19
hand with dynasties of bankers,
who financed their trading and
voyages of discovery.
New trading nations replaced
small-scale feudal economies, and
economic thinking began to focus
on how best to control the exchange
of goods and money from one
country to another. The dominating
approach of the time, known as
mercantilism, was concerned with
the balance of payments—the
difference between what a country
spends on imports and what it
earns from exports. Selling goods
abroad was seen as good because
it brought money into the country;
importing goods was seen as
damaging because money flowed
out. To prevent a trade deficit and
protect domestic producers against
foreign competition, mercantilists
advocated the taxing of imports.
As trade increased, it moved beyond
the hands of individual merchants
and their backers. Partnerships and
companies were set up, often with
government backing, to oversee
large trading operations. These firms
began to be split into “shares” so
they could be financed by many
investors. Interest in buying shares
grew rapidly in the late 17th century,
leading to the establishment of
many joint-stock companies and
stock exchanges, where the shares
could be bought and sold.A new science
The huge increase in trading also
prompted a renewed interest in the
working of the economy and led to
the beginnings of the discipline of
economics. Emerging at the
beginning of the 18th century, the
so-called Age of Enlightenment,which prized rationality above
all, took a scientific approach to
“political economy.” Economists
attempted to measure economic
activity and described the working
of the system, rather than looking
only at moral implications.
In France a group of thinkers
known as the physiocrats analyzed
the flow of money around the
economy and effectively produced
the first macroeconomic (whole-
economy) model. They placed
agriculture rather than trade or
finance at the heart of the economy.
Meanwhile, political philosophers
in Britain shifted the emphasis
away from mercantilist ideas of
trade, and toward producers,
consumers, and the value and
utility of goods. The framework
for the modern study of economics
was beginning to emerge. ■LET TRADING BEGIN
1637
1668
1682 1697 1756
1689 1752 1758
A speculative
bubble in the Dutch
market for tulips
bursts, leaving
thousands of
investors ruined.Josiah Child describes
free trade—he
advocates increasing
imports as well
as exports.William Petty
shows how the
economy can be
measured in
Quantulumcunque
Concerning Money.Gregory King
compiles a statistical
summary of the
trade of England in
t he 17t h cent u r y.François Quesnay and
his followers, the
physiocrats, argue that
land and agriculture
are the only sources of
economic prosperity.John Locke argues that
wealth is derived
not from trade, but
from labor.David Hume argues
that public goods
should be paid for
by governments.Quesnay produces
his Economic Table,
the first analysis for the
workings of a
whole economy—the
“macroeconomy.”