affair. The old knights disappeared and
hired government officials or bureaucrats took their place. Army, navy,
and internal administration demanded millions. The question then became
where was this money to be found?

Gold and silver had been a rare commodity in the middle ages. The
average man, as I have told you, never saw a gold piece as long as
he lived. Only the inhabitants of the large cities were familiar with
silver coin. The discovery of America and the exploitation of the
Peruvian mines changed all this. The centre of trade was transferred
from the Mediterranean to the Atlantic seaboard. The old "commercial
cities" of Italy lost their financial importance. New "commercial
nations" took their place and gold and silver were no longer a
curiosity.

Through Spain and Portugal and Holland and England, precious metals
began to find their way to Europe The sixteenth century had its own
writers on the subject of political economy and they evolved a theory of
national wealth which seemed to them entirely sound and of the greatest
possible benefit to their respective countries. They reasoned that both
gold and silver were actual wealth. Therefore they believed that the
country with the largest supply of actual cash in the vaults of its
treasury and its banks was at the same time the richest country. And
since money meant armies, it followed that the richest country was also
the most powerful and could rule the rest of the world.

We call this system the "mercantile system," and it was accepted with
the same unquestioning faith with which the early Christians believed
in Miracles and many of the present-day American business men believe in
the Tariff. In practice, the Mercantile system worked out as follows:
To get the largest surplus of precious metals a country must have a
favourable balance of export trade. If you can export more to your
neighbour than he exports to your own country, he will owe you money
and will be obliged to send you some of his gold. Hence you gain and he
loses. As a result of this creed, the economic program of almost every
seventeenth century state was as follows:

1. Try to get possession of as many precious metals as you can.

2. Encourage foreign trade in preference to domestic trade.

3. Encourage those industries which change raw materials into exportable
finished products.

4. Encourage a large population, for you will need workmen for your
factories and an agricultural community