Mediaeval Thought.— The ill-defined period known as the Middle Ages (400-1500) was one of transition and adjustment. After the down fall of Roman civilization there was a stormy period in which Roman institutions, Christian theology and Germanic customs were blended into a new catholic ecclesiastical and civil sys tem, followed by another period in which the Western world had to defend itself against the invasions of Eastern nomadic tribes. From the to the 15th century the typical medieval institutions of scholasticism and feudalism de veloped and dominated life and thought. Throughout most of this period society was disorganized and broken into fragments. The typical economic unit was the independent domestic economy, self-sufficient and practically without intercourse with the outside world. Agriculture was the main and in fact almost the only industry, domestic manufactures being confined to supplying local wants, and commerce was practically unknown for all but river or seaport towns. There was, however, during the later Middle Ages a transition from this tic economy to a broader town economy, if not to a national economy. Manufactures and com merce encroached gradually upon agriculture; the ancient institution of slavery was modified into serfdom. Feudalism, however, prevented any considerable economic advance, as its chief office, which must be recognized as beneficent in the chaotic conditions of the times, was to preserve order and defend existing institutions.
Under such circumstances but little contri bution could be expected to the world of economic thought. Men's speculations during this period were primarily theological and economic doctrines were controlled by religious considerations. The best exposition of the economic theory developed during the Middle Ages, if we may designate as theory a body of rules of conduct, is to be found in the canon law. Based upon a mass of ecclesiastical legis lation and decisions, this was codified in the 12th century. Prescribing as it did rules of right conduct and of atonement for wrong, it necessarily made inquiry into economic relations and activities. The keynote of the economic doctrines may be found in the conception of a just price; this was determined by the cost of production, but to the canonist cost was meas ured only by the labor involved, as there had not yet developed an adequate conception of capital as an agent of production. A just price then was one that secured a fair return to the worker. Similarly, because of their lack of ap preciation of the role played by capital in pro duction, they condemned usury or the taking of interest, though this doctrine came to be modi fied with the growth of trade. But avarice, the pursuit of wealth as an end in itself, was con demned as one of the seven deadly sins. This stands in strange contrast with the modern conception of self-interest as the motive power of economic action. Manifestly there could be no great development of economic activity or of theory so long as such conceptions prevailed.
The Middle Ages were followed by a period of two or three centuries marked by profound change in the world of economic enterprise and by the rise of new ideas in the world of eco nomic thought, which paved the way for modern systems of industry and theory. In this transi tional period we may distinguish two systems of thought or of policies, namely, Mercantilism and the Physiocratic system. The first of these was a body of economic policies rather than of theory, but the second comprised a coherent system of thought.
Mercantilism.— By Mercantilism is meant the prevailing economic views entertained by European statesmen from the 16th to about the middle of the 18th century. These concerned themselves mostly with money and foreign com merce and were the result of the new economic forces that were making themselves felt in the world. Foremost among these was the importa tion of gold and silver from America, which facilitated the change from payment in services and kind to a money economy, and helped to break up the old feudal regime. The growth of court expenses, of standing armies and of other governmental expenditures necessitated heavier taxation, which led to the encouragement of manufactures and trade by the central govern ments ; heavier taxation on the other hand was made possible by the greater security and in creased production of wealth in the towns.
At the same time a struggle was going on between the local units of government and the central power. As the old feudal economy began to be supplanted by a national economy it was felt that the state must be made strong. It was a period of struggle between nascent states, and Mercantilism, which is defined by Sclunoller as state-making, aimed to make the nation strong. In international relations, says this author, those states gained the supremacy which understood how to put the might of their fleets and admiralties, the apparatus of customs laws and navigation laws, with rapidity, bold ness and clear purpose at the service of the economic interests of the nation and state?' The Mercantilists, therefore, emphasized the encouragement of foreign commerce and domes tic manufactures, of agriculture and fishing. Seeing that those nations were strong which possessed large amounts of the precious metals, they laid great stress upon the importance of amassing and retaining within the national boundaries a store of money. Indeed wealth and money were often confused by the typical Mercantilist, though it can no longer be held that they identified them. This was the funda mental Mercantilist doctrine, and as a means of securing bullion, foreign trade was encouraged and regulated so as to secure a favorable bal ance. As a merchant marine was necessary to carry on trade, all measures that would develop a navy were approved, from navigation laws granting a monopoly of the carrying trade to home shipping to laws requiring the eating of fish so as to encourage fishing and thereby the training of sailors.