History shows that the standards by which societies judge economic activity change over time. As these moral frameworks evolve—or devolve—many of the changes make their way into law. For example, modern anti-trust law is grounded in the widely accepted belief that monopolies depress competition and growth and encourage unscrupulous behavior. However, in the sixteenth and early seventeenth centuries, the state explicitly sought to protect large trade monopolies, which were commonly regarded as good for trade. The slow transformation of the moral status of monopoly over the seventeenth and eighteenth centuries figured prominently in a larger cultural transformation, which might be thought of as the shift from a moral economy to a political economy, and ushered in the birth of classical economics. Appreciating how and why this shift occurred reveals interesting links between power, political representation, and economic theory. It may also allow us to recover some important moral ideas about exchange that were lost along the way.
For their numerous supporters, trade monopolies brought harmony to the discordant areas of commerce and trade. The seventeenth century English author John Bland argued that without monopolistic companies, “Comerce is left without support, and open to all people, whose ignorance and want of expertise hath not only suffered our native Commodities to lose their value abroad, but at home, pulling up thereby the foundation of all Comerce.” Bland, Colbert, Queen Elizabeth, and many others subscribed to a philosophy of corporate governance. The philosophy emerged from of a larger medieval moral universe in which merchants, money, and exchange were inherently evil. It followed from that assumption that if left to their own devices, merchants would undercut each other, cheat their customers, and dissolve their prospects through selfish and ignoble acts. In this moral universe, an important justification for the regulation of trade was the mitigation of the pernicious effects of money-seeking on the souls of men.
A century or so later, Adam Smith wrote a book dedicated to a different way of evaluating the actions of merchant—not incidentally as part of a larger criticism of monopoly privileges. In one of the most famous passages in economic thought, he wrote that even when a merchant or tradesman “intends only his own gain… he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” In this remarkably influential passage, the importance of regulating trade does not depend on the moral intentions or behavior of individual merchants. What Smith instead emphasized is the importance of collective outcome. As the title of the book makes clear, he is arguing about benefits to the nation.
Despite the brilliance of his work, the book was not an isolated act of genius in which Smith singlehandedly reinvented economic thought. In shifting the center of moral concern from the individual to the nation, he was following in a line of public figures that began to write about economic matters from a different perspective early in the seventeenth century. Indeed, the work of those who defended monopoly rights, such as John Bland, powerfully influenced how Smith framed his work great work on political economy.
In the medieval period, most of the people who wrote books that addressed economic issues were ecclesiastics. These were figures like Thomas Aquinas and John Duns Scotus. As theologians, it is understandable that the implications of economic activity for the human soul were at the center of their concerns. After 1600, men such as John Wheeler, Thomas Mun, and Josiah Child began to write books about trade and commerce. These men were decidedly not ecclesiastics. Often, these new authors were prestigious figures in the overseas monopoly trading companies of the day. John Wheeler was a principal of the Merchant Adventurers, and Thomas Mun and Josiah Child were both leaders of the East India Company at different times. These were the men who began to frame their arguments about monopoly privileges—and the vagaries of trade and commerce—around possible benefits to the nation, commonwealth, and polity. The reason they did so had much more to do with politics and self-interest than with moral convictions.
Queen Elizabeth was fond of granting monopoly privileges as political favors, as well as to increase state funds. In return for loans to the state, merchant groups were granted constitutional rights to form overseas trade organization, “companies,” with exclusive privileges to certain areas of trade. But the practice had its critics even then, creating controversy over both the existence of monopoly privileges and who received those privileges. Men like Wheeler, Mun, and Child wrote public tracts about commerce and trade that defended their monopoly privileges. Their opponents advanced arguments about why existing companies should have their privileges revoked. The debates stimulated a significant discourse about not only monopoly privileges but also how and when certain trade practices were beneficial or not. The motivations were self-interested, but ultimately some real information about trade and commerce was published in the public sphere.
The central focus of these debates concerned which practices were most beneficial for the Crown, commonwealth, and nation. The reason for this was simple: the Crown, Privy Council, and Parliament were their primary audience. They wrote and published works in the public realm that were intended to persuade state elites and their constituents to take specific stands on trade policy and monopoly privileges. In the process, they created a new framework for evaluating economic behavior—one that Adam Smith would come to rely upon in The Wealth of Nations. Merchants became concerned with the wealth of the nation – rather than good conduct in trade – because of a particular institutional and political context. Their work produced what can be thought of as a turn from a moral economy to a political economy. Interestingly, where Adam Smith differed from these previous mercantilist authors was in his concern for all the people of the nation—including the poor, the powerless, and the disenfranchised. But for many years, he was not remembered for these sympathies.
If we recognize the historically contingent nature of this shift toward a narrow focus on national economic development, my hope is that we can make a little more room for the concerns about fair exchange and equity that Adam Smith tried—but largely failed—to reintroduce into the economic literature in the late eighteenth century.