Rent and Taxes: The Origins of Classical Political Economy
Classical
political economy developed in societies whose economies were
overwhelmingly agricultural. Any theoretical effort designed to grasp
the nature of economic development in such societies had almost by
necessity to focus attention upon the agricultural surplus product. The
utilization of this surplus, which primarily took the form of rent
accruing to owners of land, determined the basic economic pattern of
these early modern societies. Indeed, an agrarian model of economic
reproduction was advanced even in much of the preclassical economic
literature of the sixteenth and early seventeenth centuries. This
"mercantilist" literature focused upon enrichment of the state as the
central objective of political economy, not a surprising objective,
given the fusion between state and economy which characterized the
societies of early modern Europe. The state was the primary economic
agent in regulating wages, curbing imports, encouraging industries,
financing commercial and colonial ventures, controlling the mint, and so
on. The notion of the economy as something existing independently of
the state would have been contrary to experience. Mercantilist economics
was thus characterized by what Perry Anderson has called an
"indistinction of economy and polity," which reflected the fundamental
unity of these two spheres "in the transitional epoch which produced
mercantilist theories."[1]
However, as England's development departed from the European norm with
the rise of agrarian capitalism, English mercantilists came increasingly
to view the economy as a mechanism with its
― 23 ―
own internal laws of development with which the state should not interfere.
Given
the different trends in English and French mercantilism, due caution
must be exercised in making statements about the general features of
mercantilist thought. As a category which embraces the economic thought
of several nations during an epoch of social transformation, mercantilism is a term which threatens to lose all specificity in its drive for comprehensiveness.[2]
Nevertheless, as a number of commentators have argued, the term may
serve as "a convenient shorthand." Barry Supple has argued, for example,
that it is legitimate to utilize the concept of mercantilism to
describe a body of literature which for historical reasons exhibited a
preoccupation with questions of a mercantile nature and "displayed a
sufficiently common ground of anxieties and modes of discussion."
If
we accept that the "common ground of anxieties" refers to the crucial
preoccupation of mercantilist theorists with enrichment of the state and
that the common "modes of discussion" refer to the tendency to see the
expansion of national wealth as depending upon gains made through
foreign trade, then the concept of mercantilism may indeed serve as a
useful shorthand. To be illuminating, however, the distinctive features
of mercantilist doctrine in different nations and at different times
must be grasped; and such distinctions must inform our use of the
concept. As Supple has shown for the English case, the unity of
mercantilist doctrine owed more to "the nature of the economic
environment within which men thought out their actions" than it did to a
continuity of philosophical or ideological assumptions.[3]
We should thus expect that different economic environments would
produce different forms of mercantilist thought. And this is precisely
what did happen in seventeenth-century England and France, as the
central social and economic problems confronted by administrators,
reformers, men of affairs, and social theorists in the two countries
produced quite different traditions of mercantilist thought.
The
scope of the differences in "economic environment" was reflected in
England's willingness to depart from the traditional policy of
provision—according to which goods essential to domestic consumption
were retained and their export prohibited—in favour of a high price for
and free export of grain. As early as 1394 all export
― 24 ―
prohibitions
were repealed; the preamble to an act of 1437 asserted for "perhaps the
first time in modern history," according to Heckscher, that a low price
for corn is injurious to society. The result was that
the country with the most rapidly growing capital, and therefore the one that might be interpreted to encourage imports of food-stuffs, was more interested than any other country in the encouragement of agriculture by the maintenance of high prices and the facilitation of exports.[4]
This
is not to suggest that after this period the state abandoned its
regulation of food prices and exports. On the contrary, the economic and
social problems of the sixteenth century—enclosure, conversion of
arable land to pasturage, inflation, and dearth—gave new impetus to the
notion that the state was duty bound to intervene to preserve the
foundations of a "moral economy" based upon "just prices." Indeed, this
notion played an important role in the perspective of the Commonwealth
reformers whose contributions to sixteenth-century economic thought will
be discussed below.[5]
As early as the fifteenth century, however, economic thought
increasingly emphasized the benefits of agricultural exports and high
prices for foodstuffs, reflecting the changes that would take England
down the road to agrarian capitalism. Consequently, mercantilist
economic doctrine took on a markedly different shape in the works of
English, as opposed to continental, writers. Indeed, English
mercantilism displayed an agrarian emphasis unknown to French
mercantilism. Furthermore—and another expression of the fundamental
differences between the nations–although English mercantilism originated
in the writings of statesmen and political reformers during the 1540s,
in its classic phase during the 1620s it was the creature of merchants;
in France it was largely the concern of royal officials. These
differences were significant for the evolution of economic thought.
English Mercantilism: Trade in an Agricultural Commonwealth
English
mercantilism emerged from a body of analysis devoted to the crisis of
the mid-Tudor economy and society. Towards the end of the 1540s in
particular, an identifiable body of political-economic thought had
developed which laid the basis for most economic analysis of the
subsequent century. In fact, for nearly a century after the writing of
― 25 ―
A Discourse of the Commonweal of This Realm of England in 1549, a favourable balance of trade was seen as the main avenue to national wealth and power.
The Discourse
was first published in 1581. It is believed to have been written by Sir
Thomas Smith in 1549. Smith had been vice-chancellor of Cambridge
University before embarking on an active political career in which he
was principal secretary to Edward VI and Elizabeth; a member of
Parliament under Edward, Mary, and Elizabeth; privy councillor; and
ambassador to France several times.[6]
Smith's famous treatise was written while he was a member of the
Commonwealth party which rose to prominence under the protectorate of
Somerset during the early years of the reign of Edward VI. The
Commonwealth party consisted of a group of social reformers who came
together during the crisis years of the mid-Tudor period. Their concept
of the commonwealth was developed as part of a theoretical response to
the manifold social and economic changes brought by emergent agrarian
capitalism.
The changes were indeed dramatic. Henry
VIII's dissolution of the monasteries had brought about a massive
redistribution of land. Between 1536 and 1547, the Crown received about
one and one-half million pounds through the sale of land. "This gigantic
transfer of land," according to one commentator, "has no parallel in
English history, at least since the redistribution which followed the
Norman Conquest."[7]
More than any other group, it was the gentry which prospered as a
result of this redistribution. Whole strata of new gentry were created,
while sections of the old gentry significantly expanded their power and
influence. This new fluidity of property (the basis also of political
power) exerted severe pressure on the social structure. The pressure was
exacerbated by the instability brought about by rampant inflation.
Leading the inflationary spiral, wool prices doubled in the century
after 1450 and provided a powerful incentive to enclosure for pasturage.
But the inflationary tide was general. One index of prices for
foodstuffs shows a rise from 106 for the decade 1501–1510 to 217 for the
decade 1541–1550.[8]
The social dislocation created by price inflation, land sales, and
enclosure was profound. Poverty and vagabondage increased sharply.
Peasant revolts flared nearly every year between 1536 and 1549,
culminating in the latter year in the Western Rebellion centred in
Cornwall and Devon and in the Norfolk Rebellion led by Robert Ket.
― 26 ―
The
years 1548 and 1549 formed the peak of a decade of profound crisis.
They were also the years in which the Commonwealth party made its
greatest political mark and in which several of its leading spokesmen
made major contributions to economic analysis. These social reformers
used the expression "Commonweal" or "commonwealth" to denote both the
body politic and the general good. Their notion of the commonwealth
embodied the idea of a just social order whose preservation was the
responsibility of the king and his advisors. The commonwealthmen held
that it was the role of the Crown to ensure that justice (especially in
the treatment of the poor) was preserved amidst the sweeping tides of
economic change. The focus of their writings was economic; they
addressed problems of enclosure, taxation, inflation, and unemployment.
And their fundamental proposition was, as Clement Armstrong put it, that
"The holl welth of the body of the realme risith out of the labours and
workes of the common people."[9]
Accordingly, the main political reform with which the commonwealthmen
associated themselves was the enclosure commission of 1548, which sought
to protect tenants' rights and restore justice to those harmed by
illegal enclosure. In fact, this commission, under the direction of the
noted Commonwealth reformer John Hales, actually authorized the
destruction of many enclosures.
In the view of the
commonwealthmen, the protection of civic virtue—the key to maintaining a
just social order—depended upon ensuring that the agricultural basis of
the nation was not undermined and that the power of the king was
expressed through Parliament. In their political theory they were
antiabsolutist; they insisted upon the classical notion of a mixed
constitution in which elements of monarchy, aristocracy, and democracy
combined in a balanced unity. In their economic theory, they exhibited a
definite agrarian bias; while trade and industry were to be encouraged,
their ultimate purpose was to stimulate agricultural production to
overcome poverty and unemployment. Rooted as it was in the political and
economic theorizing which emerged during this decade of social crisis,
early English mercantilism was constructed within a generally
antiabsolutist and agrarian worldview.
The greatest literary achievement of the Commonwealth party was the Discourse of Sir Thomas Smith. Smith has been described as "the
― 27 ―
most
significant thinker among those who wrote on the application of
Commonwealth ideals to the economic and social problems of mid-Tudor
England." His Discourse has been hailed as "the beginning of British political economy."[10]
Certainly it is not overstatement to say that no other piece of English
economic writing prior to Mun exhibited such analytic sophistication.
The central problem posed by the Discourse was to explain price
inflation amidst plenty, not scarcity, of goods. Rejecting traditional
arguments which attributed inflation (or "dearth") to conspiracies of
self-interested parties—for example, merchants who greedily increased
prices or landlords who raised rents through enclosure—Smith argued that
the whole nation, with the possible exception of merchants, suffered
from inflation and that its "efficient cause" was debasement of English
money.[11]
The evidence of debasement was plentiful. Successive manipulations of
the English coinage had occurred in 1526, 1542–1544, 1546, and 1549.
Between 1542 and 1547 English silver worth about £400,000 was reminted
into coins worth £526,000. But Smith's argument transcended empirical
observation by positing a systematic interrelationship between the
supply of money and the movement of commodity prices. In this respect,
the Discourse was an analytic achievement of some importance.
In
addition to advancing a theoretical treatment of monetary phenomena,
Smith also developed a central theme of English mercantilism; he
elaborated the view that the wealth of the nation would decline unless
imports and exports were kept in balance. Smith did not employ the
expression "balance of trade." However, the concept of the balance of trade appeared clearly in the Discourse:
"For we must always take heed that we buy no more of strangers than we
do sell them; for so we should impoverish ourselves and enrich them."[12]
Smith's treatment of the balance of trade was not particularly novel.
Two other economic writers of the period went beyond Smith's notion of
the need for a balance of trade (an equality of imports and exports) to suggest that national wealth could be increased by a favourable balance of trade (a surplus of exports over imports).[13]
What distinguished Smith's tract, however, was his unparalleled
treatment of the interdependence of economic phenomena. In passages
anticipating Thomas Mun's writing of the 1620s, Smith argued that
English prices must be internationally competitive if England was to
― 28 ―
maintain
the balance of trade. England could not arbitrarily revalue her coin,
Smith asserted, since prices are determined not by the state but by "the
universal market of the world":
And I grant, if men might live within themselves altogether without borrowing of any other thing outward, we might devise what coin we would; but since we must have need of other and they of us, we must frame our things not after our own fantasies but to follow the common market of the world, and we may not set the price of things at our own pleasure but follow the price of the universal market of the world .[14]
Although
Smith and the other economic writers of the 1540s can hardly be said to
have constructed a general model of economic interdependence, they did
develop rudimentary notions about the "circular flow" of economic life.
In so doing, they broke from traditional conceptions which saw the flow
of money to certain economic agents—for example, merchants or the
state—as inevitably involving a loss to others. In demonstrating that
the king also suffered as a result of debasement, Smith claimed, for
example, that the same money flows from the subjects to the Crown and
back again just as water runs from springs to the ocean and back.[15]
Clement Armstrong, in A Treatise Concerninge the Staple and the Commodities of this Realme,
written between 1519 and 1535, advanced a similar argument to show that
government encouragement to manufacturing would enrich, not undermine,
agriculture and the state. True to the priority accorded by Commonwealth
thinkers to agriculture, Armstrong posited a concept of the circular
flow in which agriculture formed the basis of economic life by
generating income flows to landlords and the king:
It shall be the gret welth of the kyng and all his lords to sett as moche peple as can be to artificialite, for as moch as they labour and werke all for money, that ther money may alwey ronne owt of ther hands in to the hands of such as occupieth housbandry for ther mete and drynk, which money shuld so ronne owt of the housbonds hands into the hands of the kyng and of his lords of the erth.[16]
Implicit
in this argument is the assumption that husbandry produces economic
surpluses in the form of rent and taxes which flow into the hands of
landlords and the king. On the basis of such assumptions, the essential
framework of English mercantilism had been constructed by the end of the
1540s. While sixteenth-century
― 29 ―
English
mercantilism cannot be said to have constituted a sophisticated body of
economic analysis, it had developed some fundamental conceptions that
would guide the analysis of economic life over the course of the
following century. Two such conceptions stand out most clearly: first,
the circular flow of economic life, a flow which originated in
agricultural production (husbandry) and whose maintenance was essential
to the preservation of a stable commonwealth; second, the balance of
trade, especially the notion that a favourable balance of trade was the
key to increased national wealth.
After the active
period of the 1540s, English mercantilist thought underwent little
development until the great economic debates of the 1620s. A severe
depression swept the English economy in the early 1620s. Crisis and
unemployment gripped the textile industry; exports slumped dramatically;
outflows of bullion created a shortage of money. In the spring of 1622,
James I ordered a select group to report on the European currency
exchange market and its alleged "abuse" to England's disadvantage. This
group included Gerrard Malynes, who had been a member of the commission
appointed in 1600 by Queen Elizabeth to investigate monetary problems.
Malynes developed his basic view of the nature of England's difficulties
in a tract written at that time (1601) entitled A treatise of the Canker of England's Commonweal .[17]
His essential position remained unchanged for the rest of his life.
According to Malynes, the outflow of English bullion was the product of a
conspiracy by foreign financiers to undervalue English currency. The
result of this undervaluation was, Malynes claimed, that high prices for
imported goods pushed up the total bill for imports while low export
prices brought in an insufficient income on export trade. On the
assumption that demand was inelastic and would not rise in response to
lower prices—an unvarying assumption in Malynes's argument—the
inevitable result of undervaluation would be an unfavourable balance of
trade and an outflow of bullion to cover foreign debts. Malynes's
solution was for the government to exercise some form of exchange
control that would bring about an upward revaluation of English
currency. Precisely this was the recommendation of the select group of
1622. Furthermore, Malynes favoured prohibiting the export of bullion, a
position James I implemented with the bullion ordinance of 1622.
The
report of the select group was referred to a rival committee of
merchants. Their report—inspired by the committee's most promi-
― 30 ―
nent
member, Thomas Mun—rejected the view that the currency exchange market
was an independent determinant of prices and specie flows. According to
Mun, the rate of exchange was a price and, like all prices, was
determined by supply and demand. The supply of and demand for
currencies, by contrast, was determined by the balance of trade. In
Mun's words, "the over or under ballance of our trade doth effectually
cause the plenty or scarcity of mony."[18]
Whereas Malynes believed that economic phenomena were the direct result
of conscious decisions and could, therefore, be determined by
government policies, Mun claimed that there was a natural mechanism at
work in international trade which operated independently of the
conscious decisions of economic agents:
Let Princes oppress, Lawyers extort, Usurers bite, Prodigals wast, and lastly let Merchants carry out what mony they shall have occassion to use in traffique. Yet all these actions can work no other effects in the course of trade than is declared in this discourse. For so much Treasure only will be brought in or carried out of a Commonwealth, as the Forraign Trade doth over or under ballance in value. And this must come to pass by a Necessity beyond all resistance.[19]
Mun
stood out as the most clear-sighted theorist of the 1620s; it was he
who truly dealt the deathblow to the perspective formulated by Malynes.
Whereas Malynes clung to a static and inelastic conception of
international trade in which lower export prices would only aggravate
the monetary crisis, Mun recognized that a newly competitive market
required lower costs of production for exports at competitive prices.
But Mun was more than an insightful merchant who grasped the true
character of the new economic environment in which England had to live.
He was also an economic analyst of considerable originality. Mun
understood clearly that it is commodities, not money, which form the
basis of real wealth. Where there are goods, he insisted, there will be
money. Consequently, just as it would be absurd to prohibit the export
of commodities, so would it be absurd to prohibit the means of
circulating them. To keep money in the kingdom would be to raise
domestic prices and hurt the export trade.[20]
Although
Mun advanced a clear distinction between wealth and money, he persisted
in the classical mercantilist position that domestic trade is
sterile—since "profit upon alienation" merely involves profit to one
individual and loss to another but no net gain to the
― 31 ―
nation—and that profit to the national economy could come only through a favourable balance of trade.[21]
His follower, Misselden, went somewhat further and argued that the
balance of trade is the centre of the circle of commerce: "All the
rivers of Trade spring out of this source, and empt themselves againe
into this Ocean . All the waight of Trade falle's to this Center, & comes within the circuit of this Circle ."[22]
Thus, in the mercantilist schema of Mun and Misselden, foreign trade
was elevated to a causally independent role in economic life; it became
the sole determinant of prosperity or poverty.
Though
Mun's theory did not break out of the mercantilist mold, which accords
priority to exchange within the circular flow of economic phenomena, he
nonetheless considerably advanced economic analysis. By focusing on the
necessary laws which governed the interaction of prices, the balance of
trade, and specie flows, Mun treated economic phenomena as susceptible
of analysis which was both scientific and objective, that is, as
comprehensible without reference to the "subjective" decisions of
individual economic agents. His theory was indeed "the most influential
economic doctrine before Adam Smith" precisely because "there had been
nothing in English to rival his singleness of purpose, logical analysis,
and accomplished manipulation of the economic variables."[23]
Most historians of economic thought accord similar recognition to Mun. His major work, England's Treasure by Forraign Trade, is considered to be an almost paradigmatic expression of English mercantilism.[24]
What is universally ignored in discussion of Mun's thought, however, is
the extent to which economic examples derived from agriculture and
discussion of agricultural improvement informed his general theoretical
analysis. One commentator has pointed out that "from Mun's Discourse of Trade in 1621 onward, seventeenth-century writers discussed the fundamental importance of agricultural improvements."[25]
But rarely has it been recognized that agricultural production often
served as the basic model which provided explanatory principles for the
examination of trade.
There is ample evidence of Mun's awareness of the economic significance of agricultural improvement in England's Treasure
. In the opening pages of the tract, Mun strongly advocates the
development of waste lands as a means of supplying England with various
forms of raw produce that would otherwise have to be imported.
Furthermore, for both economic and political reasons, Mun believed that
― 32 ―
the
best solution to the unemployment problem was not to expand the cloth
industry but rather to encourage "tillage and fishing."[26]
In other words, it was to agriculture and primary industries
generally—and not to manufacture—that the nation should look for solving
unemployment and boosting national output. As suggestive as these
passages are, of more significance is the evidence of Mun's conception
of the centrality of rent in the national income and his reliance on
agriculture to provide general examples of economic phenomena.
With
respect to rent and the landed interest, Mun argued that an influx of
specie resulting from a favourable balance of trade would boost demand
for agricultural goods, raise agricultural prices, and increase rents.[27]
As a result of this mechanism, Mun asserted, the interests of the
landlords were entirely consistent with those of the merchants. Without a
favourable balance of trade, prices of agricultural goods would
decline, and land values and rents would fall. On the basis of this
analysis, Mun claimed that the merchant's private interest served the
public good and that the merchant should therefore be called "The Steward of the Kingdoms Stock ."[28]
Just as estate stewards were responsible to landlords for the direction
and superintendence of landed production in such a way as to render a
profit, so it was the job of the merchant to be the steward of the
nation's money stock and to increase that stock through foreign trade.
Perhaps
the most interesting of Mun's analogies of trade with agricultural
production occurs in his defence of the export of gold and silver. Mun
continually argued that it was as ridiculous to prohibit the export of
gold and silver as it was to prohibit the export of goods in general.
The purpose of exporting gold and silver, he claimed, was to sell
commodities which would reap a profit. Successful foreign trade required
that money be taken out of England in order to allow the buying and
selling of goods to take place. But, he argued, the whole point of the
operation was to return home with more in gold and silver than was taken
out originally. Therefore, to examine only the carrying out of specie
by merchants without taking into consideration the import of greater
amounts of specie after the completion of a cycle of trade was to ignore
the essential motive of foreign trade and specie export—to make a
profit which would return to the nation in the form of gold and silver.
Condemnation of merchants for carrying gold and silver out of the realm
was as absurd as condemning husbandmen for casting away seed. In both
cases, the harvests of
― 33 ―
the original labours are ignored. It is with merchants as it is with husbandmen:
For if we only behold the actions of the husbandman in the seed-time when he casteth away much good corn into the ground, we will rather accompt him a mad man than a husbandman: but when we consider his labours in the harvest which is the end of his endeavours, we find the worth and plentiful encrease of his actions.[29]
Using
this analogy with husbandry, Mun developed a primitive concept of
investment. The export of gold and silver for foreign trade was seen as a
kind of "advance," like the planting of seed, which would yield a
profitable "harvest" in time. This concept of investment, which was
merely implicit in Mun's work, was to inform political economy for a
century and a half. Although it would be untrue to suggest that Mun's
economic writings constituted the starting point for a tradition of
economic analysis which would posit the centrality of agricultural
production in the circular flow of economic life, his work did
demonstrate the influence of agricultural production on the most
sophisticated of mercantilist theorists. Mercantilist though he was in
his insistence that an increase in national wealth could come only
through profit on foreign trade, Mun continually resorted to
agricultural analogies in order to explain economic phenomena in
general.
One further economic tract of the 1620s is worthy of mention. This is Sir Thomas Culpepper's Tract Against Usurie written in 1621 and republished by Sir Josiah Child in his Brief Observations Concerning Trade and Interest of Money
(1668). Culpepper, like Malynes, Misselden, and Mun, was disturbed by
the depression of the early 1620s. In Culpepper's view, however, the
collapse of England's trade was a product of an excessively high rate of
interest which had pushed up the costs of English goods and lowered
land values (and had thereby discouraged agricultural investment).
Culpepper's pamphlet did not display the kind of systematic analysis
pioneered by Mun. It did, however, utilize a rudimentary concept of
capital, and it stressed the significance of landed investment and
agricultural improvement for the economy as a whole.
A
high rate of interest raises the price of English goods, Culpepper
contended, since it increases the cost of money necessary to capital
expenditures. The Dutch are able to undersell the English because
― 34 ―
the
cost of "stock" is lower as a result of their lower rate of interest.
Furthermore, a high rate of interest discourages borrowing to buy or
improve land and therefore causes land prices to sag. Low land prices,
in turn, further discourage agricultural improvement. A low rate of
interest, however, would encourage investment in land and agricultural
improvement on such a scale that "the Riches and Commodities of this
Land will near be doubled." With a reduction in the interest rate,
then would all the wet Lands in this Kingdom soon be drained, the barren Lands mended by Marle, Sleech, Lime, Chalk, Seasand, and other means, which for their profit, mens industry would find out.
Such
a boom in investment on the land would benefit "the poor Labourers of
the Land" as much as it would benefit "the Landed men."[30]
Culpepper's
treatise is by no means as significant as Mun's major work. It is,
however, a graphic demonstration of the extent to which the level of
rents and the state of agricultural production were considered to be at
the heart of the wealth of the nation. Furthermore, its central emphasis
on agricultural investment and improvement demonstrates that the
agrarian sector was seen as a dynamic part of the economy whose
stimulation could enormously contribute to solving the problem of
unemployment. Finally, its republication by Child during the economic
debates of the 1660s does much to indicate that most economic writers of
the seventeenth century gave crucial importance to capital investment
on the land.
In the writings of the 1620s,
especially those of Mun, English mercantilism received its classical
formulation. Between 1549 and 1622, in fact, all the basic elements of
English mercantilism were constructed: first, a rudimentary concept of
the circular flow, which enabled writers to posit interdependence
between a variety of economic phenomena such as price levels, the
quantity of money, and specie flows; second, the view that domestic
trade was neutral in that one Englishman's loss was another's gain, with
no resulting gain to the nation as a whole; and, third, the notion that
an increase in the wealth of the nation could be achieved only through a
favourable balance of trade. Equally important, however, was the extent
to which mercantilist theoretical analysis of economic phenomena relied
upon analogies derived from agricultural production and, in some cases,
― 35 ―
implied
a central role for agriculture in the production of national wealth.
The Commonwealth writers of the 1540s tended to emphasize the economic
and political centrality of agriculture more so than did the writers of
the 1620s because their general focus was on the preservation of social
harmony in a society suffering the strains of emergent agrarian
capitalism. Focusing on problems of a trade depression, the classical
mercantilists of the 1620s accorded priority to foreign trade within
"the circle of commerce." Nevertheless, agricultural improvement loomed
large in their prescriptions for resolving a variety of economic
problems. Furthermore, their explication of certain economic processes,
such as Mun's defence of the inflow and outflow of gold and silver,
often relied upon analogy with production in that
sector—agriculture—which still governed the lives of most English
people. In the second half of the seventeenth century these agricultural
analogies were to be transformed into elements of a much more
rigorously theoretical model of the essential relations of economic
life.
William Petty and Classical English Political Economy
The
key figure in the development of an agrarian model in English political
economy is William Petty. Petty is widely acknowledged to be a founder
of classical political economy. Marx dubbed him "the father of English
political economy" and praised his "audacious genius." Max Beer
described Petty as "the pioneer of the English economics of production"
and claimed that "he must be regarded as the initiator of classical
English economics: he laid the foundations on which his successors—Smith
and Ricardo—could erect their structures." In the view of Eric Roll,
Petty is "the most important, as well as the earliest, English economist
who prepared the way for the classical system," while writers such as
Schumpeter, Spiegel, and Meek have praised him as the originator of the
concept of economic interdependence through the division of labour and
of modern income analysis.[31] In The Origins of Scientific Economics, William Letwin has written of Petty's major economic work, A Treatise of Taxes and Contributions,
that "its basic structure must stand as a work of surpassing
originality. The quality of its analysis makes it an unmistakable
masterpiece of early economic science."[32]
Yet
for all the acclaim awarded Petty's economic writings, the literature
has made little effort to understand the specific analytical
― 36 ―
problems
which inspired him to initiate a fundamental reorientation in political
economy. It has paid insufficient attention to the fact that Petty's
major analytic innovation came in a digression in the Treatise as
he attempted to explain the nature of rent. Furthermore, it has rarely
connected Petty's experience as surveyor general in Ireland and as a
major landholder to his abiding interest in rent and the value of land
and to his novel contributions to classical economics. Finally, it has
paid little attention to the fact that a preoccupation with agrarian
problems was common to virtually all the seventeenth-century radical
Baconian social thinkers amongst whom Petty was a central figure.
The
revolutionary period of 1640 to 1660 ushered in tremendous changes in
England's social, economic, political, and intellectual life. It was
during these two decades that a decisive shift took place in economic
literature, a shift which marked the emergence of a scientific
economics. This new scientific economics originated as a product of the
revolutionary philosophy of the period—social Baconianism. Bacon's
philosophy was not new; what was new was its soaring influence in
intellectual circles. "Whereas before 1640 Bacon's had been a voice
crying in the wilderness," writes one historian, "by 1660 his was the
dominant intellectual influence."[33]
The turning point came in 1640, the year of the outbreak of the English
Civil War, as is evidenced by the fact that more of Bacon's works were
published in this year than in the previous fourteen years which had
followed his death in 1626.[34] One historian of the scientific movement of this period writes accurately that
Bacon became the most important philosophical and scientific authority of the Puritan Revolution. It is therefore only a slight exaggeration to regard Baconianism as the official philosophy of the Revolution .[35]
During
the latter part of the sixteenth century and the opening quarter of the
seventeenth, Bacon formulated his program for a great intellectual
revolution—the reconstruction of science on radically new foundations.
More acutely than most of his contemporaries, Bacon recognized that he
was living in a period when profound changes were taking place in human
affairs. The discovery of the New World; the agricultural revolution;
the advance of invention, trade, and industry all heralded the dawn of a
new age of improvement. The possibilities of this new age were often
interpreted in mil-
― 37 ―
lenarian
terms, as the twin forces of religious reformation and political
revolution made their impact on men's minds. Bacon feared, however, that
a dogmatic adherence to ancient philosophical systems might prevent
fulfillment of the possibilities created by this period of change.
The
"opening up of the sciences" was the task. It required a new
philosophy, a new scientific method. All of Bacon's major works,
especially The Advancement of Learning, advanced a program to
remove all fetters upon the blossoming of knowledge. A thoroughgoing
educational reform was to be the precondition for spreading an
empirical, experimental, and rational approach to the natural world.
Bacon's method did not consist of a crude empiricism. He mistrusted the
immediate impressions of the senses. Instead, he recommended a
practical, experimental method in which knowledge of nature would be
acquired in acting upon it. It is by acting on nature (through "works")
that we acquire genuine knowledge of things: "The secrets of nature
reveal themselves more readily under the vexations of art than when they
go their own way."[36]
There is an important element of truth to the claim that "Bacon's
scientific method is the trial and error of the craftsman raised to a
principle."[37]
Bacon wanted, however, to elevate the method of the craftsman (and the
practical, improving farmer) to a conscious and systematic philosophy.
On the basis of experiment he wished to formulate general propositions.
Furthermore, he wanted to collect histories of various trades so that a
universal perspective on practical interaction with nature could be
constructed. The history of arts, he asserted, reveals the truth about
objects because it studies them as "things in motion." In so doing, "it
takes off the mask and veil from natural objects, which are commonly
concealed and obscured under the variety of shapes and external
appearances."[38]
This
is not the method of a simple empiricism. Bacon was not suggesting that
passive perception of objects constitutes adequate experience for
knowledge of things. Rather, he insisted that a conscious, experimental,
and practical orientation to things with the intent to transform them
according to various human purposes was the only foundation upon which
to build knowledge. Further, he maintained that general axioms should be
constructed on the basis of such experimental practice. Bacon believed
that in the course of studying the effects of practical action upon
natural objects—and before pro-
― 38 ―
ceeding
to the elaboration of axioms—there must be a determined effort to
measure and to quantify. Things, he argued, must be "numbered, weighed,
measured and defined."[39]
Such an approach does indeed open the door to a pure inductive
empiricism. But in Bacon's case—and that of most of his
seventeenth-century followers—such quantification was to preface the
formulation of general axioms of knowledge. The overall context for
quantification was that of scientific attempts to transform the world.
Bacon's philosophy, then, was activist and optimistic in character. It
promised a new age of knowledge, improvement, and prosperity if only men
would break with the habits of the past and undertake to dominate
nature according to human ends.
Bacon's scientific
program became the rallying point for Puritan intellectuals after 1640.
Baconian science was essentially antiauthoritarian in character. It
sided with individual experience against the authority of the written
word. It elevated the practical experience of the craftsman, the
husbandman, and the improving gentleman above the pseudoknowledge of the
priest or the university teacher. During the years 1646 and 1647, the
famous Invisible College whose "midwife and nurse," in the words of
Robert Boyle, was Samuel Hartlib, consciously set out to advance the
Baconian project. Later, during the early 1650s, the Oxford Experimental
Philosophy Club—once again inspired by Hartlib—became the focus for
Baconian intellectuals. The Oxford Club often met at the lodgings of
William Petty and, like the Invisible College, was preoccupied with
husbandry, natural philosophy, and mathematics.
Many
leading members of the Oxford Club maintained a passionate interest in
agricultural problems. Wilkins, Hartlib, and Wren were all enthusiastic
advocates of a new design for beehives. Wilkins designed an improved
plough which one of Hartlib's followers pursued vigorously. Petty
invented a mechanical device for the planting of corn. Several members
maintained an abiding interest in the culture of fruit trees. It is no
overstatement to say that a scientific approach to agriculture became a
major concern of the social Baconians.
The leading
figure in the scientific study of agriculture, as in the entire radical
Baconian project, was Samuel Hartlib. The son of a Polish or Lithuanian
merchant and an English woman, Hartlib made his home in England in 1628.
He established an academy at Chichester in 1630 "for the education of
the Gentrie of this Nation." Later he
― 39 ―
became
associated with Emmanual College, Cambridge, and was eventually granted
an annual pension by Cromwell. Hartlib's project for an Office of
Address which would act as a centre for universal education inspired
both the Invisible College and the Oxford Club. As the years went by,
however, "Hartlib's primary energies were increasingly devoted to the
accumulation of materials relating to husbandry."[40] In fact, G. E. Fussell chose in his study of English agricultural tracts to call the period 1641–1660 "The Age of Hartlib."[41] The characterization is appropriate. Hartlib published Richard Weston's Discourse of Husbandrie used in Brabant and Flanders in 1651. In that same year he published two works of his own: Essay on the Advancement of Husbandry and The Reformed Husbandman . The next year he issued his Design for Plenty, followed by Discovery for Division or Setting out of Waste Land in 1653. In 1659 The Complete Husbandman
appeared. Most of these works were collections of writings by others.
Nonetheless, it was Hartlib who brought them together and popularized
them.
Equally important was Hartlib's encouragement
of Gabriel Plattes, the leading inventor in the Hartlib circle and the
foremost exponent of scientific agriculture, who published tracts on
husbandry in 1639, 1640, and 1644 (a posthumous work on agriculture
appeared in 1653). Plattes claimed that inefficient agricultural methods
had depleted England's soil and impoverished her people. While he
supported enclosure as a means of obtaining a greater yield per acre, he
opposed its use for pasturage. He believed in protecting tenant rights
and in devising plans for the employment of the poor. For Plattes, as
for all the Baconian reformers, agriculture was the foundation of the
commonwealth. Because declining conditions of husbandry signified
economic malaise and political instability, maintenance and improvement
of the agrarian sector of the economy were essential to social and
economic progress.
In their efforts to stimulate
the scientific pursuit of agriculture, several Baconian publicists
advocated the creation of a college of husbandry. Although such programs
failed to bear fruit, the greatest single contribution of the social
Baconians occurred in the study of agriculture. This field attracted
more sustained study than any other scientific endeavor during the
English Revolution. In fact, the rate of output of works on agriculture
doubled between 1600 and 1660. Only mathematics matched this rate of
growth in publication.[42]
― 40 ―
The
purpose of such intense study of husbandry was not merely the pursuit
of knowledge as an end in itself. The experimental philosophers believed
that reform of husbandry was the key to the reform of the commonwealth.
In particular, they saw agricultural improvement as the primary
solution to the problem of poverty and unemployment. Consequently, their
analyses of agriculture often stressed the economic side of problems of
agricultural production. Issues like the costs of production, rent,
yields, wages, and employment figured prominently in their writings. As a
result, the social Baconians increasingly embarked on theoretical work
of an economic nature. In this area of work, as in all others, they
sought to apply a strictly scientific method to the phenomena under
scrutiny. Baconian philosophy, therefore, constituted the theoretical
foundation of the embryonic scientific economics of this period. As we
shall see, nowhere is this more clear than in the case of William Petty.
Associated with Baconian social philosophy was a current of political thought which we have come to call classical republicanism
. This political tradition enjoyed a resurgence in England during the
Reformation, especially among Puritan intellectuals. Basing their
writings on Aristotle, Polybius, Cicero, and Machiavelli, the classical
republicans stressed the virtues of a "mixed constitution" which
embodied elements of monarchy, aristocracy, and democracy. Each form of
government was held to degenerate inevitably if constituted on its own.
Pure monarchy degenerated by nature into tyranny, aristocracy into
oligarchy, democracy into anarchy. The task of the political philosopher
and legislator was to devise a balance or mixture of the three
political forms which would draw upon their strengths and offset their
shortcomings. This involved devising a mixed republic or "commonwealth"
whose leaders would adhere to the virtues of civic humanism by
subordinating private interest to the common good.[43]
Members
of the English Commonwealth party of the sixteenth century, and Sir
Thomas Smith in particular, were central figures in the English recovery
and adaptation of classical republicanism. Often taking their
inspiration from contemporary Venice, they developed an aristocratic republicanism
which emphasized the need for a virtuous aristocracy to prevent the
concentration of excessive powers in the hands of either the monarch or
the people. They viewed civic-minded gentlemen as guardians of liberty
against both tyranny and
― 41 ―
mob
rule. An important development of this classical republican outlook
occurred in the course of the English Revolution. Initially provoked
into action by the absolutist tendencies of James I and Charles I, the
first two Stuart monarchs, the traditional landed ruling class was soon
confronted with the spectre of democracy as the revolt against the king
triggered an upsurge of popular radicalism. This revolution from below
became especially pronounced as parliamentary forces formed the New
Model Army in the course of their military struggle with the Crown. Both
within and outside the army this protest crystallized in the movement
known as the Levellers, which advanced a radical program of social and
political demands that called for the abolition of monarchy and
aristocracy, emphasized the ultimate sovereignty of the people (as
opposed to the divine right of kings), and called for diminishing—and in
extreme cases for abolishing—economic inequality between rich and poor.[44]
By
1649, the Leveller movement had been largely defeated by Oliver
Cromwell and the generals in the army. With the monarchy and the House
of Lords also abolished in that year, a millenarian sense flourished
that the political world could be remade to the measure of men. In this
context, classical republicanism revived as a significant group of
radical gentry, intellectuals, and reformers attempted to chart a
political course for England, one which would forestall a revival of
absolutism while guarding against the democratic and "levelling"
tendencies of the popular radicals. This group, often described by
contemporaries as commonwealthmen, believed that it was vital to draw up
a constitutional structure appropriate to the English republic. The
most significant of the Commonwealth theorists was James Harrington.
Harrington
came from a respected landed family. His active career as a political
figure and writer was relatively short; during the period from 1656 to
1660 he published a series of works designed to restore parliamentary
rule (as an alternative to direct rule by Cromwell and the army) and at
the same time avoid the restoration of monarchy. Harrington held it to
be a law of politics that the form of government (or political
"superstructure") must be in balance with the social distribution of
landed property. Ownership of land, he argued, is the basis for control
of arms; and the distribution of land and arms expresses the real
distribution of political power. Since the time of Henry VII, Harrington
maintained, there had been a decisive shift
― 42 ―
of
property from the Crown and the nobility to the people. For this
reason, political stability was possible in England only under the form
of a "popular government," a commonwealth. Any attempt to reintroduce
the "Gothick balance" of the feudal period (based upon a monarchy ruling
through bishops and nobles, with a subordinate House of Commons) was
doomed to failure. The task was thus to construct a commonwealth—without
hereditary monarchy or nobility—in which the balance of power would be
in the hands of the people, as was the balance of property.
In
the context of the 1650s this was, to be sure, a radical program. At
the same time, Harrington's was neither a Leveller program nor an
argument for a pure democratic republic. Though rejecting hereditary
aristocracy, Harrington believed in the absolute necessity of a "natural
aristocracy" of wisdom and virtue which would hold the power of
debating and proposing policy to the people. The people would, in turn,
hold the sole power of deciding policy, although under no circumstances
were they to engage in debate. Harrington claimed that a genuine natural
aristocracy was "the deepest root of a democracy that hath been
planted"; that without such an aristocracy any republic was
doomed—Athens, for example, having collapsed "through the want of a good
aristocracy"; that without such an aristocracy of wise and virtuous
landed gentlemen England would be left with a commonwealth which would
be "altogether mechanic"; and that landed gentlemen who had the leisure
to study politics would inevitably constitute a true natural
aristocracy.[45]
Thus, although Harrington's views on the electoral franchise were close
to those of the moderate Levellers (he supported the vote for all but
servants), his position as a whole was decidedly more aristocratic,
favouring an elected senate composed of natural aristocrats; they, by
virtue of their wisdom and public spirit, would have a monopoly of
political debate. The people as a whole he considered incapable of
meaningful debate, although they were to be trusted to know their common
(hence, the public) interest when presented with reasoned proposals
from their natural leaders. As he put it in Oceana, "As the wisdom of the people is in the aristocracy, so the interest of the commonwealth is in the whole body of the people."[46]
The
task confronting England in the crucial period from 1656 to 1660, as it
tottered between the false alternatives of military rule and
monarchical restoration, was to devise a popular constitution which
― 43 ―
would
be consistent with the existing balance of property (favouring the
people, not the Crown or the traditional nobility). Harrington thus set
out to explain the true "political anatomy" of England—a term which
returns with Petty—and the superstructure of laws which would correspond
to it."[47]
It
is important to stress, especially because of its significance for Adam
Smith and Scottish social thought, that Harrington did not ground his
republicanism in the search for those material and moral conditions
conducive to civic virtue among citizens. Unlike Machiavelli and earlier
classical republicans, Harrington did not hold that public-spirited
commitment to the common good instead of to private interest was the
sole means of preventing the degeneration or "corruption" of a
commonwealth. In place of the problem of civic virtue, Harrington
focused on the problem of law. He saw the task of the political
legislator not as leading a people down the road to virtue but rather as
designing an "empire of laws" in which the actions of citizens would
invariably further the public interest even where private interest might
dictate the contrary. In other words, even supposing all men evil, an
equal commonwealth in which the constitution corresponded to the balance
of property would make it impossible for individuals to undermine the
public interest. Corruption would thus indicate a defect not in the
people but in their constitution.[48]
For
Harrington, England was to be an agricultural commonwealth, "a
commonwealth of husbandmen," in which excessive accumulation of land was
to be limited by an "agrarian law." The purpose of such a law was to
preserve the existing ("popular") balance of property and thus avoid
further revolutions in government, since a "popular government" of the
kind which now suited England was the one based upon public rather than
private interests. At the same time—and this, too, is significant for
the history of political economy—an agricultural commonwealth was not to
eschew trade and commerce. On the contrary; Harrington believed that
urban markets stimulate agricultural production and improvement as trade
and manufacture absorb the surplus population which cannot subsist on
the land.[49] Industry and trade thus have their place in a commonwealth of husbandmen, albeit a clearly subordinate one.
This
latter point becomes especially clear in Harrington's economic
discussions, limited though they are. Harrington states unequivocally
that rent is the "revenue" which is crucial to the power
― 44 ―
of
the state. Indeed, he often treats rent as the sole national revenue, a
position common to those who saw it as the basis of state revenues. At
the same time, Harrington believed that the "industry" of the people
produced revenues three to four times greater than the total income from
rent, although it should be emphasized here that he included
agricultural wages and profits in his discussion of "industry."[50]
What is crucial for our discussion is to recognize that the tradition
of Commonwealth theorizing associated with Harrington—which directly
influenced William Petty—conceived of the economy in explicitly agrarian
terms, but did not advance a nostalgic hostility to industry and
commerce. On the contrary, Harrington's "commonwealth for increase"
encouraged commercial expansion; but such expansion was to occur in the
general context of a commonwealth in which wealth, arms, and power
derived principally from ownership of land.
It
should be clear, then, that radical Baconianism and Commonwealth
political thought converged in their major emphasis upon agricultural
production as the basis of national wealth and power. Indeed, quite a
few of the social Baconians were themselves commonwealthmen, applying
their experimental philosophy to the resolution of the practical
political problems posed by the English Revolution. This was probably
more true of William Petty than of any of his contemporaries.
Petty
was born on 26 May 1623 in Romsey, a Hampshire clothing town which,
according to his biographer, was "the outstanding stronghold of
non-conformity in Hampshire."[51]
The son of a poor clothier, at age fifteen or sixteen Petty joined the
Navy for three years. During the Civil War he went to Holland to study
medicine and specialized in anatomy. In 1650 he was appointed to a
position at Oxford University and was made Reader in Music at Gresham
College, London. Throughout this period he was an active member of the
Hartlib group and of the Oxford Experimental Philosophy Club. Petty left
academic life in 1651 to pursue his fortune in newly reconquered
Ireland. There he worked first as a physician to the English army and
later as surveyor general in drawing up a division of seized Irish lands
to be shared between the conquering soldiers and those speculators who
had financed the Irish campaign. Petty's spoils from this undertaking
were considerable: over 18,000 acres of profitable
― 45 ―
land
and cash resources exceeding 13,000 pounds. This operation made Petty
one of the largest landholders in Ireland. For a time he worked as
personal secretary to Henry Cromwell; for several years he was a member
of Parliament. Furthermore, during the late 1650s, Petty was an active
participant in the Rota Club of James Harrington and his followers. One
of Harrington's biographers considered Petty to be the outstanding
Harringtonian theorist of the Restoration period.[52]
Whether or not we accept this judgement, it is clear that Petty was an
important commonwealthman whose thought Harrington decisively
influenced. In fact, Petty's position on issues such as the franchise
appears to have been more radical than that of Harrington: a recently
translated document shows Petty advocating the vote for all adult males without restriction.[53]
Petty's
theoretical achievements were a product of his membership in the
Hartlib circle and his Harringtonian associations with the Rota Club. In
1648, shortly after having made Hartlib's acquaintance, the 25-year-old
Petty published Advice of W. P. to Samuel Hartlib . In this
tract Petty outlined Hartlib's project for an Office of Address, a
centre for universal knowledge and education. At Oxford Petty emerged as
a central figure in the Baconian circle, and his lodgings often served
as the meeting place for the Experimental Philosophy Club. The Baconian
outlook characterized Petty's entire intellectual life. In his Erguastula literaria
Petty produced a plan for the reform of education which had a decidedly
practical bent consistent with the Baconian spirit. The curriculum he
proposed included practical mathematics, watchmaking, ship design,
architecture, chemistry, anatomy, art, optics, botany, and music.
Following Bacon's own suggestion, Petty drew up a proposal for a
"History of Trades" and actually wrote histories of dyeing, clothing,
and shipping for the Royal Society."[54]
Even in his writings on economic matters Petty was never reluctant to
acknowledge his Baconian inspiration. Thus, in the preface to The Political Anatomy of Ireland, which appears to have been written in 1671, he wrote that:
Sir Francis Bacon, in his Advancement of Learning, hath made a judicious Parallel in many particulars between the Body Natural and the Body Politick, and between the Arts of preserving both in Health and Strength: And it is as reasonable, that as Anatomy is the best foundation of one, so also of the other.[55]
― 46 ―
It
is worth recalling that the term "political anatomy" appears to be
derived directly from Harrington. Petty's efforts in political anatomy,
however, involved a more rigorously quantitative approach to social and
economic phenomena than that of Harrington. Petty often called this
approach "political arithmetic." In fact, in his Political Arithmetick
Petty sketches out his method in orthodox Baconian terms. Proceeding
from sense experience, he argues, analysis should advance by way of
expressing phenomena in terms of number, weight, and measure. His aim in
the Political Arithmetick, he writes, is
to express myself in Terms of Number, Weight, or Measure; to use only Arguments of Sense, and to consider only such Causes, as have visible Foundations in Nature; leaving those that depend upon the mutable Minds, Opinions, Appetites and Passions of particular Men, to the Consideration of others.[56]
It
was his move to Ireland which stimulated Petty to apply this Baconian
method to economic phenomena. Value, rent, and land emerged as the
central categories of his analysis. That land should be central was
hardly surprising. Oliver Cromwell understood clearly that land was the
basis of wealth and power in seventeenth-century England. He understood
equally clearly that war was as much a financial operation as a military
one. For this reason, he chose to utilize the landed wealth that could
be expropriated through the conquest of Ireland as the basis for
financing his military campaign. In return for loans to finance the war
against Charles I, Cromwell pledged a share of the lands to be
confiscated. The land grab which took place was massive. Whereas
three-fifths of Irish land had been held by Catholics in 1641, by 1665,
on completion of the Restoration settlement, Catholics held a mere
one-fifth.[57]
As a result of the conquest, a new landed ruling class had come into
being. This class then set out to exploit their new properties by
rendering these estates as profitable as possible. Many of these new
landowners—soldiers and adventurers alike—were radicals identified with
the New Model Army. They found the scientific movement a useful tool in
the management and improvement of their lands. Consequently, Ireland
became a centre of experiment and invention. As Webster has noted, "The
investigations into chemistry, metallurgy, agriculture and surveying
were to a large degree a reflection of the aspirations of a social group
whose primary ambition was to re-establish profitable Irish
plantations."[58]
― 47 ―
Petty's
chief innovation came in the field of surveying. Cromwell and his
Ironsides had reconquered Ireland by September 1652. The land of Irish
Catholic rebels was to be expropriated in order that the thirty-five
thousand Commonwealth soldiers and the adventurers whose speculative
fortunes had financed the campaign could be paid directly in land. The
English Parliament adopted a plan which reserved the expropriated land
in ten Irish counties for the claims of the soldiers and adventurers.
But before the land could be expropriated and distributed, it had to be
surveyed to determine its extent, boundaries, etc. In June 1653 Benjamin
Worsley, an associate of Hartlib, was appointed surveyor general for
the "grosse survey" which was to undertake a preliminary estimate of the
forfeited lands in order that a provisional distribution could take
place. An "exact admeasurement" was to take place afterwards. Worsley's
survey encountered innumerable logistical and organizational
difficulties. In 1655 Petty, by this time a bitter rival of Worsley,
proposed a survey of the whole of Ireland, not simply of the
expropriated areas. Petty proposed not only to solve the technical
problems involved in the land distribution but also to undertake a
scientific survey of Ireland's landed wealth on the basis of quantified
geographic and economic information.
Petty startled
his commissioners by promising to complete the task within one year
and, once he received approval, set about training a crew of surveyors.
Petty's job was reduced by his commissioners to a survey of twenty-two
Irish counties—still a mammoth undertaking. The results were impressive
in the extreme. Despite numerous administrative delays beyond his
control, Petty completed the Down Survey in thirteen months. So accurate
was his survey that it remained unsurpassed for two centuries. In fact,
the Down Survey was a brilliant confirmation of the utility of Baconian
principles:
In the first place, it had required a shrewd understanding of the techniques of surveying, which were rationalised, streamlined and adapted to the Irish situation without sacrifice of accuracy. Secondly, a form of organisation using the principle of the division of labour made the survey a model demonstration of the potentialities of Baconian collective enterprise.[59]
For
the history of economic thought, the theoretical problems posed by
Petty's survey are more significant than his organizational and
scientific achievement. For Petty undertook not merely to mea-
― 48 ―
sure
the physical extent of land but also to assess its value or degree of
profitability. The practical problem which confronted Petty was that of
comparing lands of unequal value. During the survey, Petty attempted to
employ various yardsticks, like estimating grain crops by counting the
number of seeds from each seed planted or the weight per bushel of
planted seed. Similarly, he proposed to assess the value of pasture land
in terms of the weight of hay produced or by determining the number of
domesticated animals supported per acre. He also suggested that rents,
sale prices, frequency of purchase, values of landed inheritances, and
improvement of estates could serve as further indices of the value of
land.[60]
Like
many other seventeenth-century writers, Petty was convinced that
England and Ireland were not living up to their productive potential.
Agricultural improvement, enlightened administration, and scientific
policies of taxation could enormously boost the wealth of the nation.
Agricultural improvement loomed large in Petty's analysis. He argued,
despite the evidence of unemployment and underemployment, that England
was underpopulated. In fact, he claimed, if the lands were "improved to
the utmost of known Husbandry," they could support a population twice as
large.[61] One means of improvement would be the enclosure of common lands, which he estimated as three million acres.[62] But the major means of improvement would be the application of the principles of scientific husbandry.
Like
most members of the Hartlib circle, Petty exhibited a knowledge of the
basic principles of agricultural improvement. In his Political Arithmetick
(probably completed in 1676), for example, Petty referred explicitly to
Richard Weston's "Judicious Discourse of Husbandry," which had been
published by Hartlib, and praised agricultural improvement by claiming
that
bad Land may be improved and made good; Bog may by draining be made Meadow; Heath-Land may (as in Flanders ) be made to bear Flax and Clover grass, so as to advance in value from one to an Hundred.[63]
Furthermore, Petty claimed that such improvements of land were more productive than the building of furniture or houses.[64]
For this reason, he believed that the level of agricultural improvement
was the best index of the overall health and well-being of the economy.
As he wrote in his proposal for an Irish land registry, "Knowing the
― 49 ―
fertility and Capacity of our Land, Wee can tell whether it hath not produced its utmost through the labours of the people."[65]
The
determination of "the fertility and Capacity" of the land was connected
to a critical problem Petty encountered during the course of the Down
Survey: how to develop an invariable standard which would allow the
common measurement of widely divergent types of land. In 1660, when he
advocated the establishment of an Irish land registry, Petty identified
its first objective as determining "how not only the naturall &
intrinsick, but also the casuall and circumstantiall vallues of Lande in
Ireland, may bee ascertayned and brought under Rules."[66]
The land registry was also to collect data on the size and boundaries
of estates and the ownership of land; to make various calculations of
land values; to keep an account of titles, improvements, inhabitants,
purchases, and sales. But in all Petty's writings of this period, the
central recurring problem is the determination of "the naturall and
intrinsick" value of land. Indeed, it was this preoccupation which
prompted him to undertake one of the most important analytic innovations
in the history of economic thought—the elaboration of a labour theory
of value.
This theoretical achievement came by way of a digression in Petty's Treatise of Taxes and Contributions, first published in 1662. The Treatise
was occasioned by an immediate and practical problem, the
reorganization of the Revenue by the Restoration Parliament. But for
Petty taxation, like any aspect of political policy, had to be
established on a genuinely scientific basis. Thus, the Treatise
does more than advocate a specific approach to taxation; it analyses the
very basis of producing wealth and the effects of different taxation
policies on generating wealth. The Treatise begins by asserting
that the wealth of a nation is determined not by its territorial extent
but by the size of its population. "Fewness of people," Petty claimed,
"is real poverty." But the production of wealth requires that the people
be productively employed and well governed. Not all employments,
however, are productive. A large number of mercantile pursuits are sterile,
or unproductive, according to Petty. Although a certain number of
merchants are necessary to the state, a large number are entirely
parasitical; they merely "distribute forth and back the blood and
nutritive juyces of the Body Politick, namely the product of Husbandry
and Manufacture." Although many commercial functions are unproductive,
state expenditure is, at least indirectly, pro-
― 50 ―
ductive.
In substantiating this claim, Petty developed a primitive notion of the
circular flow of wealth, according to which state expenditure flows
into productive hands. The amounts that the state spends on
"Entertainments, magnificent shews, triumphal Arches & ... [will]
refund presently to the most useful; namely to Brewers, Bakers,
Taylours, Shoemakers, &c."[67]
The focus of the Treatise,
however, is taxation. Furthermore, since the basis of taxation in early
modern England was landed property, Petty turned to examine the
"mysterious nature" of rent, the taxable income from landed property. In
a remarkable digression from his main discussion, Petty advanced the
argument that rent equals the surplus product of the land—a surplus
which is the remaining physical output once the costs of production are
deducted:
Suppose a man could with his own hands plant a certain scope of Land with Corn, that is, could Digg, or Plough, Harrow, Weed, Reap, Carry home, Thresh, and Winnow so much as the Husbandry of this Land requires; and had withal Seed wherewith to sowe the same. I say, that when this man hath subducted his seed out of the proceed of his Harvest, and also, what himself hath both eaten and given to others in exchange for Clothes, and other Natural necessities; that the remainder of Corn is the natural and the true Rent of the Land for that year.[68]
This
argument constituted a daring and original theoretical departure. In
attempting to define rent as a real magnitude, Petty inaugurated a line
of inquiry based on a labour theory of value which was to figure
prominently in the writings of the classical political economists. As
William Letwin has assessed Petty's concept of the "natural and true
Rent of Land,"
This definition, in short, applies a formidable theoretical invention—the notion of a 'real' economic magnitude—to a measure, rent, that had always been thought of as a money payment; and it comes very close to saying what again was remarkably original, that real rent is a surplus, not merely—as it had always been considered, and long continued to be—a cost of production.[69]
Petty
did not leave his analysis at this point, however. Having defined the
real magnitude or value of rent (which in turn determined the value of
land), he went on to ask what the money value of this "real Rent" might
be. This question led him to a general consideration of the money value
of commodities. Petty asked, "how much English money this Corn or Rent
is worth?" And he answered,
― 51 ―
Let another man go travel into a Countrey where is Silver, there Dig it, Refine it, bring it to the same place where the other man planted his Corn; Coyne it, etc, the same person, all the while of his working for Silver, gathering also food for his necessary livelihood, and procuring himself covering &c. I say, the Silver of the one, must be esteemed of equal value with the Corn of the other.[70]
Contrary
to common interpretations, this statement does not say that goods
produced with the same amount of labour have equal values. After all,
Petty has suggested that the individual who labours to produce silver
must simultaneously undertake to feed and clothe himself. Petty's claim
is that the surplus labour time devoted to producing silver, that
is, the labour time beyond that necessary for the maintenance of the
labourer, will produce a value of silver equal to the surplus product of
corn (again, once the value of the labourer's subsistence has been
deducted). It is for this reason that Petty later commented that "the
neat proceed of the Silver is the price of the whole neat proceed of the
Corn."[71]
Nonetheless, this passage strongly suggests the possibility that this
method of evaluating the money value of rent might be utilized to
analyse the value of all commodities. And this is precisely the
suggestion Petty made when he characterized his theory as "the
foundation of equallizing and ballancing of values." Furthermore, at a
later point in the Treatise Petty argued explicitly that the
values of goods such as corn and silver are determined by the labour
time necessary for their production. He wrote, for example, that "if a
man can bring to London an ounce of Silver out of the Earth in Peru, in the same time that he can produce a bushel of Corn, then one is the natural price of the other."[72]
This
statement constitutes the fundament of a simple labour theory of value
according to which the value of commodities is determined by the labour
time necessary for their production. Yet such a theory was not the
solution embraced by Petty despite his use of it at various stages of
analysis. While Petty's examples generally focus on the
value-determining role of human labour, he remained convinced that land
was another constituent of the value of commodities. Thus, he wrote in
the Treatise that "all things ought to be valued by two natural
Denominations, which is Land and Labour." And he contended that "we
should be glad to finde out a natural Par between Land and Labour, so as
we might express the value by either of them alone as well or better
than by both."[73]
― 52 ―
Petty did not formulate such a par between land and labour in his analysis in the Treatise
. Yet the search for such a formulation remained a central
preoccupation in his writings. We find the problem discussed in his
unpublished papers.[74] Furthermore, in The Political Anatomy of Ireland Petty returned to the original problem he had posed nine years earlier in the Treatise
. In attempting to assess Ireland's wealth, Petty confronted the
problem of measuring the value of lands of differing profitability—the
same problem he had confronted while undertaking the Down Survey. Once
again, he suggested that the value of land is a function of the value of
the commodities it produces less their costs of production (defined
strictly in terms of wages). Having so formulated the concept of value,
Petty returned to his central theoretical question:
And this brings me to the most important Consideration in Political Oeconomies, viz. how to make a Par and Equation between Lands and Labour, so as to express the Value of any thing by either alone.[75]
It
is not difficult to understand why Petty was not satisfied with a
simple labour theory of value and why he felt compelled to include land
as a determinant of value. Rent was the central category in his analysis
of economic phenomena. This was so because he understood, as did most
other seventeenth-century theorists, that land was the primary form of
wealth in England and Ireland at the time. Furthermore, Petty conceived
of rent as the basic economic surplus which could be taxed to support
the Crown.[76]
Rent, therefore, was both the principal determinant of the value of
land and the basis of the prosperity of the kingdom. It was natural that
Petty should feel compelled to analyse this, to him the most central,
economic category. However, Petty saw clearly that the products of the
land were not simply the result of the activity of labour. After all,
different lands would produce different outputs with similar inputs of
labour. Such differences—the basis of differential rents—could be
accounted for, he believed, only in terms of the productive powers of
nature itself. The value of lands of differing profitability—and,
indeed, the value of all products of the land, such as corn and
silver—could be determined scientifically only if the productive powers
of nature and human labour could be equated, or calculated on the basis
of a common standard.
Petty's most ingenious attempt to equate the productive powers of
― 53 ―
land and labour occurred in The Political Anatomy of Ireland
. Take two acres of enclosed land, he suggested, and put a calf on it
to graze. At the end of twelve months the calf will have put on weight
equal to fifty days of food. This increment in food value of the calf
constitutes the value of the rent of land: "the Interest of the Value of
the Calf, is the value of years Rent of the land." Now, if a man
labouring on the same land can in an equal amount of time produce sixty
or more days' worth of food, then the surplus of days of food above that
produced by nature in the case of the calf constitutes his wages. In
other words, wages are "the overplus of days food" after deducting the
value of nature's contribution (which accrues to the landowner as rent)
from the total output. In this way, the shares of land and labour in the
total product (received as income in the form of rent and wages) are
both expressed in a single unit, "days food." As Petty wrote, in a
passage suggestive of a corn model of the economy (that is, the
economy as a gigantic farm producing one basic subsistence good):
"Wherefore the days food of an adult Man, at a Medium, and not the days
labour, is the common measure of Value, and seems to be as regular and
constant as the value of fine Silver."[77]
Suggestive
though this argument may be, it does not constitute a solution to
Petty's problem. To begin with, Petty has slipped here from a discussion
of the determination of value to a consideration of the measure of value. Furthermore, his argument has become entirely circular. Whereas in the Treatise
he had explained rent as the surplus above wages, here he has explained
wages as the surplus product above that represented by rent. It is, of
course, fair enough to divide the total product into rent and wages
(representing the incomes accruing to the only factors of production in
Petty's model, land and labour); but this is simply to define
distributive shares, not to explain the determination of value. At
times, as we have suggested, Petty approached a strict labour theory of
value. Indeed, he quickly reverted to such a theory in The Political Anatomy of Ireland when he said that one can value "an Irish Cabbin at the number of days food, which the Maker spent in building of it."[78]
But in this case he was not dealing with agricultural production and
could thus treat labour as the single value-determining element. When he
returned to landed production, Petty immediately found himself back in
the quandary of trying to provide a single equation which would account
for the value-contributing roles of land and labour.
― 54 ―
Despite—indeed
in some measure because of—these deficiencies, Petty's theoretical
economics was of crucial importance to the further development of
classical political economy. More consistently and coherently than any
other seventeenth-century writer, Petty grappled with the chief
theoretical problem which confronted scientific economics during this
period: how to construct a model which comprehended the features of the
new form of social production (capitalism) which was developing at a
time when agriculture composed the most important sphere of capitalist
production. The ambiguities of Petty's analysis reflect, then, not so
much the shortcomings of his theoretical equipment as the difficulty of
analysing the essential features of capitalist production during the
transitional period in which land constituted the most important factor
of production and rent the most important form of surplus value. In
Petty's model, profit on capital had not yet emerged as the central
feature of the capitalist economy; it was eclipsed by rent. His model
was based, in other words, on phenomena—land and rent—which were
peculiarly unsusceptible to a simple labour theory analysis. Recognizing
the differential productivity of land in the case of equal inputs of
labour, Petty continually moved from a labour theory to a land-labour
theory of value. In the end, he failed to construct a consistent and
coherent explanation of value. Nevertheless, by defining the nature of
the problem and constructing a model designed to solve the problem,
Petty cleared the theoretical terrain for those who were to follow.
The
model which Petty passed on to his successors can be accurately
described only as an agrarian capitalist one. His anatomy of the economy
clearly set forth the triadic structure of landlord, tenant farmer, and
wage labourer which was to become the foundation of classical English
economics.[79]
It is true, however, that Petty did not always clearly set out these
relationships. In his writings he tended to replace the tenant farmer by
a kind of estate manager whose income Petty treated as a wage (and not
as profit). This may well have reflected certain realities of capitalist
farming in Ireland after the Cromwellian conquest. Be that as it may,
Petty's model presupposed that agricultural production was carried on by
hired labourers, that agriculture was organized in terms of the
production of foodstuffs for the market, that the increase of the
surplus product of the land was vital to economic growth, and that the
dominant form of surplus product was rent which accrued to the owners of
the land. In these
― 55 ―
respects,
he grasped the fundamental features of emerging agrarian capitalism;
and his agrarian capitalist model was to inform theoretical economics
for the subsequent century.
Rent and Interest: Child, Locke, Barbon, and North
Following
Petty's innovative work, an agrarian-based model remained the framework
for most sophisticated economic analysis throughout the seventeenth
century. This is especially clear when we examine the debate on the rate
of interest which occurred first in 1668 and again in 1690. What is
equally clear when we examine the debate is that the writings of William
Petty were instrumental in defining the conceptual terms and
establishing the mode of analysis which dominated it. At the turn of the
century, the debate produced one of the most significant outbursts of
literature in the early history of political economy.
The
debate on the rate of interest had its origins in the establishment of a
Select Committee on the State of Trade by the House of Commons in 1667.
The following year the king responded, creating a new Council of Trade.
The House of Lords got into the act in 1669 by launching its own
committee. Active in all these committees was Josiah Child, a London
merchant who was in 1673 to become the East India Company's largest
shareholder and in 1681 its director. In all of these committees—indeed,
throughout the course of his public career—Child consistently advocated
a legal reduction in the rate of interest as the key to restoring
prosperity in England.
Arguments for a reduction in
the rate of interest were not new. But those, such as Culpepper, who
had advanced such arguments previously were identified generally with
the landed interest. Child presented the case in a new form. His was not
the perspective of the landed man whose prodigal lifestyle had led him
into the clutches of the usurer. Nor did he advance traditional ethical
arguments against usury. Instead, he claimed that the prosperity of all
classes, usurers excepted, would improve with a decline in the rate of
interest.
Child's theoretical explanation of this
claim could not be said, contrary to Schumpeter's view, to constitute a
contribution to scientific economics.[80] Indeed, Child's Brief Observations Concerning Trade and Interest of Money
(1668) was built around unwarranted theoretical generalization from the
strictly empirical observation that the rate of interest was lower in
Holland than in England. From there, Child
― 56 ―
makes
an enormous conceptual leap. Without anything resembling a theoretical
argument, he makes the assertion that "the abatement of interest is the
cause of the prosperity and riches of any nation."[81] Constructed as it is, the Brief Observations
is of little theoretical interest. Of some interest from our
perspective, however, is its favourable reference to Petty and his Treatise . But the influence of Petty is most apparent in Child's New Discourse of Trade (written in 1669 and published in 1693). Also devoted to the debate over money and interest, the New Discourse is a work of substantially more intellectual import than the Brief Observations . Whether Petty's Treatise provided the inspiration for the theoretical structure of the New Discourse can only be surmised. Like the Brief Observations, this tract includes praise of Petty, "the most Ingenious Author of that Treatise of Taxes and Contributions ."[82] Of more significance, however, is this work's treatment of agricultural improvement and its relation to the rate of interest.
The New Discourse reveals a sharp awareness of England's agricultural revolution. Child remarks, for example, upon
what great Improvements have been made these last sixty years upon breaking up and enclosing of Wastes, Forests and Parks, and draining of the Fenns, and all those places inhabited and furnished with Husbandry.
Furthermore,
he claims that previous reductions in the rate of interest had been due
to "the encouragement which that abatement of Interest gave to Landlords and Tenants, to improve by Draining, Marling, Limeing, etc."[83]
Though the theoretical analysis of the New Discourse
is far from rigorous, it suggests that a decrease in the rate of
interest will contribute to alleviating unemployment. Like most
seventeenth- and eighteenth-century writers on economic matters, Child
was acutely aware of unemployment and the drain it imposed on the
English economy. He appears to have believed that a reduction in the
rate of interest would encourage agricultural investment and thereby
stimulate industry and trade. Although he does not fully elaborate the
argument, Child seems to suggest that the encouragement to landed
investment brought about by a lower interest rate will stimulate the
whole economy. Certainly his belief that agricultural improvement was
the key to solving the problem of unemployment put him in im-
― 57 ―
pressive company; Hartlib, Plattes, and Petty, among others, had all made the same claim.
The argument that agricultural improvement is crucial to economic prosperity is made much more explicit in Child's Discourse of the Nature, Use, and Advantages of Trade, published in 1694. Here Child claims that "the produce of the Land is the principal foundation of Trade."[84] Moreover, he puts forward a concept of the circular flow throughout the economy of wealth produced by husbandry:
And from this Labour of the Husbandman, are derived many of the Improvements of Trade, in the disposal of those Treasures which he hath raised out of the Earth by his Industry and Pains. His Corn gives Trade and Imployment to the Miller, the Baker, the Maulter and the Brewer.[85]
Finally,
in a statement in tune with the Country party's ideology of the period,
which saw the preservation of civic virtue by independent landed gentry
as the key to health and stability in the body politic, Child calls on
"the Gentry of England " to "reside in those countries where
their Estates lye ... to preserve good Government and good Husbandry
among the many inferiour people in their Neighbourhood."[86]
It
is, of course, possible that these arguments represented a conscious
rhetorical strategy on the part of Child. Recognizing that landed
gentlemen made up the overwhelming majority in Parliament, that they
viewed merchants as narrowly self-interested and generally conceived the
public interest as founded upon the landed interest, Child may well
have shaped his argument to the predispositions of his audience. Be that
as it may, his theoretical argument advanced a model of England as a
commercial-agrarian commonwealth—that is, a nation whose wealth and
prosperity was rooted in agriculture and could be extended through
commercial expansion. Compatible in principle with an agrarian-based
economy, commercial expansion was thus crucial to agricultural
production and improvement.
In both the New Discourse and A Discourse,
Child exhibited a definite agrarian bias which appears to have owed its
formulation in part to Petty. Believing that production on the land
formed the foundation of national wealth, Child conceived of the
stimulus to agricultural improvement which would be brought about by an
"abatement" of the rate of interest as critical in restoring England to
― 58 ―
prosperity.
Ironically, Child's major opponent in the controversy over the rate of
interest, John Locke, fully shared his agrarian bias yet entirely
rejected his theoretical analysis and policy conclusions.
Locke
came from a social and intellectual milieu similar to that of Petty.
One grandfather was a tanner, the other a wealthy clothier. His father, a
country lawyer, was a Puritan who fought with the Parliamentary Army
from 1642 until its victory in 1649. Locke entered Oxford in 1652—the
year after Petty left—and quickly became a member of the experimental
philosophy club. Strongly influenced by the Baconian movement, Locke
soon fell under the spell of Robert Boyle, the leading experimenter
among the Oxford empiricists, and began to assist Boyle in his
experiments.[87]
Like Petty, Locke became a physician and in that capacity he was
invited in 1666 to join the household of Anthony Ashley Cooper, later
the first earl of Shaftesbury.
The future leader of
the Whig opposition to Charles II, Shaftesbury was one of the central
political figures of the seventeenth century and one who maintained a
keen interest in trade and colonial expansion. But it was land which was
the principal source of Shaftesbury's wealth, and it was agriculture
and the landed proprietor which constituted the economic and social
centre of his vision. As his biographer has put it, "to the end he
remained a country landlord." And even in colonial affairs, this bias
came through, for example, in his statement on the founding of an
English colony in Carolina that "we aim not at the profit of merchants,
but the encouragement of landlords." For Shaftesbury, then, "the basis
of society should be the landed interest"; but "commerce and investment
had a valuable and respectable contribution to make to the general
prosperity."[88] He shared Child's view of the commonwealth as founded upon landed interests yet prospering through commercial expansion.
During
the late 1660s, when Locke had just come into his service, Shaftesbury
functioned as a member of the Privy Council Committee for Trade and the
Plantations and as chief member of the Lords Proprietors of Carolina. In
1672 Shaftesbury enjoyed the greatest success of his official career
when he became Lord Chancellor. That same year he inspired the creation
of the Council of Trade and Plantations of which he became president.
Locke's deep interest in economic problems dates from his service with
Shaftesbury. By 1668, Locke had become substantially more than a
personal physician to
― 59 ―
Shaftesbury;
he was also effectively his secretary and confidant. As a result,
Shaftesbury secured his loyal supporter several advisory positions in
matters of trade and finance. In 1668 Locke was appointed secretary to
the Lords Proprietors of Carolina, and in 1673 he became secretary of
the Council of Trade and Plantations.
Locke's major economic work, Some Considerations of the Consequences of the Lowering of Interest, and Raising the Value of Money
was first drafted during the parliamentary agitation of 1668 as a
memorandum to Shaftesbury; it was inspired by Josiah Child, who favoured
reducing the official rate of interest from six to four percent. The
evidence suggests that Locke had read Petty's Treatise by this
time. Indeed, he employs numerous terms and arguments which appear to
have been borrowed from Petty. In 1681 and again in 1691, similar
bills—each backed by Child—were presented to Parliament. When one bill
was reintroduced in November 1691, Locke had been revising his papers on
interest for more than a year. He immediately published Some Considerations
and appears to have presented his argument during the parliamentary
debate on the bill. Nevertheless, in January 1692, the House of Commons
passed a modified version of this bill to reduce the interest rate to
five percent.
Some Considerations enjoys a
curious reputation in the history of economic thought. It has been
considered both a traditional mercantilist tract and an early exercise
in classical economics, a major statement of the labour theory of value
and a pioneering formulation of a subjective-utility theory of value
based on supply and demand analysis. Indeed, one analyst has argued that
the work employed both value theories simultaneously.[89]
What has not been in dispute, however, is the position Locke took on
the proposal to reduce the rate of interest. Locke unequivocally opposed
all such efforts. He claimed that there were natural laws of trade and
"laws of value" which could be violated only to the detriment of the
nation as a whole. The rate of interest, Locke argued, is a "natural
price" determined by the laws of supply and demand. A forcible reduction
in the rate of interest would only provoke lenders to export their
money capital to countries where the rate of interest was higher. Such
an outflow of specie would cause English prices to decline. As a result,
the balance of trade would shift against England since (like Malynes,
he assumes that demand is inelastic) the aggregate value of English
exports would decline. Furthermore, falling prices would cause rents and
― 60 ―
land values to collapse. Locke, then, like Child, saw the landed and commercial interests as rising or falling together.
The
latter aspect of Locke's argument, that falling prices caused by a
reduction in the rate of interest would depress land values and rents,
is particularly intriguing. No commentator seems to have appreciated
that Some Considerations is preoccupied with the effects of a
reduced interest rate on rents and the well-being of the landed gentry.
To be sure, William Letwin has remarked that "the price of land ...
became the chief matter" of Some Considerations . But,
considering such an interest idiosyncratic to Locke, Letwin fails to
pursue the point and to examine the extent to which this "chief matter,"
the price of land, and the related matter of rent were the categories
around which Locke organized his inquiry into money and interest.[90]
That
Locke should have exhibited a pronounced agrarian bias need surprise
only those who have taken literally the claim that he was a prophet of
commercial and industrial capitalism. As we have noted above, Locke's
formative influences were quite similar to those of Petty: a Puritan
upbringing, exposure to social Baconianism and the Hartlib circle,
participation in the Oxford Club, and an abiding interest in
economic—and agricultural—improvement.[91]
To this list we can add the powerful influence of Shaftesbury, the
great Whig lord whose landed investments and agricultural interest
decisively shaped Locke's view of society.
The
exact nature of Petty's influence on Locke is difficult to gauge. Given
that Petty left Oxford before Locke arrived, it is not certain whether
the two ever met. What is certain, however, is that Locke was completely
familiar with Petty's major economic works, all of which he possessed.
Moreover, one often finds Locke repeating theoretical formulations which
originated with Petty. As the author of the only major study of Locke's
economic writings has put it, "Often what seems new in Locke had
already been at least implied by Sir William Petty several decades
earlier." Furthermore, as we have noted above, Locke possessed a copy of
Petty's 1667 Treatise and may well have read it before writing his economic essay in 1668.[92]
Like Petty, Locke exhibited a distinct awareness of agricultural improvement and its economic importance. In the Second Treatise,
a work in which the terminology of improvement is employed repeatedly,
and which was probably drafted during the years 1679–1681
― 61 ―
(that is, after 1668 and before 1692), Locke discusses the advantages of enclosure:
the provisions serving to the support of humane life, produced by one acre of inclosed and cultivated land, are (to speak much within compasse) ten times more, than those which are yeilded by an acre of Land, of an equal richnesse, lyeing wast in common.[93]
It
is in this same context that Locke develops his alleged labour theory
of value. Discussing the role of labour in increasing the necessities of
life he attempts, as Petty does, to compare the output of two equal
pieces of land, one uncultivated, the other cultivated. Locke makes the
calculation by comparing an uncultivated acre of land in America with a
cultivated acre of English land. Again employing Petty's terminology,
albeit in a slightly different manner, Locke claims that though the
intrinsic values of the two acres may be the same, their market values,
measured by the price of their produce, are not. The difference is the
value added by the labour expended on the improvement of the English
land:
An acre of land that bears here Twenty Bushels of Wheat, and another in America, which, with the same Husbandry, would do the like, are without doubt, of the same natural, intrinsick value. But yet the Benefit Mankind receives from the one, in a Year, is worth 5 pounds and from the other possibly not worth a Penny, if all the profit an Indian received from it were to be valued, and sold here; at least, I may truly say, not 1/1000.[94]
It is difficult to imagine that this passage does not owe something to Petty's analysis in the Treatise
. The analogies are profound: Locke chooses agricultural production to
illustrate the role of labour in adding value to commodities; he employs
the concepts of "intrinsic value" and "natural value"; and he estimates
the productive powers of labour in terms of the exchange value of the
excess or surplus product beyond that which nature itself will produce.
What is true of the Second Treatise is even more true of Some Considerations
(both the 1668 and the 1692 versions), where land and rent occupy
centre stage in Locke's analysis. While the essay begins with general
deliberations upon money, Locke quickly moves to a circular-flow
analysis in which agricultural production forms the fundamental basis of
the economy. Locke's presentation of the circular flow is no more
sophis-
― 62 ―
ticated than that to be found in many earlier theorists, but it is characterized by a greater clarity of exposition:
Money in its Circulation during the several Wheels of Trade, whilst it keeps in that Channel (for some will unavoidably be dreined into standing Pools) is all shared between the Landholder, whose Land affords the Materials; the Labourer, who works them; The Broker, (i.e.) Merchant and Shopkeeper, who distributes them to those who want them; And the Consumer, who spends them.[95]
Not
all those who figure in the circular flow of national wealth are of
equal importance. It is possible, Locke claims, that there may be too
many merchants or brokers who hinder trade "by making the Circuit, which
the Money goes, larger, and in that Circuit more Stops." An excess of
merchants causes too large a share of the national output to fall into
mercantile hands, thereby "starving the Labourer, and impoverishing the
Landholder, whose Interest is chiefly to be taken care of, it being a
settled unmoveable Concernment in the Commonwealth."[96] Like Petty, Locke here refers to merchants as "gamesters." The settled and unmovable character of landed wealth makes it the political foundation of the commonwealth. Locke also had a sound economic
reason for favouring the landed interest: all taxes are in reality laid
on land; the royal revenue is merely a share of the aggregate rent of
land.[97] For this reason, landholders are the most important members of the state and ought to be treated accordingly:
the Landholder, who is the person, that bearing the greatest part of the burthens of the Kingdom, ought, I think, to have the greatest care taken of him, and enjoy as many Privileges, and as much Wealth, as the favour of the Law can (with regard to the Publick-weal) confer on him.[98]
This
is hardly the voice of a laissez-faire economist or a full-fledged
political theorist of democracy. Locke returns repeatedly to the
argument that landholders deserve special protection and privileges from
the state. Furthermore, the state should endeavour to improve the
economic position of their class. The raising of rents "would be worth
the Nations Care," Locke maintains. And since rents are high when
agricultural prices are high, the state must attempt to prevent actions
which would lower the price level. Yet that is precisely what would
result from a reduction in the rate of interest (since lenders would
turn to foreign investment).[99] For this reason, proposals to reduce the rate of interest must be opposed.
― 63 ―
Locke's argument is instructive in several respects. First, despite its ostensible concern with analysis of money and interest, Some Considerations
focuses on rent and land. Locke states explicitly that the landowner is
the most important member of the commonwealth and that rents are the
basis of royal revenues (and thus the foundation of state power). For
these reasons, the state must guarantee that the interests of the
landowners are protected and extended, which in the specific case at
hand means opposing a legal reduction in the rate of interest. Second,
Locke follows Petty in claiming that the value of land "consists in
this, That by its constant production of saleable commodities it brings
in a certain yearly Income."[100] Moreover, in his Short Observations on a Printed Paper
published in 1696, Locke further follows Petty in arguing that the
value of land is increased by improvement and that such an increase may
be measured by the increased product of the land or by the enlarged
money rent that the improved land will yield. Third, Locke claims—again
echoing Petty—that interest on money is analogous to the rent of land.
Indeed, interest is the rent of money. Fourth, contrary to his popular
image as a proponent of commercial and industrial capitalism, Locke
adheres to a long tradition of agrarian-based social and political
theory by arguing that whereas the interests of the landowners are
consistent with the public interest, this is not true of merchants who
"may get by a trade that makes the kingdom poor."[101]
Finally, Locke's economic model is based upon the assumption that the
direct agricultural producer is a "day labourer" who receives a wage for
a fixed period of work.[102]
Thus, Locke's model generalizes the triadic structure—landlord, tenant
farmer, wage labourer—more clearly than did that of any of his
predecessors. In all these respects, Locke's economics can be seen to
constitute a political economy of agrarian capitalism whose central
figure was the landlord and whose central category was rent.
After
Locke's writings of the 1690s, no major analysis of agrarian capitalism
emerged until Richard Cantillon's treatise appeared in French in 1755.
The mode of analysis inspired by Petty and Locke did continue to
exercise an important influence, especially on two other late
seventeenth-century English economic theorists of distinction—Nicholas
Barbon and Dudley North. While neither Barbon nor North was a political
economist in the meaningful sense of the term, that is, a social
theorist who attempted to comprehend eco-
― 64 ―
nomic
relations as a decisive aspect of social life, both produced short
pamphlets which exhibited first-rate economic analysis. Barbon and North
both came from the London merchant community, although they took
conflicting positions on the debate over a legal reduction in the rate
of interest. Despite their differences over policy, both framed their
arguments in terms of a conscious appeal to the landed
interest—stressing a commonality of landed and commercial interest (a
common rhetorical strategy in the seventeenth century)—and both employed
arguments which described commercial relations in terms often derived
from agriculture.[103]
Nicholas
Barbon was the son of "Praise God Barebones," the famous leather
merchant and radical Puritan after whom the "Barebones Parliament" of
the Revolution was named. Like Petty and Locke, Barbon was trained in
medicine. He went on, however, to become the largest builder in the City
of London and a pioneer in the fields of insurance and banking.
Barbon's most important economic tract, A Discourse of Trade, was
published in 1690 as a contribution to the contemporary debate on the
rate of interest. While Barbon differed sharply from Locke and favoured
measures to bring about a reduction in the rate of interest, he used the
same analogy as the latter in comparing rent and interest. "Interest,"
he wrote, "is the Rent of Stock, and is the same as the Rent of Land."
Just as rent is actually a payment for a share of the goods produced by
the land, so interest is paid not on money itself but on the goods
("stock") purchased by money.[104]
As did Child, Barbon claimed that interest rates in England higher than
those in Holland caused a decay of trade and a decline in rents. And
like both Child and Locke, Barbon believed that declining rents were a
serious danger to the commonwealth.
According to
Barbon, all "settled Forms of Government" are "founded upon Property of
Land." Furthermore, "the Land is the fund that must support and preserve
the Government."[105]
Consequently, the state should pursue economic policies that would
raise rents. Most valuable in this respect would be a decline in the
interest rate. A high interest rate, Barbon asserted, discourages
long-term accumulation of goods for export and therefore reduces the
aggregate demand for agricultural goods. The end result is a decline in
prices, output, and rents. Barbon did not believe, however, in reducing
the rate of interest by means of parliamentary decree. Instead, he
favoured an expansion of the money supply by a revaluation of the En-
― 65 ―
glish
currency. Assuming the demand for money to be more or less constant,
expansion of the money supply automatically brings about a fall in the
rate of interest.
The last major figure to contribute to the debate over interest, Dudley North, whose Discourses Upon Trade
appeared posthumously in 1691, stands in sharp contrast to Petty,
Child, Locke, and Barbon. North was a Tory royalist who opposed the
revolutionary influences which had shaped Petty and Locke in particular.
Moreover, North's method was Cartesian, not Baconian. North came from
an established landed family but made his fortune in trade, becoming one
of the most substantial members of the Levant Company and its director
in 1680. The following year he was made sheriff of London in Charles
II's campaign aginst the Whigs. In 1683 he was made a commissioner of
the Customs; and in 1685, the year he was elected to Parliament, he
became commissioner of the Treasury.
North's Discourses
displays a logical structure and a mode of analysis unsurpassed at the
time. Like Locke, he claimed that there are natural laws of economic
phenomena which defy political control. "This ebbing and flowing of
Money," he wrote, "supplies and accomodates itself, without any aid of
Politicians." Also like Locke, North maintained that "it is not Interest
makes Trade, but Trade increasing, the Stock of the Nation makes
Interest low." But undoubtedly the most significant similarity with
Locke—and with Petty and Barbon—consists in North's comparison of
interest with rent. Interest, he asserted, "is only Rent for Stock, as
the other is for land."[106]
Furthermore, to bolster his argument against reducing the rate of
interest, North claimed that a decline in interest "will bring down the
Price of Land" since money holders will not issue loans at a reduced
rate and indebted gentry will be forced as a consequence to sell their
lands to pay off their debts—thus raising the supply of land on the
market and bringing down its price. Whether North was sincere in his
concern about the price of land and the well-being of the gentry cannot
be determined. Whatever the case, what is most significant is that he
felt compelled to appeal to the self-interest of the landowner in making
his case against a reduction in interest.
By the
end of the seventeenth century, then, a common lexicon and mode of
analysis of economic phenomena had been established. Those theorists who
conceptualized the economy as a whole tended to employ a rudimentary
circular-flow analysis in which wealth was
― 66 ―
generated
fundamentally from the production of goods on the land. Furthermore,
the production of an agricultural surplus in the form of rent by hired
day labourers was seen as the foundation of the power of the state and
also of the most important social class, the landowners. Rent tended to
be treated, consequently, as the most significant of all economic
phenomena. And that category which dominated analysis and debate during
the 1660s and the 1690s—interest—was grasped theoretically by means of
analogy with rent. At the same time, it must be noted that
seventeenth-century economic writers differed over a number of important
issues, not the least of which was the issue of rising incomes and
consumption levels among the poor. Some, usually merchants like Barbon
and North who were not principally concerned about the organization of
production and wage levels, saw consumption in positive terms as a
stimulus to industry and trade. Landlords, capitalist farmers, and
manufacturers, by contrast, tended to see high wages as a disincentive
to labour.[107]
Nevertheless, what is crucial for our purposes is the emergence of a
framework of analysis in which agriculture was seen as the foundation of
national wealth; in which agricultural production was presumed to be
carried on by day labourers who worked for tenant farmers, who in turn
used a share of their surplus to make rent payments to the proprietors
of the land; in which rents and land values were seen as crucial to
prosperity; and in which economic policies were analysed and advanced in
terms of their impact upon the landed interest.
It
is no overstatement to say that at the turn of the century an agrarian
capitalist model whose central concept was rent dominated theoretical
speculation on economic affairs in England. By way of reflection on a
different set of economic and political problems, French economic
thought was to arrive at a similar point by the beginning of the
eighteenth century.
French Mercantilism: Trade, Finance, and Absolute Monarchy
French
mercantilist thought was constituted from a tradition of political
discourse which differed sharply from the English version. Whereas
English mercantilism built initially on a Commonwealth tradition of
political thought which conceived of the health and sta-
― 67 ―
bility
of the state as dependent upon economic relations within a civil
society dominated by agriculture, French mercantilism grew from an
absolutist political theory which posited the state as the only agency
capable of unifying the particular wills which make up civil society. In
English mercantilism it was the economic relations of civil society
which to an important degree guaranteed the stability and prosperity of
the state; in French mercantilism it was the state which guaranteed the
unity and harmony of civil society. These divergent intellectual
orientations reflected the divergent historical paths taken by English
and French society out of the crisis of feudalism discussed in the
previous chapter. While in England the state had been transformed in
significant measure into an institution which represented the
self-organization of landed gentlemen, in France the drive towards
absolutism created an explosive tension between centrifugal and
centripetal interests. In England, the constitutional monarchy
represented in a very real sense the self-centralization of the ruling
class; in France, centralization proceeded by way of a constant battle
by the Crown against the traditionally dominant elements of civil
society.
A series of dramatic events over the
course of nearly a century pushed a growing number of French social
thinkers in the direction of absolutist political theory (and its
mercantilist political economy). The civil wars of the second half of
the sixteenth century provoked men like Bodin to swing behind an
absolutist-mercantilist concept of state and society. Massive peasant
rebellions of 1578, 1580, and almost the entire decade of the 1590s
forced the ruling class to unite against the threat from below.
Furthermore, representatives of the Third Estate often looked to the
monarchy to curb the excessive privileges of the nobility. The draining
experience of the Thirty Years' War also exposed the military weakness
of an internally divided state. Finally, the crisis of the Fronde
demonstrated that no section of society outside the court was capable of
creating a unified political force. All sections of the ruling class,
and those aspiring to enter it, were involved in a battle for a share of
the centralized feudal rent appropriated by the state. To many
contemporaries only the monarchy appeared to be above the rampant
particularity that was corrupting French society; only the monarchy
offered a potential embodiment of the general will. For this reason,
political thought
― 68 ―
began to conceive of the state as the active presence which constitutes the unity of civil society. As one scholar has put it,
The notion that it is a grave disadvantage for government to be subject to the partial wills of those who are governed, that such subjection is not a source of liberty but of chaos and destruction, distinguishes French theory from the beginning of the sixteenth century, and sets it apart from Anglo-Saxon modes of thought.[108]
French
mercantilism emerged in the general context of such theory. Economic
prosperity was seen as a central precondition of the reconstitution of
state power. Moreover, in a society in which the bourgeoisie sought its
fortune, as did most of the aristocracy, by acquiring a political office
which entitled it to a share of centralized feudal rent, the task of
developing industry and commerce appeared to fall to the state itself.
Thus, whereas English mercantilist theory (and those policies
corresponding to it) was in the seventeenth century produced by
merchants, French mercantilism was largely produced by royal officials.
As a noted authority on French mercantilism has written:
many of the French mercantilist enactments seem to have been handed down from above, rather than demanded from below. It might be worthwhile, even, to call the French developments "royal mercantilism" to mark the difference.[109]
This
fact makes the interpretation of French mercantilism particularly
difficult. For when we are dealing with figures like Richelieu and
Colbert, separating theory from policy becomes extraordinarily
difficult. These statesmen were anything but theorists. They were first
and foremost pragmatic and ambitious political operators. But they were
not pragmatists without design. In fact, they worked with a developed
body of ideas which had its roots in absolutist thought. Indeed, in a
very real sense, French mercantilism was a category of absolutist
political theory—and it is this fact which has prevented many scholars
from differentiating the two doctrines and has led some to identify
French mercantilism purely and simply with state building.[110]
In the minds of men like Bodin and Montchrétien, the notions of an
indivisible source of political authority and of national economic
self-sufficiency were inseparable. A strong state, capable of waging
both military and economic warfare, had to be capable of ad-
― 69 ―
ministering
the economy as a whole, even intervening directly in the economic
activities of individuals; its centralized political authority had to be
able to command the economic resources of the kingdom, to sustain
itself. The central state, in other words, had to be both economically
and politically self-sufficient.
In political
theory, absolutism elevated the state above the Christian ethical
principles which were presumed to govern social relations among
individuals. Confronted by a fragmented body politic composed of
conflicting and competing private interests, absolutist theorists tended
to borrow from Descartes the atomic or corpuscular theory of matter to
construct a theory of state and society. In their view, the state was
not bound by the morality governing individuals. The moral purpose of
the state was to impose order on the atomic particles which make
up society. It was for this reason that some absolutist theorists
openly defended the political views of Machiavelli (as did Richelieu).
The unity of the state and the harmony of society were the highest
worldly good. Any actions which preserved or advanced that unity and
harmony were morally defensible as "reasons of state." That could—and
often did—induce violence against the king's subjects and against other
nations, since all means were justified in the pursuit or defence of the
power of the state.
Just as the absolute monarch
required sovereign power over his subjects, so he required proprietary
rights over the wealth of the nation. French mercantilism envisioned the
economy as an extension of the royal household. It is for this reason
that the term "political economy" was originated by the French, not the
English. The term first appeared in the title of a work in Antoyne de
Montchrétien's Traicté de l'oéconomie politique dédié en 1615 au roy et la reyne mère du roy . The object of Montchrétien's Traicté
is improved administration of the national economy. State
administration of the economy is conceived to involve an extension of
the principles appropriate to the financial organization of the royal
household.
Montchrétien's Traicté inaugurated a tradition of mercantilist economic discourse in France which extended the Greek concept of oikonomia
(the economic management of the household) to problems of state
finance. It needed, therefore, to distinguish between private economy,
the management of a household, and public or political economy,
the administration of the national economy viewed as an appendage of the
royal household. French mercantilism identified
― 70 ―
the
state as the central category of economic analysis. Indeed, it fused
the concepts of economy and state; the term political economy implied an
indissoluble bond between the two and defined "economics" as a
political science. Economic issues were viewed from the standpoint of
the fiscal problems of the royal household. Furthermore, the economy was
conceived of as constituted in patriarchal terms. The king was seen as
the benevolent master who directed and regulated economic activity in
the general interests of the political family. It was in Montchretien's Traicté, the major text of French mercantilist political economy, that this outlook received its classic formulation.
The
starting point of Montchrétien's tract is the statement that the people
of France "live in a noble misery." The kingdom is in desperate need of
a moral and political renewal; but such a renewal requires economic
reform since "the art of politics depends ultimately on the economy."
The principles of economic reform are elementary: to apply the rules of
domestic economy ("le bon gouvernement domestic") to public or political
economy. It is not the extent of its territory or the number of its
inhabitants which determines the wealth of the nation. Rather, the
wealth of a state is a function of wise administration; and wise
administration consists in organizing the economy in such a way that no
land is left uncultivated and all individuals are put to work in a
manner consistent with their interests and proclivities. Though his
mercantilism involved an absolutist conception of the role of the
monarch in administering the economy, Montchrétien's was not a despotic
absolutism. He held that wise administration should adhere to "natural"
rather than arbitrary principles and should be based on a clear
recognition of the basic springs of human action—utility and pleasure.[111]
People should be encouraged to pursue their self-interest in a general
context of economic administration which ensures that they also
simultaneously contribute to the good of the state. Montchrétien also
claimed that the Third Estate (the political nation beneath the nobility
of the cloth and that of the sword) was the foundation of the kingdom
and should be protected and preserved. His absolutism thus reflected the
views of a member of the Third Estate who looked to the Crown to
advance the position of his order in the face of noble opposition.
The basic principle of Montchrétien's doctrine was the need for
― 71 ―
France
to establish economic self-sufficiency. Like most traditional French
mercantilists, Montchrétien held that France was uniquely capable of
providing for all her economic needs, whereas other nations were
dependent upon France's agricultural exports. As a result, the reduction
of imports through the development of domestic industry could in no way
diminish French exports. Furthermore, since profit could be made only
through foreign trade (since domestic trade was unprofitable to the
nation as a whole), a reduction in imports would—assuming inelastic
demand for French exports—automatically enrich the nation. In
traditional bullionist terms, Montchrétien tended, with rare exceptions,
to identify wealth with gold and money. The focus of the Traicté,
consequently, is on the encouragement of industry and commerce. Not
that Montchrétien belittled the importance of agriculture. On the
contrary, he claimed that agriculture is the most necessary and
fundamental sphere of the economy. But industry is the dynamic sector
which alone can contribute to the expansion of national wealth by
replacing imports and bringing about a favourable balance of trade—a
concept which is implicit in Montchrétien's entire argument.[112]
The central idea underlying the Traicté
is that of economic self-sufficiency. Moral renewal and economic reform
could restore France to full power. Montchrétien advanced, therefore, a
system of interrelated ideas: economic self-sufficiency, protection,
national development, a favourable balance of trade, tax reform, and
encouragement to industry, commerce, navigation, and colonialism were to
fit together as aspects of a coordinated program of economic reform.
Furthermore, the monarch, employing the basic principles of domestic
economy writ large, was to be the agent of this transformation. Despite
its proposal to eliminate noble exemption from the main body of taxes,
this was hardly a "purely bourgeois" plan, as A. D. Lublinskaya has
suggested.[113]
Instead, it was a plan for an enlightened and rationalized absolutism
which would dismantle certain structures of noble privilege and provide
economic incentives to trade and industry. That it failed does indeed
say something about the inner contradictions of French absolutism: the
restoration of lasting economic prosperity was virtually impossible with
a state that consistently expanded royal revenues through increasing
exactions from the poorest sections of the population. Nonetheless,
Montchrétien's Traicté de
― 72 ―
l'oéconomie politique laid down the basic principles of French mercantilism with a clarity and a systematic exposition that were not to be surpassed.
Cardinal
Richelieu was the first major French statesman to espouse economic
principles strikingly similar to those of Montchré-tien. One author
studying Richelieu's economic policies has said of his relation to
Montchrétien's Traicté that "Richelieu, whether he read it or not, followed its precepts with astonishing accuracy," a view echoed by C. W. Cole.[114]
Richelieu's mercantilist notions were rooted in absolutist political
philosophy. He conceived of his primary mission as unifying and
centralizing the power of the Crown. As he wrote in his Testament politique, he had inherited a fragmented kingdom which had sunk in the esteem of other nations; he had set out to rectify this.
I promised Your Majesty to employ all my industry and all the authority which it should please you to give to me to ruin the Huguenot party, to abase the pride of the nobles, to bring all your subjects back to their duty, and to restore your reputation among foreign nations to the station it ought to occupy.[115]
Restoring
France's reputation among foreign nations meant building up the
kingdom's military power. And for Richelieu, military power was a
function of financial strength. War, he argued, consists "less in arms
than in the expenditures by which arms are rendered effective."[116]
For this reason, the Cardinal undertook to build up French economic
strength. The policies he favoured could have been taken directly from
Montchrétien: employment of the able-bodied poor in manufacturing;
legislation against consumption of imported luxury goods; use of
privileges and favours to encourage industry; construction of a colonial
empire. Nevertheless, Richelieu did not pursue his economic program
with the same fervour he devoted to his political, military, and
diplomatic exploits. The attempt to institutionalize mercantilist
principles in a systematic fashion awaited the ministry of Jean-Baptiste
Colbert.
French mercantilism has been so closely
identified with the ministry of Controller General Colbert that it has
often been taken to be synonymous with the term "Colbertism." A merchant
by early training, Colbert was born in Reims in 1619 and was sent to
Paris as a youth. There he quickly established a place for himself in
financial
― 73 ―
and
political affairs. Upon the death of Mazarin, in whose employ he had
worked, Colbert ascended to the position of controller general, a post
he held until his death in 1683. Like Richelieu, Colbert was no economic
theorist. He was an intensely practical man of affairs. Nonetheless,
Colbert expressed certain mercantilist notions with an unparalleled
clarity. Foremost in this respect was his view that international trade
was a form of war. "Commerce," he wrote, "is a perpetual and peaceable
war of wit and energy among all nations."[117]
This outlook was based on an essentially static concept of the European
economy. According to Colbert, vital economic resources, from ships to
gold, existed in fixed quantities. Consequently, an increase in the
wealth of one nation could result only from the loss of another. A
nation could build up its wealth and power, therefore, only on the basis
of an influx of money from other nations. Everyone accepts the
principle, Colbert claimed, "that only an abundance of money in a state
may increase its grandeur and power." Thus, the object of French
economic policy must be to limit imports in an effort to maintain a
favourable balance of trade.
Colbert set about with
remarkable persistence to implement policies based on this principle.
He imposed tariffs on imported manufactures; he encouraged hothouse
industry with huge financial incentives; he organized overseas trading
companies; he built up the navy. In all these areas, the controller
general encountered opposition. The experience of opposition to his
policies drove Colbert to an extreme absolutism. He lashed out at all
forms of localism, ancient rights, and feudal privileges, which impeded
his ability to organize and administer the national economy.
Increasingly he relied upon the intendants, the royal officials
Richelieu created to represent the Crown in the provinces. Colbert
passionately disliked all those particular interests which prevented him
from furthering the state interest as he perceived it. For this reason,
contrary to those interpretations which see the controller general as a
representative of the bourgeoisie, he had a sharp antipathy towards
merchants. Merchants, he wrote, "always consult only their individual
interests without examining what would be for the public good and the
advantages of commerce in general."[118]
In this respect, his mercantilism differed sharply from that of
Montchrètien, who believed that bourgeois pursuit of self-interest would
advance the public good. Despite this difference, Colbert attempted to
implement the mercantilist policies developed by
― 74 ―
Montchrétien
with a determination never again matched in French history. In so
doing, he was not carrying out the historic mission of the French
bourgeoisie. Rather, he was attempting to advance the interests of the
absolute monarchy against private interests within French society.
Indeed this battle was as important to him as his battle against rival
states. He was a proponent of national—or at least, of state
—objectives. As C. W. Cole has put it, Colbert was not a representative
of the bourgeoisie but rather "a representative of that age-old class,
the courtier"; he was, however, a modern representative, one who
responded to the new economic, military, and political problems of state
building.[119]
But
much as Colbert worked with the general interest of society in mind,
his policies met with a growing wave of opposition. Aristocrats,
merchants, the poor, all came to identify the controller general as the
cause of their specific grievances—collapse of trade, famine, or
intolerably heavy tax assessments. The depth of this opposition was
exemplified in the wave of joy that swept the streets of Paris at the
news of Colbert's death in 1683. But opposition to Colbert's policies
and their legacy consisted of more than popular hatred of the controller
general; by the 1690s "a comprehensive, wholly secular and systematic
philosophy of opposition" was in process of construction.[120] Opposition to mercantilism fostered the birth of classical French political economy.
Antimercantilism: Pierre de Boisguilbert and Classical Political Economy
As
influential as mercantilist ideology became during the seventeenth
century, it never went unchallenged. Alongside mercantilism grew up
competing worldviews which, by the end of the century, gave birth to
classical political economy in France. Antimercantilist thought
developed out of two distinct—but often related—discourses which opposed
the principles of absolute monarchy: constitutionalism and Christian
humanism. Constitutionalism had its roots in Christian ethics; its
theorists maintained that the state should be constructed on the
foundation of a universal system of natural law which would establish
the constitutional framework for the relations between the king and his
subjects. The morality binding on all parties would be codified in a
system of law, derived from principles of
― 75 ―
natural law.[121]
Christian humanism shared the same point of departure in traditional
moral discourse; but its emphasis was universalist. Its theorists
conceived of world trade as part of a divine plan designed to unite
humanity. Providence had determined that no people could be economically
self-sufficient. Like individuals, all nations stood in need of
relations with others. And contrary to the mercantilist outlook which
placed foreign trade beyond moral precepts, the humanists considered
that Christian ethics should govern international trade. Just as
reciprocal bonds of obligation held together individuals in a single
state, so such bonds of reciprocity constituted the basis of
international relations. Hugo Grotius, one of the leading theorists in
the natural law tradition, clearly expressed this perspective:
God did not bestow all products upon all parts of the earth, but distributed His gifts over different regions, to the end that men might cultivate a social relationship because one would need the help of another. And so He called commerce into being, that all might have common enjoyment of the fruits of the earth.... If you destroy commerce, you sunder the alliance binding together the human race.[122]
Such
views were endorsed also by Henri VI's great minister, Sully. Later
admired by the Physiocrats for his emphasis on agriculture, Sully
preached a universalist ethics. He opposed wars of territorial expansion
and developed a plan for universal peace. Like Grotius, he considered
commerce a means of establishing harmony among the world's peoples. But
influential as a minister like Sully may have been, opposition to
mercantilism remained largely the preserve of philosophers and
theologians until the crisis of Colbert's ministry brought on by the
Dutch war of 1672–1679.
The financial needs of the
Dutch war derailed all of Colbert's plans for economic reform. Taxation
and more taxation became the order of the day. With almost clocklike
precision, excessive taxation triggered a cycle of agricultural crises
by preventing simple reproduction of the peasant economy. Economic
failure would drive cultivators from the land. Reduced outputs, in turn,
would drive up grain prices. Peasant prosperity temporarily restored,
prices and incomes would plummet and, as tax assessments hit declining
incomes, bankruptcies would usher in a new famine. By the end of the
1670s, France was caught in the grip of an oscillating cycle of poor
harvests followed by low prices, which established the conditions for
further
― 76 ―
crop
failures. Such a cycle made rural poverty virtually a permanent
condition at a time when taxes weighed even more heavily on an
impoverished peasantry.
The dominant intellectual
response to this crisis has been described accurately as "Christian
agrarianism." First enunciated by Claude Fleury during the 1670s,
Christian agrarianism became the ideology of a group of reformers within
the court grouped around Archbishop Fénelon. Fénelon opposed excessive
aggrandisement of the state. Rampant and unjustified taxation, he
argued, was bleeding the people dry; the solution was to reduce taxes,
so as to let nature and industry support the people and the Crown.
Fénelon fell from favour towards the end of the 1690s. But his basic
message continued to find an increasingly sophisticated echo. Foremost
in this respect was Charles Paul Hurault de l'Hôpital, known as the
seigneur of Belesbat, who drafted six memoirs to Louis XIV in September
1692. Belesbat claimed that the withdrawal of the state from economic
affairs and the restoration thereby of liberty of commerce would
revitalize the French economy. Prosperity restored, the people would
then be able to pay rents and taxes. If the king would abide by natural
law, he argued, all would be well. The notion that there were natural
laws of trade which, if left unimpeded, would automatically establish
harmony and prosperity, became a central tenet of anti-mercantilism. So
long as such arguments remained confined to discussion of commerce, they
could not construct a coherent and systematic alternative to
mercantilism. Such an alternative theory presupposed an analysis of the
very basis of wealth creation—an integrated theory of production and
exchange. Only when antimercantilist doctrine was taken up in the debate
over taxation which emerged in 1695 would a consistently
antimercantilist political economy be developed.
Paradoxically,
one of the major figures to initiate this debate was himself
essentially a mercantilist and a loyal supporter of Louis XIV. Sébastien
Le Prestre, seigneur de Vauban, was France's greatest military leader
during the reign of Louis XIV. Vauban had provided France with an
unsurpassed system of military fortifications, harbours, and canals. He
was the leading military engineer of the period and was, in fact,
something of a pioneer in geographic surveys and economic statistics.
According to his own account, he was shocked by the poverty he found
throughout France. During the 1690s, a se-
― 77 ―
ries
of events provoked Vauban to make his concerns public. Following
military defeat in 1692, France experienced famine in 1693 and 1694. In
order to guarantee the state an adequate income, Louis XIV was forced to
adopt the extraordinary measure of taxing the nobility with the capitation
of 1695. The crisis of the 1690s stimulated an out-pouring of
literature devoted to reform of the tax system. One of the most
important pieces of this literature was Vauban's Dîme royale .
Vauban
first drafted his tract in 1698 merely for circulation within the
court. Indeed, he read his manuscript aloud to Louis XIV. But when
France's crisis intensified, and as private lobbying at court proved
ineffective, he took the step of openly publishing his views. In early
1707, La Dîme royale came off the press. It was proscribed immediately and its author exiled from the court, only to die a month later.
The Dîme
was an impassioned work. Its author spoke out boldly against the
impoverished state of the peasantry. Nearly ten percent of the people,
he claimed, are reduced to begging; half are incapable of paying any
taxes since they can barely sustain themselves; thirty percent are
indebted; only the top ten percent are comfortable. His objective,
Vauban announced, was to examine "les causes de la misère des peuples"
and to propose a remedy. And he had no doubt as to the cause of the
poverty of the people—the grinding weight of royal taxation. The king
had shown too little regard for the conditions of the poorest sections
of the population, "la partie base du peuple," which "by its industry
and trade, and by what it pays to the king, enriches him and all his
kingdom."[123]
Prosperity could be restored and royal revenues, which are nothing
other than "une rente foncière," maintained only with the implementation
of la dixième, a tithe paid by all subjects—nobles, officials, and commoners alike.
Although
the publication of Vauban's views—especially his biting description of
the poverty of the peasants—was scandalous on its own, perhaps his
greatest indiscretion in the eyes of the court was his endorsement of
the views of one of the most outspoken and radical reformers of the
period. For, in the preface to La Dîme royale, Vauban attacked
the impoverished state of the French people which had prompted him to
search for its cause. And that cause, he claimed, corresponded
"perfectly" to that identified by the author of Le Détail de la France .[124]
The author of Le Détail de la France (1695) was none other than
― 78 ―
Pierre
Le Pesant de Boisguilbert, son of an ennobled Norman secretary to the
king. Boisguilbert's family had a long tradition of royal service. Born
in 1646, Boisguilbert was disinherited by his father yet managed to
amass a small fortune as a young man and purchase a number of offices
including the Presidial Seat of Rouen. Appalled by the deteriorating
economic condition of France, Boisguilbert undertook to enlighten royal
officials as to the causes of France's crisis. He corresponded with
three different controllers general and with Vauban among others. His
basic message is captured in one of his letters to Controller General
Chamillart in which he states that "the manner in which France is
governed will cause her to perish if it is not stopped."[125]
But Boisguilbert did not confine himself to denunciations of the
inequality of the tax system and appeals to natural law, although both
figured centrally in his writings. Instead, he constructed the most
sophisticated and systematic political economy of the time, one which
was not to be surpassed until the flowering of the classical system at
the hands of Smith and Ricardo.[126]
The
starting point for Boisguilbert's doctrine was a full-scale assault on
the mercantilist concept of wealth. Repeatedly he argued that the
decline of the French economy had started in 1660, the beginning of
Colbert's ministry. The crucial error of Colbertism was the
identification of wealth with money—an error which had brought ruin to
the kingdom. Mistakenly, wealth had been equated with gold and silver.
"We have made," he wrote in his Dissertation de la nature des richesses, de l'argent, et des tributs, ... (1704), "an idol of these metals."[127]
Gold and money have value only, he asserted, through their capacity to
provide goods for consumption. Wealth consists in consumption, in the
enjoyment of the products of agriculture and industry.
Money
should be nothing more than the slave of consumption; its function is
to assist in the circulation of goods. Money follows the circulation of
goods; it is acquired only via a prior sale. Goods should not follow the
movement of money. When the latter inversion occurs, money becomes a
false god—indeed, one more tyrannical than those of antiquity: "This
devouring god, like a burning fire, never attaches itself to anything,
except to devour it."[128]
When money becomes a false god and an end in itself, the tyrant rather
than the slave of commerce, its supply transgresses its natural
boundaries and disrupts the harmony of the state. The natural
proportions which es-
― 79 ―
tablish
prices are dislodged. Moreover, hoarding occurs, prices plummet,
producers are driven into bankruptcy, and trade collapses.
In
Boisguilbert's view, economic recovery presupposed overturning the
fetish of money and reconstructing the economy on the basis of a clear
understanding of the true nature of wealth. And he left no doubt that,
in the case of France at least, the basis of wealth was agriculture;
"the principle of all the wealth of France being the cultivation of
land," as he put it in his Traité de la nature, culture, commerce, et intérêt des grains (1704).[129]
People of all other occupations—from lawyers to artisans—subsist on the
produce of the land. It is the circular flow of the products of the
land that sustains all such social groups. In fact, the reproduction of
all social classes presupposes a dual movement of the products of the
land and of money which culminates in a return flow of revenue to
landowners and agricultural producers, to sustain another cycle of
agricultural production. As Boisguilbert wrote in Le Détail de la France,
all nonagricultural groups derive their subsistence from a "natural
circulation" which begins with production on the land, the goods of
which "pass through an infinite number of hands" until the "circuit" is
complete.[130]
Furthermore, the circulation of rent is a central feature of this whole
process, since most of those who subsist in nonagricultural occupations
live off the rent of land—at least indirectly, via the consumption
expenditure of the landowners.[131]
So
long as this circular flow maintains "a continual movement," the
economy will not suffer. France is ailing, however, because its tax
policies have upset this natural movement. Excessive taxation upon
agricultural producers has wiped out the small savings which make
possible the purchase of animals, the use of fertilizer therefrom, and
agricultural improvements.[132]
Furthermore, economic pressures on the direct producers are compounded
by prohibition of the export of grain. Such prohibitions limit the
effective demand for grain and as a consequence depress prices. Low
prices cause a contraction of output as those cultivators who fail to
meet their costs of production abandon the land. Falling output in turn
boosts prices, leading to an inflationary boom which is followed
inevitably by rising output and declining prices. Furthermore,
agricultural depression becomes generalized throughout the economy. A
proprietor who is discouraged from producing will have to curtail his
spending. The result will be an extension of the crisis to industrial
production.[133]
― 80 ―
This
cycle—or what Boisguilbert calls "the war" between those forces which
cause famine and those which cause high prices—must be broken. The key
is to establish free export of grain. A free market in grain will bring
about a high yet balanced price which will provide a regular surplus to
the producer, a surplus which will guarantee rents, taxes, and
agricultural investment. The benefits of a high but balanced grain price
will rebound to all members of society: "It is solely the price of
grains, although this truth has been little known here, which determines
abundance and the wealth of the kingdom."[134]
In
order to revitalize agricultural production and thereby guarantee a
stable and secure income to the state, Boisguilbert proposed a series of
reforms: abolition of tariffs, duties, and sales taxes; establishment
of free trade (including export) in grain; replacement of all existing
taxes by a single income tax on everyone. Vested interests would,
however, attempt to block such reforms, he asserted. In fact,
Boisguilbert had had direct experience with such resistance to reform.
In 1705 he had convinced Chamillart and de Bouville, intendant for
Orléans, to allow him to experiment with his proposals in the élection
of Chartres. But a torrent of opposition, especially from the president
of the Court of Aides in Paris, prevented the experiment from taking
place. This experience among others convinced Boisguilbert that reform
would have to come from above, from the highest representatives of the
state. Yet such reforms need not involve complicated schemas. It was
only necessary, he argued, that "one let nature do its work."[135]
Nature itself would restore order and harmony to society if only
political authorities would disregard the pressures of special interests
and let things take their course. Indeed, anticipating Smith's doctrine
of the invisible hand, Boisguilbert claimed that if restrictions were
removed to the pursuit of individual self-interest, the public good
would automatically be furthered.[136]
The
natural order established by the free workings of commerce would
distribute justice to all through the mechanism of proportional prices.
Drawing on the Aristotelian notion of distributive justice, Boisguilbert
claimed that the unfettered market mechanism would bring about an
equality of purchase and sale. As a result of mutual need everyone would
have an equal interest in buying and selling. Consequently, the market
would establish an equilibrium ("un équilibre") through which revenue
would be distributed pro-
― 81 ―
portionally
to the value of goods. Such a distribution would maintain just
proportions unless an unfair tax system were to distribute the burden of
taxes disproportionately. Thus, the main function of the state was to
establish and preserve a framework in which natural law and distributive
justice could be realized via the self-equilibrating mechanism of the
market. The state was not, as the crude absolutists would have it, above
"laws of the strictest justice"; like every subject, the state must
respect "the laws of nature, of equity and of reason."[137]
Boisguilbert's
debt to the Christian agrarian tradition is conspicuous. Yet
Boisguilbert far transcended traditional agrarianism by developing a
remarkably sophisticated analysis of economic phenomena (and of the
market mechanism, money, and depression, in particular). In fact,
Boisguilbert formulated an alternative vision of the economic cosmos in
which the wealth generated by agricultural production created a surplus
above costs of production; and this surplus—primarily taking the form of
rent—directly supported rural labourers and, indirectly, all
nonagricultural occupations and the Crown. Beyond any doubt, this was a
startling anticipation of the physiocratic conception of the circular
flow of economic life. It is perhaps for this reason that the
Physiocrats consistently acknowledged Boisguilbert as their one true
precursor. Reviled during his lifetime as an eccentric and a crackpot,
Boisguilbert nevertheless established the foundations of much that was
to enter into the construction of the great system of classical
political economy of François Quesnay and his disciples.[138]
Petty, Boisguilbert, and Classical Political Economy
By
the beginning of the eighteenth century the writings of Petty and
Boisguilbert—the "fathers" of English and French political economy,
respectively—had established the basic framework of classical economics.
For both theorists, the problem of taxation had been their starting
point. Petty's Treatise of Taxes and Contributions was written as a contribution to the Restoration discussion of English tax policy. Boisguilbert's Détail de la France
was a direct intervention in the debate over taxation which erupted
during the French crisis of the 1690s. Both theorists undertook to
address the problem of taxation in terms of a general theory of wealth
or value. As a result—and it is this which constitutes their break with
mercantilism and truly
― 82 ―
makes
them classical political economists—they directed their analytic
attention not primarily to phenomena related to the circulation of goods
(trade and exchange) but to the fundamental process of wealth
production. No longer was an increase in national wealth considered to
be possible only through foreign trade. Instead, Petty and Boisguilbert
each advanced conceptions of wealth as created by human labour applied
to nature; and for both theorists, agriculture was the basis of such
wealth. Moreover, only surplus production from the land was viewed as
making nonagricultural occupations (including those involved in the
state) possible. The major form taken by the agricultural surplus was
identified by both writers as rent . As a result, the processes
by which economic society reproduces itself and grows were considered to
be dependent upon a continuous renewal of the factors of agricultural
production. Thus, it was agriculture which constituted the foundation of
the wealth of nations.
Writing in Restoration
England, Petty, unlike Boisguilbert, was not bothered by fear of
economic collapse. His preoccupation derived from the central concern of
social Baconianism: the elaboration of means whereby state planning
could advance the wealth, prosperity, and power of England. Identifying
land as the source of wealth and rent as the decisive phenomenon in
determining the value of land, in supporting the economy as a whole, and
in providing revenue to the state, Petty devoted himself to the
development of a general theory of value which could account for the
value of both land and commodities. Boisguilbert, by contrast, was
obsessed with the problem of economic reproduction. The French economy
had been contracting, he believed, since 1660. It was necessary to
overthrow the fetish of money which had originated, he believed, with
Colbert and to grasp the true principles of wealth if the road to
prosperity were to be found. This required constructing a model of
economic interdependence, which would establish the natural
relationships between commodities, money, prices, and growth. Concerned
with such problems of economic interdependence, Boisguilbert developed a
view of the circular flow of wealth which far surpassed that of Petty
or Locke, just as Petty's theory of value posed problems ignored by that
of Boisguilbert.
But the most important difference
between the systems of Petty and Boisguilbert concerns the social
relations of production which characterized their respective economic
models. Petty took for
― 83 ―
granted a capitalist
structure of agricultural production in which the direct producers were
wage labourers—"day labourers," as Petty called them—who, owning no
means of production themselves, were compelled to sell their labour
power to a tenant farmer or landlord and produce a surplus product. It
is true, as Marx pointed out long ago, that Petty equated surplus value
with rent and failed to develop a clear concept of profit (in large part
because he treated the income of the tenant farmer as a wage).[139]
But in making the wage labourer, not the peasant proprietor, the direct
agricultural producer at the center of his analytic model, and by
making analysis of the production of surplus value (rent) his central
concern, Petty laid the foundations for a full-fledged theory of
agrarian capitalism. Although neither Petty nor Locke elaborated a
complete theoretical model of agrarian capitalism (in part because they
wrote treatises on specific economic problems such as taxation and
interest rather than principles of political economy), both employed
modes of analysis which operated in terms of agrarian capitalist
relations of production.
In this respect,
Boisguilbert's model differed fundamentally from that of Petty or Locke.
The English writers simply generalized from the historical process of
primitive accumulation which had created—in fact only in parts of Great
Britain at the time they wrote—capital farms employing a rural
proletariat. Their theories of production and growth were based upon the
triadic social relationship of landlord-tenant farmer-wage labourer
which was coming to characterize British farming. But in France these
social relationships could not be taken for granted. For Boisguilbert,
the direct agricultural producer was the small peasant proprietor. The
problem of economic reproduction and renewal thus came down to easing
the burden of taxation which undermined the vitality of peasant farming.
Thus, even though Boisguilbert tackled the problem of reproduction (the
circular flow) with more rigour than any of his predecessors or
contemporaries and saw the decisive importance of a growing agricultural
surplus to the regeneration of French economic life, his model was not a
capitalist one. For this reason, appeals to the crown to reform the
policies and structures of French absolutism were crucial to
Boisguilbert's economic program. Whereas Petty and Locke accepted the
basic social structure of Great Britain, and the policies which
corresponded to it, and merely advised the state with respect to
specific economic issues of the day, Boisguilbert called upon the
monarchy
to implement policies which challenged the basic interests of the
French ruling class. The focus of French political economy had to rest
upon reasoned appeals to the Crown as the unifying agency in society to
carry through sweeping social and economic changes. As the evidence of
England's economic superiority mounted during the eighteenth century,
the leading French economic theorists of the day, the Physiocrats, thus
increasingly called upon the state to sponsor a wide-ranging program of
social transformation which would replicate the results of English
enclosure and primitive accumulation. The radical innovation of the
Physiocrats was to construct a developed economic theory of agrarian
capitalism as the basis of French renewal. In so doing they wrote a
decisive chapter in the political economy of agrarian capitalism.
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| Chapter two Rent and Taxes: The Origins of Classical Political Economy |
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