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ECON301: History of Economic Ideas

Unit 2: European Thought: Scholastics and Mercantilists   The late Scholastics, adherents to the school of thought known as Scholasticism that was active in Spain from the 14th to the 17th centuries, sought to reconcile economic logic with the Christian morality of their day and argued that markets were both practically and morally superior to state-run economies. The school was ahead of its time in formulating concepts, such as marginal utility, and in investigating the ideas of subjective value, prices, and the quantity theory of money. Nearly 400 years before Adam Smith, San Bernardino of Siena (1380–1444) asserted that prices were a function of relative scarcity. Similarly, the Jesuit scholar Luis de Molina (1535–1600) argued that a just pricewas a price set on a voluntary market. At the same time, Islamic economic scholars in the Muslim empire, having continued the work of Greco-Roman economic thought from the lands under its domain, sought to integrate the principles developed from that tradition with the teachings of their Holy Book, the Qu’ran, thus paralleling the effort of the Scholastics.

The 16th and 17th centuries saw a transition from local to national economies, the collapse of feudalism, the subsequent rise of merchant capitalism, and the emergence of extensive foreign commerce. The opening of silver mines in the Americas increased the flow of metal, meaning that there was more metal that could be used as currency. These new sources of wealth effectively expanded the scope of economic activities across time and distance, replacing barter trade and extending the division of labor beyond local boundaries.

Within this context, economists began to subscribe to a theory known as mercantilism. Mercantilism favored the establishment of a strong, central state that would help to expand markets and protect trade and commercial interests. According to the theory, individuals are considered subservient to the state, an entity that should control wages, interest, and prices; grant monopoly privileges; and impose various restrictions on the actions of individuals. Mercantilists asserted that the primary focus of economic activity should be the accumulation of wealth in the form of precious metals.

Mercantilist doctrine sought to ensure a surplus of precious metals by favoring the export of goods and services over their import. As Adam Smith and others subsequently pointed out, the aim of mercantilism was a well-stocked royal treasury; rising consumption levels could be more easily achieved through free exchange. In time, observers pointed out various negative effects of mercantilism, and a host of critics began to consider mercantilist policies a hindrance to economic progress. The single greatest assault on mercantilist thinking is Adam Smith’s The Wealth of Nations (1776).

Unit 2 Time Advisory
Completing this unit should take approximately 29.5 hours.
☐    Subunit 2.1: 6 hours

☐    Subunit 2.1.1: 5 hours

☐    Subunit 2.1.2: 1 hour

☐    Subunit 2.2: 6.25 hours

☐    Subunit 2.2.1: 1.25 hours

☐    Subunit 2.2.2: 5 hours

☐    Subunit 2.3: 15.25 hours

☐    Subunit 2.3.1: 10 hours

☐    Subunit 2.3.2: 1.75 hours

☐    Subunit 2.3.3: 1.5 hours

☐    Subunit 2.3.4: 2 hours

☐    Assessment: 2 hours

Unit2 Learning Outcomes
Upon successful completion of this unit, you will be able to: - trace the early development of pre-classical economic thought; - explain the similarities and differences between the Scholastics and Mercantilists; - analyze how mercantilist economic thought evolved from a nation-state framework; and - describe the rebuttal of the post-Mercantilists to mercantilist thought.

2.1 The Scholastics   2.1.1 Overview   - Reading: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 2: The Christian Middle Ages and Chapter 4: The Late Spanish Scholastics” Link: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 2: The Christian Middle Ages and Chapter 4: The Late Spanish Scholastics” (PDF)
 
Instructions: Read Chapter 2 on pages 29–64 and chapter 4 on pages 97–133. Throughout both chapters, Rothbard traces how various scholars from the end of the Roman Empire to end of the 16th century fluctuate in their thinking across a range of economic issues regarding theory of value or what constitutes a just price; the legal status of usury, property rights, monetary theory and foreign exchange; and the status of merchants in society through the eyes of the church. You will be able to see how the precursors of concepts such as marginal price utility came to develop over time through a process of competing ideological notions and political influences and how historical developments and empirical pressures like the influx of gold and silver to Europe from the Americas affected economic thinking.
 
Reading these chapters should take approximately 5 hours.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

2.1.2 St. Thomas Aquinas   - Reading: St. Thomas Aquinas’s Summa Theologica: “Of Cheating, Which Is Committed in Buying and Selling” and “Of the Sin of Usury” Link: St. Thomas Aquinas’s Summa Theologica: “Of Cheating, Which Is Committed in Buying and Selling” (PDF) and “Of the Sin of Usury” (PDF)
 
Also available in:
Google Books (“Of Cheating”)
  
Also available in:
Google Books (“Of the Sin of Usury”)
  
Instructions: Read these two excerpts from this seminal Scholastic work: “Of Cheating, Which Is Committed in Buying and Selling” and “Of the Sin of Usury.” 
 
Born in Italy in the 13th century, Thomas Aquinas was perhaps the most influential Catholic scholar of his age and beyond. His writings are wide-ranging, and here, you should focus on what constitutes a fair exchange. At the time of these writings, many scholars were giving extensive consideration to the determination of a fair interest rate as seen in readings from subunit 2.1.1. It should be noted that the fixation on usury was also due in part to leading Islamic thought of the era, which argued for a complete prohibition on the charging of interest. Note how the format is similar to Xenophon’s dialogue – possibly a sign, however modest, of the revival of ancient Greek thought in the Christian Middle Ages.
 
Reading these excerpts should take approximately 1 hour.
 
Terms of Use: Summa Theologica is in the public domain. 

2.2 Mercantilism   2.2.1 Overview   - Reading: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 7: Mercantilism: Serving the Absolute State” Link: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 7: Mercantilism: Serving the Absolute State” (PDF)
 
Instructions: Read chapter 7 on pages 211–231. This chapter discusses mercantilism as it developed through Spain, France, and England.
 
Reading this chapter should take approximately 1 hour and 15 minutes.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

2.2.2 Sir William Petty   - Reading: Project Gutenberg: Sir William Petty’s “Essays on Mankind and Political Arithmetic” Link: Project Gutenberg: Sir William Petty’s “Essays on Mankind and Political Arithmetic” (PDF)
 
Also available in:

[EPUB](http://www.saylor.org/site/wp-content/uploads/2011/07/ECON301-2.2.2-_Essays-on-Mankind-and-Political-Arithmetic_-Sir-William-Petty.epub)  

 Instructions: This is a lengthy series of essays. Read through
them, paying particular attention to Petty’s methods for calculating
economic phenomena.  
    
 Petty may be considered one of the first *econometricians*, someone
who uses mathematical techniques to develop economic statistics. He
was an articulate proponent of mercantilism and lived during a
vibrant period of English colonial expansion. The 1600s were a time
of great wealth building but also of significant disparity. This
text is concerned with collecting taxes and maximizing the nation’s
colonization interests.  
    
 Reading these essays should take approximately 5 hours.  
    
 Terms of Use: “Essays on Mankind and Political Arithmetic” is in
the public domain. 

2.3 Rebuke of the Mercantilists: Adam Smith, John Locke, Richard Cantillon, and Jacques Turgot   2.3.1 Adam Smith   - Reading: Project Gutenberg: Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations, Book IV Link: Project Gutenberg: Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations, Book IV (HTML)
 
Also available in:
Google Books
PDF
 
Instructions: This massive work was both an attack on the principles of mercantilism and a discourse on moral and political philosophy. Read book 4, which specifically addresses mercantilism. You will read the first three books in subunit 3.1 as these cover the topic of classical economists.
 
Adam Smith lived in the 1700s, a time when England lost control over its American colonies. In part, his work is a reaction to his perception of the difficulties of managing colonies under a mercantilist system. Smith is cited by many historians as the most influential economist in history, because his writings are applicable to the problems faced by people in modern society. 
Reading this book should take approximately 10 hours.

 Terms of Use: *An Inquiry into the Nature and Causes of the Wealth
of Nations* is in the public domain.

2.3.2 John Locke   - Reading: John Locke’s Second Treatise of Government: “Chapter V: Of Property” Link: John Locke’s Second Treatise of Government: “Chapter V: Of Property” (PDF)
 
Instructions: Although considered more of a political philosopher, read Locke’schapter 5 on pages 15–25. Pay attention to how Locke’s notion of property rights is dependent upon his notion of self-ownership. Locke argues that we own, or have an entitlement to, what we make by mixing that which we already own – ourselves, and hence our own labor power – with that which we do not own. Locke believed that those who make something have property rights with respect to what they make just as God has property rights with respect to human beings because he is their maker. Human beings are created in the image of God and share with God, though to a lesser extent, the ability to shape and mold the physical environment around them.
 
Reading this chapter should take approximately 45 minutes.
 
Terms of Use: Second Treatise of Government is in the public domain.

2.3.3 Richard Cantillon   - Reading: New World Encyclopedia: “Richard Cantillon” Link: New World Encyclopedia: “Richard Cantillon” (HTML)
 
Instructions: Read the encyclopedic biography of Cantillon. Truly a post-Mercantilist thinker, Cantillon entered areas of economic analysis to which few of his predecessors and contemporaries had gone. Considered to be part of the French school of thought known as the Physiocracy, his work had more influence on British and Austrian economic thinkers coming after him than any one of his contemporaries.
 
Reading this biography should take approximately 30 minutes.
 
Terms of Use: This resource is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License. The original New World Encyclopedia version can be found here

  • Reading: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 12: The Founding Father of Modern Economics: Richard Cantillon” Link: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 12: The Founding Father of Modern Economics: Richard Cantillon” (PDF)

    Instructions: Read chapter 12 on pages 343–362 for information on Richard Cantillon and his influence on modern economics. Apart from Rothbard’s pointed thesis of promoting the importance of Cantillon to that of Adam Smith in the development of modern economic thought, Cantillon helped to codify economics as an independent area of investigation and wrote a general treatise on all of its aspects. As Rothbard remarks, one reason that Cantillon was the first of the moderns is that he emancipated economic analysis from ethical and political concerns, abstracting the economic features of human actions from other concerns, however important.

    Reading this chapter should take approximately 1 hour.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

2.3.4 Anne-Robert-Jacques Turgot   - Reading: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 14: The Brilliance of Turgot” Link: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 14: The Brilliance of Turgot” (PDF)
 
Instructions: Read chapter 14 on pages 383–413. Turgot had the opportunity to practice his economics as a finance minister to King Louis XVI in the years before the French Revolution. His ideas were not shared entirely by his Physiocrat contemporaries, and he was one who supported the ancien regime. Like Cantillon, his ideas became part of the British classical tradition. Some even call him the first capitalist thinker because of his focus on financial and physical capital.

 Reading this chapter should take approximately 2 hours.  
    
 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Unit 2 Reading Questions   - Assessment: The Saylor Foundation’s “Unit 2 Reading Questions” Link: The Saylor Foundation’s “Unit 2 Reading Questions” (PDF)
 
Instructions: Complete this set of reading questions, referring to the primary texts for this unit as needed in order to support your ideas. Try to locate a passage which you can draw from and expand upon in order to answer each question, and in your own words, sketch out a brief interpretation of the passage’s meaning. Post your responses to these questions on the ECON301 discussion forum, as well as review and respond to one or two other students’ posts. When you are done – or if you are stuck – check your work against The Saylor Foundation’s “Guide to Responding to Unit 2 Reading Questions” for some notes on possible answers.

 Completing this assessment should take approximately 2 hours.