Student Paper SP001-03
Spring 2000, Section I
Reviewer Comments

Dark Age Debacle Gives Way to Enlightenment Economics

During periods of barbarian movements, ambassadors were sent from France to delay Mongol conquests of Western Europe. One such ambassador was a monk named Piano Carpino. One of the sons of Genghis Khan constantly asked him if there was plenty of sheep and oxen in the kingdom of France wanting to know if it was worth conquering. Centuries later, the Spanish sat at the doorway to a new world plundering the primitive inhabitants. They settled only where there was abundant gold and silver. Sheep, oxen, gold, and silver were all money in some sort of way. Gaining money, the acquisition of physical wealth, was the mission of the nations before the development of a more modern economy. When one nation exported more than it imported, it became wealthy. When one nation took wealth at the expense of another, it became wealthy. The two aforementioned ways to gain wealth were the cornerstones of an economic theory known as mercantilism. The idea of mercantilism was widely used during early colonial periods into the very late 18th century. Closely watched governmental regulations on the economy, using high tariffs and other limitations to regulate imports and exports, and colonial consumers purchasing from mother-country producers were the methods of supporting mercantilism. All of the theories behind this economic system adroitly came to an end with the formation of a Scottish professor named Adam Smith's written ideas on economics. The progress made from the economic liberty and competition proposed by Smith mirrored the sociopolitical climate of the post-constitutional European nations because of his use of the ideas of Hobbes, Locke, and Rousseau. Smith's book, Inquiring into the Nature and Causes of the Wealth of Nations, brought the ideas of the rights of man and international trade from the economic "dark eyes" to a system quite similar to any active free enterprise economy in the world today.

The key idea of the market economy proposed by Smith is the idea of "real wealth". Land and labor make up the "real wealth" of a country. Smith goes on to say ..... wealth and money, in short, are... in every respect, synonymous". Smith used the concept of Rousseau's "ideal state", where a genuine democracy allows for freedom and equality coupled with Hobbes' statement from Leviathan that "Nature hath made man so equal in faculties of body and mind..." as to allow any man the same opportunity to become wealthy. Smith's economic plan therefore shows that people no longer have to live in poverty. A commoner can become wealthy. A poor man, under Smith's economic views, can get money. In a culture where the aristocracy and religious leaders controlled most forms of wealth, a poor person becoming wealthy was virtually unheard of until the writings of Smith.

Smith reasoned that instead of mercantilism, a government could gain wealth through the prosperity of its citizens. Competition would be fiercer and markets would expand. By having competition, producers were forced to build better products, thus serving the consumer. The idea of boundless resources coupled with the ability of anyone to tap these resources was revolutionary. Men, for the first time, could leave home, make their fortune and in exchange for their newly exploited economic freedom, pay taxes on their money. Governments grew powerful, thus gaining support from the people. Smith inadvertently secured Democracy's place in the world, simply by securing the initial democratic governments rule through the contentment of the citizens.

Locke's Two Treatises of Government states that people are entitled to "life, liberty, wealth, and indolence of body". Smith takes this view and interprets it as justification for trading. He sights Locke's ideas calling money a "steady friend". Smith continues to support Locke's statement arguing that gold and silver are part of the movable wealth of a nation. Continuing with the notion that any man can get rich, Smith explains that trade is necessary, not only between parent country and colony, but also between nations. He states that trade"... carries out that surplus part of the produce of their land and labor for which there is no demand among them, and brings back in return for it something else for which there is a demand". By allowing for trade based upon movable goods, Smith is able to create supply and demand. What one country has in abundance, another one needs. This revolutionized economies. No longer was there a set amount of gold or other resources. Men could trade based upon want to "...increase their enjoyment" and potentially make a fortune. By creating open trading, Smith gave rise to the idea of a "laissez-faire" economic policy. The idea of a government existing away from the markets goes hand in hand with Locke's existence of government for the "good and preservation" of the nation and its people's. Smith obviously saw the idea of a free market as beneficial. As a result of this, the British, Dutch, French and other western economies boomed. Trade routes were logged. Islands were used as trade bases. The beginnings of both financial and political empires the likes of which had never been seen before took root as a result of the extensive trade brought on by those who followed Smith.

Adam Smith's ideas in Inquiring into the Nature and Causes of the Wealth of Nations allowed for the destruction of the failing system of mercantilism. He developed the theory of unending wealth and the practice of supply and demand, two principles of economics still used today in many aspects of trading. Beyond simple trading via boat or caravan, we now live in a world where electronic trading creates the financial empires. Instead of barbaric Mongols asking how many sheep are in Burgundy, CEO's are now asking the PE ratio of stock in a company. The large scale trading and competition of today would not have been possible without Adam Smith. Likewise, his progress in the field of economics rest firmly on the shoulders of Hobbes, Locke, and Rousseau. Without their writings, Smith would not have been able to develop an economic system based on liberty and the pursuit of wealth. Smith's ideas paralleled the writings of his political predecessors. Though he wrote in a totally different field, the promotion of liberty within the economic sphere perfectly mirrored the concepts made by these men. Smith's economic system was not only a success, but very little of his ideas have been altered to fit the much more complex economic systems of today.

Bibliography:

Levinthan, chs, II-XIV Thomas Hobbes (1651)

Two Treaties of Government, chs, II and VII John Locke (1690)

Kagan, D. Ozment, S. Turner, F.M. The Western Heritage 6th ed. Vol. II pg. 470, 618-619. Prentice Hall. New Jersey. 1998.