Trace the rise of modern economic thought
Today’s economic policy debates often focus on national prosperity. An economic stimulus package will boost the country’s economy. Infrastructure investments will boost the gross domestic product. Tax cuts will stimulate economic growth.
These debates reflect a shift in economic thinking that occurred in year 17NS– Century England, when members of an emerging trading class began to publish works on trade and finance to influence government policy. By arguing for their preferred policies, these authors created a new economic discourse – one that emphasized national growth and prosperity and set the stage for today’s economics.
In Emily Erikson’s latest book, Trade and Nation: How Companies and Politics Reshaped Economic Thought (Columbia University Press), the Yale sociologist examines this revolution in economic thought, focusing on the years between 1570 and 1720.
Erikson, Associate Professor of Sociology in the Faculty of Arts and Sciences at Yale and director of the Fox International Fellowship, recently spoke to Yale News about the project. The interview was compressed and edited.
What inspired you to write the book?
Emily Erikson: While working on my previous book “Between Monopoly and Free Trade: The English East India Company, 1600-1757” [Princeton University Press], I noticed that a surprising number of important business texts of this time were written by people connected with companies. I found that striking and made me think that something about corporations and economic theory had not yet been fully uncovered. It’s strange to think about it. Imagine Jeff Bezos writing a treatise on economics. I think people might find it a little suspicious. People found it a little suspicious at the time, too, but the conditions were different.
As I worked on the book, I realized that I was answering an important question: why is the European economy less focused on inequality and more on national development? It’s not that national development isn’t important. It’s hugely important. But that part of the injustice has been buried under the increasing focus on national prosperity. I wanted to better understand why that happened and how we can focus more on justice and fairness today.
What was the status of economic thinking before 1570?
At universities, economics was considered to have been under the attention of philosophers and serious scholars. There were no economic departments and no real concept of “economy” as a stand-alone system. Most of the people who wrote seriously about economics were Christian scholars and theologians. They were very concerned with the effects of economic behavior on the human soul. They thought about the kind of economic behavior that people can employ and still be fair to other people. Setting a fair price was one of their central concerns. How much can one rightly ask for bread when people are starving? When does a price become angry?
There was no concern for equality in the sense of raising people to the same socio-economic level, but they believed that wealthy people should not become impoverished or take advantage of others, which would be considered sinful behavior. That was a central concern in debates about the interest rate levy they called usury and whether there is money to be made and what that means about the value of money.
How did economic thinking change after 1580?
By the 17th century, you have a large influx of English merchants into the discourse who are not so interested in the effects of economic behavior on the human soul. You may point out this issue, but it is not your primary concern. Instead, they argue about how economic behavior such as the charging of interest rates affects capital markets and how this affects trade and ultimately the wealth and prosperity of the nation. They replaced the old moral framework that emphasized justice, justice, and salvation with one based on the wealth and prosperity of the nation.
Who were the dealers who drove this change?
These were relatively wealthy individuals from large foreign trading companies. They were involved in complex corporate enterprises that were granted rights to trade in certain goods such as white linen or dyed cotton, or rights to trade goods in certain places such as the Baltic Sea or East India. For the most part, they operated outside the government halls and were keen to influence trade policy, such as issuing the charters that allowed companies to operate. Many produced tracts setting out their arguments. In doing so, almost unintentionally, they forged a new kind of economic discourse.
Why did England become the engine for this change in economic thinking?
From an early modern perspective, it is strange that this happened in England because the Dutch Republic was much more dynamic then economically – and politically more powerful. It was the “golden age” of the Dutch. The important difference was that the Dutch government was dominated by merchants. If Dutch merchants wanted to change a policy, they didn’t have to leave government buildings to do it. English merchants, on the other hand, were in a minority position in Parliament. They had to convince state actors to implement new policies that served their commercial interests. To this end, they made their appeals to the public with the means of persuasion at their disposal, including the writing and publication of economic tracts. In order to convince people that their arguments were legitimate and not just self-interest, they sought to show how their preferred policies would benefit the nation.
What surprised you most while working on this book?
When I started this project, I thought that the tremendous expansion of business literature during this period is likely the result of the global expansion of trade. That was my initial hypothesis: the more complex trading becomes, the more complex intellectual tools were required to understand it. But it turns out that’s not the case. It was not the early phase of globalization that sparked the revolution in economic thought; it was the political context and the position of the merchants in English politics that drove the discourse. That surprised me.
The shift in economic thought you document began more than a century before Adam Smith published The Wealth of Nations in 1776, one of the fundamental texts of modern economics. How did Smith use the work that preceded him?
Much of the materials I look at in this book form the basis of The Wealth of Nations. The way Adam Smith blended the observations of people making somewhat selfish arguments into a coherent whole was an extraordinary achievement. He combined ideas about national development and growth with a theory of moral behavior and action and gave them a moral perspective that people often seem to overlook. He was very interested in a fair and just exchange between individuals and the negative effects of colonialism. He was deeply against slavery and very concerned about how monopolies can take advantage of the population. In a way that is astonishing to me, he has woven a moral perspective into a very empirical literature.