New Historicism is a theory of literary criticism that is based on (and is a reaction to) Old Historicism. Old Historical critics believe that application of knowledge about history is necessary in order to understand a text. Ergo, a text can only be understood in its historical context. New Historical critics believe that history cannot be written about objectively because cultural influences put a slant on it.

New Historical critics see history just as they see literature or a painting, it is one of many discourses that help us to understand culture. New Historists consider everything to be text, and hence everything is open to criticism. They use untraditional texts to interpret a given work, such as personal journals of unremarkable Elizabethian people to shed light on Shakespeare.

The word episteme (first coined by Michel Foucault) is used to describe the set of beliefs and views a society has about truth and nature. The New Historicists believe that everything is influenced by epistemes, even the critics themselves.

New Historicism seeks to find a more accurate answer to the question of what a text means; it is essentially a response to the undecidedness of New Criticism and the formalism of Old Historicism.

Thanks to DoubleD for the extra info!

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