Revolution in World Views

Major sources:

Joyce Oldham Appleby, Economic Thought and Ideology in Seventeenth-Century England

Barry Baysinger, Robert B. Ekelund, Jr, and Robert D. Tollison, "Mercantilism as a Rent-Seeking Society," in James M. Buchanan, Robert D. Tollison, and Gordon Tullock, eds., Toward a Theory of the Rent-Seeking Society, pp. 235-68

From Medieval to Modern Mindsets

The medieval worldview differed greatly from the modern worldview. In the medieval world, everything had a religious dimension. God controlled nature, and the church and the king controlled society. We have seen how the scholastic writers analyzed economic issues primarily through the lens of justice. Factors other than narrow considerations of economic gain dominated discussions of what we today would call economic issues. But in fact, economy and society were not seen as separate entities, even in the early modern period.

The focus on moral issues, even in economic matters, emanated not only from the church, which interpreted and gave meaning to ordinary life, but also from the fact that most people conducted their economic transactions with people they knew. Economic interaction was personal, rather than impersonal. Individuals dealt with the same individuals repeatedly. The temptation to take advantage of others was moderated by the face-to-face interactions that dominated life.

The difficulty of transporting goods, especially bulky food items such as grain, meant that the greater part of economic activity was carried out locally. National economies, as such, did not exist. This fragmentation of commerce gave rise to a host of traditions and laws that, to the modern mind, seem counterproductive but which, given the conditions, often served useful purposes.

However, in the sixteenth and, especially, seventeenth centuries, the expansion of trade well beyond local areas began to place great strains on some societies. This was surely the case in England, upon which we shall concentrate.

The manner in which the 16^th-century English economy was bound by tradition can be illustrated by the traditional pattern of agriculture and the social changes brought about when that pattern was replaced by markets and profit motivation.

Patterns of land ownership in England were rooted in the feudal society of the Normans who conquered England in 1066. William the Conqueror parceled out tracts of land to Norman knights, who became (along with some Anglo-Saxons) the large landowners in the kingdom. Even as feudalism gave way to a (slightly) more fluid society, many of the production patterns persisted. One was farmland held and farmed in common. As in medieval times, the workers who lived in the landowner’s village would work the land in strips, the villagers coordinating their farming activities. Everyone – even the weak and the irresponsible – had a place in such a system. They were tied together in a social web of work, play, and ceremony in which everyone played a well-understood role. When landowners began enclosing the fields, deciding what crops to grow, and hiring specific villagers to grow them, the social web was broken. A new value system was imposed upon rural Englishmen, one which most resisted.

“For the moralists who opposed enclosures, community farming was worth maintaining because of its pedagogical value: it taught men to appreciate their fraternal obligations and underscored Christ’s injunctions to lay up their treasures in heaven. The pressure for efficient production promoted instead a sense of individual responsibility and encouraged a defense of those private ambitions frustrated in the common fields.” [Appleby, p. 59]

The traditional form of agriculture produced only small surpluses even in good years. In poor years, of too little or too much rain, hunger or even famine resulted. The laws promulgated by the Tudor monarchs fit the circumstances of subsistence agriculture and poor transportation. Tudor laws against forestalling (holding crops off the market), regrating (selling it to a middleman while still in the field), or engrossing (buying up the supply) attempted to keep the food supply at a local and traditional level. “Grain was not seen as a commodity to be moved through the countryside in search of the best price, nor was it ever absolutely possessed by the producer. The farmer who grew it … did not really own the corn; he attended it during its passage from the field to the market. … [H]e must load up his carts with his grain, proceed to the nearest market, and offer his year’s harvest to his traditional customers. … If people died from hunger, as they did in the last decade of Elizabeth’s reign, they did so blaming the harvest not the harvester. In a later age the regrating and engrossing that figured so large in statute law would be innocuously described as waiting for a better market.” [Appleby, pp. 27-28]

The biblical/moral basis of economic activity began to break down when direct personal connections were replaced by “faceless” commercial transactions conducted elsewhere. What had once been seen as social relations were slowly converted into economic relations. And in some industries, the transition met with little resistance: “Many profitable pursuits, like the colonial trades or the making of new draperies, escaped critical comment because they were not departures from traditional ways, but totally new endeavors. … [But] three areas critical to the development of a rational, profit-oriented market economy remained vulnerable to the scrutiny of moralists:” the grain trade, the conversion of common land to private ownership, and lending money for interest. After poor harvests, the poor believed they had a right to demand food at conventional prices. [Appleby, p. 53]

“As long as primitive agricultural technique prevailed, there was a coherence between law and religious sentiments and the economy. Low yields guaranteed repeated food shortages, which justified the strict control of food production. Fear of want secured the poor’s support for laws that controlled the rich. … The moral economy of Tudor England thus began with the likelihood of food shortages and worked its way through the necessities of the needy, the fears of social disorders, and the clergy’s extrapolations of information about divine intentions.” Still, by 1600 many landlords and farmers had begun changing their ways of farming, enhancing productivity. [54] With higher productivity, the social rationale for the laws weakened, and pressures built to discard them. “The power of the English landlords to raise rents and force their tenants into competition for leases made it possible to dislodge the English peasantry from their old ways.” [55]

The tradeoff between stability and material well-being was recognized. The increased productivity of enclosed lands posed a problem for critics. “Although Halhead clung to the biblical priority of caring for the poor, he expressed genuine puzzlement that God would allow more corn to grow on enclosed land.” [69]

The debate over usury paralleled, to a large extent, the debate over enclosures. “The Deuteronomic injunction against usury was … a part of a moral code that sharply distinguished between acceptable behavior toward the members of one’s community and acceptable behavior toward outsiders. The Catholic church had maintained that Christ’s coming had erased the distinction between brother and other.” [64] The usury laws had affected the development of commercial exchanges, as fees of various types (e.g., in connection with currency exchanges) replaced outright interest payments. The Protestant Reformation began the erosion of usury laws. Luther, Calvin, et al. moved away from enforcing Hebrew law as positive civil law, “invoking instead the Christian conscience. Usury was not to be condemned in all cases.” [65] From the 15^th to 17^th centuries, English anti-usury laws shifted from outright prohibition to usury limits: first 10%, then 8%, and finally 6% in 1652. Roger Fenton’s (1611) attack on usury, based on the Catholic understanding of society, is outlined [66-7]. “Where much of the fifteenth- and sixteenth-century literature on usury had centered on the barrenness of money, economic changes had weakened that line of attack. Money as capital and the enhanced productivity that followed investments in agriculture or industry seemed to many to justify the taking of interest.” [67]

After mid-century, the Bible largely ceased to be the authority on commercial matters. “The Bible as a source of information about God’s intentions rarely obtruded. With this loss of a social vision to inform specific economic laws, political intrusion required justification on utilitarian grounds. The individual’s right to look after his own, moreover, acquired a moral base through the value placed upon personal freedom. Without the underlying assumptions of traditional Christianity, the burden of defending legislative interference shifted, and the proponents of economic regulation had to make good their case.” [70-71]

Over time, the concept of the market changed, from a local spot to “an area laced by a communication-transportation network within which uniform prices prevailed.” [83] The growing variety of goods suggested the possibility of producing surpluses to be traded for other goods. The market thus became the regulator of human activity: “dispensing rewards, providing valuable information, and encouraging long-range planning through rational calculations.” [84] The market reordered social values, so that even people and land were valued for their utility and efficiency. The market thus replaced tradition, authority, and moral precepts as the major force ordering society. “The extension of market analysis from commodities to people and land was undertaken as an intellectual problem rather than a moral decision.” [84] Petty took the lead. Even food became an economic commodity, rather than a good allocated on moral grounds, as food surpluses eradicated famine. “The international flow of food suggested to Robinson that no one was dependent upon any particular set of farmers. The market in food affected the market in land. [85] Early writers preached the virtues of increasing agricultural productivity, without considering that increased supplies would depress prices. [86] Various writers began to see market prices as the important factor determining the products that should be produced. [86-7] Arguments over interest rates turned from biblical injunctions against usury to arguments that low interest rates promoted enterprise. The credit market as an allocation mechanism was readily perceived.

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One of the most aggressive promoters of the new economy was Francois-Marie Arouet Voltaire (1694-1778). A French intellectual - a philosophe - Voltaire was not a political economist at all. Rather, he was what we would today call a "public intellectual," who wrote to shape the opinions of the educated public. "Public opinion" as such was a new thing, and Voltaire did his best to shape it. His success was recognized by friends and foes alike. Adam Smith, a wholly honorable man, said that , "Reason owes him incalculable obligations." Edmund Burke, the Anglo-Irish politician, and also an admirable man (and a good friend of Smith's), said of Voltaire that "nobody has ever united blasphemy and obscenity so happily together."

Voltaire's contribution to modern economics was not theoretical but ideological. Voltaire defended the newest and most innovative - and therefore most problematic - forms of capitalism and persuaded large portions of the educated classes to accept the "new economy" as a real improvement over the old. Commercial activities had already achieved considerable acceptance before Voltaire wrote, as a number of writers had argued that channeling competition into the economic arena was far less dangerous that leaving it in the political and religous arenas, where it had been for centuries. The political/religious wars of the 16th Century had decimated large parts of central and northern Europe. When the Roman Catholic Church, which by 1500 was widely recognized as quite corrupt, resisted reformation from the inside, it got the Protestant Reformation from the outside. Decades of armed struggle ensued, much of it driven more by the lust for power or wealth than by religious convictions. But the bloody 16th Century persuaded many intellectuals that competition needed to be shifted to a less-bloody battlefield.

Through novels, published letters, and plays, Voltaire advanced the idea that society benefited when competition occurred in the marketplace. He argued that individuals pursuing their self-interests in commerce were more likely to promote the common good than harm it. Now this wasn't a completely new idea; some Christian writers had argued that God called some people into commerce as their appropriate life's work. But these writers tended to stress the work itself, rather than the wealth created by it. Voltaire celebrated the creation of wealth (and attempted to collect all the wealth he could, sometimes by less-than perfectly honest means).

Voltaire often used as examples of "peace through commerce" the English and Dutch economies. Of the English economy he had this to say: