Even the most abstract theoretical discourses and scientific endeavours are the product of particular societies in a particular historical period. As human beings live in societies and as these societies—like the rest of the universe—have a time dimension, the products of the human mind always have some kind of social and historical anchorage. Dirk Struik has admirably shown how this applies even to the purest of pure thoughts, the development of mathematics.footnote1 Economics is, of course, no exception to this social rootedness. It constitutes, however, a very special and, probably, unique case in the history of scientific practice. The economic discourse rose as a concomitant of the rise of what the discourse was about: the capitalist economy. This should be understood in a strong sense. The discipline of economics—as it is conceived in the Western countries in our time—did not emerge as a penetration into previously unknown territory opened up by new scientific instruments, like sub-atomic physics and molecular biology. Neither should the emergence of economics be understood as chiefly a result of the economy emerging from its earlier embeddedment in kinship, religious, legal, political, and other non-economic relationships—even though this was important.footnote2 The rise of economics was directly related to the formation of a new type of economy.

The rise of commercial capitalism is one of the two major events of sixteenth and seventeenth century Europe which circumscribe the rise of political economy. The new economic system and the discourse on it both emerged in Europe, but both are also closely connected with events outside Europe, that is with the colonial expansion. In the 16th century the influx into Europe of plundered gold and silver from South America caused the traditional ‘just’ prices to be replaced by market prices in a secular inflation. The prosperity of Glasgow, Adam Smith’s formative milieu, was above all due to colonial trade: the leading trade was the import and re-export of tobacco from America and the West Indies; the main industries made ‘hoes and spades for the Negroes of Maryland’ and ‘saddles and shoes for the plantations’.footnote3

The second major event, which opened up the vista of political economy, was the destruction of the classical feudal polity of the Middle Ages and the emergence of a new type of state, in a welter of struggles. Commercial capitalism as an economic system could grow ‘in the pores’ of the old society, and capitalist enterprise could co-exist side by side with feudal manors, largely self-sufficient peasant households and guild artisanery. But, as regards the polity, the various forces of this age of transition left their imprint on one and the same state. To assess the dominant character of the new centralized states of the 16th–18th centuries is therefore a difficult task and the subject of considerable controversy.footnote4 In this context we need only take into account a few features immediately pertaining to political economy.

Political economy emerged as a term to denote the management of a state in contrast to the running of a family household.footnote5 Public finance and taxation was the central preoccupation of both the rulers of the post-medieval states with their mercenary armies and burgeoning central administration and to writers on economic affairs. According to Schumpeter public finance was the central topic around which the continental pre-classical economic literature evolved.footnote6 It was of great interest also to the British classics. Book V of The Wealth of Nations is devoted to taxation and public finance, and the contents of Ricardo’s main work justified the title Principles of Political Economy and Taxation.

This change in itself testifies to the transformation that had taken place from the period when the economy was hardly more than the economy of the royal household, the yield of royal domains and the various profits of royal justice and administration.footnote7 Before the modern era in Europe it would have made little sense to inquire into questions of the wealth of nations. But this new relationship between state and economy is much too general as a political background to the rise of political economy. We might add that the founders of political economy were involved in the struggle for the abolition of the feudal system of taxes. Quesnay, Mirabeau, and the physiocrats, all attacked the fiscal system of the ancien régime, the immunization of nobles and clergy, the corvées, etc. in favour of a single tax on land.footnote8