Political Economy

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Political Economy

The concept of "political economy" has a long and varied history. Aristotle wrote about the allocation of household resources and the relationships of individual producers to each other in the city-states of ancient Greece. Modern scholars often employ the term when investigating how larger systems of authority create the means to satisfy the wants and needs of particular groups of people. In the British Atlantic system that developed from the early 1600s to the early 1800s, "political economy" became an important conceptual tool for policymakers, economic agents, and intellectuals concerned with shaping the imperial expansion of competing nations, their control over the people and resources of far-flung colonies, and the production and distribution of wealth within European nations. Among British writers of that era, ideas about political economy coincided with the broad transatlantic appeal of republicanism in political thought, and with the general tenets of the era's moral philosophy.

a transformative era

The acceleration of Britain's economic transformation toward an industrial revolution was aided by imperial commercial expansion and North American colonists' agricultural prosperity. As a result, the state and social classes underwent dramatic alteration throughout the empire. Rising, ambitious groups of commercial farmers, entrepreneurs, merchants, and manufacturers in England clamored for promotion and protection of their modern interests against traditional interests, often including landed aristocrats and families protected by the patronage of the monarchy. Writers stood back and observed the long view of this transformative era, and what they saw was a paradox: although the British people at home and in the colonies enjoyed relief from the deep structural economic insecurity brought by plagues, scarcities, and protracted wars during previous centuries, the fruits of their expansion and development were uneven and unpredictable in the 1600s and 1700s. The violent disorder that erupted locally, as well as the revolutions and civil wars of the era, often had underlying economic causes, which in turn pointed toward the need for more active government intervention into the nation's—and empire's—economic affairs. "Political economists" in the British Atlantic saw this state of affairs as their particular challenge, just as republicans, or "commonwealthmen," grappled with questions of freedom and obligation. While republicans rediscovered (and reshaped) much older theories explaining that rulers walked a precarious path of wisdom, reason, and virtue, on either side of which lay tyranny and licentiousness, political economists tried to secure social order and material prosperity with a network of policies addressing economic activities, goods, and services.

the art of managing a state

Early modern political economy was at once political and ethical. Before the early nineteenth century, economics was not a pure science, though writers claimed to be investigating or formulating "laws" of economic behavior or development. It was, rather, a branch of moral philosophy and contained numerous assumptions about human nature and the appropriate ethical relationships advancing peoples should exhibit. Just as a republican citizen needed to live virtuously, the political economy of a nation needed to embody economic justice. Of course, abstract principles translated only haphazardly into practice, and more often than not the unfolding litany of mercantile legislation passed by British imperial authorities served one or another special economic interest. By the late eighteenth century, British Americans understood political economy as the art of managing a state, or the means by which a government allocated resources and protected various interests of its citizenry. The Scottish writer Adam Smith defined political economy as "a branch of the science of a statesman or legislator" the primary goal of which was to "enrich both the people and the sovereign." Smith and other writers believed political economy was directly derived from policies and directly influenced the economic lives of all groups within a state. And although Smith is probably most closely associated with a targeted assault on the mercantilist state (the term first used in Smith's Wealth of Nations in 1776), even Smith believed that there was an important role for government in furthering the economic development of a nation. Government and citizens of a republic were interdependent; as in republican belief, the state could not survive without striving to preserve the well-being of society.

As American Revolutionaries discovered, once they had secured their political independence, their need to secure an economic foundation that would preserve Americans' republican character evinced a similar patchwork quilt of legislation. How newly independent Americans would create a viable political economy was by no means clear. Optimists and skeptics debated the qualities of the republican character. From the 1780s to 1810s, they also engaged in a vibrant public and legislative discussion about whether there were sufficient resources—people, skills, capital—to launch a republic that could enter the "world of nations" as an independently productive people, and on what basis productivity should unfold at all. A bewildering array of voices joined this discussion about how to shape the new nation's political economy.

hamiltonian and jeffersonian views

Scholars tend to cluster the many different ideas and policies of the era, and the numerous shifting alliances of Americans who promoted them, around two poles. One, the nationalist or Federalist or Hamiltonian political economy, was more intimately associated with British development, urban cosmopolitanism exhibited in the American North, and rising entrepreneurship and manufactures. Its adherents identified with many of the economic ideas that gave rise to the mercantilist policymaking of the British Empire; mercantilism was, if nothing else, defined by its reliance on government legislation to secure the most desirable economic activities and to thwart those that were undesirable. Following other British precedents, Hamiltonian political economists also supported such federal institutions as the Bank of the United States and policies designed to raise revenue to fund the central debt.

The other pole, a localist or Jeffersonian political economy, contrasted American simplicity with the degeneration and corruption—concepts inherited from republicanism—of the developing British state, banking system, and industrial revolution. They emphasized the abundance of natural resources in North America, the potential for westward expansion, and the virtues of continuing to exist as primarily an agricultural people. Jeffersonian political economy was associated with "free trade" among southern planters and took a view of international affairs premised on America's role in nurturing the "natural virtue" of agricultural expansion and the exporting of staples. In this view, Americans would not only provide sufficiency and modest comfort for themselves, but would also enter commerce as the provisioners of war-torn and hungry peoples elsewhere in the world.

Scholars of the late twentieth and early twenty-first century argue that, though such a polarization of views may have appeared in Americans' spirited discussions during the post-Revolutionary generation, it did not reflect reality. Neither Hamiltonian nor Jeffersonian political economy was a static body of ideas and policies. Both persuasions were more pragmatic than dogmatic in their approaches to shaping the economy; both embodied a range of contentious views; both accepted various degrees of governmental involvement in facilitating economic development; and both anticipated an American future of economic growth and widespread individual material comfort. Indeed, post-Revolutionary Americans readily adopted many mercantilist measures to stabilize and develop the economies of states and nation, and few of them believed in the efficacy of "economic naturalism" or free-market agrarianism, ideas that had been touted by eighteenth-century French political economists. In reality, individuals and groups throughout America clamored for economic policies at the local and state level that would channel resources, regulate particular privileges, and set the parameters of an economic interest's activities; the policies were passed in legislatures that combined representatives of Hamiltonian and Jeffersonian views in myriad ways during the early Republic. In reality, too, most Americans lived on the land or very close to farming activities, and most technologies and economic infrastructures reflected preindustrial arrangements for at least two generations after independence.

When differences did emerge among Americans about their economy, they tended to be about how much government intervention in the economy was good to foster; how big the new economic institutions should be; to whom certain economic policies should be addressed; and whether the basis of political authority for economic development should rest at the local, state, or national level. Indeed, the transition from the Federalist presidency of John Adams to the Democratic Republican presidency of Jefferson in 1800, preceded by the political transformation of many local and state legislatures, was more political in nature than economic; Jeffersonians adhered to most of the economic principles and policies laid down by Federalist officeholders in the preceding generation.

the transformation of economic ideas

In important respects the contentious discussion among shifting groups of Americans who struggled to stabilize and develop their economy was not the result of political independence or the initiation of concerns for a new nation's economic future. It was, rather, the continuation of the more fundamental transformation of economic ideas throughout the Atlantic world during the eighteenth century. Slowly, large numbers of people across imperial boundaries and oceans had begun to understand that the source of value lay not only in accumulating gold and silver, but in the people—who represented the labor and reproductive potential—of a nation; that money could as effectively be made of paper as of specie (gold and silver coin), and that so long as people accepted it, paper money could provide a valuable (though temporary) substitute for specie in exchanges.

All along the Atlantic, people began to shed their fear of debt and embraced a tangled web of debt and credit expanding without artificial (government) restraints. Although they distrusted "luxury," they grew generally less fearful of consuming new, unessential, and foreign goods. Having put the long eras of dire scarcities and unemployment far behind them, great numbers of free white Atlantic peoples began to abandon their long-held notion that the world's wealth was relatively fixed in quantity (and its corollary that a nation's wealth increased only by decreasing the wealth of another). In its place they developed an exuberant faith in their ability to transform limitless natural abundance into usable and desirable commodities and to tame the wilderness holding that abundance into valuable real estate and productive farms; moreover, they accepted that government could play some role in bringing all this about. Although they continued to deplore the "bubbles," or excesses of speculation in the public debt, that developed in eighteenth-century England and during the American Revolutionary War, by the 1780s few citizens doubted the benefits of locally controlled banks and a larger, more widely circulating currency.

The delineation of rights and obligations between rulers and ruled that had provided the basis for many economic concepts before the 1700s was breaking down rapidly during the Revolutionary generation. Increasingly, the growing number of brokers, bankers, insurers, retailers, specialists in commercial services, and representatives of many new trades who functioned in the interstices of the economy, linking small investors to emerging institutions or providing services where economic connections were still tenuous, had to be incorporated into the "system of political economy" that Americans embraced. By the 1820s the Republic had entered another era of its political economy.

bibliography

Appleby, Joyce. Capitalism and a New Social Order: The Republican Vision of the 1790s. New York: New York University Press, 1984.

Matson, Cathy, and Peter S. Onuf. A Union of Interests: Economy and Politics in the Revolutionary Era. Lawrence: University Press of Kansas, 1990.

McCoy, Drew. The Elusive Republic: Political Economy in Jeffersonian America. New York: Norton, 1980.

Rezneck, Samuel. "The Rise and Early Development of Industrial Consciousness in the United States, 1760–1830." Journal of Economic and Business History 4 (1932): 784–811.

Riesman, Janet. "Money, Credit, and Federalist Political Economy." In Beyond Confederation: Origins of the Constitution and American National Identity. Edited by Richard Beeman, Stephen Botein, and Edward C. Carter II. Chapel Hill: University of North Carolina Press, 1987.

Cathy Matson

Encyclopedia of the New American Nation