78 A. BREWER CHAPTER SIX Pre-Classical Economics in Britain Anthony Brewer The early development of economics in Britain falls into two distinct phases, before and after 1700. The seventeenth-century literature is almost wholly English and London-centered – mainly pamphlets or short books arguing a par- ticular viewpoint or tackling a particular policy issue. There was a first flush of activity in the 1620s, a lull during the civil war and the Cromwellian republic, and sustained debate after 1660, reaching a climax in the 1690s, “the first major concentrated burst of development in the history of the subject” (Hutchison, 1988, p. 56). The London-centered debates of the 1690s came to an abrupt end at the turn of the century. The early eighteenth century saw little of note apart from two rather eccentric works by Law and Mandeville, and when the subject came to life again in the middle of the century the most important contributions came from Scotland. The economic thinking of the Scottish Enlightenment was less oriented to immediate policy issues and more concerned to locate economic issues in a wider ethical and historical framework. It makes no sense to look at the economic writings of this time in isolation from their context. Britain’s situation was changing rapidly. At the start of the seventeenth century, England and Scotland were separate countries, and were in almost all respects marginal to the European system – prosperous but intellectu- ally rather backward, and politically and militarily negligible on the European stage. Trade was dominated by Dutch ships and merchants, and Britain exported little but wool and woolen textiles. By the later seventeenth century things were changing on almost every front. England became the center of the new science, with the foundation of the Royal Society (1662) and the publication of Newton’s Principia (1687). New institutions were emerging, such as the Bank of England (1694). London overtook Amsterdam as a trading center, three naval wars with the Dutch opened the way to British control of the seas, and the Navigation Act of 1660 ensured that British ships and merchants were the beneficiaries. The PRE-CLASSICAL ECONOMICS IN BRITAIN 79 intense debates of the 1690s reflected the uncertainties of a period of change. By the early eighteenth century the pattern was set, as Marlborough’s victories on land made Britain, now united by the Act of Union of 1707, a major European power. The main aims of British policy – to maintain control of the seas and to prevent France dominating continental Europe – were set for a century or more (Wilson, 1984; J. Brewer, 1989). As Daniel Defoe observed in 1724, England was “the most flourishing and opulent country in the world.” The relative stability and continuing growth of the eighteenth century allowed a more reflective (and perhaps a more complacent) approach to economic issues. 6.1 SEVENTEENTH-CENTURY ENGLAND: T HE MAKING OF A GREAT POWER 6.1.1 Trade and the trade balance To understand the voluminous literature on trade in seventeenth-century Eng- land, one must first understand the way contemporary Englishmen saw their situation relative to the Dutch. The United Provinces (the modern Netherlands) had finally established their independence in 1648 after a ferocious 80-year war against Spain. They were the trading and financial center of Northern Europe and, in per capita terms, the richest place in Europe. English merchants obses- sively scrutinized the Dutch to discover the secret of their success. Thus, Child’s Brief Observations (1668) starts: “The prodigious increase of the Netherlanders in their domestick and forreign Trade, Riches, and multitude of Shipping, is the envy of the present and may be the wonder of all future Generations” but, he continued, the Dutch could be imitated “by us of this Kingdom of England” (1668, p. 3). If seventeenth-century writers thought that trade was the route to wealth, it was because of the Dutch example. By the eighteenth century, England had less cause to be envious and the debate subsided. The seventeenth-century literature (or part of it) has often been labeled “mercantilist” (see Magnusson, ch. 4, this volume), but the writers of the time were too varied to be treated as a unified school of thought. There was indeed widespread support for active policies of one sort or another to promote English trade, usually at the expense of the Dutch and the French, but that is as far as it goes. Applying modern methods of analysis to seventeenth-century conditions, it is not hard to make a case for “mercantilist” policies to promote Britain’s trade and market share. The big profits were in trading with the Far East and the Americas, using armed convoys and fortified settlements. Free trade in the modern sense was not an option. More generally, there were economies of scale and scope in entrepôt trade, and real opportunities to diversify England’s exports, with associ- ated infant-industry arguments for protection. Seventeenth-century writers were dimly aware of these issues, but lacked the analytic apparatus to discuss them in terms acceptable to modern critics. Active policies were nonetheless adopted and did in fact have the desired results. 80 A. BREWER Many seventeenth-century debates focused on the balance of trade; that is, the excess (or shortfall) of export revenue over import spending. The basic idea can be traced back to the Middle Ages (Viner, 1937, p. 6). The metaphor of a “balance” seems to have been introduced by Malynes in 1601, in the phrase “overballancing” of trade. Much the most influential work on the subject was Thomas Mun’s England’s Treasure by Forraign Trade, written in the 1620s but published (in a quite different context) in 1664. The notion of an overall balance of trade was undoubtedly an analytic advance. Mun contrasted the overall balance tellingly with the balance on specific trades or the bilateral balance with any particular country, and used it to distinguish between gains to merchants, gains to the king, and gains to the nation as a whole. For a country that used metallic money and had no domestic sources of precious metals, the balance of trade really did determine the net inflow of specie and hence the change in the money stock (neglecting nonmonetary uses of gold and silver, which could be accounted for separately, and capital account transactions). Unfortunately, it was fatally easy to confuse the balance of trade with the gains from trade, and to treat it as an aim in itself. The simplest way to fall into this trap would be to confuse wealth with money, or with precious metals. This is the charge that Adam Smith brought against Mun and other writers of the seven- teenth century, and it is hard to acquit them completely (Viner, 1937, pp. 15–22). They did not think of precious metals as desirable in themselves, but they did, it seems, find it difficult to distinguish between the stock of money and a stock of wealth or capital. Thus, Mun argued that the “stock of a Kingdom” was like that of a private man who becomes richer by spending less than he earns and adding the difference to the “ready money in his chest” (1664, p. 5). In mitigation, one might point out that it was important to have reserves of internationally accepted metallic money in case of war, and that an inflow of money would stimulate the domestic economy, but one would then have to meet the objection that an inflow of money would raise the price level and make exports less competitive. Mun was aware of this possibility, but seems to have seen it as no more than a minor qualification, perhaps limiting the inflow of money rather than eliminating or reversing it. Not everyone accepted the balance of trade as a relevant policy aim and those who did could not agree on the policy conclusions. The issues involved were not sorted out satisfactorily until Hume (1752; see below). The “mercantilist” writers of the seventeenth century are often described as opponents of free trade, but this is a misleading way to categorize them. Trade had always been taxed and regulated, and there was no established notion of free trade to act as a benchmark. What was new in the seventeenth century was not the regulation of trade but the development of a vocabulary and a framework for discussing the economic effects of regulation. In general, debates did not turn on freedom of trade as a general alternative to regulation or protection, but on the best policies to follow in particular cases. Thus Child (1693) recognized that where trade was free the cheapest suppliers would prevail, but since the Dutch were likely to be cheapest he saw that as an argument against free trade, while Barbon (1690) was against the prohibition of imports to protect domestic sup- pliers but in favor of using high duties to have the same effect. Early in the century, PRE-CLASSICAL ECONOMICS IN BRITAIN 81 Misselden (1622) did indeed argue for free trade, but what he meant by it was the opening of monopolistic companies such as the East India Company to other (English) merchants. Where trade was “disordered” and “ungoverned,” however, it should be brought to order. It was from precisely these “mercantilist” debates that the concept of free trade, in something like its modern sense, emerged at the end of the century; in, for example, North (1691) and Martyn (1701). North led up to the conclusion that “we may labour to hedge in the Cuckow, but in vain; for no People ever yet grew rich by Policies; but it is Peace, Industry, and Freedom that brings Trade and Wealth, and nothing else” (North, 1691, p. 28). North and Martyn, however, had little impact at the time. Ironically, the main protective legislation, the Naviga- tion Act, was progressively amended to make it more effective and was enforced more rigorously thereafter, while tariffs were raised significantly to raise revenue for military purposes. The case for free trade emerged just as trade was becoming less free. 6.1.2 Money and the interest rate Money was a perennial topic of discussion for a number of reasons. Money consisted of coins at that time, and the English coinage was in a very poor state because of wear and clipping. By the time of the eventual recoinage in 1696, coins had on average fallen to half their supposed weight. Gresham’s Law (named after Sir Thomas Gresham, advisor to Queen Elizabeth), that “bad money drives out good” because it pays to pass on coins with a low metal content and melt down better coins for the metal, was at work – the mint issued full weight coins, but 99 percent vanished from circulation. Consideration of the amount of money needed for circulation naturally led toward seeing the economy as a single whole, while consideration of changes in the money stock connected it to the trade balance and the relation between price levels in different countries. Fluctuations in the relative value of gold and silver also posed problems. The interest rate was also an issue. In medieval Europe, “usury,” or lending at interest, had often been forbidden, at least in theory. By the seventeenth century, financial markets were becoming quite well organized but the law still set a maximum to interest rates. Repeated proposals to lower the maximum legal rate to what would certainly have been an unsustainably low level came very close to being passed in the 1690s. There were at least three views about interest rates: (a) that they reflected the “plenty or scarcity” of money, providing a possible motive for aiming at a positive trade balance to increase the money stock and allow lower interest rates; (b) that they depended on supply and demand of loans, and hence on net saving and on profit opportunities open to borrowers; and (c) the naive view that they could be set by legal fiat. From the 1660s on, Josiah Child (1630–99) argued for reducing the interest rate by law, claiming that the rate had fallen as wealth increased, that it was lower in rich than poor countries, and that the time was now ripe for it to fall again. Low interest was the “causa causans” of prosperity because it would encourage merchants and farmers to expand their businesses, and it would also encourage 82 A. BREWER those with money to use it productively rather than simply letting it out at interest. There are clearly the makings of the notion of a demand and a supply function for investible funds here, but what is lacking is a clear notion of equilib- rium between the two. Critics agreed that Holland had a low interest rate but pointed out that this was achieved without legal compulsion. Child replied that legislation might not be needed in Holland but it was in England, to allow England to match Holland as a center of trade. The opposing case, and much more, is to be found in some of the most import- ant economic writings of the seventeenth century, by John Locke (1632–1704). As early as 1668, he had prepared an unpublished draft on an earlier proposal to reduce interest rates, but he was forced into exile until after the revolution of 1688, when his main philosophic works appeared in quick succession, followed by a return to monetary issues in his Considerations (1691). The basic idea of the quantity theory of money, that an increased quantity of money will lead to a fall in its value and a rise in the prices of goods, had been understood in general terms from early on. Locke argued it very clearly for an isolated economy. Whatever the quantity of gold and silver, it “will be a steady standing measure of the value of all other things” and can “drive any proportion of trade” (Locke, 1691, pp. 75–6), since a smaller quantity will be valued more highly. In modern terms, the nominal quantity of money is unimportant since prices adjust to it. In an open economy, however, he argued that the value of money was set at a world level. He thought that a country with a relatively small money stock would be at a disadvantage, but hovered between arguing that its prices would be low and its terms of trade unfavorable or that its trade would be limited and resources unemployed. Either way, he supported the common complaint that a shortage of money was a problem. Both Locke and his contem- porary William Petty discussed the institutional determinants of the velocity of circulation and hence the amount of money needed to drive a given amount of trade. Both failed to grasp the specie-flow mechanism that Hume was later to state so clearly. Locke thought that setting a low legal maximum to the interest rate would be ineffective in practice, and harmful if it were effective. In the absence of regula- tion, interest rates are determined by demand and supply, explained in what, to a modern reader, seem to be two different and conflicting ways. First, he claimed that when money is scarce, its price (the interest rate) must rise, like any scarce commodity. Interest is high when “Money is little in proportion to the Trade of a Country” (Locke, 1691, pp. 10–11). Secondly, he explained interest rates in terms of demand from borrowers who see profitable uses for capital and supply from those who have more wealth than they can (or want to) employ themselves, comparing it to rent, determined by the balance between potential tenants and landowners with land to rent out (pp. 55–7). The explanation of this apparent inconsistency between monetary and real theories of interest is that he seems to have confused wealth or loanable funds with the stock of circulating money. “My having more Money in my hand than I can . . . use in buying and selling, makes me able to lend” (p. 55). If there were a “million of money” in England, but debts of two millions were needed “to carry on the trade” – that is, if one million were PRE-CLASSICAL ECONOMICS IN BRITAIN 83 available for lending, but borrowers needed to borrow two millions – the interest rate must rise (p. 11). A low legal maximum would only make matters worse, because it would reduce the amount people were willing to lend, leaving the increased demand unsatisfied. Dudley North (1641–91) presented an analysis (North, 1691) that has striking similarities to Locke’s on some points, but which is diametrically opposed to him on others. Interest rates, he argued, are determined by supply and demand for loans. As in Locke, the supply comes from those who have more resources than they want to employ themselves, and demand from those who see opportunities but need to borrow to take advantage of them. Unlike Locke, however, North saw that it was “stock” (capital or wealth) – not the quantity of money – that determined the supply. Low interest rates, as in Holland, are the result, not the cause, of wealth. Success in trade is the result of thrift and hard work, and leads to the accumulation of wealth and hence to a large supply of loans. North argued that shortage of money is never a problem, focusing not on international movements of gold and silver but on movements of metal between coins in circulation and hoards of bullion or plate. A shortage of coin will bring out bullion and plate to be coined, while a surplus will be absorbed into hoards. He was able to support the argument by pointing out that large amounts of silver had been coined but that the new coins had disappeared to be melted down. The flow of money accommodates itself, he claimed, without any help from politicians. 6.1.3 Political arithmetic and the state Sir William Petty (1623–87) was trained as a doctor, became Professor of Anatomy at Oxford and Professor of Music at Gresham College, and was one of the founder members of the Royal Society. His key idea was to apply Baconian scientific method, the use of “number, weight and measure,” to social and political issues. This was “political arithmetic,” which aimed to provide impersonal, numerical facts as a basis for policy. His great early achievement, the mapping of Ireland, illustrates his attitude. He had gone to Ireland as physician to Cromwell’s army, but he bid for and won the contract to survey the country. His map was an outstanding scientific and organizational achievement – perhaps the best map of any country at the time, finished on time and within budget – but its purpose was to help with the distribution of land to members of the victorious army. Petty himself emerged with extensive lands in Ireland. He was fiercely ambitious, and attached himself to whoever was in power, switching allegiance from Cromwell to Charles II at the Restoration (as, of course, many others did). His policy proposals were designed to strengthen the state, almost regardless of individual rights or inter- ests. To make Ireland more secure and profitable for the British state, for example, he advocated transferring most of the Irish to England, to be absorbed into the much larger English population and eliminated as a separate people with a different language and culture. The most important of the state’s resources is its population, so population estimates were the backbone of political arithmetic. The key work was the 84 A. BREWER Observations on the Bills of Mortality (1662), by John Graunt (1620–74). Petty certainly collaborated with Graunt and made similar calculations of his own, but their exact roles are unclear. Records of deaths and christenings showed that England as a whole produced a healthy surplus of births over deaths, but that London could only maintain and increase its population by migration from the rest of the country. Petty went on to use estimates of population and assumed per capita income levels to make pioneering estimates of total national income. What use Petty made of these estimates, and the way they fit into the context of his time, can best be seen in his Political Arithmetick of 1676 (published post- humously in 1690; see Petty, 1899, pp. 233–313). He stated and supported ten conclusions, including: That a small Country, and few People, may . . . be equivalent in Wealth and Strength to a far greater People and Territory. . . . That France cannot . . . be more powerful at Sea than the English or Hollanders. . . . That the People and Territories of the King of England are naturally near as considerable, for Wealth and Strength, as those of France. . . . That one tenth part, of the whole Expence of the King of England’s subjects; is sufficient to maintain one hundred thousand Foot, thirty thousand Horse, and forty thousand Men at Sea, and to defray all other Charges, of the Government. . . . That the King of England’s Subjects have Stock, competent, and convenient to drive the Trade of the Whole Commercial World. (Petty, 1899, pp. 247–8) To see this in context, note that Parliament held the purse strings and would not allow Charles II the funds to pursue an active policy. He accepted a subsidy from Louis XIV, effectively making Britain a passive junior partner in French expan- sionary plans. Petty’s calculations showed that England need not be anyone’s junior partner. A small country it might be, but it could (and, under a new king, did) aim to control the seas and to dominate the trade of the “commercial world” (essentially the sea-borne trade of Europe). Petty estimated the requirements and the costs with striking accuracy. In the wars around the turn of the eighteenth century, Britain’s navy employed just about the 40,000 he proposed. The land army was smaller than his 130,000, but Britain was effectively paying for its allies’ troops as well. To do it, taxes had to rise from 3–4 percent of GNP to just about the 10 percent that Petty proposed (Holmes, 1993, p. 439). Petty saw no objection to allowing France to expand on the continent since England’s interests lay at sea (Petty, 1927, vol. 1, p. 262), but later generations disagreed. Petty’s writings contain a few digressions that have attracted (perhaps dispro- portionate) attention. There is a suggestion of a labor theory of value (Petty, 1899, vol. 1, pp. 43, 50–1, 90) and a (conflicting) suggestion that the value of a good might be determined by the labor and land required to produce it, leading Petty to speculate about a “par” or value-conversion factor between labor and land (vol. 1, p. 181). This was later followed up by Cantillon, who referred to Petty’s par as “fanciful” (Cantillon, 1755, p. 43). There are also passages that describe some notion of a surplus of output over necessary subsistence (e.g., Petty, 1899, vol. 1, pp. 30, 118). Petty did not follow up any of these in a systematic way and PRE-CLASSICAL ECONOMICS IN BRITAIN 85 nor did anyone else, at least in Britain (there may be a line of descent via Cantillon and Quesnay in France). To some who think that the labor theory of value and the notion of surplus are particularly important, these digressions seem signi- ficant. Seen in the context of the time, however, what is important in Petty is, rather, his emphasis on quantification and on the role of different sectors (agriculture, trade) in the economy as measured by their contribution to income and to tax revenue. Petty and Graunt had a number of successors. Edmund Halley (the astrono- mer, 1656–1742) improved on Graunt’s population modeling using better data (from Silesia). Gregory King (1648–1712) produced updated estimates of popu- lation and national income, which were not published until later but were drawn on by Charles Davenant (1656–1714) in the 1690s. “Political Arithmetic,” as defined by Petty, did not survive long beyond the end of the seventeenth cen- tury and was harshly criticized in the eighteenth century for excessive reliance on unreliable data. 6.1.4 The seventeenth-century achievement The seventeenth century inherited a medieval ideal of a static, hierarchical soci- ety with well-defined functions, rights, and duties. Economic considerations came second to the maintenance of a social order consecrated by custom and religion. This was never more than an abstract ideal, but it shaped people’s thinking and underlay legislation such as the Statute of Artificers of 1563, which regulated entry and wages in different trades, backed up by the Poor Laws and by regula- tion of foreign trade. Finkelstein (2000) has argued that much seventeenth- century economic thought can be seen as an attempt to maintain the old order in changing times. At the same time, the debates of the seventeenth century produced, bit by bit, a radically new idea, of “a natural order of economic relations impervious to social engineering and political interference” (Appleby, 1978, p. 242). Interest rates, for example, are governed by supply and demand, so attempts to fix them by law are bound to fail or to damage the economy. Similarly, net flows of monetary metals depend on the trade balance, and hence on a whole complex of trading relations. Crude attempts to interfere may be counterproductive. The idea of a national economy was emerging as a subject of discussion and as a legitimate concern of government. Petty tried to estimate population and income on a national level. The balance of trade is a genuinely national aggregate, and Mun identified a national interest, distinct from the interest of individual merchants or the king. Discussion of monetary issues led to a conception of a national money stock, a nationwide circulation of money, and a national price level distinct from the price level in other countries. If the seventeenth century saw the emergence of the idea of an autonomous sphere of economic relations, and hence, in a sense, the birth of economics as a subject (not yet named or even recognized as such), this achievement was not matched by any real attempt to trace the causal processes involved beyond a rather superficial level. Thus, for example, Locke stated the basic idea of the 86 A. BREWER quantity theory of money very clearly, but it was not until Hume, half a century on, that the links between the quantity of money, the price level, and the balance of payments were clarified. Many elements of later theories of capital accumula- tion surfaced in the debates over interest rates without being brought together. It was just at this point, when the makings of a real advance seem, in retrospect, so obvious, that the advance of the 1690s fizzled out. Policy debates continued, of course, but nothing really new or substantial emerged from them for many years. What went wrong? Several key figures died before they could take the debate further – Petty in 1687, North in 1691, Barbon in 1698, Child in 1699, and Locke in 1704 – but that does not explain why they left no successors. The key point may be that the debates were driven by immediate policy problems. Once the main issues of the 1690s were settled – the legal interest rate was not lowered after all, the recoinage was carried out, and so on – there was no immediate stimulus to take the argument further. Other, noneconomic, issues took center stage. There were advances in the following period, but in France (Cantillon and others) or Scotland (Hume and others). 6.2 TRANSITION: LAW AND MANDEVILLE 6.2.1 John Law John Law (1671–1729) was an extraordinary character. A Scot by origin, he killed a man in a duel in London in 1694 and had to flee for his life. For a while he was safe in Scotland, then a separate country, but had to flee again on the Act of Union in 1707. He wandered around Europe peddling proposals for monetary reform and supporting himself as a professional gambler, before gaining the confidence of the French regent. The results were dramatic. He founded a state- backed bank in 1716 and then a joint-stock company, the Mississippi Company, to take over French state debt in return for concessions in the overseas empire. By manipulating monetary conditions, he engineered a spectacular speculative boom in the shares of his company and was briefly able to replace the whole French currency with notes issued by his bank. The bubble burst in 1720. Law was ruined and the scandal rocked the French state. The collapse of Law’s “system” left France, in particular, with a deep suspicion of monetary experiments. His Money and Trade Considered (1705) was aimed at a Scottish audience, but Law saw it as more widely applicable. He argued that Scotland was potentially rich but its resources were underemployed. His answer was to expand the money supply by issuing paper money. He is sometimes described as a proto-Keynesian, but he seems to have seen a lack of supply, not demand, as the problem. Thus, discussing price cuts to expand exports, he argued: It may be alleg’d, we have more Product and Manufacture, than is consum’d or exported; and selling cheaper, would occasion a greater demand for our Goods Abroad. . . . Product and Manufacture might be much encreas’d, if we had Money to imploy the People: But I’m of Opinion we have not any great Quantity of Goods, more than what is consum’d or exported. (Law, 1705, p. 62) PRE-CLASSICAL ECONOMICS IN BRITAIN 87 If output (the “yearly value” of the nation) were increased by £500,000, and if a quarter of the increased income were spent on a greater consumption of home- produced goods, a quarter on consumption of imports, and a quarter on building up stocks of imported goods (“Magazines of Forreign Goods”), there would still be an improvement in the balance of trade of a quarter of the increase in output (Law, 1705, p. 146; see also pp. 16–18; Locke had a similar argument). The num- bers were only illustrative, but the theoretical point is clear: increased demand is the consequence, not the cause, of increased output. Increasing the money supply would increase the supply of goods. Like others at the time, Law seems to have thought of money and capital as interchangeable, so extra money would employ more people and allow increased output. For all its faults, Law’s theory raised real macroeconomic questions and sug- gested ways of thinking about them, but after the collapse of his system his ideas were discredited and had little impact. 6.2.2 Bernard Mandeville Bernard Mandeville (1671–1733) was a doctor of Dutch origin, who had settled in England. His verse satire, The Grumbling Hive, of 1705 was reissued repeatedly as The Fable of the Bees: Or Private Vices, Public Benefits after 1714 with added material by way of elaboration and defense of the original. The basic fable has a thriving, growing, hive of bees, clearly representing England, which is per- meated with “vice” at every level. A puritanical reformation brings luxury, crime, and war to an end, but the result is mass unemployment (of bees!), falling popu- lation, and decline. Mandeville defined vice very broadly to make his satirical point, including almost anything that the most extreme puritan could possibly object to – luxury and extravagance as well as war and crime. His main line of argument is clearly demand-orientated: ostentation creates a demand for fine clothes and other accou- trements, burglars create a demand for locks and hence work for locksmiths, and so on. Little needs to be said about this, beyond noting that he missed the obvious point that if people did not need locks they might buy something else instead. A second, implicit, argument is that the desire for luxury gives naturally lazy men an incentive to work. These two lines of argument are logically distinct, though they are often hard to separate in Mandeville’s text. Neither was wholly new, but Mandeville stated them more forcefully than before. Mandeville’s provocative style aroused general hostility but his arguments bore fruit in the work of later writers, however unwilling they might be to admit it. At the center is the idea of unintended consequences, which became a theme of Scottish Enlightenment thought and of all subsequent economics – individual motives and intentions may have no relation to the overall outcome. Specifically, the actions of selfish individuals, driven by pride and avarice, may have socially desirable results. Adam Smith’s invisible hand is clearly a less paradoxical devel- opment of the same idea. Mandeville typified the eighteenth-century approach in another way. The seventeenth-century literature was driven by a conviction that England was not [...]... that cultivators want to buy, they will have no incentive to produce a surplus at all: Where manufactures and mechanic arts are not cultivated, the bulk of the people must apply themselves to agriculture; and if their skill and industry encrease, there must arise a great superfluity from their labour beyond what suffices to maintain them They have no temptation, therefore, to encrease their skill and... connected to the European price level, because transport costs were high and trade was restricted by monopolistic companies Within the European system, money was more or less abundant in different areas according to demand Austria, for example, had a small money stock because it was relatively underdeveloped Within a country, the capital and the major ports had a larger share of the money stock because... grow in the future (A Brewer, 1995) 6. 3.2 David Hume David Hume (1711– 76) was a central figure in the “Scottish Enlightenment.” With Francis Hutcheson (Adam Smith’s teacher and predecessor at Glasgow), Adam Ferguson, and others, he pioneered an approach that was historical, in that it saw human societies as the result of a long process of development, and PRE-CLASSICAL ECONOMICS IN BRITAIN 89 rational,... elicit a surplus, as in feudal society, but Hume thought the results would be meager Self-interest is a better motivator Once attractive manufactures become available, everything changes Farmers work hard and find better methods of cultivation Spending by farmers and landlords supports a growing body of urban merchants and manufacturers The effects go further: The spirit of the age affects all the arts; and... and the minds of men, being once roused from their lethargy turn themselves on all sides, and carry improvements into every art and science Profound ignorance is totally banished, and men enjoy the privilege of rational creatures, to think as well as to act, to cultivate the pleasures of the mind as well as those of the body (p 271) How does the process start? A backward economy will not advance... explain his pessimism about the commercial economies of his day He constantly emphasized the complexity of economic affairs, and refused to support or advance simple theories His main theme was the need for a “statesman” to keep watch over the system and ward off the many problems that were sure to arise He was, one might say, a throwback to seventeenthcentury attitudes, which were still prevalent on the. .. Britain and France, but the Wealth of Nations had a breadth and coherence that easily surpassed anything that had gone before and started a new epoch in the history of economics Note Roger Backhouse, Mark Blaug, and the editors of this volume made helpful suggestions The remaining errors, however, are mine Bibliography Primary sources are cited by date of first publication, and collections by publication.. .A BREWER 88 doing well enough and had to improve Mandeville, like his successors, assumed that England was doing well and getting even better He sought to explain that success and to argue against any basic change Law, although he was an exact contemporary, clearly belongs to the earlier tradition, perhaps because the one place he could not settle was England 6. 3 THE EIGHTEENTH CENTURY 6. 3.1 AND THE. .. was the first full-length treatise on political economy in Britain It attracted a fair amount of attention when it was first published, but was superseded by Adam Smith’s Wealth of Nations within a decade It is a fascinating work, but it lacks the analytic substance of the Wealth of Nations and it lost out because it seemed old-fashioned and stylistically clumsy 6. 3.4 Eighteenth-century British economics... between power and wealth PRE-CLASSICAL ECONOMICS IN BRITAIN 91 The contrast between Hume and the seventeenth-century literature is complete The balance of trade is not a problem Trade is not a zero-sum game but a mutually beneficial stimulus to economic, cultural, and political advance 6. 3.3 James Steuart Sir James Steuart (1713–80) was Scottish but spent most of his adult life on the continent and little . overtook Amsterdam as a trading center, three naval wars with the Dutch opened the way to British control of the seas, and the Navigation Act of 166 0 ensured that British ships and merchants. but this is a misleading way to categorize them. Trade had always been taxed and regulated, and there was no established notion of free trade to act as a benchmark. What was new in the seventeenth. any help from politicians. 6. 1.3 Political arithmetic and the state Sir William Petty ( 162 3–87) was trained as a doctor, became Professor of Anatomy at Oxford and Professor of Music at Gresham