The Idea of Economics. The history of analytical
economics should begin with the coining by Plato's
contemporary, Xenophon, of the word oikonomikos. It
combines two words meaning a house, household or
estate, and a verb, to manage, or rule. In the Middle
Ages, the Latin form was used with several meanings,
one theological. In the seventeenth century the concept
began to be applied to the management of a “state”—
under the French name économie politique; this fol-
lowed when the establishment of absolute monarchy
made the state the “estate” of the king. In German,
the doctrine was called “cameralism.” At about the
same time, the word “economy” and its relatives began
to take on the general meaning it now bears—the
“effective” use of means to achieve an end, both means
and end being “given.” The doctrine of the preceding
nationalistic literature is commonly called “mercantil-
ism,” because the writers advocated increase of na-
tional wealth by an excess of exports over imports, the
difference to be received in “money” (gold or silver).
Exposure of the fallacy of confusing money with
wealth, especially in the Essays of David Hume, at
the middle of the eighteenth century, is important for
the transition to political economy, later replaced by
economics.
During the mercantilistic period, apart from the
propaganda for a “favorable” balance of trade, some
writers in England discussed governmental activities
more descriptively, and with some reference to policy.
They also broached topics which were to become
central later, notably the meaning and determination
of economic value. The leader along this line was Sir
William Petty, who wrote in the latter part of the
seventeenth century. He is most famous for his Political
Arithmetick (1691), which founded the modern science
of statistics. He and contemporaries, such as John
Locke, discussed taxes, interest, and money, and also
wages. The mercantilists held that both wages and
interest should be low, to favor effective trade rivalry
with other nations. Toward the end of the same cen-
tury, writers began to advocate liberalizing interna-
tional trade—sometimes twisting the balance-of-trade
argument to serve this cause. Notable for reasonable
views on trade policy was the work, Discourses on
Trade (1691; ed. J. H. Hollander, 1935), by Sir Dudley
North, as discovered by modern scholarship.
