a history of economic thought, isaac ilych rubin (part one: mercantilism and its decline)

--- important quotes/excerpts and summary ---

(19-26): a brief history of the transition from feudalism to early capitalism in england (called the age of merchant capital by the author, standing for the period 1500-1700). insofar as this is the staple narrative against which all other history is tested, it makes sense to reconstruct this carefully.

1100s-1400s: the Later Middle Ages, characterized by a "town" or "regional" economy. Key is that "each town...comprised a single economic region, within whose confines all exchange between town and countryside took place." Rural economy involves peasants producing for their own consumption, giving some surplus to their lord as "quickrent", and selling whatever meagre portions were left on the market; also, of course, involved compulsorly labor that the feudals extracted from these peasants on their own manor. Urban economy organized into guild handicrafts--each master owns his own tools and instruments; as a member of the guild he is bound by its "strict code of rules on prices and output," even while he enjoys the monopoly that it affords him.

1500-1700: this social structure begins to break up as a result of three distinct, basic causes:

1. the rapid development of a money economy
2. the expansion of the market
3. the growing stregnth of money capital
   

colonial trade, in particular, was instrumental in bringing money capital and silver bullion to England, at this time. this caused the famous "price revolution" (which had the effect of depressing real wages for the majority of the population, but enriching the commercial bourgeoisie). peasantry begins to be displaced (and their land enclosed), as feudals look toward cash-crops, sheep, and larger/productive farmers. the guilds begin to break up under the pressure of this trade, as opportunities are sought beyond the bounds of the regional and eventually national economy (as a result of this transition, middlemen come to play an important role--these middlemen become primitive industrialists, of course, as the cottage industry takes off). an important point often elided in the apologists' history, of course, is that this nascent commercial bourgeoisie formed a ready alliance with the absolutist state, which shared their interest in undermining the authority of independent feudals.

(26): "The basic feature of mercantilist policy is that the state actively uses its powers to help implant and develop a young capitalist trade and industry and, through the use or protectionist measures, diligently defends it from foreign competition." Rubin further distinguishes between early mercantilism (which prioritizes the fiscal aims of the State--careful regulation of trade, ban on export of currency--and corresponds to period before 1600, when Britain in the main exported raw materials and lacked a native merchant class--for more, see pp 27-28) and developed mercantilism (which attempts to bolster capitalist trade and industry, defending it through protectionism).

(30): However, as "the basis of English exports shifted from raw materials (wool) to the export of finished products" (cloth) in the late 1500s and 1600s, a new merchant class is looking ever more anxiously for profitable markets in which to sell these products. "The country was now forced to purse an active colonial policy... The entire history of England from the 16th (1500s) to the 18th (1700s) centuries is a history of its struggles with these nations for commercial and colonial superiority. Its weapons in this struggle were the founding of its own colonies, commercial treaties, and wars."

(31): "And so, the money balance system, that old, outmoded set of restrictive, essentially fiscal measures, gradually gave way to the state's intervention on a broad front, as it actively fostered the growth of capitalist trade, shipping, and export industry with the aim of consolidating England's position on the world market and doing away with her foreign competitors."

(31-32): "Fully-fledged mercantlism was above all a policy of protectionism, i.e., the use of customs policies to stimulate the growth of native industry. It was protectionism which was to speed up England's transformation from an agricultural to a commercial and industrial nation. Customs duties now started to be used to further economic as well as fiscal ends. Previously, the government had, for fiscal reasons, levied duties indiscriminately on every type of export item; now, however, the state began to differentiate between raw materials and finished products. To provide English industry with cheap raw materials it required the governemtn either raised their duties or forbade their export altoghether. In the years when corn prices went up neither corn nor other agricultural products could be sent out of the country. On the other hand, when it came to finished goods, the state encouraged their export by every possible means, exempting them from duties or even offering an export subsidy... The import of wool, cotton, linen, dyestuffs, leather, and other raw materials was not only freed of customs levies, but even subsidized, and otherwise encouraged. Conversely, the import of foreign finished products was either banned or subjected to high tarriffs. Such a customs policy meant that native industry was to be shielded to the detriment of agriculture, which produced raw materials."

(32): Rubin distinguishes between mercantilist policy in England, which could only fleece agriculture so far because of the relatively speedy penetration of agriculture by the bourgeoisie, and France, where the State actively depressed trade in raw materials as part of its efforts to win the alleigance of merchants and industrialists in its fight with the feudals.

(32): Navigation Acts, issued by Cromwell in 1651.

(33): Summary of differences between early and developed mercantilism: in the former, (1) exports limited to 'staples,' (2) state exercises control over individual commercial transactions, (3) state regulates the flow of precious metals directly; in the latter, (1) policy is expansionist and colonial (aiming at maximum extension of foriegn trade and hegemony on the world market), (2) regulation is not individual but national in scale, and (3) it is understood that monetary health is acheived indirectly, by protecting the balance of trade.

(39): In the early 1800s, Rubin is saying, the bourgeoisie came into conflict with the landlords over the price of corn (the former favored a low price, because that would cheapen the price of labor-power). But in the 1600s, many English mercantilists were in complete agreement about the need for high prices of corn, since the operative problem was bringing people to work (this is the time of the maximum limit on wages, in other words).

(48-50): Thomas Mun is introduced as the first of the developed mercantilists (Hales was the represenative of the early mercantilists)--he, among other things,(1) strongly defends the carrying trade on the basis of which the East India company was making massive profits (and, in the process, losing hard currency, to the chagrin of the early mercantilists), (2) understands the link between monetary well-being and the balance of trade (so he argues that England will fix its metallic problems by crafting a strategy to export finished products, in effect).

(54-55): "The disproportionate value accorded to foreign trade by the mercantilists is to be explained not simply by its great potential for transforming products into money and attracting precious metals: the enormous profits derived from foreign trrade helped foster primitive capital accumulation by the merchant class... The process of transforming products into money was to be accompanied by the accumulation of the latter and its own conversion into profit-bearing money, that is, into capital. But for the most part, really large profits were only to be had in this period through foreign commerce, in particular through trade with the colonies... In this period the basic source of commercial profit was non-equivalent exchange. It was, then, natural that the mercantilists saw profit only in the net profit of trade, or 'profit upon alienation,' which had its source in the mark up that the merchant added to the price of the commodity."

(58): "The first person to develop a critique of the principles behind mercantilist policy was Dudley North... North is the first of the early prophets of the idea of free trade. He dedicates his tract to a discussion around two central themes: first, the restrictions which the state, in its desire to attract money into the country, has imposed upon foreign trade, and second, the legal limitation placed upon the level of interest. On both of these issues North consistently demands that the state cease its interference into economic life."

(65): Rubin takes note of a primitive labor theory of value during the age of craft production--Thomas Aquinas, for example, taught that the "value of a product depends upon the quantity of labor and the outlays expended upon its production. This, however, developed 'normatively,' and not scientifically, as the governing concern of that time was how to establish a just price for craftsmen. Beginning in the 17th century, as capitalist competition at the market congealed, these considerations ceded to a scientific appraisal of the price that was being established by supply and demand (John Locke being its pioneer)--the "process of price formation" as it occured on the market. "The normative formulation of the problem of value had given way to that of scientific theory."

(67): Similarly, as industrial capitalism became more ascendant in the 18th century, there arose a theory of price as corresponding to production costs--this was the work of James Steuart, who was one of the last mercantilists.

(69-74): William Petty, another of the last mercantilists, was developing the original insights of the labor theory of value at this time--"the magnitude of a product's value depends upon the quantity of labor expended on its production." But Petty, Rubin continues, confuses himself because of an inability to systematically distinguish between use-value and exchange-value (in the case of the former, he integrates labor and land into his argument for the source of value).

(74-75): Locke suffers from a similar confusion, though slightly inverted--for Locke, use-values are given by labor (valueless nature made valuable by labor), whereas exchange-values are determined by supply-and-demand. (Cantillon and James Steuart are insufficient in similar ways, Rubina adds)

(81): David Hume, in the 18th century, develops the "quantity theory of money" ("according to which, the value (or purchasing power) of money is determined by the latter's overall quantity"). He traces the mechanisms by which this will happen--a cascading series of consecutive increases in individual demand for various products (this introduces the temporal element into the theory, which is key).

(83-84): "Hume's theory of money is in turn a reaction against the mercantilist concept of money and a theoretical generalization fromt he price revolution of the 16th-17th centuries (when there had been a massive influx of silver and gold from America)." Yet, what is crucial, Hume doesn't understand the analytical importance of the other source of this price revolution--namely, the technological improvements in the extraction of silver/gold and the consequent fall in their value... His "nominalist conception of money as a simple token, with no value of its own but rather with a 'fictitious' value that derives from, and alters with fluctuations in the amount of money, proved to be profoundly mistaken when applied to metallic money."

(84-86): The preceding is the first revision to Hume's theory of money. The second is a complication of his understanding of causality. Hume understood that hoarded money would have no effect on prices. Rubin notes, therefore, that one obviously needs to consider what causes money to "enter circulation." One of the factors, clearly, is the price of commodities themselves. In that sense, it is not as simple as saying as "the quantity of money in circulation determines prices", is it? This was James Steuart's argument, in part: "Steuart denies that commodity prices are dependent upon the quantity of money in circulation; to the contrary, it is the quantity of money in circulation which is determined by the demands of commodity circulation, including the level of commodity prices."

(86): "The ideas that Steuart had put forward in contraposition to the quantity theory were extended in the 19th Century by Tooke, and then later on by Marx. These two theories--Hume's quantity theory, on the one hand, and Steuart's doctrine, on the other--represent in brilliant fashion the two basic tendencies in the theory of monetary circulation that even this day are vying for supremacy in economic science.