Please read the attached file.
T a b le o f c o n te n tsIntroduction
Learning Objectives
Reading Assignments
Commentary
2. 2 “Aristotle as Mediterranean Economist” by Baeck and “First Prefatory Discussion” by Khaldun
2. 3 Chapter 1 (pp. 8-22) and Chapter 2 (pp. 23-39) by Hunt & Lautzenheiser
Study Questions
A ssignment 1: T wo Short Essays
Supplementary Materials/Suggested Reading
References C ourse G uide
U nit 2: A ncient and M ercantilist Foundations
In t r o d u c t io n
W here should one begin their study of political econom y? Som e w ould say the origins of political econom y lie
in H obbes’ Leviathan or in A ntonie de M ontchretien’s Tracie de l’econom ic politique. O thers w ould begin w ith
A dam Sm ith’s W ealth of N ations or D avid R icardo’s O n the Principles of Political Econom y and Taxation. B ut
the roots of political econom y stretch back to the m any ancient G reek and Islam ic thinkers w ho m ade im portant
intellectual contributions.
U nit 2 considers the precursors to classical political econom y, m ost notably, the w orks of A ristotle and Ibn
K haldun. It exam ines the transition from the pre-capitalist to the capitalist m ethods of socioeconom ic and
political organization and concludes w ith an analysis of the role of m ercantilism and the significance of the
“putting-out” system . C ourse G uide
U nit 2: A ncient and M ercantilist Foundations
L e a r n in g O b je c t iv e s
A fter com pleting this unit, you should be able to
1. identify the differences betw een m arket as opportunity and m arket as im perative.
2. com pare and contrast the feudal and capitalistic m ethods of surplus value appropriation.
3. describe how feudal and capitalistic class relations differ.
4. define m ercantilism .
5. discuss the role of “ethics” in A ristotle’s political econom y.
6. assess the strengths and w eaknesses of K haldun’s political econom y.
7. define guilds and the “putting-out” system .
8. discuss the im portance of three-field crop rotation in the transition to capitalism . C ourse G uide
U nit 2: A ncient and M ercantilist Foundations
R e a d in g A s s ig n m e n t s
1. K haldun, I. (1958). “First Prefatory D iscussion.” In The M uqaddim ah: An Introduction to H istory (pp. 89-93).
N ew York: Pantheon Books.
2. A ncient and M ercantilst Foundations W ood, E. M . (1987). “Introduction” and “Capitalism and the N ation
State.” In The O rigin of Capitalism : A Longer View, 1-8; 166-181. N ew York: M onthly Review Press.
From the PO EC 302 D igital R eading R oom , read
1. “A ristotle as M editerranean Econom ist” by L. Baeck
From H istory of Econom ic Thought, read
1. “Chapter 1, Introduction” (pp. 8-22)
2. “Chapter 2, Econom ic Ideas Before A dam Sm ith” C ourse G uide
U nit 2: A ncient and M ercantilist Foundations
C o m m e n t a r y
2 .1 “ In tro d u c tio n ” b y E . M . W o o d
Is capitalism the natural condition of hum anity? D o m arkets spontaneously allocate resources effectively and
equitably? In her very short “Introduction” to The O rigin of C apitalism , W ood seeks first to question the
naturalization of capitalism , and second, to raise issues pertaining to the m arket as im perative or opportunity.
W ood (2002) begins by defining w hat she m eans by capitalism :
C apitalism is a system in w hich goods and services, dow n to the m ost basic necessities of life, are produced for
profitable exchange, w here even hum an labour-pow er is a com m odity for sale in the m arket, and w here all
econom ic actors are dependent on the m arket. This is true, not only of w orkers, w ho m ust sell their labour-
pow er for a w age, but also of capitalists, w ho depend on the m arket to buy their inputs, including labour-pow er,
and to sell their output for profit. (p.2)
W ood briefly contrasts capitalism w ith earlier form s of organizing society’s production. In feudal societies, the
direct producers often rem ained in control or, at least, in possession of their m eans of production (i.e., land,
resources, tools, etc.) and their conditions of labour. They ensured that their m eans of subsistence (food,
clothing, and shelter) w ere protected from the forces of the m arket. The transfer of surplus labour to feudal
lords, for instance, often took the form of a political or extra-econom ic form of extraction. Extra-econom ic
refers to pow ers of appropriation or com pulsion that are generally independent of the econom y (or m arket) such
as custom ary norm s and traditions as w ell as the political, m ilitary, judicial, or religious form s of tax and
tribute. In other w ords, coercive m echanism s w ere generally beyond the realm of the econom ic, as the nature of
these transactions w ere, for the m ost part, independent of the process of production. Fig 2.1: The Feudal System .
C apitalism , on the other hand, is unique in the sense that appropriation takes place prim arily thorough
econom ic or m arket-induced com pulsions. This is not to say that political, custom ary, or m ilitary form s of
appropriation do not influence m arket transactions in capitalist societies, but rather that the “distinct system of
m arket dependence m eans that the requirem ents of com petition and profit m axim ization are the fundam ental
rules of life” (W ood, 2002, p. 2). The transition from pre-capitalist to capitalist form s of appropriation entailed
transform ing labourers into w age w orkers by taking aw ay their land, labour, and resources. In pre-capitalist
societies, the social surplus w as extracted through extra-econom ic m eans of coercion; in capitalist societies, the
purely ‘econom ic’ m echanism s of the m arket serve to transfer the social surplus from one class to another. In
such societies, class relations are obscured, because the surplus is extracted im personally via the m arket and
not, as in feudal societies for exam ple, directly from a lord or m onarch. In short, m arket dependence becom es
an instituted com pulsion— capital has a choice; w age labour does not.
W ood (2002) also points out that central to m ost conventional accounts of capitalism (and to m any classical and
contem porary theories of political econom y as w ell) are
. . . certain assum ptions, explicit or im plicit, about hum an nature and about how hum an beings w ill behave, if
only given the chance. They w ill, so the story goes, alw ays avail them selves of the opportunity to m axim ize
profit through acts of exchange, and in order to realize that natural inclination, they w ill alw ays find w ays of
im proving the organization and instrum ents of w ork in order to enhance the productivity or labour. (pp. 5-6)
B ut w here, in capitalism , do w e draw the line betw een opportunity and im perative? This brings us to the second central prem ise of W ood’s introduction. In the conventional, as opposed to the
critical approach to capitalism and political econom y, opportunity lies at the heart of the m arket. A bstractly,
opportunities m ay refer to a com bination of favourable circum stances or fortuitous m om ents for advancem ent.
In capitalistic or m arket term s, the notion of opportunity connotes possibilities of buying and selling or freedom
and choice. Then, as W ood pointedly asks, w hat are m arket forces? D oes not the w ord force suggest som e level
of coercion? W hat about the com m odification of labour pow er and class exploitation? W ood’s (2002) response
is unam biguous:
The distinctive and dom inant characteristic of the capitalist m arket is not opportunity or choice but, on the
contrary, com pulsion. . . . This unique system of m arket-dependence m eans that the dictates of the capitalist
m arket – its im peratives of com petition, accum ulation, profit-m axim ization, and increasing labour-productivity
– regulate not only all econom ic transactions but social relations in general. (p.7)
For W ood, w e see that it is im perative, not opportunity, that lies at the core of capitalist m arkets. Labourers, or
m ore generally, those w ith nothing to sell but their capacity to w ork, are “free” in the sense that no one directly
forces them to w ork. In the ordinary run of things, the natural law s of the m arket, that is the w orkers’
dependence on capital, com pels them to w ork or risk unem ploym ent and starvation. W ood also notes that the
naturalization of capitalism denies the long and painful historical process that brought this system into being.
Q uestions concerning w hat is m eant w hen w e talk about capitalism are all fundam entally related to how w e
understand com peting political econom ic perspectives.
TO P C ourse G uide
U nit 2: A ncient and M ercantilist Foundations
2 .2 “ A ris to tle a s M e d ite rra n e a n E c o n o m is t” b y B a e c k a n d
“ F irs t P re fa to ry D is c u s s io n ” b y K h a ld u n
B oth A ristotle and K hladun w rote during a tim e w hen social relations w ere m uch different than those that
underlie capitalist societies. B ut like m any social theorists, they dealt w ith the practical, everyday problem s and
concerns that plagued the societies in w hich they lived. For instance, each w rote during tim es of significant
political econom ic and m oral/religious upheaval, w hich included changes in individual behaviour, in the
division of labour, and in political and econom ic organization. Thus, their theories can be understood as
forerunners to classical and contem porary political econom ic thought. A ristotle’s contem poraries (e.g.,
X enophon, Plato, Epicurus, and D em ocritus) also developed im portant insights for later political econom ists as
did K haldun’s (e.g., A sh Shaybani, A l-B iruni, A li ad-D im ashqi, and A l-H ariri). H ow ever, given their unique
individual contributions, our discussion here w ill be lim ited to the w ritings of A ristotle and K haldun (see
M ichaelides et al., 2011; B aeck 1991).
D uring the tim e of A ristotle (384-322 B C E), G reek city-states w ere undergoing vast socioeconom ic and
political changes. For A ristotle, econom ics (recall its lim ited original m eaning as “household m anagem ent”)
w as understood as a sub-system of politics, w hich in turn w as em bedded in a broader ethical system . In his
view , econom ics w as not an enclosed system or process, but rather subordinate to the proper functioning of the
state. A n ethical dim ension w as central to econom ic thinking.
A s A thens, Sparta, and Thebes’s hegem ony and dom inance over the sm aller G reek city-states w eakened, a new
urban econom y arose based on im porting and exporting. A s the accum ulation of w ealth as an end in itself
intensified, socioeconom ic tensions grew betw een the different layers of society. Private affairs began to take
greater precedence over public harm ony. A s the traditional fabric of the G reek polis unravelled, A ristotle (and
other influential G reek w riters of the tim e) believed that revitalizing the m oral and political character of the
G reek city-states could enhance social harm ony. This w ould require, in part, the creation of institutions capable
of m aintaining social stability. H ow ever, it is im portant to note here that in speaking of social harm ony,
A ristotle w as concerned about G reek citizens only, not about any of the other inhabitants of the state. Slavery
w as defended at length, as w as fem ale subservience. C hildren and seniors w ere also regarded as less than equal
citizens, and the w orking classes w ere considered unw orthy of enfranchisem ent.
For A ristotle, w ell organized econom ics w as a m eans of ensuring the full m oral developm ent of the G reek
citizens and a step tow ard social harm ony, w hich w as a necessary instrum ent for the satisfaction of all natural or
m aterial needs. This, in turn, w as related to the final goal of “living w ell.” A ristotle m akes a distinction betw een
“living” and “living w ell.” W hereas the form er condem ns the individual accum ulation of w ealth as an em pty,
unfulfilling end in itself, the latter is understood in term s of achieving a life of fulfillm ent beyond m ere m aterial
pleasures and includes the social, political, and intellectual aspects of life as w ell. Expanding upon the ideas of Plato, A ristotle m akes tw o im portant theoretical contributions: First, in analyzing
the transition of G reek city-states from m ere subsistence levels to grow ing com m ercial endeavours, A ristotle
distinguished betw een use value and exchange value (though in very early form ). Second, A ristotle concluded
that m oney w as both a m edium of exchange and a standard of value. In keeping w ith the ethical foundations of
A ristotle’s philosophy (or political econom y), note how he claim s that m oney has no intrinsic value in and of
itself (‘m oney is sterile’), and how interest on loans is frow ned upon (B aeck, 1987, p. 88). H e also outlines the
necessary rudim ents of a legal and institutional fram ew ork in w hich m oney is em bedded.
In order to attain social harm ony, A ristotle argued that exchange activities ought to occur in a fair and just
m anner. Thus, it is necessary that, upon exchange, each party receive a fair return on their contribution (the
“just m iddle”). H ow ever, this is not to suggest that A ristotle w as a staunch egalitarian. In his view , inequality
and privilege am ong “m en” are justified as long as they do not reach unacceptable proportions. H ow ever, this
“acceptable” level of inequality and privilege is poorly defined. A lthough m arred by “nostalgic elitism ” (B aeck,
1987, p.92), A ristotle’s early political econom ic ideas w ere a m ajor source of inspiration for later Islam ic
philosophy. Like A ristotle, early Islam ic thinkers condem ned interest paym ents on loans. From the 9th century
on, Islam ic thinkers w ould continue to analyze the com plex relations underlying socioeconom ic and political
organization.
B etw een the 9th and 14th centuries, Islam ic philosophers regarded econom ics as follow ing divinely revealed
law s. Ibn K haldun (1958), for instance, notes that “The necessary character of hum an social organization or
civilization is explained by the fact that G od created and fashioned m an in a form that can live and subsist only
w ith the help of food” (p. 89). Interestingly, K haldun begins by observing that 1) hum an social organization is
som ething necessary, and 2) that this organizational necessity is by default “political.” In his description of the
production of food, K haldun outlines, in em bryonic form , an early labour theory of value. In discussing the
hum an labour pow er needed to transform grain into an edible form , he w rites,
A ssum ing that a m an could eat unprepared grain, an even greater num ber of operations w ould be necessary in
order to obtain the grain: sow ing and reaping; and threshing to separate it from the husks of the ear. Each of
these operations requires a num ber of tools and m any m ore crafts than those just m entioned. (K haldun, 1958, p.
89)
K haldun (1958) em phasizes the invisible interdependencies of hum ankind to one another for the satisfaction of
their needs and w ants: “Through cooperation, the needs of a num ber of persons, m any tim es greater than their
ow n (num ber), can be satisfied. . . . It is absolutely necessary for m an to have the cooperation of his fellow
m en.” W ithout this cooperation, he stresses that “life cannot m aterialize for him . (p. 90). In other w ords, social
organization acts as a restraining influence upon society so as to adequately supply the m eans of subsistence.
For K haldun, “royal authority” (the state? the m onarchy?) is a social requirem ent that is necessary for the
overall harm onious functioning of society, w hich eventually “becom es a fact that is accepted w ithout the
slightest disapproval or dissent” (pp. 92-93).
For both A ristotle and K haldun, econom ics w as often subordinate to the political and the ethical/religious
aspects of society as a w hole. A ristotle and K hladun w ere critical of w ealth accum ulation as an end in itself and
to separating of econom ics from its ethical/religious and political totality. Equally im portant, both argued that
exchange value w as based on the labour tim e em bodied w ithin a particular product. A s you w ill see, this idea differed from later political econom ists w ho argued that prices w ere determ ined by supply and dem and. For
A ristotle and K haldun, the true value of goods w as determ ined by social and political pow er relations, and on
the w hole, econom ic hedonism w as considered sham eful as m oderation and social justice w ere tied to a sense of
m utual responsibility.
TO P C ourse G uide
U nit 2: A ncient and M ercantilist Foundations
2 .3 C h a p te r 1 (p p . 8 -2 2 ) a n d C h a p te r 2 (p p . 2 3 -3 9 ) b y H u n t &
L a u tz e n h e is e r
H unt and Lautzenheiser deepen our understanding of the transition from pre-capitalism to capitalism . A fter the
fall of the old R om an Em pire, a feudal hierarchy cam e to be the dom inant socioeconom ic system . A t the bottom
of the hierarchy w ere the serfs or peasants w ho ow ed their allegiance to the noblem en, w ho, in turn, ow ed their
allegiance to an overlord, and so on until the system reached its apogee in the form of the king. C ustom and
tradition, including the threat of violence, becam e the dom inating social relationship that m ediated the
extraction of the social surplus. The serfs tended to the land and agriculture, thereby producing the m ajority of
the basic needs of life; the lords and nobles lived off the labour of the serfs w ho farm ed their fields and paid
taxes in kind in exchange for protection. A s the M iddle A ges progressed, the C atholic C hurch (the largest
ow ner of land at the tim e) cam e to have a strong m oral and religious influence throughout W estern Europe.
H ow ever, regardless of w hether the nobles w ere secular or religious, they form ed the ruling class w ho
controlled the land, the labour, and the pow er that derived from it.
A lthough m edieval society w as predom inantly agrarian, goods m anufactured in tow ns becam e increasingly
im portant to m anor lords and for long-distance trade. The guilds w ere the dom inant institution in the tow ns.
G uilds w ere associations of craft, professional, and trade w orkers, and although they enjoyed a m onopoly over
the production of goods and services, they w ere less concerned w ith m aking profits than they w ere w ith
religious and m oral m atters. The guilds exerted a pow erful conservative influence over the m edieval tow nships.
N evertheless, increases in agricultural productivity w ere the original im petus for a series of profound changes
that resulted in the gradual dissolution of feudalism and the beginning of capitalism .
Like m ost historic global transform ations, this transition w as a gradual process. Som etim e betw een the 8th and
11th centuries, the tw o-field system of crop rotation w as replaced by the three-field system , w hich dram atically
increased the agricultural yield (in som e cases, by as m uch as 50 percent), w hile ensuring its long-term
sustainability. This allow ed people to support m ore livestock, especially horses, w hich encouraged m ore
extended cultivation and resulted in an increase in the m ovem ent of entire fam ilies, com m odities, and
equipm ent, w hich, in turn, led to the developm ent of m ore tow nships. O ther technological advancem ents, such
as the replacem ent of the tw o-w heeled cart w ith “the four-w heeled w agon w ith a pivotal front axle,” resulted in
rapid increases in population grow th, urbanization, and extended “interregional, long-distance trade and
com m erce (H unt & Lautzenheiser, 2011, p. 11).
B etw een the 11th and 14th centuries, an increasingly hostile and m arked expansion of com m erce (including the
C hristian C rusades) began. The expansion began in W estern Europe and quickly spread through the north,
south, and eastern regions of Europe as w ell as into eastern A sia and northern A frica. B y the 15th century,
com m ercial centres w ere thriving alm ost everyw here. Feudal custom s and traditions w ere becom ing m ore
outm oded as cities gained their independence from the C hurch and the m anorial lords. In their place arose the rudim ents of contract law s, negotiable instrum ents, agency sales, and auctions. “W ithin these com m ercial
centres there arose com plex system s of currency exchange, debt-clearing, and credit facilities;” in other w ords,
the seeds of m odern business (H unt & Lautzenheiser, 2011, p. 13). M ore craft w orkers w ere beginning to sell
“their goods w holesale to m erchants, w ho in turn transported and resold them ” (p. 13).
TO P
H unt and Lautzenheiser (2011) note that
B y the sixteenth century, the handicraft type of industry, in w hich the craftsm an ow ned the w orkshop, tools and
raw m aterials and functioned as an independent, sm all-scale entrepreneur, had been largely replaced in the
exporting industries by the putting-out system . (p. 13)
The putting-out system is generally understood as a form of subcontracting: “The m erchant-capitalist w ould
provide an independent craftsm an w ith raw m aterials and pay him a fee to w ork the m aterials into finished
products” (H unt & Lautzenheiser, 2011, p. 13). It is im portant to note that these craft w orks w ere still, by and
large, m ade in independent w orkshops. A s the putting-out system developed, m ore m erchant-capitalists cam e to
ow n tools, m achinery, and buildings, and they w ould hire w orkers to m ake the finished products in their
m anufactories. W orkers w ere no longer selling a finished product to the m erchant, but rather their capacity to
labour for a given am ount of tim e. Increasingly, capitalist control w as taking hold of the process of production
and displacing w orkers; the m arket and m onetary profits had replaced custom and tradition in determ ining w ho,
w hat, w here, and w hen production w ould occur.
For capitalism to becom e even m ore dom inant, the econom ic self-sufficiency of the feudal m anor had to be
com pletely broken dow n, underm ined, or destroyed. This m eant bringing m arket forces to the countryside,
w hich rem oved the traditional rights and security over the m eans of subsistence and replaced it w ith the
vagaries of the m arketplace. The peasant revolts that occurred betw een the 14th and 16th century w ere violent
social conflicts. W ar and disease led to depopulation and labour shortages. A s H unt and Lautzenheiser (2011)
note,
The early sixteenth century is a w atershed in European history. It m arks the vague dividing line betw een the
old, decaying feudal order and the rising capitalist system . A fter 1500, im portant social and econom ic changes
began to occur w ith increasing frequency, each reinforcing the other and all together ushering in the system of
capitalism . (p. 17)
The im portant consequence here is the creation of the w orking class and “the enclosure m ovem ent” w herein 75
to 95 percent “of the tenants w ere forced out of the countryside and into the cities to try to support them selves”
(H unt & Lautzenheiser, 2011, p. 17). Land that w as once com m unal land w as unilaterally turned into private
property and thereby com m odified. “This m igration to the cities m eant m ore labor for the capitalist industries,
m ore m en for the arm ies and navies, m ore m en to colonize new lands, and m ore potential consum ers, or buyers,
of products” (p. 17). H arsh legal, m ilitary, and governm ent repression aw aited those w ho refused to leave the
land that others before them had occupied for centuries. This, in a nutshell, is the stim uli that led to the birth of
the w orking class. B etw een the 14th and 16th centuries, new technological and scientific developm ents such as the telescope and
the com pass, led to im provem ents in navigation. B etter navigation led to m ore accurate trade routes into India,
A frica, and the A m ericas, w hich had tw o im portant outcom es: 1) an intensified period of colonization, and 2)
the acquisition of precious resources such as gold and silver, item s that w ere turned into capital. The follow ing
passage from H unt and Lautzenheiser (2011) is particularly illum inating:
C apital refers to the m aterials that are necessary for production, trade, and com m erce and consists of all tools,
equipm ent, factories, raw m aterials, goods in process, m eans of transporting goods, and m oney. There are
physical m eans of production in every kind of econom ic system , but they can becom e capital only in a social
context in w hich the social relationships that exist that are necessary for com m odity production and private
ow nership. Thus, capital refers to m ore than sim ply physical objects; it refers to a com plex set of social
relations as w ell. (pp. 18-19)
Thus, the new capitalist class slow ly but surely displaced the nobility as the dom inant social player in the new
socioeconom ic system . From the 15th and 16th centuries onw ard, nation-state or “m ercantilist-centered”
capitalism took hold. It included the protection of state m onopolies and the form ation of policies designed to
restrict the influx of gold, silver, and other valuable com m odities. It also m arked a period of state-building and
state consolidation. For exam ple, France, England, Spain, and H olland encouraged colonialist expeditions by
developing regulations pertaining to im ports and by supporting subsidies, tax refunds, export duties, and so
forth in an effort to spur dom estic w ealth creation. A s the state played a larger role in its efforts to strengthen
capitalist im peratives, the regulation of production m ethods and quality control also cam e under its purview .
For instance, by the m id-1500s in England, the state had “central control over the training of industrial w orkers,
over conditions of em ploym ent, and over the allocation of the labour force to different types of occupations”
(H unt & Lautzenheiser, 2011, p. 22). These w ere concerns that had custom arily been the responsibility of the
form er guild m asters. The rem arkable socioeconom ic and political changes that had taken place over the course
of a few centuries led to vast intellectual efforts to understand the changes that w ere occurring in society.
TO P
The three dom inant ideas central to early m ercantilist thought w ere
1. the notion that a com m odity’s “value” or “natural value” w as its actual m arket price;
2. that the forces of supply and dem and determ ined m arket value; and
3. that the m arketability of a com m odity w as determ ined by its “intrinsic” or use value, w hich, in turn, w as a
causal determ inant of m arket value.
(H unt & Lautzenheiser, 2011, p. 24)
A s m ercantilist w riters sought to understand the m om entous changes that w ere happening around them , they
m oved aw ay from the study of production relations (i.e., the social forces of production, the division of labour)
and tow ard acts of exchange. Through the 16th and 17ht centuries, profits cam e from 1) buying cheap and
selling high, and 2) com m odity price inflation. M oreover, “there w as an ideological continuity betw een the
intellectual defences of m ercantilist policies and the earlier ideologies that supported the m edieval
socioeconom ic and political order” (H unt & Lautzenheiser, 2011, p. 25). In feudal tim es, extrem e inequality and deprivation w as justified by a “C hristian paternalistic ethic,” w hich assum ed that the dow ntrodden w ere poor
and the rich w ere w ealthy because that w as the w ill of G od. A s capitalism developed and the C hurch’s
influence dim inished, the em erging nation-states grew stronger. Increasingly, “econom ic w riters cam e to
substitute the state for the m edieval church as the institution that should oversee [the regulation of] public
w elfare” (H unt & Lautzenheiser, 2011, p. 26).
A s capitalism spread throughout Europe, w estern A sia, northern A frica, and the A m ericas, the profits resulting
from buying cheap and selling high began to dim inish. In an effort to enhance profit m argins, capitalists sought
to control both production and exchange or com m erce m ore generally. A significant developm ent w as the
underm ining of the guild system . B y the early 17th century, journeym en and apprentices w ere sim ply being
hired as labourers w ith few prospects of becom ing m asters. The m asters becam e the em ployers of labour or
capitalists them selves. A s the form er guild m asters becam e m ore capitalistic in their outlook and practices, their
interests often collided w ith the interests of the older m erchant-capitalists.
A s a result, tw o significant developm ents occurred. First, m any theorists cam e to reject the earlier paternalistic
view of the state and began advocating for unim peded liberty. Second, the view that prices w ere determ ined by
supply and dem and fell to the w ayside and w as replaced by the view that “prices w ere determ ined by the
conditions of production” (H unt & Lautzenheiser, 2011, p. 28). These view s w ere buttressed by em erging
theories about “hum an nature,” w hich asserted that selfish, egoistic, rational, and profit-m aking behaviours
w ere innate to individuals. G iven that a m ajority of theorists of the tim e w ere them selves either privileged
capitalists or from w ell-to-do fam ilies, it w as “quite natural for them to perceive the m otives of the capitalists as
[natural or] universal” (H unt & Lautzenheiser, 2011, p. 29). Their beliefs w ere further reinforced by an
individualist ethic that w as em erging from the Protestant R eform ation and the religious w ars of the 16th and
early 17th centuries.
The new doctrines stressed the necessity of doing w ell at one’s earthly calling as the best w ay to please G od,
and em phasized diligence and hard w ork. . . . the capitalists found a religion in w hich, over tim e, ‘profits . . .
[cam e to be] looked upon as w illed by G od, as a m ark of his favor and a proof of success in one’s calling.’
(H unt & Lautzenheiser, 2011, p. 31)
This new found ideological rationale led to grow ing protests against w hat m any w riters at the tim e regarded as
the state’s unnecessary intrusion into the econom y or m arket. N ew theories began em erging. They suggested
that m arkets w ould naturally “equilibrate” as a result of supply and dem and, w hich led to “protests against the
subordination of econom ic affairs to the w ill of the state” (H unt & Lautzenheiser, 2011, p. 31). W riters such as
W illiam Petty, Sir D udley N orth, R ichard C antillon, and B ernard M andeville argued that free m arkets
inherently m axim ized public w elfare (a claim that should be kept in m ind as you w ork through this course).
Insatiable greed and profit m aking w ere no longer considered vices but virtues in and of them selves.
A s capitalist industry developed through the 17th and 18th centuries, early political econom ists identified tw o
im portant principles at w ork: First, as the division of labour sharpened, “they saw that natural resources becam e
com m odities w ith exchange value only after labor had transform ed them into products having use value,” and
second, “it becam e clear that an exchange of com m odities could be seen as an exchange of the different
specialized labour em bodied in those com m odities” (H unt & Lautzenheiser, 2011, p. 33). H ere is the precursor
to the labour theory of value: “If labor w as the m ost im portant determ inant of prices generally, then labor m ust also be the source of profits because profits are m ade by buying and selling” (p. 34). H unt and
Lautzenheiser note that “throughout this period num erous w riters cam e to see profits as the surplus left after the
labourers has been given the com m odities necessary for their ow n consum ption” (p. 34).
W illiam Petty w as perhaps one of the m ost original proponents of this view . H e stressed that labour is both a
source of w ealth and a m easure of value. U nfortunately, m any of these w riters failed “to show how it w as
possible for the quantity of labor em bodied in a com m odity to be sim ultaneously the determ inant of prices and
the source of surplus value and profits” (H unt & Lautzenheiser, 2011, p. 34). This required a recognition of
unequal class relations and the extraction of surplus value— a theoretical breakthrough that w as still in the
m aking.
The Physiocrat’s, particularly Francois Q uesnay’s, theoretical contributions are im portant to the intellectual
developm ent of political econom y because of their three key ideas: First, the Physiocrats considered any
agricultural or extractive surpluses as gifts of nature. Thus, the cultivators w ere regarded as the productive
class, w hereas those w ho w ere engaged in the production of m anufactured goods w ere thought of as the
unproductive or “sterile” class. M anufacturers w ere considered unproductive, because the value of w hat they
produced w as presum ed to be equal to the cost of the raw m aterials plus the subsistence w ages of the producers.
There w as also an idle class— “the landlords w ho consum ed the surplus created by the productive class” (H unt
& Lautzenheiser, 2011, p. 37).
Second, the Physiocrats outlined the m utual interdependencies of the production process; they stressed how
different industries relied on various inputs to produce outputs, and vice versa. Third, the Physiocrats show ed
how circular flow s of m oney and com m odities affected econom ic perform ance. For instance, they dem onstrated
“how the hoarding of m oney . . . or im balances in the process of m onetary circulation could disrupt the
allocation of inputs and com m odity outputs and create econom ic crises or depressions” (H unt & Lautzenheiser,
2011, p. 37). A lthough nearly all subsequent political econom ists rejected the notion that value w as derived
from or w as a gift of nature, the Physiocrats’ distinction betw een productive (surplus, value creating) and
unproductive labour becam e an ongoing point of contention throughout the developm ent of econom ic thought.
W hereas the m edieval period w as characterized by political authority being distributed am ong num erous lords,
each w ith his ow n judicial and adm inistrative pow ers, the m ercantilist period w as w itness to the rise of the
consolidated nation-state. Through the 17th and 18th centuries, the idea that supply and dem and w as the source
of surplus value fell to the w ayside as an em erging labour theory of value began to gain m ore attention. The
birth of capitalism ushered in an era w here the study of social, political, and econom ic concerns becam e, not
only divorced from one another, but also detached from broader m oral and ethical issues.
TO P C ourse G uide
U nit 2: A ncient and M ercantilist Foundations
S t u d y Q u e s t io n s
W hen you have finished the assigned reading for this unit, test your com prehension of the m aterial by
review ing the unit’s learning objectives and preparing brief w ritten responses to the questions below . If you
have any difficulty w ith the m aterial presented, contact your tutor for assistance as soon as possible.
1. H ow does the notion of the m arket as im perative differ from that of opportunity?
2. H ow does the m ethod of surplus appropriation differ from its pre-capitalist (or feudal) and capitalist form ?
3. H ow do feudal and capitalist class relations differ?
4. W hat are som e of the underlying assum ptions of hum an nature according to the conventional account of
capitalism ?
5. W hat role do ethics play in A ristotle’s political econom y? O r, said differently, w hat role should the econom y
play in society?
6. Consider K haldun’s “labour theory of value.” W hat are its strengths and w eaknesses? Is his broader political
econom y convincing?
7. D efine guilds? A nd w hat is the relationship betw een guilds and the “putting-out” system ?
8. W hy w as the three-field system of crop rotation such an im portant agrarian advancem ent? C ourse G uide
U nit 2: A ncient and M ercantilist Foundations
A s s ig n m e n t 1 : T w o S h o r t E s s a y s
A fter com pleting all of the learning activities in U nits 1 and 2, you should be ready to subm it A ssignm ent 1,
w hich is w orth 15 percent of your final grade. D etailed directions for preparing and subm itting this assignm ent
are contained on the A ssignm ent 1 link on the Political Econom y 302 course hom epage. You w ill upload your
com pleted assignm ent and retrieve your m arked assignm ent w ith feedback from your tutor on that link. If you
have any questions or concerns about this assignm ent, contact your tutor as soon as possible. C ourse G uide
U nit 2: A ncient and M ercantilist Foundations
S u p p le m e n t a r y M a t e r ia ls /S u g g e s t e d R e a d in g
In addition to the required readings for this unit, you m ay w ant to consult the follow ing list of readings to
broaden or deepen your understanding of the concepts relevant to this unit. U se the m aterials listed here and in
the “PO EC 302 C ourse B ibliography” to research your responses to the course assignm ent questions. C onsult
the A thabasca U niversity Library’s online catalogue and indexes for these and other pertinent books and
articles.
B aeck, L. (1998). “The M editerranean Trajectory of A ristotle’s Econom ic C anon.” Revue Belge de philologie et
d’histoire, 76, 5-30.
B urns, T. (2000). “M aterialism in A ncient G reek Philosophy and in the W ritings of the Young M arx.”
H istorical M aterialism , 7(1): 3-39.
M ichaelides, P., K ardasi, O ., & M ilios, J. (2011). “D em ocritus’s Econom ic Ideas in the C ontext of C lassical
Political Econom y.” The European Journal of the H istory of Econom ic Thought, 18(1): 1-18.
Polanyi, K . (1971). “A ristotle D iscovers the Econom y.” In G . D alton (ed.), Prim itive, Archaic, and M odern
Econom ics: Essays of K arl Polanyi. B oston, M A : B eacon Press. C ourse G uide
U nit 2: A ncient and M ercantilist Foundations
R e f e r e n c e s
B aeck, L. (1987). “A ristotle as M editerranean Econom ist.” D iogenes, 35(138): 81-104.
B aeck, L. (1991). “The Econom ic Thought of C lassical Islam .” D iogenes, 39, 99-115.
H unt, E. K ., & Lautzenheiser, M . (2011). H istory of Econom ic Thought: A C ritical Perspective. 3rd ed. N ew
York: M . E. Sharpe.
K haldun, I. (1958). “First Prefatory D iscussion.” In The M uqaddim ah: An Introduction to H istory (pp. 89-93).
N ew York: Pantheon B ooks.
W ood, E. (2002). “M arxism and A ncient G reece.” H istory W orkshop Journal, 11, 3-22.
