Inequality and Economic Thought

As known by those of us old enough to recall, the problem of inequality has not always been at the front and center of national consciousness in the US. That changed in 2013, when President Barack Obama used the opportunity of a December speech to anti-poverty non-profits to call the problem of inequality “the defining challenge of our time.”

Of course, President Obama was not making this claim in a vacuum. He was responding to recent events. One might think it was decades of meticulous, empirical research on inequality produced on university campuses across the nation that had finally captured the attention of the state policy-makers. Inequality had been the core problem of the discipline of sociology for most of the twentieth century as well as the first decade of the twenty-first. But despite all the work of sociologists, they never really managed to garner significant public and media attention. In comparison to economists—more focused on the problems of economic growth—sociologists had little political influence. Instead, President Obama seemed to be responding to the Occupy Wall Street movement. The 2011 occupation of Zuccotti Park in lower Manhattan had captured media attention, and despite later criticism, did a remarkably good job of publicizing the extreme and increasing inequalities present in the United States. The Occupy movement wasn’t composed of academics, it was composed of activists—people who felt marginalized and largely shut out of the political system. Those activists used unusual tactics that garnered media attention, from there they used the public sphere of protest and journalism to communicate their concerns about the economy to the government, ultimately in an attempt to influence state policy. While there may not yet have been major reductions in inequality, we do now see articles and reports about social and economic inequities in major news outlets on a daily basis and reducing income inequality is a central plank of President Biden’s administration.

I can point to Zuccotti Park as an important inflection point, but I cannot fully explain why we saw such a monumental change in the public discourse around inequality so recently. I can however provide a fair assessment of how we first got into a place in which inequality was seen as peripheral to real economic concerns. There are some similarities to Zuccotti Park. This explanation of an earlier shift also involves marginalized individuals attempting to influence state economic policy as well as an expansion of both democratic politics and the public sphere.

The shift I want to talk about occurred in the seventeenth century. Prior to the seventeenth century, in the medieval era, economic thought was very much concerned with the problem of equity. Here I need to clarify, there was no hint of an idea that wealth should be redistributed between different classes of people among medieval scholars. Social hierarchies were very well accepted, and no one—or at least very few—expected that a peasant should have the same resources as a noble. But the people that wrote and thought about economic matters were generally concerned about fair exchange and the alleviation of poverty. Just because someone was from a lower social class, did not mean that person should be taken advantage of. Indeed, it meant they needed more protection from unscrupulous individuals with more resources at hand. This led scholars—many of them theologians—to address problems of just price and usury. In order to establish whether an exchange between two individuals was fair, one needed to understand whether the price was an accurate reflection of the value of a good. Was the price just? This in turn required a consideration of how prices are set. This problem leads to interesting economic thinking, as does the related problem of whether money in itself has any value—because if it merely a medium, then interest it is difficult to see interest as just. These are the problems that occupied many of the scholastic scholars of economic though in the medieval era, people like Thomas Aquinas, John Duns Scotus, and Navarrus.

If economic thought had continued to develop along these lines, it is very likely that there would have been more sustained attention to issues of equity and the alleviation of poverty in the seventeenth and eighteenth century, and possibly even nineteenth and twentieth century, economic thought. Instead, the early modern era saw a sudden pivot away from issues of equity and towards the importance of national economic growth. This pivot was combined with a rapid increase in interest in economic matters, evidenced by high publication rates. And the blame for this pivot cannot credibly be pinned on ‘capitalism.’ The shift occurred well before the industrial revolution and outside of the center of merchant capitalism. In fact, it happened pretty much in one place: seventeenth century England.

Annual publication rates, economic texts, England, 1550 to 1720

Around 1600, a new type of person began to write about economic issues in England. They did not find charging interest problematic in the least, and they had little concerns for the issues of poverty, equity or fair exchange. The new economic thinkers were merchants. Many of them were directors, owners, or workers in the new large multinational corporations that had begun to spring up in the early modern commercial landscape. These corporations were the first large-scale commercial organizations, many of which were granted specific privileges to defined areas of trade. The English East India Company for example had exclusive rights to all of the trade east of the Cape of Good Hope and west of Cape Horn. Queen Elizabeth had granted those rights to the company of Merchant Adventurers loosely organized into a trading association on the last day of 1600. From there, the company became one of the most powerful political and economic forces in world history—inadvertently revolutionizing economic thought along the way.

The East India Company—and others like it—were controversial. They were monopolies. Whereas now the government is in the business of breaking up monopolies, the government then was in the business of creating monopolies. But no matter what side governments have stood on, people have always resented monopolies. Profiting from the exclusion of others generally creates anger and resentment. And under the right conditions it can create public debate. These were the conditions that were met in seventeenth century England.

The merchants who cared deeply about the how commercial privileges were meted out were not completely excluded from politics, but they also weren’t very politically powerful. They were present, but had little direct sway over government trade policies. In attempts to amplify their influence, they appealed to a broad audience—the public. The began to publish tract after tract advocating for different trade policies that would hinder or hurt their own commercial pursuits.

When proponents of free trade began to question the monopoly privileges of the Merchant Adventurers in the cloth trade, the secretary of the Company, published a book to defend the company. After a trade depression struck in the 1620s and opponents blamed the East India Company’s practice of exporting gold and silver, Thomas Mun, a director of the company, wrote an influential defense of the company and its import trade. Some 60 years later, a new director of the East India Company, Josiah Child wrote several tracts defending the trade in cotton goods. People affiliated with companies wrote hundreds of books over the course of the century, and their opponents wrote hundreds more. If these merchants had been more powerful, they wouldn’t have needed to make these public appeals. And the public nature of the appeals is what changed the course of economic thought.

In hashing out the particulars of what the companies were or were not doing to the economy of England, the authors engaged in the debate ended up making actual headway into investigations of economic processes. Wheeler gave us an early example of administrative science. Mun introduced a multilateralism into the thinking on overseas trade and an understanding of spill-over effects that was sorely needed.  The debates over the cotton trade in the 1690s ended up providing an early understanding what was later to develop into the idea of comparative advantage. The merchants were up to their armpits in the actual practice of trade, and it showed in their works. They introduced trade statistics into the debates and even attempts to apply the principles of scientific inquiry to the problems of commerce, finance, and labor.

Why did science make an appearance? Well, that is an interesting question that has to do with the social status of the merchants and their attempts to legitimize their otherwise often self-interested arguments. Merchants were the main economic actors of the early modern era, which predated the industrial age, but they were not given much social legitimacy. Commerce was borderline corrupt in the eyes of the church and finance potentially worse. The merchants could not use the theological arguments about fair price and equity to bolster their arguments—to provide a sheen of legitimacy—so they had to turn to other means. One of those means was to import the new rhetoric of science and rationality into the prose. (for more on this see two terrific books, The Origins of Scientific Economics by William Letwin and The Politics of Trade by Perry Gauci). But the merchant authors also relied upon a new framework, one that was to be just as consequential for the course of economic thought.

In the end, these merchant authors were using the public sphere in a way very similar to the protestors at Zuccotti Park as much as their goals may have diverged. They were trying to influence state economic policy. So instead framing their arguments in the theological terms used by their predecessors, the merchant authors attempted to influence state actors by addressing state concerns—specifically about the wealth and prosperity of the nation and commonwealth itself and the prospect of trades increase. They replaced the Christian moral framework of equity and justice with a sustained emphasis on national economic prospects. This was the start of the long turn economic thought took toward economic development and away from equity.

The turn dates back to a number of merchants mainly seeking their own self-improvement and reaching out to try to influence individuals more politically powerful than themselves. The consequences were quite far reaching. How longstanding will the consequences be for the actions taken at Zuccotti Park? With any luck Zuccotti Park will provide us with a course correction that makes more room in economic thought for empathy and human flourishing than the trajectory laid out by those merchants so long ago. But we will still have to those merchants to thank for a robust tradition of economic thought that is both empirical and scientific. And for that I am grateful!

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3 thoughts on “Inequality and Economic Thought

  1. Fantastic post! I am really looking forward to your new book on company politics, trade and nations.

    A comment to the editors of the blog: the link to ‘The Origins of Scientific Economics by William Letwin’ leads to Perry Gauci’s book.

  2. Interesting. I think the 17th century origin is correct but perhaps there’s even more to the influence of science. I recently read Fontenelle’s ‘Conversations on the Plurality of Worlds’ (1686) and this gave me cause to think the notion of social equality itself is an Enlightenment project that’s a consequence of the Scientific Revolution. Fontenelle’s book, albeit fiction, gives the impression that the resounding observation of inequality during his time was about access to scientific knowledge. The educated had access and others didn’t. And as the the benefits of science accumulated (and as the idea of ‘progress’ developed through this period: see Bury, The Idea of Progress (1920)), it began to be thought beneficial to make access to science available to all. And the logical extension of this is to remove the societal obstacles to universal education.

    Just a thought…

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