lasting contributions.


  1. Angell, James. W. The Theory of International Prices: History, Criticism and Restatement. Cambridge, Harvard Univ. Press, 1926. Harvard Economic Studies, Vol. 28
  2. Buck, Philip W., The Politics of Mercantilism, New York, Octagon Books, 1964
  3. Johnson, E.A.J., Predecessors of Adam Smith: The Growth of British Economic Thought, New York: Prentice Hall, 1937
  4. Keynes, John Maynard The General Theory of Employment, Interest and Money New York: Harcourt, Brace, 1936
  5. Magnusson, Lars. Mercantilism: The Shaping of an Economic Language. New York: Routledge, 1994
  6. Mun, Thomas. A Discourse of Trade from England unto the East-Indies, London, 1621, reprinted (Facsimile Test Society), New York, 1930.
  7. Mun, Thomas. England’s Treasure by Forraign Trade (1664) in Early English Tracts on Commerce, ed. John R. McCulloch, Cambridge, Cambridge University Press, 1954
  8. Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations (1776), New York: Modern Library, 1937

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