POLITICAL ECONOMT. 183 POLITICAL ECONOMY. the canonical (Ihmhv was stretclitJ so as to ac- comnioilate many injienious forma of contract for what was practically, though not nominally, usury. In the latter half of the fifteenth century the Franciscans themselves instituted the monts de pifte (q.v.), or charitable banks for loaning money to the poor, and a small interest rate was inipiised in order to defray the expenses of man- agement. By the middle of the si.xteenth century the Church had practically abandoned its effort forcibly to suppress avarice and the pursuit of wealth. The Mebcaxtiusts (1500-1750). Mediaeval ecnniimic theory had been dominated by ethical considerations; the economic thought of the early modern period was dominated by political neces- sities. Both the feudal system and the tem- poral power of the Papacy had been undermined by the growth of the great modern monarchies. The problems and needs of the national States absorbed the best thought of the age. The most pressing problem of the new national govern- ments was how to secure greater revenue. Philos- ophers and publicists, who would not have stooped to the elucidation of the laws of private wealtli. bent their best energies to the solution of pnildenis arising out of the establishment and maintenance of particular States. The problem of the economic thought of the period was, how- ever, a larger one than the mere raising of the public revenue. It was requisite that this reve- nue should be secured in that form — ready money — which is most easily transformed into armies, navies, and the other material embodiments of national power; and the problem included, in addition, the necessity of finding or creating some more productive source of taxation than the backward agriculture of the period. With the problem of the Mercantilists plainly before us, it is easy to understand the characteristic features of the mercantile system which are de- scribed under that title. "Mercantilism," says Schnioller, in its innermost kernel is nothing but State-making — not State-making in a nar- row sense, but State-making in the modern sense, which creates out of the political community an economic commtuiity." The restrictive regula- tions, discriminating laws, and State interference which Adam Smith and his immediate succes- sors described as the essential features of mer- cantilism, we now know to have been in a sense incidental. State interference was distinctly a minor consideration, minor in the sense that it was not the problem at issue, iloreover. the mercantile system resulted not in a loss, but in a net gain of industrial freedom. Contempo- raneously with the imposition of those external restrictions which mark the mercantile economy went a rapid and extensive abolition of internal restrictions which had been far more numerous, brutal, and destructive than the new external regulations which succeeded them. The economic and political unit had merely increased its size. While mercantilism is the most important phe- nomenon of economic thought in the sixteenth and seventeenth centuries, it constituted only a part of a widespread and eager investigation of concrete economic facts. It was these studies which gave the political economy of Adam Smith its rich content of concrete phenomena. Money, banking, the rise of prices, population, poor relief, etc.. were all extensively discussed in brochures and monographs. The maintenance of the poor was a constant subject of pamphlet and tract, and in the communistic Utopia of Sir Thomas More we have striking evidence that the problem of poverty was occupying the at- tention of the best thinkers of the time. The studv of statistics became widespread and actu- arial science and the investigation of social sta- tistics were carried reall.v to an advanced point. Xeither is it correct to refer, as manv have done, to the writers of this period as empiricists. Eco- nomic study had been divorced from ethics and theology, it is true, but at the hands of Bodin, Cirotius, Pufendorf, Hobbcs, and Locke, econom- ics was developed as an essential part of a gen- eral political philo.sophy. In the De Jure Uclli et Pads of Grotius (1625), particularly, the whole mercantile system is in reality brought to judgment before the greater doctrine of interna- tional equity, and we have a new application of the old doctrines of natural law and natural lib- erty, doctrines which were destined to play a greater role in modern economic science than the whole mercantile system. The Piiysiocbats. Mercantilism had been marked by a narrow favoritism of commerce and manufactures ; a reaction in favor of agriculture was inevitable. The mercantilist doctrine had been characterized also bv an enthusiastic, though not less narrow, nationalism; it was nat- ural, then, that the i-eactiou in favor of agricul- ture should all,v itself with the broad principles of natural law and liberty expounded in the works of Grotius, Pufendorf, and Locke. This reaction in favor of agriculture and industrial liberty found expression in the doctrines of the so- called Physiocrats (q.v.). The rise of the school may be dated from Quesnay's first economic mon- ograph, which appeared in 1756. As is im- plied in their name, the fundamental doctrine of the Physiocrats is the subjection of economic and political phenomena to "natural law,' which as interpreted by them gave rise to the fa- miliar political doctrine of radical individualism, and a certain materialistic conception of wealth which explains in a way all their peculiar eco- nomic theories. As Adam Smith noted, the Ph3'S- iocrats treated not only of political economy, "but of every other branch of the svsteni of civil government," and their political and economic theories were indissolubly fused in their general doctrine of a beneficent natural law of industrial freedom, according to which the largest produc- tion and justest distribution of wealth would be best secured by permitting each individual to 'pursue his own interest in his own way,' so long as he did not infringe on the like libertv of others. This theorv, perpetuated and popular- ized by Adam Smith, has exercised probably more influence upon subsequent thought than any other economic doctrine ever formulated. While the Physiocrats full,v exjjosed the error of confusing wealth with the precious metals, thcv themselves fell into the error of confusing wealth with material objects. Identif.ving the production of wealth with the production of raw materials, the.v concluded that manufactures and commerce, which merel.v change the position or form of raw materials, are barren and unpro- ductive, though useful and desirable when strict- ly subordinated to agriculture; that the value added to raw materials in the processes of trade and iijdustry is equivalent merely to the cost or expenses' of production, while agriculture
