True Left

Mercantilism and the Birth of Political Economy

Another major drawback of the interstate thesis lies in the way it views Europe’s competitive character as being no more than a concentrated expression, as Tilly has it (70), of the “standard” (ordinary) procurement of power and wealth by states across history. It ignores the entirely new “mercantilist” discourse Europeans cultivated during the 1600s in their reflections on the character and dynamics of this interstate system. Mercantilism was a discourse with no parallels elsewhere; the first rational investigation of the relationship between economic wealth and state power. The proponents of this discourse included, in the main, Antonie de Montchrétien (1576–1621), Gerard de Malynes (1586– 1641), Edward Misselden (1608–1654), and Thomas Mun (1571–1641). What these thinkers argued, broadly speaking, was that the market was a reality which should be studied in a scientific manner just like any other natural phenomena. The power of the state depended on the wealth of society; the market was a mechanism of wealth creation, and thus the understanding of its “laws” would reveal the underlying economic basis of state power. These were the first European thinkers to write of wealth and power as independent entities in terms of their modus operandi freed from all ethical and religious considerations. While they were not advocating free markets, they were arguing, nevertheless, that the world of commercial exchanges should be regarded as a system made up of “mechanical forces” which, if properly understood, could serve the interests of the state (Magnussen 1994: 211–15).

This was a new group of “worldly philosophers” who had come to the realization that trade brought power and power brought wealth (Roll 1983). They maintained that trade, in the words of Weber, ought “to be carried on as far as possible by the merchants of the country, in order that its earnings should accrue to the taxable capacity […] in obvious immediate connection with the power-seeking policy characteristic of the [interstate] system” (1981: 348). The mercantilist “balance of trade” doctrine explained that the total wealth of the world could not be increased, and that, for that reason, the only way for a state to increase its wealth was through a positive balance of trade, a surplus in one’s balance of payments and a deficit in one’s rivals. Mercantilists thus urged the state to introduce a whole range of protectionist regulations, “including prohibitions of importation and stimulation of exportation” and the “artificial promotion of industries” (348–49) with exclusive rights.

This doctrine was a revolution in the understanding of the relationship between politics and economics. It was a new discourse on the political economy of wealth to the extent that it examined this relation on its own terms separately from religious considerations. This discourse was preceded and influenced by Machiavelli’s detached discussion of politics from theological matters, and by Jean Bodin’s (1520–1596) doctrine that there is in every state a supreme power that is subject to no other power within the territory of the state itself, but to which all else is subject. The revisionists (including some of their critics, Vries, Findlay, and O’Rourke) are political-economists who emphasize the interrelations of “power and plenty” and yet they fail to ponder the intellectual origins of this way of thinking.

Mercantilism laid the foundations for modern (liberal/free market) economics. However, contrary to Hobson, the subsequent creation in the 1800s in England of a laissez-faire state, and also to a lesser extent in France, does not mean that such a state was automatically more peaceful than the Asian states. On the contrary, for some time, even as Enlightenment thinkers were seriously thinking of the possibility of a commercial world “operating to cordialize mankind,” in the words of Thomas Paine, “by rendering nations, as well as institutions useful to each other,” European governments were increasingly agreeing with a new generation of political economists who were arguing that a free trade economy would generate more wealth for governments to depend on than a mercantilist economy.

The originators of these ideas, known as “the Physiocrats,” were located in France. They included, most prominently, Francois Quesnay (1694–1774) and A. R. J. Turgot (1727–1781). They argued that agriculture, not trade, was the sector from which the wealth of a nation originated. The ability to conduct war depended on the monies raised in taxes, and these in turn depended on the net agricultural product. France was facing a fiscal crisis in the late 1700s and, as a solution, the Physiocrats proposed an agrarian reform directed at replacing the old customary relations with voluntary contracts between landlord and tenant. That is, they called for the extension of market relations into agriculture according to which the old land-owning nobility would retain its right of ownership through a capitalist form of leasehold. The Physiocrats also reasoned that, if wealth lay in land, then proprietors should be allowed to maximize their profits through the free play of markets. Free trade would be mutually beneficial between all parties, swaying each producer to specialize in the production of goods over which they had an advantage. Higher agrarian profits would in turn increase the tax-paying capacities of the population, thereby solving the fiscal crisis (Rubin 1979). While Turgot attempted to implement free trade policies when he was Minister of Finance in 1774–76, his reforms were short-lived. England, the most capitalistic European nation since medieval times, would be the one to abolish protectionist tariffs and embrace open markets in the middle of the nineteenth century. Who can forget David Ricardo’s famous argument against the Corn Laws: If French farmers are willing to feed us for less than it would “cost” us to feed ourselves, let us eat French food and spend our time doing something else?

It has been a subject of much debate as to why the English state was the eventual winner in the great inter-state struggle for maritime supremacy. Landes thinks that Britain’s advantage began in the Middle Ages with the abolition of serfdom and the rise of individual cultivators, and later in the 16th century with the spread of mixed farming (grain and livestock and grain-fed livestock), and the adoption of new techniques of watering, fertilizing, and crop rotation, followed by the enclosures of the 18th century (1998: 214). As was argued earlier, he also states, that England was the beneficiary of a common national identity combined with equality of civil status. For North, her advantage lay in the greater protection of property rights.

Other explanations focus on the immediate naval contest between Britain and France in the 18th century. They ask how it was that France, with an economy more than double the size of Britain’s, was the loser in the mercantilist race for global power. The leading answer is hardly that the British were further ahead in the direction of a “minimalist” state dedicated to low taxes and peaceful dividends. Azar Gat sums up well what the prevailing research says:

The Netherlands and Britain were the most heavily taxed, whereas absolutist France, conceding the exemption of the aristocracy, had lower tax revenues for its size, and the people of the despotic Ottoman Empire was the most lightly taxed. An earlier generation of historians emphasized the greater taxing power of the new centralized absolutist state compared with feudal fragmentation. But more recently it has been recognized that the representative-inclusive state regimes were even stronger and more able to generate and hardness social resources or ‘infrastructural power’ than the seemingly despotic absolutists states. If early European states variably taxed an estimated 5–15 percent of national income, Britain’s wartime taxation exceeded 20 percent in the eighteenth century, two to three times the per capita taxation of France, and four time Britain’s own taxation level before the Glorious Revolution of 1688 (490).

Britain was simply a more commercially advanced society, starting in late medieval times when its feudal lords became involved in the growing urban markets, rather than relying on rents extracted from servile serfs. With its greater ethnic homogeneity and its stronger national identity – according to Gat, “evident as early as the 14th century” (498) – the English elites became relatively more committed to the prosperity and power of their country. Added to this were the representative character of the British state and the triumph of Parliament over the kings after the Glorious Revolution of 1688, which resulted in the incorporation of mercantile elites into the power-seeking aims and responsibilities of the state. This commercial-national-representative culture fostered a far more sophisticated financial system, such as stock exchanges and a national bank able to float massive loans. The ability of the English state to engage in deficit financing and to raise low-interest loans contrasted significantly with the French, who in the eighteenth century had to pay interests rates roughly double those of the English (Gat 2006: 485–89).

Weber knew that “all civilized countries of the earth” exhibited a “considerable rationalization of capitalistic calculation.” But he also drew a distinction between “capitalism” and “modern [European] capitalism” (1958). Capitalism defined as the exchange of goods and calculations of profit, including some degree of “capital accounting,” is not the same as “modern capitalism” (Bendix 1977: 52–3). Modern capitalism, as I pointed out above, involves the formal rationalization of the whole sphere of economic life; that is, the systematic rationalization of the entire process of production, distribution, and exchange, including a “modern economic ethos” or “a this-worldly spirit” that provides the motivation for a methodical approach to labor and legitimates the rigorous organization of the workforce according to the rules of efficient management. The creation of a steam-driven factory economy was a revolution in the rationalization of means-end action.

But what we need to realize, as stated earlier, is that Weber’s theory is not only about the rise of modern capitalism but most fundamentally about the rise of modern Western rationalism. What made Occidental rationalism different from “Chinese rationalism,” the “rationalism of India,” and the “rationalism of the ancient Near East” was the fact that only the West saw the formal and theoretical rationalization of multiple areas of social like to a degree not evident in any civilization.

This Occidental path was also characterized by the rise of relatively independent social spheres of action. Weber observed that, as the traditional societies of Europe grew larger and more complex, there was a process of increasing specialization and differentiation of political activity, art, religion, law, science, and economic activity, according to which each of these became autonomously regulated by their own specific norms and worldviews. In his sociology of law, for example, he noted that from the Middle Ages onwards, the law attained certain autonomy from the church and from the political will of kings and clerics. As law was increasingly controlled, taught, and professionalized by specialist jurists, and the internal logic of legal reasoning unfolded, law became ever more self-reflective, and tradition, custom, and religious dogma were progressively eliminated from the application of law in favour of increasingly universalistic principles applied with consistency and with due process (Habermas 1984: 243–271). Rational law, in other words, allowed for the impartial validation of proof through the use of generally applicable rules

In the sphere of art, science, and ethics, Weber also detected a parallel process of differentiation from religion. As the aesthetic, ethical, and scientific spheres achieved a degree of institutionalized autonomy, these activities were formalized and taught in schools according to their own methods, axioms, and norms (Brubaker 1984: 61–91). By thus granting to them greater institutional autonomy and greater independence from religion, this differentiation encouraged these orientations to become more consciously a product of rational self-reflection, and much less the revelation of divine scripture and religious precepts. It encouraged them to generate their own formal principles and norms to be applied universally.