New Historicism is a literary theory based on the idea that literature should be studied and intrepreted within the context of both the history of the author and the history of the critic. Based on the literary criticism of Stephen Greenblatt and influenced by the philosophy of Michel Foucault, New Historicism acknowledges not only that a work of literature is influenced by its author's times and circumstances, but that the critic's response to that work is also influenced by his environment, beliefs, and prejudices.
A New Historicist looks at literature in a wider historical context, examining both how the writer's times affected the work and how the work reflects the writer's times, in turn recognizing that current cultural contexts color that critic's conclusions.
For example, when studying Shakespeare's Merchant of Venice, one always comes to the question of whether the play shows Shakespeare to be anti-Semitic. The New Historicist recognizes that this isn't a simple yes-or-no answer that can be teased out by studying the text. This work must be judged in the context in which it was written; in turn, cultural history can be revealed by studying the work — especially, say New Historicists, by studying the use and dispersion of power and the marginalization of social classes within the work. Studying the history reveals more about the text; studying the text reveals more about the history.
The New Historicist also acknowledges that his examination of literature is "tainted" by his own culture and environment. The very fact that we ask whether Shakespeare was anti-Semitic — a question that wouldn't have been considered important a century ago — reveals how our study of Shakespeare is affected by our civilization.
New Historicism, then, underscores the impermanence of literary criticism. Current literary criticism is affected by and reveals the beliefs of our times in the same way that literature reflects and is reflected by its own historical contexts. New Historicism acknowledges and embraces the idea that, as times change, so will our understanding of great literature.