Economic Growth and the Origins of Modern Political Economy

Economic reasons of state, 1500–2000

Philipp R. Rössner

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317397403
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Economic Growth and the Origins of Modern Political Economy addresses the intellectual foundations of modern economic growth and European industrialization. Through an examination both of the roots of European industrialization and of the history of economic ideas, this book presents a uniquely broad examination of the origins of modern political economy.

This volume asks what can we learn from 'old' theories in terms of our understanding of history, our economic fate today, and the prospects for the modern world's poorest countries. Spanning across the past five hundred years, this book brings together leading international contributors offering comparative perspectives with countries outside of Europe in order to place the evolution of modern economic knowledge into a broader reference framework. It integrates economic discourse and the intellectual history of political economy with more empirical studies in economic history and the history of science. In doing so, this innovative volume presents a coherent and innovative new strategy towards a reconfiguration of the history of modern political economy.

This book is suitable for those who study history of economic thought, economic history or European history.

Part I

Manufacturing matters

The history of an old idea

1 New inroads into well-known territory?

On the virtues of re-discovering pre-classical political economy

Philipp R. Rössner

Mercantilism, Cameralism, economic reason of state: an alternative geneology of the free market

Recent years have seen a notable increase in historians’ curiosity about the state and its involvement in the economic process, prior to as well as during the great transition known as industrialization.¹ This went together with a reconceptualization of the role of markets in the economic process and the debunking of the myth of ‘free markets’. Since the path-breaking studies by Epstein (Freedom and Growth) or Harcourt’s Illusion of Free Markets, it is difficult to take issue with the notion that markets – the cornerstone of any well-functioning economy – performed best when regulated, in varying intensity, and guarded by a strong and proactive state. The latter provided an effective regulative framework that made sure that markets performed well: at least this is what people held as a commonplace in European economic discourse since the Renaissance. Moreover, many European states can be proven to have acted – at least by intention – quite interventionist since the dawn of the early modern age, actively facilitating economic growth by promoting select branches of domestic industry by various means such as bounties, premiums and protective custom duties. By no means did this process commence during the industrial age; we find ample traces of it in the recorded economic history of medieval and early modern history, in the shape of royal acts, Fürstenspiegeln (Princes’ Mirrors), learned treatises, customs and excise legislation and so on. More and more evidence has been accumulating over the recent years confirming that without such states that were interventionist at least in principle (and usually tried to implement as many of the principal stances in practice also) things such as the ‘European miracle’, the first industrialization and the ‘great divergence’ are unlikely to have happened. It had been the state – in varying shapes and degrees – that effected, facilitated and guarded European economic development since the middle ages, more often than not with positive success.

This somewhat flies in the face of what many modern textbooks still tell the aspiring students. Just consider Mankiw’s very learned and eminently influential Principles of Economics. In his classical statement of the ‘ten golden rules of economics’, Rule Six says that:

Markets Are Usually a Good Way to Organize Economic Activity. Households and firms that interact in market economies act as if they are guided by an ‘invisible hand’ that leads the market to allocate resources efficiently […].²

The empirical record of Europe’s economic history of the past six hundred years or so tells a different story. States have been necessary actors in the market process, curbing and ruling out negative behavioural aspects such as usury, arbitrage, speculative gains and other forms of rent-seeking behaviour that lead to Pareto-suboptimal allocation effects, i.e. the detriment of the common weal. Most states also actively interfered with the economy or at least made attempts consciously directed at this task, since the middle ages, in order to facilitate and stimulate economic growth and development.³ Until now the historical record has failed to produce unambiguous evidence of anything that would even closely resemble ‘free’ markets. In fact, European states became increasingly dirigiste and interventionist over the past five centuries, notwithstanding Adam Smith’s famously evocative claim that the opposite should become the rule for future bliss. Neither the waiver of the British Corn Laws, sometimes seen as the onset of the great deregulation of the nineteenth century, or some attempts at financial market liberalization in the wake of the ‘neoliberal’ turns in western politics post-1979 have managed to revert a growing tendency exhibited by European states to interfere with and regulate their economies, both internal as well as external. Since the past two hundred years the modern capitalist northern economies became more densely-regulated than ever before in the recorded history, and societies have progressively moved away from free markets. This process ran somewhat counter to mainstream economic dogma increasingly emphasising the inherent goodness of free and unregulated markets for good economic performance and growth. Reasons and motivations for these processes are manifold – some of them will be discussed in the following chapters.

It seems just as though the recent economic and financial crises in the world economy have also led to a renewed interest in a strange beast we call ‘mercantilism’. Obviously both aspects are related: markets and growth on the one, mercantilism on the other hand, although scholars by no means always or readily appreciate this. Here we find the main angle-point of the present book. There still are many myths and unclear areas regarding the evolution of modern economic discourse, as well as the interaction between economic discourse, political economy and real economic development over the past five centuries that are in desperate needs to be cleared up. European economic history and political economy do not start with either the Enlightenment or the industrial revolution (as many historical and economic studies and textbooks still claim, if implicitly). Therefore, any discussion of the state in the economic process should start with what we have come to know as ‘mercantilism’, prior to moving on to more contested research fields and terminologies and even stranger creatures such as ‘Cameralism’ or, ultimately, alternative concepts such as ‘economic reason of state’. This exercise should provide ways and means towards an attempt at an integrated study of economic thought and practice better explaining Europe’s transition to industrialization, c. 1500–1900 AD,or in a different framework of analysis from the one usually chosen.

Scholars have, in the more recent past, rather been wary to define what mercantilism was: an economic theory, policy, political economy, economic discourse⁴ or historical moment? Heckscher, in his magnificent two-volume work Merkantilismen (1931), expressed a rather sceptical view of it but never doubted its existence as such: For Heckscher, mercantilism was a very concrete and well-identifiable beast to attack.⁵ For Werner Sombart, alongside Max Weber one of the towering figures in German historical and economic sociology in the years preceding the First World War, the situation was similar. In Sombart’s model, mercantilism was begotten of the Stadtökonomie – an untranslatable term (its literal translation, ‘city economy’ does not even come close). Sombart was on the same page with Heckscher (or, rather, Heckscher echoed Sombart, really, as the first version of Der Moderne Kapitalismus predated Heckscher’s Merkantilismen by almost exactly three decades, with only the second and considerably-altered version of it, published between 1915 and 1927, somewhat nearer to Heckscher’s opus magnum). According to Sombart, Europe’s medieval city economies had been focused on provisioning and securing foodstuffs and regular supplies by encouraging grain imports into the cities and discouraging exports, trying to regulate urban markets in favour of the urban bonum commune. The later ‘states’ of pre-industrial Europe would do just what the city economies of the middle ages had done, transforming the notion of the urban-civic common good onto a larger scale of ‘national economy’ (Nationalökonomie, Volkswirtschaft). Mercantilism thus provided the foundations of modern capitalism, according to Sombart,⁶ in the same way as it paved the way for the rise of modern states after the 1500s. Markets and states were linked by symbiotic coevolution. The two depended upon one another and were connected within a functional nexus, in a similar way as it was not the market that had ‘created’ money as a means facilitating exchange deep down in history, but the state, in its desire to raise taxes. Sombart’s idea that mercantilism was a strategy aimed at ‘unification’ of the territorial and later national economies that emerged out of the medieval city economies even goes back to German historical economist Gustav Schmoller, writing in the 1880s, although many would probably also associate it with Heckscher.⁷

Sombart would argue that the mercantilistic programme, especially the building-up of export industries, was from the beginning subjected to the overarching goal of strengthening the state and its finances. Obviously, within the idiosyncratic situation of the Germanic lands between the Middle Ages and modernity these measures would all have amounted to the same: small, open and vulnerable economically as well as politically, the mere survival of the German micro-‘state’ in the post-Westphalian system depended upon a sound economy in the same way as a sound economy depended upon the existence of a sound state and its functional apparatus, such as soldiers for defence and civil servants for administration of the common weal. Economics and politics were too closely entangled to be analysed separately. Economic policy and analysis of their time were contingent upon the political conditions of the day, in the same way as mercantilism and Cameralism as theories and practical programmes of development were closely intertwined with all matters of domestic economic performance.⁸ In this way Jan de Vries’ summing up of the current state of the art in research on mercantilism in the 1960s and 1970s that ‘the state, the military, and the private economy could each stimulate the growth of the others’ still holds true. But we need to make some important qualifications. First, this all to common stance was derived from Werner Sombart’s Der Moderne Kapitalismus without scholars usually acknowledging this (partly but not exclusively because Der Moderne Kapitalismus was, until 2016, never translated into the English l...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• Notes on contributors
• PART I Manufacturing matters: the history of an old idea
• PART II Economic ideas and idiosyncrasy: the example of Cameralism
• PART III Vested interests, contingency and the shaping of the free trade doctrine
• PART IV Knowledge, risk and the idea of infinite growth
• PART V Economic growth and the state: from India to Italy
• PART VI Economic reason of state and its survival in modern economic discourse
• Index