Concepts of Economic Thought in the European Economic History

Posted: January 4th, 2023

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DATE: 22 April 2020

SUBJECT: Concepts of Economic Thought in the European Economic History

     In advancing economic thinking, liberal ideas to counter mercantilism emerged in the 17^th century. Several concepts on liberating nations from the clutches of private enterprises in international trade emerged as England lost wealth to the Dutch and Spanish entrepreneurs. Notable promoters of liberal thinking included Sir. Josiah Child, John Locke, and Adam Smith.

Physiocracy is a liberal economic paradigm that sought to dismantle mercantilism to create wealth for nations that had been disadvantaged by international trade and manufacturing. Founded in France in the 18^th century, physiocracy advanced the idea that land was the most critical source of wealth for nation-states and that increased agricultural production would liberate countries from the wealth depletion presented by imbalances in foreign trade and trading restrictions. Physiocracy is based on natural economics in which natural law is left to guide wealth creation (Spiegel, 1991). Agricultural production adhered to the natural law of productivity and could be leveraged by any country to create national wealth, as opposed to manufacturing, created artificial imbalances in production. This paradigm shift led to the emergence of several concepts such as those relating to interest rates, prices, and the value of labor and property, and capital.   

Interest rates is a concept that gained prominence to explain the advantages and disadvantages experienced by countries in competition in international trade and the effects on national wealth. With the Dutch dominating international trade and buying commodities cheaply to then sell them expensively to England and other nations, concerns about the unfair advantage enjoyed by the Dutch mercantilists emerged. Josiah Child, a mercantilist, advanced liberal ideas by proposing a reduction of interest rates from 6% to 4% (Spiegel, 1991). This was important in bridging the societal and private interests as well as individual and natural interests, thus reducing conflicts between nations.  The theory of money is a product of this thinking, with interest being interpreted as the value of money as advanced by John Locke.     

The laissez faire system of natural liberty in which individual were left free to pursue self-interests, regardless of their intentions, was seen as the way of achieving national and individual interests. As a solution to creating national wealth, the laissez faire promoted consumption, which was the engine of economic growth (Bradley, 2010). This concept promoted individual and national self-reliance as proposed by Adam Smith, which was seen to reconcile the different interests of individuals, the nation, and society. 

Division of labor is another invention that revolutionized the structure of economic activity. Based on the natural activity of bartering in which people exchanged commodities to obtain those that they did not have, division of labor advocates specialization to improve expertise and productivity while reducing time wastage in skill acquisition (Rueffler, Hermisson, & Wagner, 2012). This set the foundations of capitalism by encouraging economic mobility and the freedom to engage in the economic activities one desires and reducing the struggles between labor and capital (Durkheim, 2014). Unfortunately, specialization and expertise created production inequalities that were translated to disparities in society and between nations. Specifically, inequalities emerged between productive and unproductive labor, thus prompting the conceptualization of par capital national income to unearth the productivity differences in the population.

However, overpopulation emerged as the biggest threat to liberal economics as it undermined fraternity, equality, and wealth creation, thus reversing the gains of the economics of self-reliance (Patton,1972). Overpopulation entrenched poverty within and between nations, thus undoing the advances made by physiocracy towards dismantling mercantilism. 

References

Durkheim, E. (2014). The division of labor in society. Simon and Schuster.

Patton, R. D. (1972). The Growth of Economic Thought. By Henry William Spiegel. Englewood Cliffs, New Jersey: Prentice-Hall, Inc., The Journal of Economic History, 32(3), 775-777. https://doi.org/10.1017/s002205070007741x.

Rueffler, C., Hermisson, J., & Wagner, G. P. (2012). Evolution of functional specialization and division of labor. Proceedings of the National Academy of Sciences, 109(6), E326-E335. https://doi.org/10.1073/pnas.1110521109.

Spiegel, H. W. (1991). The growth of economic thought. Duke University Press.