National state and economic system

Money, international trade and the fiscal system were already subjects of everyday debate in Petty's time. What primarily differentiated Petty's treatment of these subjects from that of his contemporaries and predecessors, beyond differences in the positions he supported, was the method that he applied to analyse them: a method that he dubbed 'political arithmetic' and 'political anatomy'. The object of Petty's analysis was the 'body politick', that is, the state, in the combined sense of political system and economic system: common terms nowadays but which Petty never used. Nor, indeed, did either Petty or his contemporaries feel the need to distinguish between the two aspects.

The birth of capitalism is generally connected to the birth of the nationstate. A unified conception of the nation-state, giving particular attention to the problem of the political unification of the city and the countryside, was developed by Machiavelli. From the complex network of social interdependences he singled out, as being of greatest importance, those among citizens of the same state, and between the sovereign and his subjects.

was to put it a century and a half later, only 'modify' the analysis but do not change its substance.

With an analogous meaning Petty used the term 'political anatomy', as the study of 'structure, symmetry and proportions' of the 'body politick': once again Petty indicated that his aim was to provide a selective interpretation of the complexities of the real world, focusing attention on what he considered as the essential characteristics of the functioning of the 'body politick'. 13 Within these latter ones, the crucial point of transition was represented by Niccolo Machiavelli (1469-1527; his main work, Ilprincipe, is dated 1513), whose writings, not by accident included in the index of forbidden books, enjoyed a very large circulation in the sixteenth and seventeenth centuries.

Petty adopted a similar view, with his notion of the 'body politick'. This implied a bi-directional choice concerning the level of aggregation. A lower level of aggregation was rejected because relations among citizens of a single state, and between the sovereign and its subjects, are considered as fundamental with respect, for example, to relations between inhabitants of the same village or between a justice of the peace (or any other local government official) and those who are under his jurisdiction. A higher level of aggregation was rejected because the system of international relations among citizens of the various states was considered as being subordinate to the interrelations among the states themselves.

However, the notion of the 'body politick' did not yet correspond to the modern notion of an economic system. Machiavelli was 'only [. . .] able to express his programme and his tendency to relate city and countryside in military terms'.14 Analogously, in Petty the notion of 'body politick' indicates the fact that the web of relations and exchanges that constitute the life of a productive system are subordinate to a unique political authority. Neither Machiavelli nor Petty perceived the interrelations that exist between city and countryside, or between agriculture and industry, from the point of view of production. They were thus compelled to identify the unifying element in the political superstructure.15 As we shall see in the next chapter, it was precisely the ability to go beyond this limit, and to discover the technological relations of production that link the various sectors of the economy, which constituted Quesnay's major contribution to the development of economic science.

Machiavelli's and Petty's writings reflected the still-limited development of the productive structure of their period. The mining, manufacturing, agricultural, cattle breeding and fishing activities that Petty had launched on his Irish properties, for instance, were largely vertically integrated, with only very rough bookkeeping distinctions between different stages of the productive processes and different sectors. In addition, changes in political institutions were necessary for the transition from feudalism to capitalism, for example in order to guarantee private property in the means of production and the possibility of buying and selling them. This was especially true for land, both because of the primary importance of agriculture in the economy of the time, and because of the connection between its possession and feudal rights, which imposed obstacles to its unfettered transferability. Let us recall in this respect Petty's insistent

14 Gramsci 1975, p. 1575. Town and countryside correspond by and large to manufactures and agriculture, the two sectors into which initially modern productive activity was classified. Cf. below (§ 4.5) where Cantillon is discussed.

15 Cf. Roncaglia 1988.

support for the creation of a land registry, and in general for a standardisation of deeds for landed property. The still partial notion of the economic system adopted by Petty, in the wake of the notion of the state proposed by Machiavelli, should be understood as an expression of a particular historical phase, that of the transition from feudalism to industrial capitalism.16

The notion of the 'body politick' briefly illustrated here underlay Petty's specific views on subjects such as money, foreign trade and taxes. Petty's writings were not systematic treatises, but immediate interventions in the then current political debates. Often these writings were brief working notes, or memoranda for the king, aimed at demonstrating policy theses, such as the economic strength of England relative to France and hence the possibility for a greater political autonomy of the English king.

As far as money is concerned, we may stress an important difference between Petty's views and those dominant at the time. This difference becomes evident in his substituting the traditional comparison between money and blood17 with another parallelism: between political and human anatomy:

Money is but the Fat of the Body-politick, whereof too much doth as often hinder its Agility, as too little makes it sick. 'Tis true, that as Fat lubricates the motion of the Muscles, feeds in want of Victuals, fills up uneven Cavities, and beautifies the Body, so doth Money in the State quicken its Action, feeds from abroad in the time of Dearth at Home; evens accounts by reason of its divisibility, and beautifies the whole, altho more especially the particular persons that have it in plenty.18

16 For each stage in history, the central object of analysis for the economist may be identified in that level of aggregation that corresponds to the qualitative jump between economic integration and non-integration: the hunting tribe, the agricultural village, the feudal castle with surrounding lands, the principality linking town and countryside, and finally the nation-state. However, definition of the economic system as corresponding to the nation-state is also relative to a specific historical stage, and does not constitute an immutable law of nature: the process of enlargement of the area of integration may not stop at the nation-state, but tend to embrace the whole of the market economies. As a matter of fact, the tendency towards demolition of customs barriers and to the unification of jurisprudence in the field of business is at the heart of increasing worldwide economic integration, both as international division of labour and as unification of the markets (so-called 'globalisation').

17 As used for instance by Hobbes 1651, p. 300. As we have already recalled in the previous chapter, liberal historians of economic thought, from Smith himself onward, went so far as to attribute to Petty's contemporaries, classified as mercantilists, the identification of wealth with precious metals; to this, they opposed the classical notion of money as a veil, according to which the quantity of money in circulation in an economic system is irrelevant for the explanation of the 'real' variables of the economy, such as income and employment.

18 Petty 1691b,p. 113. Another interesting definition of money was given by Petty in a brief glossary of economic terms: 'Mony. Is the comon measure of commodityes. A comon bond of every man upon every man. The equivalent of commodityes' (Petty 1927, vol. 1, p. 210).

According to Petty, 'the blood and nutritive juyces of the body politick' are constituted by the 'product of husbandry and manufacture'.19 This comparison points in the direction of the classical notion of the economic system based on the division of labour as functioning through a circular process of production, exchange, reconstitution of initial inventories of means of production and consumption goods, and new production process. We should recall in this respect that the discovery of the circulation of blood, made by Harvey at the beginning of the seventeenth century,20 had generated lively interest and that Petty (like Quesnay after him) was a physician.

Petty did not provide an explicit and systematic treatment of the three functions of money - unit of measure, medium of exchange, store of value - but recognised them (which is not particularly striking, since we may say the same for a number of his predecessors and contemporaries), and discussed perceptively aspects of each of them. In particular, together with Locke (cf. below, § 4.2), Petty may be singled out for his notion of the velocity of circulation (though the term is not used), estimated on the basis of the institutional characteristics of the economic system such as the payment periods for wages, rents and taxes and utilised for determining the optimal quantity of money. In order to reduce the quantity of precious metals necessary for monetary circulation (in other terms, in order to increase the velocity of circulation) Petty repeatedly proposed the institution of land banks (followed in this by Nicholas Barbon, 1690).

Connected to his ideas on money are those concerning foreign trade. Petty, agreeing with his contemporaries, considered desirable a surplus in the balance of trade as a means of inducing an influx of precious metals into the country. In fact he maintained the relative superiority of gold, silver and jewels to other goods, due to their durability and to their role as a means of exchange and a store of value. However, he considered the positive balance of trade target as subordinate to that of a high level of internal employment and production. He thus recommended reducing imports through substitution of domestically produced goods, which satisfies both the objective of a positive trade balance and increased domestic employment. At the same time he refused to condemn importation of even luxuries and non-durable consumption goods, if this permits export of domestically produced goods which would otherwise not find a market, thus indicating that a high and increasing level of productive activity was considered the principal objective. To this end he also considered favourably importation of foreign capital and immigration of skilled

20 William Harvey (1578-1657) announced his discovery in 1616, but published it only twelve years later (Exercitatio anatomica de motu cordis et sanguinis, 1628).

foreign labourers, condemning any legislation prohibiting or hindering such movements.21

As for taxation, Petty considered a reform of the fiscal system as the first step for ensuring uniformity of conditions within the country and certainty ofrules for the economic game: two prerequisites for the development of an economy based on private initiative.

The largest part of the Treatise of taxes and contributions, one of Petty's main works, is concerned with the systematic examination of the various types of government income, and he returned to this issue in various places in his other work. He painted a picture of an intricate labyrinth of often self-contradictory regulations. Petty considered such a situation to be one of the major 'impediments of England's Greatness', while at the same time insisting that these obstacles 'are but contingent and removable' (Petty 1690, p. 298), since they derived from the stratification caused by continuous additions to the initial system which, as a result, no longer served its original purpose and had lost its initial coherence. Thus, the burden of taxation was borne almost exclusively, and with varying and unpredictable intensity, by the landowner and depended on 'the casual predominancy of Parties and Factions' (with great anguish for Petty, constantly involved in fighting with the 'Farmers of public revenue' and in general defending his personal interest as a big landowner in Ireland). In addition, the cost of collection, subcontracted to private agents, was very high and brought further elements of injustice and uncertainty into the system (ibid., p. 301). Petty did not propose to rationalise the system by returning it to its original state, conscious of the irreversible changes that over time had intervened in the economy. Thus, for example, in considering public offices (that is, positions assigned to private citizens at the pleasure of the sovereign, to provide public services remunerated not from the public purse but by charges levied directly on users), Petty pointed out that these positions had multiplied, due to society's increasing complexity, and had expanded in size while assuming increasingly a routine character, so that much of the original justification for the high tariffs charged, achieved through the granting of positions of legal monopoly, had been eliminated.

Petty proposed proportional taxation, levied on consumption, since only that constitutes 'actual' riches.22 The proportionality criterion is 'just', leaving income distribution unaffected by taxation (and in Petty's

21 On these aspects cf. for instance Petty 1662, pp. 59-60; 1690, pp. 271, 309; 1691b, p. 119.

22 Cf. Petty 1662, pp. 91-2. In this Petty was preceded by Hobbes, and was to be followed by a long series of economists, up to Luigi Einaudi and Nicholas Kaldor in the twentieth century.

opinion the differences in wealth and income are necessary to economic growth). Besides, taxes on consumption encourage parsimony, avoid double taxation ('forasmuch as nothing can be spent but once') and ease the gathering of statistics on the economic conditions of the nation, which are essential for good government. Fiscal regulations must be certain, simple, clear and evident (also in order to avoid controversies and legal proceedings that constitute a social waste), impartial and with low collection costs.

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