THIRD MODERN PHASE: SYSTEM OF NATURAL LIBERTY
The changes introduced during the third phase in the internal organisation of the industrial world were (1) the more complete separation of banking from general commerce, and the wider extension of its operations, especially through the system of public credit; and (2) the great development of the use of machinery in production. The latter did not become very prominent during the first half of the eighteenth century. Whilst tending to promote the dignity of the working classes by relieving them from degrading and exhausting forms of labour, it widened the gulf between them and the capitalist employers. It thus became plain that for the definitive constitution of industry a moral reform was the necessary preliminary condition.
With respect to the political relations of industry, a remarkable inversion now showed itself. The systematic encouragements which the European Governments had extended to it in the preceding phase had been prompted by their desire to use it as an instrument for achieving the military superiority which was the great end of their policy. Now, on the contrary, the military spirit subordinated itself to the industrial, and the armies and the diplomacy of Governments were placed at the service of commerce. The wars which filled a large part of the eighteenth century were essentially Commercial wars, arising out of the effort to sustain or extend the colonial establishments founded in the previous phase, or to deprive rival nations of the industrial advantages connected with the possession of such establishments. This change of attitude, notwithstanding its deplorable tendency to foster international enmities and jealousies, marked a real and important progress by pointing to industrial activity as the one permanent practical destination of modern societies.
But, whilst by this sort of action furthering the ascendency of the new forces, the ruling powers, both in England and France, betrayed the alarm they felt at the subversive ten-dencies which appeared inherent in the modern movement by taking up in their domestic policy an attitude of resistance. Reaction became triumphant in France during the latter half of the reign of Louis XIV, under the disastrous influence of Madame de Maintenon. In England, after the transaction of 1688, by which the Government was consolidated on the double basis of aristocratic power and official orthodoxy, the state policy became not so much retrograde as stationary, industrial conquest being put forward to satisfy the middle class and wean it from the pursuit of a social renovation. In both countries there was for some time a noticeable check in the intellectual development, and Roscher and others have observed that, in economic studies particularly, the first three decades of the eighteenth century were a period of general stagnation, eclecticism for the most part taking the place of originality. The movement was, however, soon to be resumed, but with an altered and more formidable character. The negative doctrine, which had risen and taken a definite form in England, was diffused and popularised in France, where it became evident, even before the decisive explosion, that the only possible issue lay in a radical social transformation. The partial schools of Voltaire and Rousseau in different ways led up to a violent crisis, whilst taking little thought of the conditions of a system which could replace the old; but the more complete and organic school, of which Diderot is the best representative, looked through freedom to a thorough reorganisation. Its constructive aim is shown by the design of the Encyclopédie—a project, however, which could have only a temporary success, because no real synthesis was forthcoming, and this joint production of minds often divergent could possess no more than an external unity. It was with this great school that the physiocrats were specially connected; and, in common with its other members whilst pushing towards an entire change of the existing system, they yet would gladly have avoided political demolition through the exercise of a royal dictatorship, or contemplated it only as the necessary condition of a new and better order of things. But, though marked off by such tendencies from the purely revolutionary sects, their method and fundamental ideas were negative, resting, as they did, essentially on the basis of the jus nature. We shall follow in detail these French developments in their special relation to economic science, and afterwards notice the corresponding movements in other European countries which showed themselves before the appearance of Adam Smith, or were at least unaffected by his influence.
Before Adam Smith
The more liberal, as well as more rational, principles put forward by the English thinkers of the new type began, early in the eighteenth century, to find an echo in France, where the clearer and more vigorous intellects were prepared for their reception by a sense of the great evils which exaggerated mercantilism, serving as instrument of political ambition, had produced in that country. The impoverished condition of the agricultural population, the oppressive weight and unequal imposition of taxation, and the unsound state of the public finances had produced a general feeling of disquiet, and led several distinguished writers to protest strongly against the policy of Colbert and to demand a complete reform.
The most important amongst them was Pierre Boisguillebert (d. 1714), whose whole life was devoted to these controversies. In his statistical writings (Détail de la France sous le règne présent, 1697; Factum de la France, 1707), he brings out in gloomy colours the dark side of the age of Louis XIV, and in his theoretic works (Traité de la natureet du commerce des grains; Dissertations sur la nature des richesses de I'argent et des tributs; and Essai sur la rareté de I'argent) he appears as an earnest, even passionate, antagonist of the mercantile school. He insists again and again on the fact that national wealth does not consist in gold and silver, but in useful things, foremost among which are the products of agriculture. He even goes so far as to speak of “argent criminel,” which from being the slave of trade, as it ought to be, had become its tyrant. He sets the “genuinely French Sully” far above the “Italianising Colbert,” and condemns all arbitrary regulations affecting either foreign or internal commerce, especially as regards the corn trade. National wealth does not depend on Governments, whose interference does more harm than good; the natural laws of the economic order of things cannot be violated or neglected with impunity; the interests of the several classes of society in a system of freedom are identical, and those of individuals coincide with that of the state. A similar solidarity exists between different nations; in their economic dealings they are related to the world as individual towns to a nation, and not merely plenty, but peace and harmony, will result from their unfettered intercourse. Men he divides into two classes—those who do nothing and enjoy everything, and those who labour from morning to night often without earning a bare subsistence; the latter he would favour in every way. Here we catch the breath of popular sympathy which fills the social atmosphere of the eighteenth century. He dwells with special emphasis on the claims of agriculture, which had in France fallen into unmerited neglect, and with a view to its improvement calls for a reform in taxation. He would replace indirect taxes by taxes on income, and would restore the payment of taxes in kind, with the object ot securing equality of burden and eliminating every element of the arbitrary. He has some interesting views of a general character: thus he approximates to a correct conception of agricultural rent, and he points to the order in which human wants follow each other—those of necessity, convenience, comfort, superfluity, and ostentation succeeding in the order named, and ceasing in the inverse order to be felt as wealth decreases. The depreciating tone in which Voltaire speaks of Boisguillebert (Siècle de Louis XIV, chap 30) is certainly not justified; he had a great economic talent, and his writings contain important germs of truth. But he appears to have exerted little influence, theoretical or practical, in his own time.
The same general line of thought was followed by Marshal de Vauban (1633–1707) in his economic tracts, especially that bearing the title of Projet d'une dixme Royale, 1707, which was suppressed by the authorities, and lost for him the favour of his sovereign, but has added lustre to his name in the judgment of posterity. He is deeply impressed with the deplorable condition of the working classes of France in his day. He urges that the aim of the Government should be the welfare of all orders of the community; that all are entitled to like favour and furtherance; that the often despised and wronged lower class is the basis of the social organisation; that labour is the foundation of all wealth, and agriculture the most important species of labour; that the most essential condition of successful industry is freedom; and that all unnecessary or excessive restrictions on manufactures and commerce should be swept away. He protests in particular against the inequalities of taxation, and the exemptions and privileges enjoyed by the higher ranks. With the exception of some duties on consumption he would abolish all the existing taxes, and substitute for them a single tax on income and land, impartially applied to all classes, which he describes under the name of “Dixme Royale,” that is to say, a tenth in kind of all agricultural produce, and a tenth of money income chargeable on manufacturers and traders.
The liberal and humane spirit of Fénelon led him to aspire after freedom of commerce with foreign nations, and to preach the doctrine that the true superiority of one state over another lies in the number indeed, but also in the morality, intelligence, and industrious habits of its population. The Télémaque, in which these views were presented in an attractive form, was welcomed and read amongst all ranks and classes, and was thus an effective organ for the propagation of opinion.
After these writers there is a marked blank in the field of French economic thought, broken only by the Réflexions Politiques sur les Finances et le Commerce (1738) of Dutot, a pupil of Law, and the semi-mercantilist Essais Politiques sur le Commerce (1731) of Mélon, till we come to the great name of Montesquieu. The Esprit des Lois (1748), so far as it deals with economic subjects, is written upon the whole from a point of view adverse to the mercantile system, especially in his treatment of money, though in his observations on colonies and elsewhere he falls in with the ideas of that system. His immortal service, however, was not rendered by any special research, but by his enforcement of the doctrine of natural laws regulating social no less than physical phenomena. There is no other thinker of importance on economic subjects in France till the appearance of the physiocrats, which marks an epoch in the history of the science.
The heads of the physiocratic school were Francois Quesnay (1694–1774) and Jean Claude Marie Vincent, sieur de Gournay (1712–1759). The principles of the school had been put forward in 1755 by Richard Cantillon, a French merchant of Irish extraction (Essai sur la nature du Commerce en général), whose biography Jevons has elucidated, and whom he regards as the true founder of political economy; but it was in the hands of Quesnay and Gournay that they acquired a systematic form, and became the creed of a united group of thinkers and practical men, bent on carrying them into action. The members of the group called themselves “les économistes,” but it is more convenient, because unambiguous, to designate them by the name “physiocrates,” invented by Dupont de Nemours, who was one of their number. In this name, intended to express the fundamental idea of the school, much more is implied than the subjection of the phenomena of the social, and in particular the economic, world to fixed relations of co-existence and succession. This is the positive doctrine which lies at the bottom of all true science. But the law of nature referred to in the title of the sect was something quite different. The theological dogma which represented all the movements of the universe as directed by divine wisdom and benevolence to the production of the greatest possible sum of happiness had been transformed in the hands of the metaphysicians into the conception of a jus naturœ, a harmonious and beneficial code established by the favourite entity of these thinkers, Nature, antecedent to human institutions, and furnishing the model to which they should be made to conform. This idea, which Buckle apparently supposes to have been an invention of Hutcheson's, had come down through Roman juridical theory from the speculations of Greece. It was taken in hand by the modern negative school from Hobbes to Rousseau, and used as a powerful weapon of assault upon the existing order of society, with which the “natural” order was perpetually contrasted as offering the imperfect type from which fact had deplorably diverged. The theory received different applications according to the diversity of minds or circumstances. By some it was directed against the artificial manners of the times, by others against contemporary political institutions; it was specially employed by the physiocrats in criticising the economic practice of European Governments.
The general political doctrine is as follows. Society is composed of a number of individuals all having the same natural rights. If all do not possess (as some members of the negative school maintained) equal capacities, each can at least best understand his own interest, and is led by nature to follow it. The social union is really a contract between these individuals, the object of which is the limitation of the natural freedom of each, just so far as it is inconsistent with the rights of the others. Government, though necessary, is a necessary evil; and the governing power appointed by consent should be limited to the amount of interference absolutely required to secure the fulfilment of the contract. In the economic sphere, this implies the right of the individual to such natural enjoyments as he can acquire by his labour. That labour, therefore, should be undisturbed and unfettered; and its fruits should be guaranteed to the possessor; in other words, property should be sacred. Each citizen must be allowed to make the most of his labour; and therefore freedom of exchange should be ensured, and competition in the market should be unrestricted, no monopolies or privileges being permitted to exist.
The physiocrats then proceed with the economic analysis as follows. Only those labours are truly “productive” which add to the quantity of raw materials available for the purposes of man; and the real annual addition to the wealth of the community consists of the excess of the mass of agricultural products (including, of course, minerals) over their cost of production. On the amount of this “produit net” depends the well-being of the community, and the possibility of its advance in civilisation. The manufacturer merely gives a new form to the materials extracted from the earth; the higher value of the object, after it has passed through his hands, only represents the quantity of provisions and other materials used and consumed in its elaboration. Commerce does nothing more than transfer the wealth already existing from one hand to another; what the trading classes gain thereby is acquired at the cost of the nation, and it is desirable that its amount should be as small as possible. The occupation of the manufacturer and merchant, as well as the liberal professions, and every kind of personal service, are “useful” indeed, but they are “sterile,” drawing their income, not from any fund which they themselves create, but from the superfluous earnings of the agriculturists. Perfect freedom of trade not only rests, as we have already seen, on the foundation of natural right, but is also recommended by the consideration that it makes the “produit net,” on which all wealth and general progress depend, as large as possible. “Laissez faire, laissez passer” should therefore be the motto of Governments. The revenue of the State, which must be derived altogether from this net product, ought to be raised in the most direct and simplest way, namely, by a single impost of the nature of a land tax.
The special doctrine relating to the exclusive productiveness of agriculture arose out of a confusion between “value” on the one hand and “matter and energy” on the other. Smith and others have shown that the attempt to fix the character of “sterility” on manufactures and commerce was founded in error. And the proposal of a single impôt territorial falls to the ground with the doctrine on which it was based. But such influence as the school exerted depended little, if at all, on these peculiar tenets, which indeed some of its members did not hold. The effective result of its teaching was mainly destructive. It continued in a more systematic form the efforts in favour of the freedom of industry already begun in England and France. The essential historical office of the physiocrats was to discredit radically the methods followed by the European Governments in their dealings with industry. For such criticism as theirs there was, indeed, ample room: the policy of Colbert, which could be only temporarily useful, had been abusively extended and intensified; Governmental action had intruded itself into the minutest details of business, and every process of manufacture and transaction of trade was hampered by legislative restrictions. It was to be expected that the reformers should, in the spirit of the negative philosophy, exaggerate the vices of established systems; and there can be no doubt that they condemned too absolutely the economic action of the State, both in principle and in its historic manifestations, and pushed the “laissez faire” doctrine beyond its just limits. But this was a necessary incident of their connection with the revolutionary movement, of which they really formed one wing. In the course of that movement, the primitive social contract, the sovereignty of the people, and other dogmas now seen to be untenable, were habitually invoked in the region of politics proper, and had a transitory utility as ready and effective instruments of warfare. And so also in the economic sphere the doctrines of natural rights of buying and selling, of the sufficiency of enlightened selfishness as a guide in mutual dealings, of the certainty that each member of the society will understand and follow his true interests, and of the coincidence of those interests with the public welfare, though they will not bear a dispassionate examination, were temporarily useful as convenient and serviceable weapons for the overthrow of the established order. The tendency of the school was undoubtedly to consecrate the spirit of individualism, and the state of non-government. But this tendency, which may with justice be severely condemned in economists of the present time, was then excusable because inevitable. And, whilst it now impedes the work of reconstruction which is for us the order of the day, it then aided the process of social demolition, which was the necessary, though deplorable, condition of a new organisation.
These conclusions as to the revolutionary tendencies of the school are not at all affected by the fact that the form of government preferred by Quesnay and some of his chief followers was what they called a legal despotism, which should embrace within itself both the legislative and the executive function. The reason for this preference was that an enlightened central power could more promptly and efficaciously introduce the policy they advocated than an assembly representing divergent opinions, and fettered by constitutional checks and limitations. Turgot, as we know, used the absolute power of the crown to carry into effect some of his measures for the liberation of industry, though he ultimately failed because unsustained by the requisite force of character in Louis XVI. But what the physiocratic idea with respect to the normal method of government was appears from Quesnay's advice to the dauphin, that when he became king he should “do nothing, but let the laws rule,” the laws having been of course first brought into conformity with the jus naturœ. The partiality of the school for agriculture was in harmony with the sentiment in favour of “nature” and primitive simplicity which then showed itself in so many forms in France, especially in combination with the revolutionary spirit, and of which Rousseau was the most eloquent exponent. It was also associated in these writers with a just indignation at the wretched state in which the rural labourers of France had been left by the scandalous neglect of the superior orders of society—a state of which the terrible picture drawn by La Bruyère is an indestructible record. The members of the physiocratic group were undoubtedly men of thorough uprightness, and inspired with a sincere desire for the public good, especially for the material and moral elevation of the working classes. Quesnay was physician to Louis XV, and resided in the palace at Versailles; but in the midst of that corrupt court he maintained his integrity, and spoke with manly frankness what he believed to be the truth. And never did any statesman devote himself with greater singleness of purpose or more earnest endeavour to the service of his country than Turgot, who was the principal practical representative of the school.
The publications in which Quesnay expounded his system were the following: —Two articles, on “Fermiers” and on “Grains,” in the Encyclopédie of Diderot and D'Alembert (1756, 1757); a discourse on the law of nature in the Physiocratie of Dupont de Nemours (1768); Maximes générales de gouvernement économique d'un royaume agricole (1758), and the simultaneously published Tableau Economique avec sonexplication, ou Extrait des Économies Royales de Sully (with the celebrated motto “pauvres paysans, pauvre royaume; pauvre royaume, pauvre roi”); Dialogue sur le commerce et les travaux des artisans; and other minor pieces. The Tableau Économique, though on account of its dryness and abstract form it met with little general favour, may be considered the principal manifesto of the school. It was regarded by the followers of Quesnay as entitled to a place amongst the foremost products of human wisdom, and is named by the elder Mirabeau, in a passage quoted by Adam Smith, as one of the three great inventions which have contributed most to the stability of political societies, the other two being those of writing and of money. Its object was to exhibit by means of certain formulas the way in which the products of agriculture, which is the only source of wealth, would in a state of perfect liberty be distributed among the several classes of the community (namely, the productive classes of the proprietors and cultivators of land, and the unproductive class composed of manufacturers and merchants), and to represent by other formulas the modes of distribution which take place under systems of Governmental restraint and regulation, with the evil results arising to the whole society from different degrees of such violations of the natural order. It follows from Quesnay's theoretic views that the one thing deserving the solicitude of the practical economist and the statesman is the increase of the net product; and he infers also what Smith afterwards affirmed on not quite the same ground, that the interest of the landowner is “strictly and inseparably connected with the general interest of the society.”
M. de Gournay, as we have seen, was regarded as one of the founders of the school, and appears to have exercised some influence even upon the formation of Quesnay's own opinions. With the exception of translations of Culpeper and Child, Gournay wrote nothing but memoirs addressed to ministers, which have not seen the light; but we have a full statement of his views in the Éloge dedicated to his memory by his illustrious friend Turgot. Whilst Quesnay had spent his youth amidst rural scenes, and had been early familiar with the labours of the field, Gournay had been bred as a merchant, and had passed from the counting-house to the office of intendant of commerce. They thus approached the study of political economy from different sides, and this diversity of their antecedents may in part explain the amount of divergence which existed between their views. Gournay softened the rigour of Quesnay's system, and brought it nearer to the truth, by rejecting what Smith calls its “capital error”—the doctrine, namely, of the unproductiveness of manufactures and commerce. He directed his efforts to the assertion and vindication of the principle of industrial liberty, and it was by him that this principle was formulated in the phrase, since so often heard for good and for evil, “Laissez faire et laissez passer.” One of the earliest and most complete adherents of the physiocratic school, as well as an ardent and unwearied propagator of its doctrines, was Victor Mirabeau, whose sincere and independent, though somewhat perverse and whimsical, character is familiar to English readers through Carlyle's essay on his more celebrated son. He had expressed some physiocratic views earlier than Quesnay, but owned the latter for his spiritual father, and adopted most of his opinions, the principal difference being that he was favourable to the petite as opposed to the grande culture, which latter was preferred by his chief as giving, not indeed the largest gross, but the largest net product. Mirabeau's principal writings were Ami des Hommes, ou traité sur la population (1756, 1760), Théorie de I'impôt (1760), Les Économiques (1769), and Philosophic rurale, ou Économic générale et politique de l'Agriculture (1763). The last of these was the earliest complete exposition of the physiocratic system. Another earnest and persevering apostle of the system was Dupont de Nemours (1739–1817), known by his treatises De l'exportation et de l'importation des grains (1764), De I'origine et des progrès d'une science nouvelle (1767), Du commerce de la Compagnie des Indes (1767), and especially by his more comprehensive work Physiocratie, ou Constitution naturelle du gouvernement le plus avantageux au genre humain (1768). The title of this work gave, as has been already mentioned, a name to the school. Another formal exposition of the system, to which Adam Smith refers as the “most distinct and best connected account” of it, was produced by Mercier-Larivière, under the title L'Ordre naturel et essentiel des sociétés politiques (1767), a title which is interesting as embodying the idea of the jus naturœ. Both he and Dupont de Nemours professed to study human communities, not only in relation to their economic, but also to their political and general social aspects; but, notwithstanding these larger pretensions, their views were commonly restricted in the main to the economic sphere; at least material considerations decidedly preponderated in their inquiries, as was naively indicated by Larivière when he said, “Property, security, liberty—these comprise the whole social order; the right of property is a tree of which all the institutions of society are branches.”
The most eminent member of the group was without doubt Anne Robert Jacques Turgot (1727–1781). This is not the place to speak of his noble practical activity, first as intendant of Limoges, and afterwards for a brief period as finance minister, or of the circumstances which led to his removal from office, and the consequent failure of his efforts for the salvation of France. His economic views are explained in the introductions to his edicts and ordinances, in letters and occasional papers, but especially in his Réflexions sur la formation et la distribution des richesses (1766). This is a condensed but eminently clear and attractive exposition of the fundamental principles of political economy, as they were conceived by the physiocrats. It embodies, indeed, the erroneous no less than the sound doctrines of that school; but several subjects, especially the various forms of land-economy, the different employments of capital, and the legitimacy of interest, are handled in a generally just as well as striking manner; and the mode of presentation of the ideas, and the luminous arrangement of the whole, are Turgot's own. The treatise, which contains a surprising amount of matter in proportion to its length, must always retain a place among the classics of the science.
The physiocratic school never obtained much direct popular influence, even in its native country, though it strongly attracted many of the more gifted and earnest minds. Its members, writing on dry subjects in an austere and often heavy style, did not find acceptance with a public which demanded before all things charm of manner in those who addressed it. When Morellet, one of their number, entered the lists with Galiani, it was seen how esprit and eloquence could triumph over science, solid indeed, but clumsy in its movements. The physiocratic tenets, which were in fact partially erroneous, were regarded by many as chimerical, and were ridiculed in the contemporary literature, as, for example, the impôt unique by Voltaire in his L'homme aux quarante écus, which was directed in particular against Mercier-Larivière. It was justly objected to the group that they were too absolute in their view of things; they supposed, as Smith remarks in speaking of Quesnay, that the body-politic could thrive only under one precise régime,—that, namely, which they recommended,—and thought their doctrines universally and immediately applicable in practice. They did not, as theorists, sufficiently take into account national diversities, or different stages in social development; nor did they, as politicians, adequately estimate the impediments which ignorance, prejudice, and interested opposition present to enlightened statesmanship. It is possible that Turgot himself, as Grimm suggests, owed his failure in part to the too unbending rigour of his policy and the absence of any attempt at conciliation. Be this as it may, his defeat helped to impair the credit of his principles, which were represented as having been tried and found wanting.
The physiocratic system, after guiding in some degree the policy of the Constituent Assembly, and awakening a few echoes here and there in foreign countries, soon ceased to exist as a living power; but the good elements it comprised were not lost to mankind, being incorporated into the sounder and more complete construction of Adam Smith.
In Italy, as in the other European nations, there was little activity in the economic field during the first half of the eighteenth century. It was then, however, that a really remarkable man appeared, the archdeacon Salustio Antonio Bandini (1677–1760), author of the Discorso sulla Maremma Sienese, written in 1737, but not published till 1775. The object of the work was to raise the Maremma from the wretched condition into which it had fallen through the decay of agriculture. This decay he showed to be, at least in part, the result of the wretched fiscal system which was in force; and his book led to important reforms in Tuscany, where his name is held in high honour. Not only by Pecchio and other Italian writers, but by Roscher also, he is alleged to have anticipated some leading doctrines of the physiocrats, but this claim is disputed. There was a remarkable renascence of economic studies in Italy during the latter half of the century, partly due to French influence, and partly, it would appear, to improved government in the northern states.
The movement at first followed the lines of the mercantile school. Thus, in Antonio Broggia's Trattati dei tributi e delle monete e del governo politico detta società (1743), and Girolamo Belloni's Dissertazione sopra il commercio (1750), which seems to have had a success and reputation much above its merits, mercantilist tendencies decidedly preponderate. But the most distinguished writer who represented that economic doctrine in Italy in the last century was Antonio Genovesi, a Neapolitan (1712–1769). He felt deeply the depressed intellectual and moral state of his fellow-countrymen, and aspired after a revival of philosophy and reform of education as the first condition of progress and wellbeing. With the object of protecting him from the theological persecutions which threatened him on account of his advanced opinions, Bartolomeo Intieri, of whom we shall hear again in relation to Galiani, founded in 1755, expressly for Genovesi, a chair of commerce and mechanics, one of the conditions of foundation being that it should never be filled by a monk. This was the first professorship of economics established in Europe; the second was founded at Stockholm in 1758, and the third in Lombardy ten years later, for Beccaria. The fruit of the labours of Genovesi in this chair was his Lezioni di commercio, ossia di economia civile (1769), which contained the first systematic treatment of the whole subject which had appeared in Italy. As the model for Italian imitation he held up England, a country for which, says Pecchio, he had a predilection almost amounting to fanaticism. He does not rise above the false economic system which England then pursued; but he rejects some of the grosser errors of the school to which he belonged; he advocates the freedom of the corn trade, and deprecates regulation of the interest on loans. In the spirit of his age, he denounces the relics of mediæval institutions, such as entails and tenures in mortmain, as impediments to the national prosperity. Ferdinando Galiani was another distinguished disciple of the mercantile school. Before he had completed his twenty-first year he published a work on money (Della moneta libri cinque, 1750), the principles of which are supposed to have been dictated by two experienced practical men, the Marquis Rinuccini and Bartolomeo Intieri, whose name we have already met. But his reputation was made by a book written in French and published in Paris, where he was secretary of embassy, in 1770, namely, his Dialogues sur le commerce des blés. This work, by its light and pleasing style, and the vivacious wit with which it abounded, delighted Voltaire, who spoke of it as a book in the production of which Plato and Molière might have been combined! The author, says Pecchio, treated his arid subject as Fontenelle did the vortices of Descartes, or Algarotti the Newtonian system of the world. The question at issue was that of the freedom of the corn trade, then much agitated, and, in particular, the policy of the royal edict of 1764, which permitted the exportation of grain so long as the price had not arrived at a certain height. The general principle he maintains is that the best system in regard to this trade is to have no system— countries differently circumstanced requiring, according to him, different modes of treatment. This seems a lame and impotent conclusion from the side of science; yet doubtless the physiocrats, with whom his controversy lay, prescribed on this, as on other subjects, rules too rigid for the safe guidance of statesmen, and Galiani may have rendered a real service by protesting against their absolute solutions of practical problems. He fell, however, into some of the most serious errors of the mercantilists—holding, as indeed did also Voltaire and even Verri, that one country cannot gain without another losing, and in his earlier treatise going so far as to defend the action of Governments in debasing the currency.
Amongst the Italian economists who were most under the influence of the modern spirit, and in closest harmony with the general movement which was impelling the Western nations towards a new social order, Cesare Beccaria (1738–1794) holds a foremost place. He is best known by his celebrated treatise Dei delitti e delle pene, by which Voltaire said he had made himself a benefactor of all Europe, and which, we are told, has been translated into twenty-two languages. The Empress Catherine having invited him to fix his residence at St. Petersburg, the Austrian Government of Lombardy, in order to keep him at home, established expressly for him a chair of political economy; and in his Elementi di economia pubblica (1769–1771; not published, however, till 1804) are embodied his teachings as professor. The work is unfinished: he had divided the whole subject under the heads of agriculture, manufactures, commerce, taxation, government; but he has treated adequately only the first two heads, and the last two not at all, having been called to take part in the councils of the state. He was in some degree under the influence of physiocratic ideas, and holds that agriculture is the only strictly productive form of industry, whilst manufacturers and artisans are a sterile class. He was strongly opposed to monopolies and privileges, and to corporations in arts and trades; in general he warmly advocated internal industrial freedom, though in regard to foreign commerce a protectionist. In the special case of the corn trade he was not, any more than Galiani, a partisan of absolute liberty. His exposition of economic principles is concise and sententious, and he often states correctly the most important considerations relating to his subject without adding the developments which would be desirable to assist comprehension and strengthen conviction. Thus on fixed capital (capitali fondatori), as distinct from circulating (annui), in its application to agriculture, he presents in a condensed form essentially the same explanations as Turgot about the same time gave; and on the division of labour and the circumstances which cause different rates of wages in different employments, he in substance comes near to Smith, but without the fulness of illustration which is so attractive a feature of the Wealth of Nations. Pietro Verri (1728–1797), an intimate and lifelong friend of Beccaria, was for twenty-five years one of the principal directors of the administration of Lombardy, in which capacity he originated many economic and other reforms. In his Riflessioni sulle leggi vincolanti, principal-mente nel commercio de'grani (written in 1769, printed in 1796), he considers the question of the regulation of the corn trade both historically and in the light of theoretic principles, and arrives at the conclusion that liberty is the best remedy against famine and against excessive fluctuations of price. He is generally opposed to Governmental interference with internal commerce, as well as to trade corporations, and the attempts to limit prices or fix the rate of interest, but is in favour of the protection of national industry by a judiciously framed tariff. These views are explained in his Meditazioni sull'economia politico. (1771), an elementary treatise on the science, which was received with favour, and translated into several foreign languages. A primary principle with him is what he calls the augmentation of reproduction—that is, in Smith's language, of “the annual produce of the land and labour” of a nation; and by its tendency to promote or to restrict this augmentation, he tests every enactment and institution. Accordingly, unlike Beccaria, he prefers the petite to the grande culture, as giving a larger total produce. In dealing with taxation, he rejects the physiocratic proposal of a single impôt territorial. Giovanni R. Carli (1720–1795), also an official promoter of the reforms in the government of Austrian Lombardy, besides learned and sound treatises on money, was author of Ragionamenti sopra i bilanci economics delle nazioni, in which he shows the falsity of the notion that a state gains or loses in foreign commerce according to the so-called balance of trade. In his letter to Pompeo Neri Sul libero commercio de'grani (1771), he takes up a position similar to that of Galiani, regarding the question of the freedom of the corn trade as not so much a scientific as an administrative one, to be dealt with differently under different local or other conditions. Rejecting the physiocratic doctrine of the exclusive productiveness of agriculture, he illustrates in an interesting way the necessity of various economic classes in a society, and the reflex agency of manufactures in stimulating the cultivation of the soil. Giambattista Vasco (1733–1796) wrote discourses on several questions proposed by academies and sovereigns. In these he condemns trade corporations and the attempts by Governments to fix the price of bread and to limit the interest on loans. In advocating the system of a peasant proprietary, he suggests that the law should determine the minimum and maximum portions of land which a citizen should be permitted to possess. He also, with a view to prevent the undue accumulation of property, proposes the abolition of the right of bequest, and the equal division of the inheritance amongst the children of the deceased. Gaetano Filangieri (1752–1788), one of the Italian writers of the last century whose names are most widely known throughout Europe, devoted to economic questions the second book of his Scienza. della legislazione (5 vols., 1780–1785). Filled with reforming ardour and a passionate patriotism, he employed his vehement eloquence in denouncing all the abuses of his time. Apparently without any knowledge of Adam Smith, he insists on unlimited freedom of trade, calls for the abolition of the mediaeval institutions which impeded production and national wellbeing, and condemns the colonial system then followed by England, Spain, and Holland. He prophesies, as Raynal, Turgot, and Genovesi had done before him, that all America would one day be independent, a prediction which probably helped to elicit Benjamin Franklin's tribute of admiration for his work. Rather a propagator than a discoverer, he sometimes adopted from others erroneous opinions, as, for example, when he approves the impôt unique of the physiocrats. On the whole, however, he represents the most advanced political and social tendencies of his age; whilst strongly contrasted with Beccaria in temperament and style, he was a worthy labourer in the same cause of national and universal progress. Ludovico Ricci (1742–1799) was author of an able report Sulla riforma degli istituti pii della cittâ di Modena (1787). He treated the subject of poor relief and charitable institutions in so general a way that the work possesses a universal and permanent interest. He dwells on the evils of indiscriminate relief as tending to increase the misery it seeks to remove, and as lowering the moral character of a population. He exposes especially the abuses connected with lying-in and foundling hospitals. There is much in him which is akin to the views of Malthus; like him he is opposed to any state provision for the destitute, who ought, he thinks, to be left to voluntary private beneficence. Ferdinando Paoletti (1717–1801) was an excellent and public-spirited priest, who did much for the diffusion of intelligence amongst the agricultural population of Tuscany, and for the lightening of the taxes which pressed upon them. He corresponded with Mirabeau (“Friend of Men”), and appears to have accepted the physiocratic doctrines, at least in their general substance. He was author of Pensieri sopra I'agricoltura (1769), and of I veri mezzi di render felici le società (1772); in the latter he advocates the freedom of the corn trade. The tract II Colbertismo (1791) by Count Francesco Mengotti is a vigorous protest against the extreme policy of prohibition and protection, which may still be read with interest. Mengotti also wrote (1791) a treatise Del commercio de'Romani, directed mainly against the exaggerations of Huet in his Histoire du commerce et de la navigation des anciens (1716), and useful as marking the broad difference between the ancient and modern civilizations.
Here lastly may be mentioned another Italian thinker who, eminently original and even eccentric, cannot easily be classed among his contemporaries, though some Continental writers of our own century have exhibited similar modes of thought. This was Giammaria Ortes (1713–1790). He is opposed to the liberalist tendencies of his time, but does not espouse the doctrines of the mercantile system, rejecting the theory of the balance of trade, and demanding commercial freedom. It is in the Middle Ages that he finds his social and economic type. He advocates the maintenance of church property, is averse to the ascendency of the money power, and has the mediæval dislike for interest on loans. He entertains the singular idea that the wealth of communities is always and everywhere in a fixed ratio to their population, the latter being determined by the former. Poverty, therefore, necessarily waits on wealth, and the rich, in becoming so, only gain what the poor lose. Those who are interested in the improvement of the condition of the people labour in vain, so long as they direct their efforts to the increase of the sum of the national wealth, which it is beyond their power to alter, instead of to the distribution of that wealth, which it is possible to modify. The true remedy for poverty lies in mitigating the gain-pursuing propensities in the rich and in men of business. Ortes studied in a separate work the subject of population; he formulates its increase as “geometrical,” but recognizes that, as a limit is set to such increase amongst the lower animals by mutual destruction, so is it in the human species by “reason”—the “prudential restraint” of which Malthus afterwards made so much. He regards the institution of celibacy as no less necessary and advantageous than that of marriage. He enunciates what has since been known as the “law of diminishing returns to agricultural industry.” He was careless as to the diffusion of his writings; and hence they remained almost unknown till they were included in the Custodi collection of Italian economists, when they attracted much attention by the combined sagacity and waywardness which marked their author's intellectual character.
The same breath of a new era which was in the air elsewhere in Europe made itself felt also in Spain.
In the earlier part of the eighteenth century Geronimo Ustariz had written his Teorica y Practica del Comercio y Marina (1724; published, 1740; Eng. transl. by John Kippax, 1751; French by Forbonnais, 1753), in which he carries mercantile principles to their utmost extreme.
The reforming spirit of the latter half of the century was best represented in that country by Pedro Rodriguez, Count of Campomanes (1723–1802). He pursued with ardour the same studies and in some degree the same policy as his illustrious contemporary Turgot, without, however, having arrived at so advanced a point of view. He was author of Respuesta fiscal sobre abolir la tasa y establecer et comercio de granos (1764), Discurso sobre el fomento de industria popolar (1774), and Discurso sobre la education de los artesanos y su fomento (1775). By means of these writings, justly eulogised by Robertson, as well as by his personal efforts as minister, he sought to establish the freedom of the corn trade, to remove the hindrances to industry arising from mediæval survivals, to give a large development to manufactures, and to liberate agriculture from the odious burdens to which it was subject. He saw that, notwithstanding the enlightened administration of Charles III, Spain still suffered from the evil results of the blind confidence reposed by her people in her gold mines, and enforced the lesson that the real sources of the wealth and power of his country must be sought, not in America, but in her own industry.
In both Italy and Spain, as is well observed by Comte, the impulse towards social change took principally the direction of economic reform, because the pressure exercised by Governments prevented so large a measure of free speculation in the fields of philosophy and general politics as was possible in France. In Italy, it may be added, the traditions of the great industrial past of the northern cities of that country also tended to fix attention chiefly on the economic side of public policy and legislation.
We have seen that in Italy and England political economy had its beginnings in the study of practical questions relating chiefly to money or to foreign commerce. In Germany it arose (as Roscher has shown) out of the so-called cameralistic sciences. Soon after the close of the Middle Ages there existed in most German countries a council, known as the Kammer (Lat. camera), which was occupied with the management of the public domain and the guardianship of regal rights. The Emperor Maximilian found this institution existing in Burgundy, and established, in imitation of it, aulic councils at Innspruck and Vienna in 1498 and 1501. Not only finance and taxation, but questions also of economic police, came to be entrusted to these bodies. A special preparation became necessary for their members, and chairs of cameralistic science were founded in universities for the teaching of the appropriate body of doctrine. One side of the instruction thus given borrowed its materials from the sciences of external nature, dealing, as it did, with forestry, mining, general technology, and the like; the other related to the conditions of national prosperity as depending on human relations and institutions; and out of the latter, German political economy was at first developed.
In no country had mercantilist views a stronger hold than in Germany, though in none, in the period we are now considering, did the system of the balance of trade receive a less extensive practical application. All the leading German economists of the seventeenth century—Bornitz, Besold, Klock, Becher, Horneck, Seckendorf, and Schroder— stand on the common basis of the mercantile doctrine. And the same may be said of the writers of the first half of the eighteenth century in general, and notably of Justi (d. 1771), who was the author of the first systematic German treatise on political economy, a work which, from its currency as a text-book, had much effect on the formation of opinion. Only in Zincke (1692–1769) do we find occasional expressions of a circle of ideas at variance with the dominant system, and pointing in the direction of industrial freedom. But these writers, except from the national point of view, are unimportant, not having exercised any influence on the general movement of European thought.
The principles of the physiocratic system met with a certain amount of favour in Germany. Karl Friedrich, Margrave of Baden, wrote for the use of his sons an Abrégé des principes d'Économie Politique, 1772, which is in harmony with the doctrines of that system. It possesses, however, little scientific value. Schlettwein (1731–1802) and Mauvillon (1743–1794) were followers of the same school. Theodor Schmalz (1764–1831), who is commonly named as “the last of the physiocrats,” may be here mentioned, though somewhat out of the historic order. He compares Colbertism with the Ptolemaic system, physiocratism with the Copernican. Adam Smith he represents as the Tycho Brahe of political economy—a man of eminent powers, who could not resist the force of truth in the physiocrats, but partly could not divest himself of rooted prejudices, and partly was ambitious of the fame of a discoverer and a reconciler of divergent systems. Though Smith was now “the fashion,” Schmalz could not doubt that Quesnay's doctrine was alone true, and would ere long be triumphant everywhere.
Just before the appearance of Smith, as in England Steuart and in Italy Genovesi, so in Austria Sonnenfels (1733–1817), the first distinguished economist of that country, sought to present the mercantile system in a modified and more enlightened form; and his work (Grundsätze der Polizei, Handlung, und Finanz, 1765; 8th ed., 1822), exercised even during a considerable part of the present century much influence on opinion and on policy in Austria.
But the greatest German economist of the eighteenth century was, in Roscher's opinion, Justus Möser (1720–1794), the author of Patriotische Phantasieen (1774), a series of fragments, which, Goethe nevertheless declares, form “ein wahrhaftes Ganzes.” The poet was much influenced by Moser in his youth, and has eulogised in the Dichtung und Wahrheit (Bk. xiii) his spirit, intellect, and character, and his thorough insight into all that goes on in the social world. Whilst others occupied themselves with larger and more prominent public affairs and transactions, Moser observed and reproduced the common daily life of his nation, and the thousand “little things” which compose the texture of popular existence. He has been compared to Franklin for the homeliness, verve, and freshness of his writings. In opinions he is akin to the Italian Ortes. He is opposed to the whole spirit of the “Aufklärung,” and to the liberal and rationalistic direction of which Smith's work became afterwards the expression. He is not merely conservative but reactionary, manifesting a preference for mediæval institutions such as the trade guilds, and, like Carlyle in our own time, seeing advantages even in serfdom, when compared with the sort of freedom enjoyed by the modern drudge. He has a marked antipathy for the growth of the money power and of manufactures on the large scale, and for the highly developed division of labour. He is opposed to absolute private property in land, and would gladly see revived such a system of restrictions as in the interest of the state, the commune, and the family were imposed on mediæval ownership. In his wayward and caustic style, he often criticises effectively the doctrinaire narrowness of his contemporaries, throws out many striking ideas, and in particular sheds real light on the economic phenomena and general social conditions of the Middle Ages.
In the Netherlands, tendencies towards the new economic ideas showed themselves about the middle of the seventeenth century. Dirck Graswinckel (1600–1668) advocated free trade in corn, and was in general opposed to restrictions on industry. Pieter de la Court (1618–1685) dealt in a similar spirit with most of the practical questions of his country and age. He is in favour of the perfect liberty of citizens to buy and sell, produce and consume, as well as to learn and teach; and he sharply criticised the system of trade corporations. He was in literary alliance with the Grand Pensionary, John de Witt. His principal work (Aanwysing der heilsame politike gronden en Maximan van de Republike van Holland en Westfriesland, 1669 ) was commonly attributed to that statesman. It is better known in the French translation (1709) which appeared under the title of Memoires de Jean de Witt. Jan de la Court (1622–1660), the brother of Pieter, followed the same direction. The works of Salmasius (1639, 1640) were of great importance in the controversy on the necessity and lawfulness of interest on money loans.
Adam Smith, with his Immediate Predecessors and his Followers.
The stagnation in economic inquiry which showed itself in England in the early part of the eighteenth century was not broken by any notable manifestation before 1735, when Bishop Berkeley put forward in his Querist, with much force and point, views opposed to those of the mercantile school on the nature of national wealth and the functions of money, though not without an admixture of grave error. But soon a more decisive advance was made. Whilst in France the physiocrats were working after their own fashion towards the construction of a definitive system of political economy, a Scottish thinker of the first order was elucidating, in a series of short but pregnant essays, some of the fundamental conceptions of the science. What had been written on these questions in the English language before his time had remained almost altogether within the limits of the directly practical sphere. With Locke, indeed, the general system of the modern critical philosophy had come into relation with economic inquiry, but only in a partial and indeterminate way. But in Hume the most advanced form of this philosophy was represented, and his appearance in the field of economics decisively- marks the tendency of the latter order of speculation to place itself in connection with the largest and deepest thought on human nature and general human history. Most of the essays here referred to first appeared in 1752, in a volume entitled Political Discourses, and the number was completed in the collection of Essays and Treatises on Several Subjects, published in the following year. The most important of them are those on Commerce, on Money, on Interest, and on the Balance of Trade. Yet these should not be separated from the rest, for, notwithstanding the unconnected form of these little treatises, there runs through them a profound unity of thought, so that they indeed compose in a certain sense an economic system. They exhibit in full measure Hume's wonderful acuteness and subtlety, which indeed sometimes dispose him to paradox, in combination with the breadth, the absence of prejudice, and the social sympathies which so eminently distinguish him; and they offer, besides, the charm of his easy and natural style and his rare power of lucid exposition.
In the essay on money he refutes the mercantilist error, which tended to confound it with wealth. “Men and commodities,” he says, “are the real strength of any community.” “In the national stock of labour consists all real power and riches.” Money is only the oil which makes the movements of the mechanism of commerce more smooth and easy. He shows that, from the domestic as distinguished from the international point of view, the absolute quantity of money, supposed as of fixed amount, in a country is of no consequence, whilst an excessive quantity, larger, that is, than is required for the interchange of commodities, may be injurious as raising prices and driving foreigners from the home markets. He goes so far, in one or two places, as to assert that the value of money is chiefly fictitious or conventional, a position which cannot be defended; but it must not be pressed against him, as he builds nothing on it. He has some very ingenious observations (since, however, questioned by J. S. Mill) on the effects of the increase of money in a country in stimulating industry during the interval which takes place before the additional amount is sufficiently diffused to alter the whole scale of prices. He shows that the fear of the money of an industrious community being lost to it by passing into foreign countries is groundless, and that, under a system of freedom, the distribution of the precious metals which is adapted to the requirements of trade will spontaneously establish itself. “In short, a Government has great reason to preserve with care its people and its manufactures; its money it may safely trust to the course of human affairs without fear or jealousy.”
A very important service was rendered by his treatment of the rate of interest. He exposes the erroneous idea often entertained that it depends on the quantity of money in a country, and shows that the reduction of it must in general be the result of “the increase of industry and frugality, of arts and commerce,” so that it may serve as a barometer, its lowness being an almost infallible sign of the flourishing condition of a people. It may be observed in passing that in the essay devoted to this subject he brings out a principle of human nature which economists too often overlook, “the constant and insatiable desire of the mind for exercise and employment,” and the consequent action of ennui in prompting to exertion.
With respect to commerce, he points to its natural foundation in what has since been called “the territorial division of labour,” and proves that the prosperity of one nation, instead of being a hindrance, is a help to that of its neighbours. “Not only as a man, but as a British subject,” he says, “I pray for the flourishing commerce of Germany, Spain, Italy, and even France itself.” He condemns the “numberless bars, obstructions, and imposts which all nations of Europe, and none more than England, have put upon trade.” Yet on the question of protection to national industry he is not quite at the free-trade point of view, for he approves of a tax on German linen as encouraging home manufactures, and of a tax on brandy as increasing the sale of rum and supporting our southern colonies. Indeed it has been justly observed that there are in him several traces of a refined mercantilism, and that he represents a state of opinion in which the transition from the old to the new views is not yet completely effected.
We cannot do more than refer to the essay on taxes, in which, amongst other things, he repudiates the impôt unique of the physiocrats, and to that on public credit, in which he criticises the “new paradox that public encumbrances are of themselves advantageous, independent of the necessity of contracting them,” and objects, perhaps too absolutely, to the modern expedient of raising the money required for national enterprises by way of loan, and so shifting our burdens upon the shoulders of posterity.
The characteristics of Hume, which are most important in the history of economic investigation, are (1) his practice of bringing economic facts into connection with all the weighty interests of social and political life, and (2) his tendency to introduce the historical spirit into the study of those facts. He admirably illustrates the mutual action of the several branches of industry, and the influences of progress in the arts of production and in commerce on general civilisation, exhibits the striking contrasts of the ancient and modern system of life (see especially the essay On the Populousness of Ancient Nations), and considers almost every phenomenon which comes under discussion in its relations to the contemporary stage of social development. It cannot be doubted that Hume exercised a most important influence on Adam Smith, who in the Wealth of Nations calls him “by far the most illustrious philosopher and historian of the present age,” and who esteemed his character so highly that, after a friendship of many years had been terminated by Hume's decease, he declared him to have “approached as nearly to the ideal of a perfectly wise and virtuous man as perhaps the nature of human frailty will permit.”
Josiah Tucker, dean of Gloucester (d. 1799), holds a distinguished place among the immediate predecessors of Smith. Most of his numerous productions had direct reference to contemporary questions, and, though marked by much sagacity and penetration, are deficient in permanent interest. In some of these he urged the impolicy of restrictions on the trade of Ireland, advocated a union of that country with England, and recommended the recognition of the independence of the United States of America. The most important of his general economic views are those relating to international commerce. He s an ardent supporter of free-trade doctrines, which he bases on the principles that there is between nations no necessary antagonism, but rather a harmony, of interests, and that their several local advantages and different aptitudes naturally prompt them to exchange. He had not, however, got quite clear of mercantilism, and favoured bounties on exported manufactures and the encouragement of population by a tax on celibacy. Dupont, and after him Blanqui, represent Tucker as a follower of the physiocrats, but there seems to be no ground for this opinion except his agreement with them on the subject of the freedom of trade. Turgot translated into French (1755), under the title of Questions Importantes sur le Commerce, a tract by Tucker on The Expediency of a Law for the Naturalisation of Foreign Protestants.
In 1767 was published Sir James Steuart's Inquiry into the Principles of Political Economy. This was one of the most unfortunate of books. It was the most complete and systematic survey of the science from the point of view of moderate mercantilism which had appeared in England. Steuart was a man of no ordinary abilities, and had prepared himself for his task by long and serious study. But the time for the mercantile doctrines was past, and the system of natural liberty was in possession of an intellectual ascendency which foreshadowed its political triumph. Nine years later the Wealth of Nations was given to the world, a work as superior to Steuart's in attractiveness of style as in scientific soundness. Thus the latter was predestined to fail, and in fact never exercised any considerable theoretic or practical influence. Smith never quotes or mentions it; being acquainted with Steuart, whose conversation he said was better than his book, he probably wished to keep clear of controversy with him. The German economists have examined Steuart's treatise more carefully than English writers have commonly done; and they recognise its high merits, especially in relation to the theory of value and the subject of population. They have also pointed out that, in the spirit of the best recent research, he has dwelt on the special characters which distinguish the economies proper to different nations and different grades in social progress.
Coming now to the great name of Adam Smith (1723–1790), it is of the highest importance that we should rightly understand his position and justly estimate his claims. It is plainly contrary to fact to represent him, as some have done, as the creator of political economy. The subject of social wealth had always in some degree, and increasingly in recent times, engaged the attention of philosophic minds. The study had even indisputably assumed a systematic character, and, from being an assemblage of fragmentary disquisitions on particular questions of national interest, had taken the form, notably in Turgot's Réflexions, of an organised body of doctrine. The truth is, that Smith took up the science when it was already considerably advanced; and it was this very circumstance which enabled him, by the production of a classical treatise, to render most of his predecessors obsolete. But, whilst all the economic labours of the preceding centuries prepared the way for him, they did not anticipate his work. His appearance at an earlier stage, or without those previous labours, would be inconceivable; but he built, on the foundation which had been laid by others, much of his own that was precious and enduring.
Even those who do not fall into the error of making Smith the creator of the science, often separate him too broadly from Quesnay and his followers, and represent the history of modern Economics as consisting of the successive rise and reign of three doctrines—the mercantile, the physio-cratic, and the Smithian. The last two are, it is true, at variance in some even important respects. But it is evident, and Smith himself felt, that their agreements were much more fundamental than their differences; and, if we regard them as historical forces, they must be considered as working towards identical ends. They both urged society towards the abolition of the previously prevailing industrial policy of European Governments; and their arguments against that policy rested essentially on the same grounds. Whilst Smith's criticism was more searching and complete, he also analysed more correctly than the physiocrats some classes of economic phenomena—in particular dispelling the illusions into which they had fallen with respect to the unproductive nature of manufactures and commerce. Their school disappeared from the scientific field, not merely because it met with a political check in the person of Turgot, but because, as we have already said, the Wealth of Nations absorbed into itself all that was valuable in their teaching, whilst it continued more effectually the impulse they had given to the necessary work of demolition.
The history of economic opinion in modern times, down to the third decade of the nineteenth century, is, in fact, strictly bipartite. The first stage is filled with the mercantile system which, as we have shown, was rather a practical policy than a speculative doctrine, and which came into existence as the spontaneous growth of social conditions acting on minds not trained to scientific habits. The second stage is occupied with the gradual rise and ultimate ascendency of another system founded on the idea of the right of the individual to an unimpeded sphere for the exercise of his economic activity. With the latter, which is best designated as the “system of natural liberty,” we ought to associate the memory of the physiocrats as well as that of Smith, without, however, maintaining their services to have been equal to his.
The teaching of political economy was in the Scottish universities associated with that of moral philosophy. Smith, as we are told, conceived the entire subject he had to treat in his public lectures as divisible into four heads, the first of which was natural theology, the second ethics, the third jurisprudence; whilst in the fourth “he examined those political regulations which are founded upon expediency, and which are calculated to increase the riches, the power, and the prosperity of a state.” The last two branches of inquiry are regarded as forming but a single body of doctrine in the well-known passage of the Theory of Moral Sentiments (1759) in which the author promises to give in another discourse “an account of the general principles of law and government, and of the different revolutions they have undergone in the different ages and periods of society, not only in what concerns justice, but in what concerns police, revenue, and arms, and whatever else is the subject of law.” This shows how little it was Smith's habit to separate (except provisionally), in his conceptions or bis researches, the economic phenomena of society from all the rest. The words above quoted have, indeed, been not unjustly described as containing “an anticipation, wonderful for his period, of general Sociology, both statical and dynamical, an anticipation which becomes still more remarkable when we learn from his literary executors that he had formed the plan of a connected history of the liberal sciences and elegant arts, which must have added to the branches of social study already enumerated a view of the intellectual progress of society.” Though these large designs were never carried out in their integrity, as indeed at that period they could not have been adequately realised, it has resulted from them that, though economic phenomena form the special subject of the Wealth of Nations, Smith yet incorporated into that work much that relates to the other social aspects, incurring thereby the censure of some of his followers, who insist with pedantic narrowness on the strict isolation of the economic domain.
There has been much discussion on the question—What is the scientific method followed by Smith in his great work? By some it is considered to have been purely deductive, a view which Buckle has perhaps carried to the greatest extreme. He asserts that in Scotland the inductive method was unknown, that the inductive philosophy exercised no influence on Scottish thinkers; and, though Smith spent some of the most important years of his youth in England, where the inductive method was supreme, and though he was widely read in general philosophical literature, he yet thinks he adopted the deductive method because it was habitually followed in Scotland,—and this though Buckle maintains that it is the only appropriate, or even possible, method in political economy, which surely would have been a sufficient reason for choosing it. That the inductive spirit exercised no influence on Scottish philosophers is certainly not true; as will be presently shown, Montesquieu, whose method is essentially inductive, was in Smith's time studied with quite peculiar care and regarded with special veneration by Smith's fellow-countrymen. As to Smith himself, what may justly be said of him is that the deductive bent was certainly not the predominant character of his mind, nor did his great excellence lie in the “dialectic skill” which Buckle ascribes to him. What strikes us most in his book is his wide and keen observation of social facts, and his perpetual tendency to dwell on these and elicit their significance, instead of drawing conclusions from abstract principles by elaborate chains of reasoning. It is this habit of his mind which gives us, in reading him, so strong and abiding a sense of being in contact with the realities of life.
That Smith does, however, largely employ the deductive method is certain; and that method is quite legitimate when the premises from which the deduction sets out are known universal facts of human nature and properties of external objects. Whether this mode of proceeding will carry us far may indeed well be doubted; but its soundness cannot be disputed. But there is another vicious species of deduction which, as Cliffe Leslie has shown, seriously tainted the philosophy of Smith—in which the premises are not facts ascertained by observation, but the same a priori assumptions, half theological half metaphysical, respecting a supposed harmonious and beneficent natural order of things which we found in the physiocrats, and which, as we saw, were embodied in the name of that sect. In his view, Nature has made provision for social wellbeing by the principle of the human constitution which prompts every man to better his condition: the individual aims only at his private gain, but in doing so is “led by an invisible hand” to promote the public good, which was no part of his intention; human institutions, by interfering with the action of this principle in the name of the public interest, defeat their own end; but, when all systems of preference or restraint are taken away, “the obvious and simple system of natural liberty establishes itself of its own accord.” This theory is, of course, not explicitly presented by Smith as a foundation of his economic doctrines, but it is really the secret substratum on which they rest. Yet, whilst such latent postulates warped his view of things, they did not entirely determine his method. His native bent towards the study of things as they are preserved him from extravagances into which many of his followers have fallen. But besides this, as Leslie has pointed out, the influence of Montesquieu tended to counterbalance the theoretic prepossessions produced by the doctrine of the jus natures. That great thinker, though he could not, at his period, understand the historical method which is truly appropriate to sociological inquiry, yet founded his conclusions on induction. It is true, as Comte has remarked, that his accumulation of facts, borrowed from the most different states of civilisation, and not subjected to philosophic criticism, necessarily remained on the whole sterile, or at least could not essentially advance the study of society much beyond the point at which he found it. His merit, as we have before mentioned, lay in the recognition of the subjection of all social phenomena to natural laws, not in the discovery of those laws. But this limitation was overlooked by the philosophers of the time of Smith, who were much attracted by the system he followed of tracing social facts to the special circumstances, physical or moral, of the communities in which they were observed. Leslie has shown that Lord Kaimes, Dalrymple, and Millar—contemporaries of Smith, and the last his pupil—were influenced by Montesquieu; and he might have added the more eminent name of Ferguson, whose respect and admiration for the great Frenchman are expressed in striking terms in his History of Civil Society. We are even informed that Smith himself in his later years was occupied in preparing a commentary on the Esprit des Lois. He was thus affected by two different and incongruous systems of thought—one setting out from an imaginary code of nature intended for the benefit of man, and leading to an optimistic view of the economic constitution founded on enlightened self-interest; the other following inductive processes, and seeking to explain the several states in which human societies are found existing, as results of circumstances or institutions which have been in actual operation. And we find accordingly in his great work a combination of these two methods— inductive inquiry on the one hand, and, on the other, a priori speculation founded on the “Nature” hypothesis. The latter vicious proceeding has in some of his followers been greatly aggravated, while the countervailing spirit of inductive investigation has fallen into the background, and indeed the necessity or utility of any such investigation in the economic field has been sometimes altogether denied.
Some have represented Smith's work as of so loose a texture and so defective an arrangement that it may be justly described as consisting of a series of monographs. But this is certainly an exaggeration. The book, it is true, is not framed on a rigid mould, nor is there any parade of systematic divisions and subdivisions; and this doubtless recommended it to men of the world and of business, for whose instruction it was, at least primarily, intended. But it has the real and pervading unity which results from a set of principles and a mode of thinking identical throughout and the general absence of such contradictions as would arise from an imperfect digestion of the subject.
Smith sets out from the thought that the annual labour of a nation is the source from which it derives its supply of the necessaries and conveniences of life. He does not of course contemplate labour as the only factor in production; but it has been supposed that by emphasising it at the outset he at once strikes the note of difference between himself on the one hand and both the mercantilists and the physiocrats on the other. The improvement in the productiveness of labour depends largely on its division; and he proceeds accordingly to give his unrivalled exposition of that principle, of the grounds on which it rests, and of its greater applicability to manufactures than to agriculture, in consequence of which the latter relatively lags behind in the course of economic development. The origin of the division of labour he finds in the propensity of human nature “to truck, barter, or exchange one thing for another.” He shows that a certain accumulation of capital is a condition precedent of this division, and that the degree to which it can be carried is dependent on the extent of the market. When the division of labour has been established, each member of the society must have recourse to the others for the supply of most of his wants; a medium of exchange is thus found to be necessary, and money comes into use. The exchange of goods against each other or against money gives rise to the notion of value. This word has two meanings—that of utility, and that of purchasing power; the one may be called value in use, the other value in exchange. Merely mentioning the former, Smith goes on to study the latter. What, he asks, is the measure of value? what regulates the amount of one thing which will be given for another? “Labour,” Smith answers, “is the real measure of the exchangeable value of all commodities.” “Equal quantities of labour, at all times and places, are of equal value to the labourer.” “Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. I is their real price; money is their nominal price only.” Money, however, is in men's actual transactions the measure of value, as well as the vehicle of exchange; and the precious metals are best suited for this function, as varying little in their own value for periods of moderate length; for distant times, corn is a better standard of comparison. In relation to the earliest social stage, we need consider nothing but the amount of labour employed in the production of an article as determining its exchange value; but in more advanced periods price is complex, and consists in the most general case of three elements—wages, profit, and rent. Wages are the reward of labour Profit arises as soon as stock, being accumulated in the hands of one person, is employed by him in setting others to work, and supplying them with materials and subsistence, in order to make a gain by what they produce. Rent arises as soon as the land of a country has all become private property; “the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.” In every improved society, then, these three elements enter more or less into the price of the far greater part of commodities. There is in every society or neighbourhood an ordinary or average rate of wages and profit in every different employment of labour and stock, regulated by principles to be explained hereafter, as also an ordinary or average rate of rent. These may be called the natural rates at the time when and the place where they prevail; and the natural price of a commodity is what is sufficient to pay for the rent of the land, the wages of the labour, and the profit of the stock necessary for bringing the commodity to market. The market price may rise above or fall below the amount so fixed, being determined by the proportion between the quantity brought to market and the demand of those who are willing to pay the natural price. Towards the natural price as a centre the market price, regulated by competition, constantly gravitates. Some commodities, however, are subject to a monopoly of production, whether from the peculiarities of a locality or from legal privilege: their price is always the highest that can be got; the natural price of other commodities is the lowest which can be taken for any length of time together. The three component parts or factors of price vary with the circumstances of the society. The rate of wages is determined by a “dispute” or struggle of opposite interests between the employer and the workman. A minimum rate is fixed by the condition that they must be at least sufficient to enable a man and his wife to maintain themselves and, in general, bring up a family. The excess above this will depend on the circumstances of the country, and the consequent demand for labour—wages being high when national wealth is increasing, low when it is declining. The same circumstances determine the variation of profits, but in an opposite direction; the increase of stock, which raises wages, tending to lower profit through the mutual competition of capitalists. “The whole of the advantages and disadvantages of the different employments of labour and stock must, in the same neighbourhood, be either perfectly equal or continually tending to equality”; if one had greatly the advantage over the others, people would crowd into it, and the level would soon be restored. Yet pecuniary wages and profits are very different in different employments—either from certain circumstances affecting the employments, which recommend or disparage them in men's notions, or from national policy, “which nowhere leaves things at perfect liberty.” Here follows Smith's admirable exposition of the causes which produce the inequalities in wages and profits just referred to, a passage affording ample evidence of his habits of nice observation of the less obvious traits in human nature, and also of the operation both of these and of social institutions on economic facts. The rent of land comes next to be considered, as the last of the three elements of price. Rent is a monopoly price, equal, not to what the landlord could afford to take, but to what the farmer can afford to give. “Such parts only of the produce of land can commonly be brought to market, of which the ordinary price is sufficient to replace the stock which must be employed in bringing them thither, together with the ordinary profits. If the ordinary price is more than this; the surplus part will naturally go to the rent of the land. If it is not more, though the commodity may be brought to market, it can afford no rent to the landlord. Whether the price is or is not more depends on the demand.” “Rent, therefore, enters into the price of commodities in a different way from wages and profits. High or low wages and profit are the causes of high or low price; high or low rent is the effect of it.”
Rent, wages, and profits, as they are the elements of price, are also the constituents of income; and the three great orders of every civilised society, from whose revenues that of every other order is ultimately derived, are the landlords, the labourers, and the capitalists. The relation of the interests of these three classes to those of society at large is different. The interest of the landlord always coincides with the general interest: whatever promotes or obstructs the one has the same effect on the other. So also does that of the labourer: when the wealth of the nation is progressive, his wages are high; they are low when it is stationary or retrogressive. “The interest of the third order has not the same connection with the general interest of the society as that of the other two;… it is always in some respects different from and opposite to that of the public.”
The subject of the second book is “the nature, accumulation, and improvement of stock.” A man's whole stock consists of two portions—that which is reserved for his immediate consumption, and that which is employed so as to yield a revenue to its owner. This latter, which is his “capital,” is divisible into the two classes of “fixed” and “circulating.” The first is such as yields a profit without passing into other hands. The second consists of such goods, raised, manufactured, or purchased, as are sold for a profit and replaced by other goods; this sort of capital is therefore constantly going from and returning to the hands of its owner. The whole capital of a society falls under the same two heads. Its fixed capital consists chiefly of (1) machines, (2) buildings which are the means of procuring a revenue, (3) agricultural improvements, and (4) the acquired and useful abilities of all members of the society (since sometimes known as “personal capital”). Its circulating capital is also composed of four parts—(1) money, (2) provisions in the hands of the dealers, (3) materials, and (4) completed work in the hands of the manufacturer or merchant. Next comes the distinction of the gross national revenue from the net—the first being the whole produce of the land and labour of a country, the second what remains after deducting the expense of maintaining the fixed capital of the country and that part of its circulating capital which consists of money. Money, “the great wheel of circulation,” is altogether different from the goods which are circulated by means of it; it is a costly instrument by means of which all that each individual receives is distributed to him; and the expenditure required, first to provide it, and afterwards to maintain it, is a deduction from the net revenue of the society. In development of this consideration, Smith goes on to explain the gain to the community arising from the substitution of paper money for that composed of the precious metals; and here occurs the remarkable illustration in which the use of gold and silver money is compared to a highway on the ground, that of paper money to a waggon-way through the air. In proceeding to consider the accumulation of capital, he is led to the distinction between productive and unproductive labour—the former being that which is fixed or realised in a particular object or vendible article, the latter that which is not so realised. The former is exemplified in the labour of the manufacturing workman, the latter in that of the menial servant. A broad line of demarcation is thus drawn between the labour which results in commodities or increased value of commodities and that which does no more than render services: the former is productive, the latter unproductive. “Productive” is by no means equivalent to “useful”: the labours of the magistrate, the soldier, the churchman, lawyer, and physician are, in Smith's sense, unproductive. Productive labourers alone are employed out of capital; unproductive labourers, as well as those who do not labour at all, are all maintained by revenue. In advancing industrial communities, the portion of annual produce set apart as capital bears an increasing proportion to that which is immediately destined to constitute a revenue, either as rent or as profit. Parsimony is the source of the increase of capital; by augmenting the fund devoted to the maintenance of productive hands, it puts in motion an additional quantity of industry, which adds to the value of the annual produce. What is annually saved is as regularly consumed as what is spent, but by a different set of persons, by productive labourers instead of idlers or unproductive labourers; and the former reproduce with a profit the value of their consumption. The prodigal, encroaching on his capital, diminishes, as far as in him lies, the amount of productive labour, and so the wealth of the country; nor is this result affected by his expenditure being on home-made, as distinct from foreign, commodities. Every prodigal, therefore, is a public enemy; every frugal man a public benefactor. The only mode of increasing the annual produce of the land and labour is to increase either the number of productive labourers or the productive powers of those labourers. Either process will in general require additional capital, the former to maintain the new labourers, the latter to provide improved machinery or to enable the employer to introduce a more complete division of labour. In what are commonly called loans of money, it is not really the money, but the money's worth, that the borrower wants; and the lender really assigns to him the right to a certain portion of the annual produce of the land and labour of the country. As the general capital of a country increases, so also does the particular portion of it from which the possessors wish to derive a revenue without being at the trouble of employing it themselves; and, as the quantity of stock thus available for loans is augmented, the interest diminishes, not merely “from the general causes which make the market price of things commonly diminish as their quantity increases,” but because, with the increase of capital, “it becomes gradually more and more difficult to find within the country a profitable method of employing any new capital”—whence arises a competition between different capitals, and a lowering of profits, which must diminish the price which can be paid for the use of capital, or in other words the rate of interest. It was formerly wrongly supposed, and even Locke and Montesquieu did not escape this error, that the fall in the value of the precious metals consequent on the discovery of the American mines was the real cause of the permanent lowering of the rate of interest in Europe. But this view, already refuted by Hume, is easily seen to be erroneous. “In some countries the interest of money has been prohibited by law. But, as something can everywhere be made by the use of money, something ought everywhere to be paid for the use of it,” and will in fact be paid for it; and the prohibition will only heighten the evil of usury by increasing the risk to the lender. The legal rate should be a very little above the lowest market rate; sober people will then be preferred as borrowers to prodigals and projectors, who at a higher legal rate would have an advantage over them, being alone willing to offer that higher rate.
As to the different employments of capital, the quantity of productive labour put in motion by an equal amount varies extremely according as that amount is employed—(1) in the improvement of lands, mines, or fisheries, (2) in manufactures, (3) in wholesale or (4) retail trade. In agriculture “Nature labours along with man,” and not only the capital of the farmer is reproduced with his profits, but also the rent of the landlord. It is therefore the employment of a given capital which is most advantageous to society. Next in order come manufactures; then wholesale trade—first the home trade, secondly the foreign trade of consumption, last the carrying trade. All these employments of capital, however, are not only advantageous, but necessary, and will introduce themselves in the due degree, if they are left to the spontaneous action of individual enterprise.
These first two books contain Smith's general economic scheme; and we have stated it as fully as was consistent with the necessary brevity, because from this formulation of doctrine the English classical school set out, and round it the discussions of more recent times in different countries have in a great measure revolved. Some of the criticisms of his successors and their modifications of his doctrines will come under our notice as we proceed.
The critical philosophers of the eighteenth century were often destitute of the historical spirit, which was no part of the endowment needed for their principal social office. But some of the most eminent of them, especially in Scotland, showed a marked capacity and predilection for historical studies. Smith was amongst the latter; Knies and others justly remark on the masterly sketches of this kind which occur in the Wealth of Nations. The longest and most elaborate of these occupies the third book; it is an account of the course followed by the nations of modern Europe in the successive development of the several forms of industry. It affords a curious example of the effect of doctrinal prepossessions in obscuring the results of historical inquiry. Whilst he correctly describes the European movement of industry, and explains it as arising out of adequate social causes, he yet, in accordance with the absolute principles which tainted his philosophy, protests against it as involving an entire inversion of the “natural order of things.” First agriculture, then manufactures, lastly foreign commerce; any other order than this he considers “unnatural and retrograde.” Hume, a more purely positive thinker, simply sees the facts, accepts them, and classes them under a general law. “It is a violent method,” he says, “and in most cases impracticable, to oblige the labourer to toil in order to raise from the land more than what subsists himself and family. Furnish him with manufactures and commodities, and he will do it of himself.” “If we consult history, we shall find that, in most nations, foreign trade has preceded any refinement in home manufactures, and given birth to domestic luxury.”
The fourth book is principally devoted to the elaborate and exhaustive polemic against the mercantile system which finally drove it from the field of science, and has exercised a powerful influence on economic legislation. When protection is now advocated, it is commonly on different grounds from those which were in current use before the time of Smith. He believed that to look for the restoration of freedom of foreign trade in Great Britain would have been “as absurd as to expect that an Oceana or Utopia should be established in it”; yet, mainly in consequence of his labours, that object has been completely attained; and it has lately been said with justice that free trade might have been more generally accepted by other nations if the patient reasoning of Smith had not been replaced by dogmatism. His teaching on the subject is not altogether unqualified; but, on the whole, with respect to exchanges of every kind, where economic motives alone enter, his voice is in favour of freedom. He has regard, however, to political as well as economic interests, and on the ground that “defence is of much more importance than opulence,” pronounces the Navigation Act to have been “perhaps the wisest of all the commercial regulations of England.” Whilst objecting to the prevention of the export of wool, he proposes a tax on that export as somewhat less injurious to the interest of growers than the prohibition, whilst it would “afford a sufficient advantage” to the domestic over the foreign manufacturer. This is, perhaps, his most marked deviation from the rigour of principle; it was doubtless a concession to popular opinion with a view to an attainable practical improvement The wisdom of retaliation in order to procure the repeal of high duties or prohibitions imposed by foreign Governments depends, he says, altogether on the likelihood of its success in effecting the object aimed at, but he does not conceal his contempt for the practice of such expedients. The restoration of freedom in any manufacture, when it has grown to considerable dimensions by means of high duties, should, he thinks, from motives of humanity, be brought about only by degrees and with circumspection,—though the amount of evil which would be caused by the immediate abolition of the duties is, in his opinion, commonly exaggerated. The case in which J. S. Mill would tolerate protection—that, namely, in which an industry well adapted to a country is kept down by the acquired ascendency of foreign producers—is referred to by Smith; but he is opposed to the admission of this exception for reasons which do not appear to be conclusive. He is perhaps scarcely consistent in approving the concession of temporary monopolies to joint-stock companies undertaking risky enterprises “of which the public is afterwards to reap the benefit.” He is less absolute in his doctrine of Governmental noninterference when he comes to consider in his fifth book the “expenses of the sovereign or the commonwealth.” He recognises as coming within the functions of the state the erection and maintenance of those public institutions and public works which, though advantageous to the society, could not repay, and therefore must not be thrown upon, individuals or small groups of individuals. He remarks in a just historical spirit that the performance of these functions requires very different degrees of expense in the different periods of society. Besides the institutions and works intended for public defence and the administration of justice, and those required for facilitating the commerce of the society, he considers those necessary for promoting the instruction of the people. He thinks the public at large may with propriety not only facilitate and encourage, but even impose upon almost the whole body of the people, the acquisition in youth of the most essential elements of education. He suggests as the mode of enforcing this obligation the requirement of submission to a test examination “before any one could obtain the freedom in any corporation, or be allowed to set up a trade in any village or town corporate.” Similarly, he is of opinion that some probation, even in the higher and more difficult sciences, might be enforced as a condition of exercising any liberal profession, or becoming a candidate for any honourable office. The expense of the institutions for religious instruction as well as for general education, he holds, may without injustice be defrayed out of the funds of the whole society, though he would apparently prefer that it should be met by the voluntary contributions of those who think they have occasion for such education or instruction. There is much that is sound, as well as interesting and suggestive, in this fifth book, in which he shows a political instinct and a breadth of view by which he is favourably contrasted with the Manchester school. But, if we may say so without disrespect to so great a man, there are traces in it of what is now called Philistinism—a low view of the ends of art and poetry—which arose perhaps in part from personal defect; and a certain deadness to the high aims and perennial importance of religion, which was no doubt chiefly due to the influences of an age when the critical spirit was doing an indispensable work, in the performance of which the transitory was apt to be confounded with the permanent.
For the sake of considering as a whole Smith's view of the functions of government, we have postponed noticing his treatment of the physiocratic system, which occupies a part of his fourth book. He had formed the acquaintance of Quesnay, Turgot, and other members of their group during his sojourn in France in 1765, and would, as he told Dugald Stewart, had the patriarch of the school lived long enough, have dedicated to him the Wealth of Nations. He declares that, with all its imperfections, the system of Quesnay is “perhaps the nearest approximation to the truth that had yet appeared on the subject of political economy.” Yet he seems not to be adequately conscious of the degree of coincidence between his own doctrines and those of the physiocrats. Dupont de Nemours complained that he did not do Quesnay the justice of recognising him as his spiritual father. It is, however, alleged, on the other side, that already in 1753 Smith had been teaching as professor a body of economic doctrine the same in its broad features with that contained in his great work. This is indeed said by Stewart; and, though he gives no evidence of it, it is possibly quite true; if so, Smith's doctrinal descent must be traced rather from Hume than from the French school. The principal error of this school, that, namely, of representing agricultural labour as alone productive, he refutes in the fourth book, though in a manner which has not always been considered effective. Traces of the influence of their mistaken view appear to remain in his own work, as, for example, his assertion that in agriculture nature labours along with man, whilst in manufactures nature does nothing, man does all; and his distinction between productive and unproductive labour, which was doubtless suggested by their use of those epithets, and which is scarcely consistent with his recognition of what is now called “personal capital.” To the same source M'Culloch and others refer the origin of Smith's view, which they represent as an obvious error, that “individual advantage is not always a true test of the public advantageousness of different employments.” But that view is really quite correct, as Professor Nicholson has clearly shown. That the form taken by the use of capital, profits being given, is not indifferent to the working class as a whole even Ricardo admitted; and Cairnes, as we shall see, built or. this consideration some of the most far-reaching conclusions in his Leading Principles.
On Smith's theory of taxation in his fifth book it is not necessary for us to dwell. The well-known canons which he lays down as prescribing the essentials of a good system have been generally accepted. They have lately been severely criticised by Professor Walker—of whose objections, however, there is only one which appears to be well founded. Smith seems to favour the view that the contribution of the individual to public expenses may be regarded as payment for the services rendered to him by the state, and ought to be proportional to the extent of those services. If he held this opinion, which some of his expressions imply, he was certainly so far wrong in principle.
We shall not be held to anticipate unduly if we remark here on the way in which opinion, revolted by the aberrations of some of Smith's successors, has tended to turn from the disciples to the master. A strong sense of his comparative freedom from the vicious tendencies of Ricardo and his followers has recently prompted the suggestion that we ought now to recur to Smith, and take up once more from him the line of the economical succession. But notwithstanding his indisputable superiority, and whilst fully recognising the great services rendered by his immortal work, we must not forget that, as has been already said, that work was, on the whole, a product, though an exceptionally eminent one, of the negative philosophy of the 18th century, resting largely in its ultimate foundation on metaphysical bases. The mind of Smith was mainly occupied with the work of criticism so urgent in his time; his principal task was to discredit and overthrow the economic system then prevalent, and to demonstrate the radical unfitness of the existing European Governments to direct the industrial movement. This office of his fell in with, and formed a part of, the general work of demolition carried on by the thinkers who gave to his period its characteristic tone. It is to his honour that, besides this destructive operation, he contributed valuable elements to the preparation of an organic system of thought and of life. In his special domain he has not merely extinguished many errors and prejudices, and cleared the ground for truth, but has left us a permanent possession in the judicious analyses of economic facts and ideas, the wise practical suggestions, and the luminous indications of all kinds with which his work abounds. Belonging to the best philosophical school of his period, that with which the names of Hume and Diderot are associated, he tended strongly towards the positive point of view. But it was not possible for him to attain it; and the final and fully normal treatment of the economic life of societies must be constituted on other and more lasting foundations than those which underlie his imposing construction.
It has been well said that of philosophic doctrines the saying “By their fruits ye shall know them” is eminently true. And it cannot be doubted that the germs of the vicious methods and false or exaggerated theories of Smith's successors are to be found in his own work, though his good sense and practical bent prevented his following out his principles to their extreme consequences. The objections of Hildebrand and others to the entire historical development of doctrine which the Germans designate as “Smithianismus” are regarded by those critics as applicable, not merely to his school as a whole, but, though in a less degree, to himself. The following are the most important of these objections. It is said—(1) Smith's conception of the social economy is essentially individualistic. In this he falls in with the general character of the negative philosophy of his age. That philosophy, in its most typical forms, even denied the natural existence of the disinterested affections, and explained the altruistic feelings as secondary results of self-love. Smith, however, like Hume, rejected these extreme views; and hence it has been held that in the Wealth of Nations he consciously, though tacitly, abstracted from the benevolent principles in human nature, and as a logical artifice supposed an “economic man” actuated by purely selfish motives. However this may be, he certainly places himself habitually at the point of view of the individual, whom he treats as a purely egoistic force, working uniformly in the direction of private gain, without regard to the good ot others or of the community at large. (2) He justifies this personal attitude by its consequences, presenting the optimistic view that the good of the community is best attained through the free play of individual cupidities, provided only that the law prevents the interference of one member of the society with the self-seeking action of another. He assumes with the negative school at large—though he has passages which are not in harmony with these propositions—that every one knows his true interest and will pursue it, and that the economic advantage of the individual coincides with that of the society. To this last conclusion he is secretly led, as we have seen, by a priori theological ideas, and also by metaphysical conceptions of a supposed system of nature, natural right, and natural liberty. (3) By this reduction of almost every question to one of individual gain, he is led to a too exclusive consideration of exchange value as distinct from wealth in the proper sense. This, whilst lending a mechanical facility in arriving at conclusions, gives a superficial character to economic investigation, divorcing it from the physical and biological sciences, excluding the question of real social utility, leaving no room for a criticism of production, and leading to a denial, like J. S. Mill's, of any economic doctrine dealing with consumption— in other words, with the use of wealth. (4) In condemning the existing industrial policy, he tends too much towards a glorification of non-government and a repudiation of all social intervention for the regulation of economic life. (5) He does not keep in view the moral destination of our race, nor regard wealth as a means to the higher ends of life, and thus incurs, not altogether unjustly, the charge of materialism, in the wider sense of that word. Lastly, (6) his whole system is too absolute in its character; it does not sufficiently recognize the fact that, in the language of Hildebrand, man, as a member of society, is a child of civilization and a product of history, and that account ought to be taken of the different stages of social development as implying altered economic conditions and calling for altered economic action, or even involving a modification of the actor. Perhaps in all the respects here enumerated, certainly in some of them, and notably in the last, Smith is less open to criticism than most of the later English economists; but it must, we think, be admitted that to the general principles which lie at the basis of his scheme the ultimate growth of these several vicious tendencies is traceable.
Great expectations had been entertained respecting Smith's work by competent judges before its publication, as is shown by the language of Ferguson on the subject in his History of Civil Society. That its merits received prompt recognition is proved by the fact of six editions having been called for within the fifteen years after its appearance. From the year 1783 it was more and more quoted in Parliament. Pitt was greatly impressed by its reasonings; Smith is reported to have said that that Minister understood the book as well as himself. Pulteney said in 1797 that Smith would persuade the then living generation and would govern the next.
Smith's earliest critics were Bentham and Lauderdale, who, though in general agreement with him, differed on special points. Jeremy Bentham was author of a short treatise entitled A Manual of Political Economy and various economic monographs, the most celebrated of which was his Defence of Usury (1787). This contained (Letter xiii) an elaborate criticism of a passage in the Wealth of Nations, already cited, in which Smith had approved of a legal maximum rate of interest fixed but a very little above the lowest market rate, as tending to throw the capital of the country into the hands of sober persons, as opposed to “prodigals and projectors.” Smith is said to have admitted that Bentham had made out his case. He certainly argues it with great ability; and the true doctrine no doubt is that, in a developed industrial society, it is expedient to let the rate be fixed by contract between the lender and the borrower, the law interfering only in case of fraud.
Bentham's main significance does not belong to the economic field. But, on the one hand, what is known as Benthamism was undoubtedly, as Comte has said, a derivative from political economy, and in particular from the system of natural liberty; and, on the other, it promoted the temporary ascendency of that system by extending to the whole of social and moral theory the use of the principle of individual interest and the method of deduction from that interest. This alliance between political economy and the scheme of Bentham is seen in the personal group of thinkers which formed itself round him,—thinkers most inaptly characterised by J. S. Mill as “profound,” but certainly possessed of much acuteness and logical power, and tending, though vaguely, towards a positive sociology, which, from their want of genuinely scientific culture and their absolute modes of thought, they were incapable of founding.
Lord Lauderdale, in his Inquiry into the Nature and Origin of Public Wealth (1804), a book still worth reading, pointed out certain real weaknesses in Smith's account of value and the measure of value, and of the productivity of labour, and threw additional light on several subjects, such as the true mode of estimating the national income, and the reaction of the distribution of wealth on its production.
Smith stood just at the beginning of a great industrial revolution. The world of production and commerce in which he lived was still, as Cliffe Leslie has said, a “very early” and comparatively narrow one; “the only steam-engine he refers to is Newcomen's,” and the cotton trade is mentioned by him only once, and that incidentally. “Between the years 1760 and 1770,” says Mr. Marshall, “Roebuck began to smelt iron by coal, Brindley connected the rising seats of manufactures with the sea by canals, Wedgwood discovered the art of making earthenware cheaply and well, Hargreaves invented the spinning-jenny, Arkwright utilised Wyatt's and High's inventions for spinning by rollers and applied water-power to move them, and Watt invented the condensing steam-engine. Crompton's mule and Cartwright's power-loom came shortly after.” Out of this rapid evolution followed a vast expansion of industry, but also many deplorable results, which, had Smith been able to foresee them, might have made him a less enthusiastic believer in the benefits to be wrought by the mere liberation of effort, and a less vehement denouncer of old institutions which in their day had given a partial protection to labour. Alongside of these evils of the new industrial system, Socialism appeared as the alike inevitable and indispensable expression of the protest of the working classes and the aspiration after a better order of things; and what we now call “the social question,” that inexorable problem of modern life, rose into the place which it has ever since maintained. This question was first effectually brought before the English mind by Thomas Robert Malthus (1766–1834), not, however, under the impulse of revolutionary sympathies, but in the interests of a conservative policy.
The first edition of the work which achieved this result appeared anonymously in 1798 under the title—An Essay on the Principle of Population, as it affects the future improvement of Society, with remarks on the speculations of Mr. Godwin, M. Condorcet, and other writers. This book arose out of certain private controversies of its author with his father, Daniel Malthus, who had been a friend of Rousseau, and was an ardent believer in the doctrine of human progress as preached by Condorcet and other French thinkers and by their English disciples. The most distinguished of the latter was William Godwin, whose Enquiry concerning Political Justice had been published in 1793. The views put forward in that work had been restated by its author in the Enquirer (1797), and it was on the essay in this volume entitled “Avarice and Profusion” that the discussion between the father and the son arose, “the general question of the future improvement of society” being thus raised between them—the elder Malthus defending the doctrines of Godwin, and the younger assailing them. The latter “sat down with an intention of merely stating his thoughts on paper in a clearer manner than he thought he could do in conversation,” and the Essay on population was the result.
The social scheme of Godwin was founded on the idea that the evils of society arise from the vices of human institutions. There is more than enough of wealth available for all, but it is not equally shared: one has too much, another has little or nothing. Let this wealth, as well as the labour of producing it, be equally divided; then every one will by moderate exertion obtain sufficient for plain living; there will be abundant leisure, which will be spent in intellectual and moral self-improvement; reason will determine human actions; government and every kind of force will be unnecessary; and, in time, by the peaceful influence of truth, perfection and happiness will be established on earth. To these glowing anticipations Malthus opposes the facts of the necessity of food and the tendency of mankind to increase up to the limit of the available supply of it. In a state of universal physical wellbeing, this tendency, which in real life is held in check by the difficulty of procuring a subsistence, would operate without restraint. Scarcity would follow the increase of numbers; the leisure would soon cease to exist; the old struggle for life would recommence; and inequality would reign once more. If Godwin's ideal system, therefore, could be established, the single force of the principle of population, Malthus maintained, would suffice to break it down.
It will be seen that the essay was written with a polemical object; it was an occasional pamphlet directed against the utopias of the day, not at all a systematic treatise on population suggested by a purely scientific interest. As a polemic, it was decidedly successful; it was no difficult task to dispose of the scheme of equality propounded by Godwin. Already, in 1761, Dr. Robert Wallace had published a work (which was amongst those used by Malthus in the composition of his essay) entitled Various Prospects of Mankind, Nature, and Providence, in which, after speaking of a community of goods as a remedy for the ills of society, he confessed that he saw one fatal objection to such a social organization, namely, “the excessive population that would ensue.” With Condorcet's extravagances, too, Malthus easily dealt. That eminent man, amidst the tempest of the French Revolution, had written, whilst in hiding from his enemies, his Esquisse d'un tableau historique de I'esprit humain. The general conception of this book makes its appearance an epoch in the history of the rise of sociology. In it, if we except some partial sketches by Turgot, is for the first time explained the idea of a theory of social dynamics founded on history; and its author is on this ground recognized by Comte as his principal immediate predecessor. But in the execution of his great project Condorcet failed. His negative metaphysics prevent his justly appreciating the past, and he indulges, at the close of his work, in vague hypotheses respecting the perfectibility of our race, and in irrational expectations of an indefinite extension of the duration of human life. Malthus seems to have little sense of the nobleness of Condorcet's attitude, and no appreciation of the grandeur of his leading idea. But of his chimerical hopes he is able to make short work; his good sense, if somewhat limited and prosaic, is at least effectual in detecting and exposing utopias.
The project of a formal and detailed treatise on population was an after-thought of Malthus. The essay in which he had studied a hypothetic future led him to examine the effects of the principle he had put forward on the past and present state of society; and he undertook an historical examination of these effects, and sought to draw such inferences in relation to the actual state of things as experience seemed to warrant. The consequence of this was such a change in the nature and composition of the essay as made it, in his own language, “a new work.” The book, so altered, appeared in 1803 under the title, An Essay on the Principle of Population, or a View of its Past and Present Effects on Human Happiness; with an Enquiry into our prospects respecting the future removal or mitigation of the evils which it occasions.
In the original form of the essay he had spoken of no checks to population but those which came under the head either of vice or of misery. He now introduces the new element of the preventive check supplied by what he calls “moral restraint,” and is thus enabled, as he himself said, to “soften some of the harshest conclusions” at which he had before arrived. The treatise passed through five editions in his lifetime, and in all of them he introduced various additions and corrections. That of 1817 is the last he fully revised, and presents the text substantially as it has since been reprinted.
Notwithstanding the great development which he gave to his work, and the almost unprecedented amount of discussion to which it gave rise, it remains a matter of some difficulty to discover what solid contribution he has made to our knowledge, nor is it easy to ascertain precisely what practical precepts, not already familiar, he founded on his theoretic principles. This twofold vagueness is well brought out in his celebrated correspondence with Senior, in the course of which it seems to be made apparent that his doctrine is new not so much in its essence as in the phraseology in which it is couched. He himself tells us that when, after the publication of the original essay, the main argument of which he had deduced from Hume, Wallace, Adam Smith, and Price, he began to inquire more closely into the subject, he found that “much more had been done” upon it “than he had been aware of.” It had “been treated in such a manner by some of the French economists, occasionally by Montesquieu, and, among our own writers, by Dr. Franklin, Sir James Steuart, Mr. Arthur Young, and Mr. Townsend, as to create a natural surprise that it had not excited more of the public attention.” “Much, however,” he thought, “remained yet to be done. The comparison between the increase of population and food had not, perhaps, been stated with sufficient force and precision,” and “few inquiries had been made into the various modes by which the level” between population and the means of subsistence “is effected.” The first desideratum here mentioned—the want, namely, of an accurate statement of the relation between the increase of population and that of food—Malthus doubtless supposed to have been supplied by the celebrated proposition that “population increases in a geometrical, food in an arithmetical, ratio.” This proposition, however, has been conclusively shown to be erroneous, there being no such difference of law between the increase of man and that of the organic beings which form his food. J. S. Mill is indignant with those who criticise Malthus's formula, which he groundlessly describes as a mere “passing remark,” because, as he thinks, though erroneous, it sufficiently suggests what is true; but it is surely important to detect unreal science, and to test strictly the foundations of beliefs. When the formula which we have cited is not used, other somewhat nebulous expressions are frequently employed, as, for example, that “population has a tendency to increase faster than food,” a sentence in which both are treated as if they were spontaneous growths, and which on account of the ambiguity of the word “tendency,” is admittedly consistent with the fact asserted by Senior, that food tends to increase faster than population. It must always have been perfectly well known that population will probably (though not necessarily) increase with every augmentation of the supply of subsistence, and may, in some instances, inconveniently press upon, or even for a certain time exceed, the number properly corresponding to that supply. Nor could it ever have been doubted that war, disease, poverty— the last two often the consequences of vice—are causes which keep population down. In fact, the way in which abundance, increase of numbers, want, increase of deaths, succeed each other in the natural economy, when reason does not intervene, had been fully explained by the Rev. Joseph Townsend in his Dissertation on the Poor Laws (1786), which, we have seen, was known to Malthus. Again, it is surely plain enough that the apprehension by individuals of the evils of poverty, or a sense of duty to their possible offspring, may retard the increase of population, and has in all civilized communities operated to a certain extent in that way. It is only when such obvious truths are clothed in the technical terminology of “positive” and “preventive checks” that they appear novel and profound; and yet they appear to contain the whole message of Malthus to mankind. The laborious apparatus of historical and statistical facts respecting the several countries of the globe, adduced in the altered form of the essay, though it contains a good deal that is curious and interesting, establishes no general result which was not previously well known, and is accordingly ignored by James Mill and others, who rest the theory on facts patent to universal observation. Indeed, as we have seen, the entire historical inquiry was an afterthought of Malthus, who, before entering on it, had already announced his fundamental principle.
It would seem, then, that what has been ambitiously called Malthus's theory of population, instead of being a great discovery, as some have represented it, or a poisonous novelty, as others have considered it, is no more than a formal enunciation of obvious, though sometimes neglected, facts. The pretentious language often applied to it by economists is objectionable, as being apt to make us forget that the whole subject with which it deals is as yet very imperfectly understood—the causes which modify the force of the sexual instinct, and those which lead to variations in fecundity, still awaiting a complete investigation.
It is the law of diminishing returns from land (of which more will be said hereafter), involving as it does—though only hypothetically—the prospect of a continuously increasing difficulty in obtaining the necessary sustenance for all the members of a society, that gives the principal importance to population as an economic factor. It is, in fact, the confluence of the Malthusian ideas with the theories of Ricardo, especially with the corollaries which the latter, as we shall see, deduced from the doctrine of rent (though these were not accepted by Malthus), that has led to the introduction of population as an element in the discussion of so many economic questions in recent times.
Malthus had undoubtedly the great merit of having called public attention in a striking and impressive way to a subject which had neither theoretically nor practically been sufficiently considered. But he and his followers appear to have greatly exaggerated both the magnitude and the urgency of the dangers to which they pointed. In their conceptions a single social imperfection assumed such portentous dimensions that it seemed to overcloud the whole heaven and threaten the world with ruin. This doubtless arose from his having at first omitted altogether from his view of the question the great counteracting agency of moral restraint. Because a force exists, capable, if unchecked, of producing certain results, it does not follow that those results are imminent or even possible in the sphere of experience. A body thrown from the hand would, under the single impulse of projection, move for ever in a straight line; but it would not be reasonable to take special action for the prevention of this result, ignoring the fact that it will be sufficiently counteracted by the other forces which will come into play. And such other forces exist in the case we are considering. If the inherent energy of the principle of population (supposed everywhere the same) is measured by the rate at which numbers increase under the most favourable circumstances, surely the force of less favourable circumstances, acting through prudential or altruistic motives, is measured by the great difference between this maximum rate and those which are observed to prevail in most European countries. Under a rational system of institutions, the adaptation of numbers to the means available for their support is effected by the felt or anticipated pressure of circumstances and the fear of social degradation, within a tolerable degree of approximation to what is desirable. To bring the result nearer to the just standard, a higher measure of popular enlightenment and more serious habits of moral reflection ought indeed to be encouraged. But it is the duty of the individual to his actual or possible offspring, and not any vague notions as to the pressure of the national population on subsistence, that will be adequate to influence conduct.
The only obligation on which Malthus insists is that of abstinence from marriage so long as the necessary provision for a family has not been acquired or cannot be reasonably anticipated. The idea of post-nuptial continence, which has since been put forward by J. S. Mill and others, is foreign to his view. He even suggests that an allowance might be made from the public funds for every child in a family beyond the number of six, on the ground that, when a man marries, he cannot tell how many children he shall have, and that the relief from an unlooked-for distress afforded by such a grant would not operate as an encouragement to marriage. The duty of economic prudence in entering on the married state is plain; but in the case of working men the idea of a secured provision must not be unduly pressed, and it must also be remembered that the proper age for marriage in any class depends on the duration of life in that class. Still, too early marriages are certainly not unfrequent, and they are attended with other than economic evils, so that possibly even legal measures might with advantage be resorted to for preventing them in all ranks by somewhat postponing the age of full civil competence—a change, however, which would not be without its dangers. On the other hand, the Malthusians often speak too lightly of involuntary celibacy, not recognising sufficiently that it is a deplorable necessity. They do not adequately estimate the value of domestic life as a school of the civic virtues, and the social importance (even apart from personal happiness) of the mutual affective education arising from the relations of the sexes in a well-constituted union.
Malthus further infers from his principles that states should not artificially stimulate population, and in particular that poor-laws should not be established, and, where they exist, should be abolished. The first part of this proposition cannot be accepted as applying to every social phase, for it is evident that in a case like that of ancient Rome, where continuous conquest was the chief occupation of the national activity, or in other periods when protracted wars threatened the independence or security of nations, statesmen might wisely take special action of the kind deprecated by Malthus. In relation to modern industrial communities he is doubtless in general right, though the promotion of immigration in new states is similar in principle to the encouragement of population The question of poor-laws involves other considerations. The English system of his day was, indeed, a vicious one, though acting in some degree as a corrective of other evils in our social institutions; and efforts for its amendment tended to the public good. But the proposal of abolition is one from which statesmen have recoiled, and which general opinion has never adopted. It is difficult to believe that the present system will be permanent; it is too mechanical and undiscriminating; on some sides too lax, it is often unduly rigorous in the treatment of the worthy poor who are the victims of misfortune; and, in its ordinary modes of dealing with the young, it is open to grave objection. But it would certainly be rash to abolish it; it is one of several institutions which will more wisely be retained until the whole subject of the life of the working classes has been more thoroughly, and also more sympathetically, studied. The position of Malthus with respect to the relief of destitution is subject to this general criticism, that, first proving too much, he then shrinks from the consequences of his own logic. It follows from his arguments, and is indeed explicitly stated in a celebrated passage of his original essay, that he who has brought children into the world without adequate provision for them should be left to the punishment of Nature, that “it is a miserable ambition to wish to snatch the rod from her hand,” and to defeat the action of her laws, which are the laws of God, and which “have doomed him and his family to suffer.” Though his theory leads him to this conclusion, he could not, as a Christian clergyman, maintain the doctrine that, seeing our brother in need, we ought to shut up our bowels of compassion from him; and thus he is involved in the radical inconsequence of admitting the lawfulness, if not the duty, of relieving distress in cases where he yet must regard the act as doing mischief to society. Buckle, who was imposed on by more than one of the exaggerations of the economists, accepts the logical inference which Malthus evaded. He alleges that the only ground on which we are justified in relieving destitution is the essentially self-regarding one, that by remaining deaf to the appeal of the sufferer we should probably blunt the edge of our own finer sensibilities.
It can scarcely be doubted that the favour which was at once accorded to the views of Malthus in certain circles was due in part to an impression, very welcome to the higher ranks of society, that they tended to relieve the rich and powerful of responsibility for the condition of the working classes, by showing that the latter had chiefly themselves to blame, and not either the negligence of their superiors or the institutions of the country. The application of his doctrines, too, made by some of his successors had the effect of discouraging all active effort for social improvement. Thus Chalmers “reviews seriatim and gravely sets aside all the schemes usually proposed for the amelioration of the economic condition of the people” on the ground that an increase of comfort will lead to an increase of numbers, and so the last state of things will be worse than the first.
Malthus has in more recent times derived a certain degree of reflected lustre from the rise and wide acceptance of the Darwinian hypothesis. Its author himself, in tracing its filiation, points to the phrase “struggle for existence” used by Malthus in relation to the social competition. Darwin believes that man has advanced to his present relatively high condition through such a struggle, consequent on his rapid multiplication. He regards, it is true, the agency of this cause for the improvement of our race as largely superseded by moral influences in the more advanced social stages. Yet he considers it, even in these stages, of so much importance towards that end, that notwithstanding the individual suffering arising from the struggle for life, he deprecates any great reduction in the natural, by which he seems to mean the ordinary, rate of increase.
There has been of late exhibited in some quarters a tendency to apply the doctrine of the “survival of the fittest” to human society in such a way as to intensify the harsher features of Malthus's exposition by encouraging the idea that whatever cannot sustain itself is fated, and must be allowed, to disappear. But what is repellent in this conception is removed by a wider view of the influence of Humanity, as a disposing power, alike on vital and on social conditions. As in the general animal domain the supremacy of man introduces a new force consciously controlling and ultimately determining the destinies of the subordinate species, so human providence in the social sphere can intervene for the protection of the weak, modifying by its deliberate action what would otherwise be a mere contest of comparative strengths inspired by selfish instincts.
David Ricardo (1772–1823) is essentially of the school of Smith, whose doctrines he in the main accepts, whilst he seeks to develop them, and to correct them in certain particulars. But his mode of treatment is very different from Smith's. The latter aims at keeping close to the realities of life as he finds them,—at representing the conditions and relations of men and things as they are; and, as Hume remarked on first reading his great work, his principles are everywhere exemplified and illustrated with curious facts. Quite unlike this is the way in which Ricardo proceeds. He moves in a world of abstractions. He sets out from more or less arbitrary assumptions, reasons deductively from these, and announces his conclusions as true, without allowing for the partial unreality of the conditions assumed or confronting his results with experience. When he seeks to illustrate his doctrines, it is from hypothetical cases,—his favourite device being that of imagining two contracting savages, and considering how they would be likely to act. He does not explain—probably he had not systematically examined, perhaps was not competent to examine—the appropriate method of political economy; and the theoretic defence of his mode of proceeding was left to be elaborated by J. S. Mill and Cairnes. But his example had a great effect in determining the practice of his successors. There was something highly attractive to the ambitious theorist in the sweeping march of logic which seemed in Ricardo's hands to emulate the certainty and comprehensiveness of mathematical proof, and in the portable and pregnant formulæ which were so convenient in argument, and gave a prompt, if often a more apparent than real, solution of difficult problems. Whatever there was of false or narrow in the fundamental positions of Smith had been in a great degree corrected by his practical sense and strong instinct for reality, but was brought out in its full dimensions and even exaggerated in the abstract theorems of Ricardo and his followers.
The dangers inherent in his method were aggravated by the extreme looseness of his phraseology. Senior pronounces him “the most incorrect writer who ever attained philosophical eminence.” His most ardent admirers find him fluctuating and uncertain in the use of words, and generally trace his errors to a confusion between the ordinary employment of a term and some special application of it which he has himself devised.
The most complete exposition of his system is to be found in his Principles of Political Economy and Taxation (1817). This work is not a complete treatise on the science, but a rather loosely connected series of disquisitions on value and price, rent, wages, and profits, taxes, trade, money and banking. Yet, though the connection of the parts is loose, the same fundamental ideas recur continually, and determine the character of the entire scheme.
The principal problem to which he addresses himself in this work is that of distribution,—that is to say, the proportions of the whole produce of the country which will be allotted to the proprietor of land, to the capitalist, and to the labourer. And it is important to observe that it is especially the variations in their respective portions which take place in the progress of society that he professes to study,—one of the most unhistorical of writers thus indicating a sense of the necessity of a doctrine of economic dynamics— a doctrine which, from his point of view, it was impossible to supply.
The principle which he puts first in order, and which is indeed the key to the whole, is this—that the exchange value of any commodity the supply of which can be increased at will is regulated, under a régime of free competition, by the labour necessary for its production. Similar propositions are to be found in the Wealth of Nations, not to speak of earlier English writings. Smith had said that, “in the early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them with one another.” But he wavers in his conception, and presents as the measure of value sometimes the quantity of labour necessary for the production of the object, sometimes the quantity of labour which the object would command in the market, which would be identical only for a given time and place. The theorem requires correction for a developed social system by the introduction of the consideration of capital, and takes the form in which it is elsewhere quoted from Malthus by Ricardo, that the real price of a commodity “depends on the greater or less quantity of capital and labour which must be employed to produce it.” (The expression “quantity of capital” is lax, the element of time being omitted, but the meaning is obvious.) Ricardo, however, constantly takes no notice of capital, mentioning labour alone in his statement of this principle, and seeks to justify his practice by treating capital as “accumulated labour;” but this artificial way of viewing the facts obscures the nature of the co-operation of capital in production, and by keeping the necessity of this co-operation out of sight has encouraged some socialistic errors. Ricardo does not sufficiently distinguish between the cause or determinant and the measure of value; nor does he carry back the principle of cost of production as regulator of value to its foundation in the effect of that cost on the limitation of supply. It is the “natural price” of a commodity that is fixed by the theorem we have stated; the market price will be subject to accidental and temporary variations from this standard, depending on changes in demand and supply; but the price will, permanently and in the long run, depend on cost of production defined as above. On this basis Ricardo goes on to explain the laws according to which the produce of the land and the labour of the country is distributed amongst the several classes which take part in production.
The theory of rent, with which he begins, though commonly associated with his name, and though it certainly forms the most vital part of his general economic scheme, was not really his, nor did he lay claim to it. He distinctly states in the preface to the Principles, that “in 1815 Mr. Malthus, in his Inquiry into the Nature and Progress of Rent, and a fellow of University College, Oxford, in his Essay on the Application of Capital to Land, presented to the world, nearly at the same moment, the true doctrine of rent.” The second writer here referred to was Sir Edward West, afterwards a judge of the supreme court of Bombay. Still earlier than the time of Malthus and West, as M'Culloch has pointed out, this doctrine had been clearly conceived and fully stated by Dr. James Anderson in his Enquiry into the Nature of Corn-Laws, published at Edinburgh in 1777. That this tract was unknown to Malthus and West we have every reason to believe; but the theory is certainly as distinctly enunciated and as satisfactorily supported in it as in their treatises; and the whole way in which it is put forward by Anderson strikingly resembles the form in which it is presented by Ricardo.
The essence of the theory is that rent, being the price paid by the cultivator to the owner of land for the use of its productive powers, is equal to the excess of the price of the produce of the land over the cost of production on that land. With the increase of population, and therefore of demand for food, inferior soils will be taken into cultivation; and the price of the entire supply necessary for the community will be regulated by the cost of production of that portion of the supply which is produced at the greatest expense. But for the land which will barely repay the cost of cultivation no rent will be paid. Hence the rent of any quality of land will be equal to the difference between the cost of production on that land and the cost of production of that produce which is raised at the greatest expense.
The doctrine is perhaps most easily apprehended by means of the supposition here made of the coexistence in a country of a series of soils of different degrees of fertility which are successively taken into cultivation as population increases. But it would be an error to believe, though Ricardo sometimes seems to imply it, that such difference is a necessary condition of the existence of rent. If all the land of a country were of equal fertility, still if it were appropriated, and if the price of the produce were more than an equivalent for the labour and capital applied to its production, rent would be paid. This imaginary case, however, after using it to clear our conceptions, we may for the future leave out of account.
The price of produce being, as we have said, regulated by the cost of production of that which pays no rent, it is evident that “corn is not high because a rent is paid, but a rent is paid because corn is high,” and that “no reduction would take place in the price of corn although landlords should forego the whole of their rent.” Rent is, in fact, no determining element of price; it is paid, indeed, out of the price, but the price would be the same if no rent were paid, and the whole price were retained by the cultivator.
It has often been doubted whether or not Adam Smith held this theory of rent. Sometimes he uses language which seems to imply it, and states prepositions which, if developed, would infallibly lead to it Thus he says, in a passage already quoted, “Such parts only of the produce of land can commonly be brought to market of which the ordinary price is sufficient to replace the stock which must be employed in bringing them thither, together with its ordinary profits. If the ordinary price is more than this, the surplus part of it will naturally go to the rent of land. If it is not more, though the commodity can be brought to market, it can afford no rent to the landlord. Whether the price is or is not more depends on the demand.” Again, in Smith's application of these considerations to mines, “the whole principle of rent,” Ricardo tells us, “is admirably and perspicuously explained.” But he had formed the opinion that there is in fact no land which does not afford a rent to the landlord; and, strangely, he seems to have seen that this appearance might arise from the aggregation into an economic whole of parcels of land which can and others which cannot pay rent. The truth, indeed, is, that the fact, if it were a fact, that all the land in a country pays rent would be irrelevant as an argument against the Andersonian theory, for it is the same thing in substance if there be any capital employed on land already cultivated which yields a return no more than equal to ordinary profits. Such last-employed capital cannot afford rent at the existing rate of profit, unless the price of produce should rise.
The belief which some have entertained that Smith, notwithstanding some vague or inaccurate expressions, really held the Andersonian doctrine, can scarcely be maintained when we remember that Hume, writing to him after having read for the first time the Wealth of Nations, whilst expressing general agreement with his opinions, said (apparently with reference to Bk. I, chap, vii), “I cannot think that the rent of farms makes any part of the price of the produce, but that the price is determined altogether by the quantity and the demand.” It is further noteworthy that a statement of the theory of rent is given in the same volume, published in 1777, which contains Anderson's polemic against Smith's objections to a bounty on the exportation of corn; this volume can hardly have escaped Smith's notice, yet neither by its contents nor by Hume's letter was he led to modify what he had said in his first edition on the subject of rent.
It must be remembered that not merely the unequal fertilities of different soils will determine differences of rent; the more or less advantageous situation of a farm in relation to markets, and therefore to roads and railways, will have a similar effect. Comparative lowness of the cost of transit will enable the produce to be brought to market at a smaller expense, and will thus increase the surplus which constitutes rent. This consideration is indicated by Ricardo, though he does not give it prominence, but dwells mainly on the comparative productiveness of soils.
Rent is denned by Ricardo as the price paid for the use of “the original and indestructible powers of the soil.” He thus differentiates rent, as he uses the term, from what is popularly designated by the word; and, when it is to be taken in his sense, it is often qualified as the “true” or “economic” rent. Part of what is paid to the landlord is often really profit on his expenditure in preparing the farm for cultivation by the tenant. But it is to be borne in mind that wherever such improvements are “amalgamated with the land,” and “add permanently to its productive powers,” the return for them follows the laws, not of profit, but of rent. Hence it becomes difficult, if not impossible, in practice to discriminate with any degree of accuracy the amount received by the landlord “for the use of the original powers of the soil” from the amount received by him as remuneration for his improvements or those made by his predecessors. These have raised the farm, as an instrument for producing food, from one class of productiveness to a higher, and the case is the same as if nature had originally placed the land in question in that higher class.
Smith had treated it as the peculiar privilege of agriculture, as compared with other forms of production, that in it “nature labours along with man,” and therefore, whilst the workmen in manufactures occasion the reproduction merely of the capital which employs them with its owner's profits, the agricultural labourer occasions the reproduction, not only of the employer's capital with profits, but also of the rent of the landlord. This last he viewed as the free gift of nature which remained “after deducting or compensating everything which can be regarded as the work of man.” Ricardo justly observes in reply that “there is not a manufacture which can be mentioned in which nature does not give her assistance to man.” He then goes on to quote from Buchanan the remark that “the notion of agriculture yielding a produce and a rent in consequence, because nature concurs with industry in the process of cultivation, is a mere fancy. It is not from the produce, but from the price at which the produce is sold, that the rent is derived; and this price is got, not because nature assists in the production, but because it is the price which suits the consumption to the supply.” There is no gain to the society at large from the rise of rent; it is advantageous to the landlords alone, and their interests are thus permanently in opposition to those of all other classes. The rise of rent may be retarded, or prevented, or even temporarily changed to a fall, by agricultural improvements, such as the introduction of new manures or of machines or of a better organisation of labour (though there is not so much room for this last as in other branches of production), or the opening of new sources of supply in foreign countries; but the tendency to a rise is constant so long as the population increases.
The great importance of the theory of rent in Ricardo's system arises from the fact that he makes the general economic condition of the society to depend altogether on the position in which agricultural exploitation stands. This will be seen from the following statement of his theory of wages and profits. The produce of every expenditure of labour and capital being divided between the labourer and the capitalist, in proportion as one obtains more the other, will necessarily obtain less. The productiveness of labour being given, nothing can diminish profit but a rise of wages or increase it but a fall of wages. Now the price of labour, being the same as its cost of production, is determined by the price of the commodities necessary for the support of the labourer. The price of such manufactured articles as he requires has a constant tendency to fall, principally by reason of the progressive application of the division of labour to their production. But the cost of his maintenance essentially depends, not on the price of those articles, but on that of his food; and, as the production of food will in the progress of society and of population require the sacrifice of more and more labour, its price will rise; money wages will consequently rise, and with the rise of wages profits will fall. Thus it is to the necessary gradual descent to inferior soils, or less productive expenditure on the same soil, that the decrease in the rate of profit which has historically taken place is to be attributed (Smith ascribed this decrease to the competition of capitalists, though in one place, Book I, chap, ix, he had a glimpse of the Ricardian view). This gravitation of profits towards a minimum is happily checked at times by improvements of the machinery employed in the production of necessaries, and especially by such discoveries in agriculture and other causes as reduce the cost of the prime necessary of the labourer; but here again the tendency is constant. Whilst the capitalist thus loses, the labourer does not gain; his increased money wages only enable him to pay the increased price of his necessaries, of which he will have no greater and probably a less share than he had before. In fact, the labourer can never for any considerable time earn more than what is required to enable the class to subsist in such a degree of comfort as custom has made indispensable to them, and to perpetuate their race without either increase or diminution. That is the “natural” price of labour; and if the market rate temporarily rises above it population will be stimulated, and the rate of wages will again fall. Thus whilst rent has a constant tendency to rise and profit to fall, the rise or fall of wages will depend on the rate of increase of the working classes. For the improvement of their condition Ricardo thus has to fall back on the Malthusian remedy, of the effective application of which he does not, however, seem to have much expectation. The securities against a superabundant population to which he points are the gradual abolition of the poor-laws—for their amendment would not content him—and the development amongst the working classes of a taste for greater comforts and enjoyments.
It will be seen that the socialists have somewhat exaggerated in announcing, as Ricardo's “iron law” of wages, their absolute identity with the amount necessary to sustain the existence of the labourer and enable him to continue the race. He recognizes the influence of a “standard of living” as limiting the increase of the numbers of the working classes, and so keeping their wages above the lowest point. But he also holds that, in long-settled countries, in the ordinary course of human affairs, and in the absence of special efforts restricting the growth of population, the condition of the labourer will decline as surely, and from the same causes, as that of the landlord will be improved.
If we are asked whether this doctrine of rent and the consequences which Ricardo deduced from it, are true, we must answer that they are hypothetically true in the most advanced industrial communities, and there only (though they have been rashly applied to the cases of India and Ireland), but that even in those communities neither safe inference nor sound action can be built upon them. As we shall see hereafter, the value of most of the theorems of the classical economics is a good deal attenuated by the habitual assumptions that we are dealing with “economic men,” actuated by one principle only; that custom, as against competition, has no existence; that there is no such thing as combination; that there is equality of contract between the parties to each transaction, and that there is a definite universal rate of profit and wages in a community; this last postulate implying (1) that the capital embarked in any undertaking will pass at once to another in which larger profits are for the time to be made; (2) that a labourer, whatever his local ties of feeling, family, habit, or other engagements, will transfer himself immediately to any place where, or employment in which, for the time, larger wages are to be earned than those he had previously obtained; and (3) that both capitalists and labourers have a perfect knowledge of the condition and prospects of industry throughout the country, both in their own and other occupations. But in Ricardo's speculations on rent and its consequences there is still more of abstraction. The influence of emigration, which has assumed vast dimensions since his time, is left out of account, and the amount of land at the disposal of a community is supposed limited to its own territory, whilst contemporary Europe is in fact largely fed by the western States of America. He did not adequately appreciate the degree in which the augmented productiveness of labour, whether from increased intelligence, improved organization, introduction of machinery, or more rapid and cheaper communication, steadily keeps down the cost of production. To these influences must be added those of legal reforms in tenure, and fairer conditions in contracts, which operate in the same direction. As a result of all these causes, the pressure anticipated by Ricardo is not felt, and the cry is of the landlords over falling rents, not of the consumer over rising prices. The entire conditions are in fact so altered that Professor Nicholson, no enemy to the “orthodox” economics, when recently conducting an inquiry into the present state of the agricultural question, pronounced the so-called Ricardian theory of rent “too abstract to be of practical utility.”
A particular economic subject on which Ricardo has thrown a useful light is the nature of the advantages derived from foreign commerce, and the conditions under which such commerce can go on. Whilst preceding writers had represented those benefits as consisting in affording a vent for surplus produce, or enabling a portion of the national capital to replace itself with a profit, he pointed out that they consist “simply and solely in this, that it enables each nation to obtain, with a given amount of labour and capital, a greater quantity of all commodities taken together.” This is no doubt the point of view at which we should habitually place ourselves; though the other forms of expression employed by his predecessors, including Adam Smith, are sometimes useful as representing real considerations affecting national production, and need not be absolutely disused. Ricardo proceeds to show that what determines the purchase of any commodity from a foreign country is not the circumstance that it can be produced there with less labour and capital than at home. If we have a greater positive advantage in the production of some other article than in that of the commodity in question, even though we have an advantage in producing the latter, it may be our interest to devote ourselves to the production of that in which we have the greatest advantage, and to import that in producing which we should have a less, though a real, advantage. It is, in short, not absolute cost of production, but comparative cost, which determines the interchange. This remark is just and interesting, though an undue importance seems to be attributed to it by J. S. Mill and Cairnes, the latter of whom magniloquently describes it as “sounding the depths” of the problem of international dealings,—though, as we shall see hereafter, he modifies it by the introduction of certain considerations respecting the conditions of domestic production.
For the nation as a whole, according to Ricardo, it is not the gross produce of the land and labour, as Smith seems to assert, that is of importance, but the net income—the excess, that is, of this produce over the cost of production, or, in other words, the amount of its rent and its profits; for the wages of labour, not essentially exceeding the maintenance of the labourers, are by him considered only as a part of the “necessary expenses of production.” Hence it follows, as he himself in a characteristic and often quoted passage says, that, “provided the net real income of the nation be the same, it is of no importance whether it consists of ten or twelve millions of inhabitants. If five millions of men could produce as much fond and clothing as was necessary for ten millions, food and clothing for five millions would be the net revenue. Would it be of any advantage to the country that to produce this same net revenue seven millions of men should be required,—that is to say, that seven millions should be employed to produce food and clothing sufficient for twelve millions? The food and clothing of five millions would be still the net revenue. The employing a greater number of men would enable us neither to add a man to our army and navy nor to contribute one guinea more in taxes.” Industry is here viewed, just as by the mercantilists, in relation to the military and political power of the state, not to the maintenance and improvement of human beings, as its end and aim. The labourer, as Held has remarked, is regarded not as a member of society, but as a means to the ends of society, on whose sustenance a part of the gross income must be expended, as another part must be spent on the sustenance of horses. We may well ask, as Sismondi did in a personal interview with Ricardo, “What! is wealth then everything? are men absolutely nothing!”
On the whole what seems to us true of Ricardo is this, that, whilst he had remarkable powers, they were not the powers best fitted for sociological research. Nature intended him rather for a mathematician of the second order than for a social philosopher. Nor had he the due previous preparation for social studies; for we must decline to accept Bagehot's idea that, though “in no high sense an educated man,” he had a specially apt training for such studies in his practice as an eminently successful dealer in stocks. The same writer justly notices the “anxious penetration with which he follows out rarefied minutiæ.” But he wanted breadth of survey, a comprehensive view of human nature and human life, and the strong social sympathies which, as the greatest minds have recognized, are a most valuable aid in this department of study. On a subject like that of money, where a few elementary propositions—into which no moral ingredient enters—have alone to be kept in view, he was well adapted to succeed; but in the larger social field he is at fault. He had great deductive readiness and skill (though his logical accuracy, as Mr. Sidgwick remarks, has been a good deal exaggerated). But in human affairs phenomena are so complex, and principles so constantly limit or even compensate one another, that rapidity and daring in deduction may be the greatest of dangers, if they are divorced from a wide and balanced appreciation of facts. Dialectic ability is, no doubt, a valuable gift, but the first condition for success in social investigation is to see things as they are.
A sort of Ricardo-mythus for some time existed in economic circles. It cannot be doubted that the exaggerated estimate of his merits arose in part from a sense of the support his system gave to the manufacturers and other capitalists in their growing antagonism to the old aristocracy of landowners. The same tendency, as well as his affinity to their too abstract and unhistorical modes of thought, and their eudæmonistic doctrines, recommended him to the Benthamite group, and to the so-called Philosophical Radicals generally. Brougham said he seemed to have dropped from the skies—a singular avatar, it must be owned. His real services in connection with questions of currency and banking naturally created a prepossession in favour of his more general views. But, apart from those special subjects, it does not appear that, either in the form of solid theoretic teaching or of valuable practical guidance, he has really done much for the world, whilst he admittedly misled opinion on several important questions. De Quincey's presentation of him as a great revealer of truth is now seen to be an extravagance. J. S. Mill and others speak of his “superior lights” as compared with those of Adam Smith; but his work, as a contribution to our knowledge of human society, will not bear a moment's comparison with the Wealth of Nations.
It is interesting to observe that Malthus, though the combination of his doctrine of population with the principles of Ricardo composed the creed for some time professed by all the “orthodox” economists, did not himself accept the Ricardian scheme. He prophesied that “the main part of the structure would not stand.” “The theory,” he says, “takes a partial view of the subject, like the system of the French economists; and, like that system, after having drawn into its vortex a great number of very clever men, it will be unable to support itself against the testimony of obvious facts, and the weight of those theories which, though less simple and captivating, are more just on account of their embracing more of the causes which are in actual operation in all economical results.”
We saw that the foundations of Smith's doctrine in general philosophy were unsound, and the ethical character of his scheme in consequence injuriously affected; but his mode of treatment, consisting in the habitual combination of induction and deduction, we found little open to objection. Mainly through the influence of Ricardo, economic method was perverted. The science was led into the mistaken course of turning its back on observation, and seeking to evolve the laws of phenomena out of a few hasty generalisations by a play of logic. The principal vices which have been in recent times not unjustly attributed to the members of the “orthodox” school were all encouraged by his example, namely,—(1) the viciously abstract character of the conceptions with which they deal, (2) the abusive preponderance of deduction in their processes of research, and (3) the too absolute way in which their conclusions are conceived and enunciated.
The works of Ricardo have been collected in one volume, with a biographical notice, by J. R. M'Culloch (1846).
After Malthus and Ricardo, the first of whom had fixed public attention irresistibly on certain aspects of society, and the second had led economic research into new, if questionable, paths, came a number of minor writers who were mainly their expositors and commentators, and whom, accordingly, the Germans, with allusion to Greek mythical history, designate as the Epigoni. By them the doctrines of Smith and his earliest successors were thrown into more systematic shape, limited and guarded so as to be less open to criticism, couched in a more accurate terminology, modified in subordinate particulars, or applied to the solution of the practical questions of their day.
James Mill's Elements (1821) deserves special notice, as exhibiting the system of Ricardo with thoroughgoing rigour, and with a compactness of presentation, and a skill in the disposition of materials, which give to it in some degree the character of a work of art. The a priori political economy is here reduced to its simplest expression. J. R. M'Culloch (1779–1864), author of a number of laborious statistical and other compilations, criticised current economic legislation in the Edinburgh Review from the point of view of the Ricardian doctrine, taking up substantially the same theoretic position as was occupied at a somewhat later period by the Manchester school. He is altogether without originality, and never exhibits any philosophic elevation or breadth. His confident dogmatism is often repellent; he admitted in his later years that he had been too fond of novel opinions, and defended them with more heat and pertinacity than they deserved. It is noticeable that, though often spoken of in his own time both by those who agreed with his views, and those, like Sismondi, who differed from them, as one of the lights of the reigning school, his name is now tacitly dropped in the writings of the members of that school. Whatever may have been his partial usefulness in vindicating the policy of free trade, it is at least plain that for the needs of our social future he has nothing to offer. Nassau William Senior (1790–1864), who was professor of political economy in the university of Oxford, published, besides a number of separate lectures, a treatise on the science, which first appeared as an article in the Encyclopædia Metropolitana. He is a writer of a high order of merit. He made considerable contributions to the elucidation of economic principles, specially studying exactness in nomenclature and strict accuracy in deduction. His explanations on cost of production and the way in which it affects price, on rent, on the difference between rate of wages and price of labour, on the relation between profit and wages (with special reference to Ricardo's theorem on this subject, which he corrects by the substitution of proportional for absolute amount), and on the distribution of the precious metals between different countries, are particularly valuable. His new term “abstinence,” invented to express the conduct for which interest is the remuneration, was useful, though not quite appropriate, because negative in meaning. It is on the theory of wages that Senior is least satisfactory. He makes the average rate in a country (which, we must maintain, is not a real quantity, though the rate in a given employment and neighbourhood is) to be expressed by the fraction of which the numerator is the amount of the wages fund (an unascertainable and indeed, except as actual total of wages paid, imaginary sum) and the denominator the number of the working population; and from this he proceeds to draw the most important and far-reaching consequences, though the equation on which he founds his inferences conveys at most only an arithmetical fact, which would be true of every case of a division amongst individuals, and contains no economic element whatever. The phrase “wages fund’ originated in some expressions of Adam Smith used only for the purpose of illustration, and never intended to be rigorously interpreted; and we shall see that the doctrine has been repudiated by several members of what is regarded as the orthodox school of political economy. As regards method, Senior makes the science a purely deductive one, in which there is no room for any other “facts” than the four fundamental propositions from which he undertakes to deduce all economic truth. And he does not regard himself as arriving at hypothetic conclusions; his postulates and his inferences are alike conceived as corresponding to actual phenomena. Colonel Robert Torrens (1780–1864) was a prolific writer, partly on economic theory, but principally on its applications to financial and commercial policy. Almost the whole of the programme which was carred out in legislation by Sir Robert Peel had been laid down in principle in the writings of Torrens. He gave substantially the same theory of foreign trade which was afterwards stated by J. S. Mill in one of his Essays on Unsettled Questions. He was an early and earnest advocate of the repeal of the corn laws, but was not in favour of a general system of absolute free trade, maintaining that it is expedient to impose retaliatory duties to countervail similar duties imposed by foreign countries, and that a lowering of import duties on the productions of countries retaining their hostile tariffs would occasion an abstraction of the precious metals, and a decline in prices, profits, and wages. His principal writings of a general character were—The Economist [i.e., Physiocrat] Refuted, 1808; Essay on the Production of Wealth, 1821; Essay on the External Corntrade (eulogised by Ricardo), 3d ed., 1826; The Budget, a Series of Letters on Financial, Commercial, and Colonial Policy, 1841–3. Harriet Martineau (1802–1876) popularised the doctrines of Malthus and Ricardo in her Illustrations of Political Economy (1832–34), a series of tales, in which there is much excellent description, but the effect of the narrative is often marred by the somewhat ponderous disquisitions here and there thrown in, usually in the form of dialogue.
Other writers who ought to be named in any history of the science are Charles Babbage, On the Economy of Machinery and Manufactures (1832), chiefly descriptive, but also in part theoretic; William Thomas Thornton, Overpopulation and its Remedy (1846), A Plea for Peasant Proprietors (1848), On Labour (1869; 2d ed., 1870); Herman Merivale, Lectures on Colonisation and Colonies (1841–2; new ed., 1861); T. C. Banfield, The Organisation of Industry Explained (1844; 2d ed., 1848); and Edward Gibbon Wakefield, A View of the Art of Colonisation (1849). Thomas Chalmers, well known in other fields of thought, was author of The Christian and Civic Economy of Large Towns (1821–36), and On Political Economy in Connection with the Moral State and Moral Prospects of Society (1832); he strongly opposed any system of legal charity, and whilst justly insisting on the primary importance of morality, industry, and thrift as conditions of popular well-being, carried the Malthusian doctrines to excess. Nor was Ireland without a share in the economic movement of the period. Whately, having been second Drummond professor of political economy at Oxford (in succession to Senior), and delivered in that capacity his Introductory Lectures (1831), founded in 1832, when he went to Ireland as archbishop of Dublin, a similar professorship in Trinity College, Dublin. It was first held by Mountifort Longfield, afterwards Judge of the Landed Estates Court, Ireland (d. 1884). He published lectures on the science generally (1834), on Poor Laws (1834), and on Commerce and Absenteeism (1835), which were marked by independence of thought and sagacious observation. He was laudably free from many of the exaggerations of his contemporaries; he said, in 1835, “in political economy we must not abstract too much,” and protested against the assumption commonly made that “men are guided in all their conduct by a prudent regard to their own interest.” James A. Lawson (afterwards Mr. Justice Lawson, d. 1887) also published some lectures (1844), delivered from the same chair, which may still be read with interest and profit; his discussion of the question of population is especially good; he also asserted against Senior that the science is avide de faits, and that it must reason about the world and mankind as they really are.
The most systematic and thoroughgoing of the earlier critics of the Ricardian system was Richard Jones (1790–1855), professor at Haileybury. Jones has received scant justice at the hands of his successors. J. S. Mill, whilst using his work, gave his merits but faint recognition. Even Roscher says that he did not thoroughly understand Ricardo, without giving any proof of that assertion, whilst he is silent as to the fact that much of what has been preached by the German historical school is found distinctly indicated in Jones's writings. He has been sometimes represented as having rejected the Andersonian doctrine of rent; but such a statement is incorrect. Attributing the doctrine to Malthus, he says that that economist “showed satisfactorily that when land is cultivated by capitalists living on the profits of their stock, and able to move it at pleasure to other employments, the expense of tilling the worst quality of land cultivated determines the average price of raw produce, while the difference of quality of the superior lands measures the rents yielded by them.” What he really denied was the application of the doctrine to all cases where rent is paid; he pointed out in his Essay on the Distribution of Wealth and on the Sources of Taxation, 1831, that besides “farmers' rents,” which, under the supposed conditions, conform to the above law, there are “peasant rents,” paid everywhere through the most extended periods of history, and still paid over by far the largest part of the earth's surface, which are not so regulated. Peasant rents he divided under the heads of (1) serf, (2) métayer, (3) ryot, and (4) cottier rents, a classification afterwards adopted in substance by J. S. Mill; and he showed that the contracts fixing their amount were, at least in the first three classes, determined rather by custom than by competition. Passing to the superstructure of theory erected by Ricardo on the doctrine of rent which he had so unduly extended, Jones denied most of the conclusions he had deduced, especially the following:—that the increase of farmers' rents is always contemporary with a decrease in the productive powers of agriculture, and comes with loss and distress in its train; that the interests of landlords are always and necessarily opposed to the interests of the state and of every other class of society; that the diminution of the rate of profits is exclusively dependent on the returns to the capital last employed on the land; and that wages can rise only at the expense of profits.
The method followed by Jones is inductive; his conclusions are founded on a wide observation of contemporary facts, aided by the study of history. “If,” he said, “we wish to make ourselves acquainted with the economy and arrangements by which the different nations of the earth produce and distribute their revenues, I really know of but one way to attain our object, and that is, to look and see. We must get comprehensive views of facts, that we may arrive at principles that are truly comprehensive. If we take a different method, if we snatch at general principles, and content ourselves with confined observations, two things will happen to us. First, what we call general principles will often be found to have no generality—we shall set out with declaring propositions to be universally true which, at every step of our further progress, we shall be obliged to confess are frequently false; and, secondly, we shall miss a great mass of useful knowledge which those who advance to principles by a comprehensive examination of facts necessarily meet with on their road.” The world he professed to study was not an imaginary world, inhabited by abstract “economic men,” but the real world with the different forms which the ownership and cultivation of land, and, in general, the conditions of production and distribution, assume at different times and places. His recognition of such different systems of life in communities occupying different stages in the progress of civilisation led to his proposal of what he called a “political economy of nations.” This was a protest against the practice of taking the exceptional state of facts which exists, and is indeed only partially realised, in a small corner of our planet as representing the uniform type of human societies, and ignoring the effects of the early history and special development of each community as influencing its economic phenomena.
It is sometimes attempted to elude the necessity for a wider range of study by alleging a universal tendency in the social world to assume this now exceptional shape as its normal and ultimate constitution. Even if this tendency were real (which is only partially true, for the existing order amongst ourselves cannot be regarded as entirely definitive), it could not be admitted that the facts witnessed in our civilization and those exhibited in less advanced communities are so approximate as to be capable of being represented by the same formulæ. As Whewell, in editing Jones's Remains, 1859, well observed, it is true in the physical world that “all things tend to assume a form determined by the force of gravity; the hills tend to become plains, the waterfalls to eat away their beds and disappear, the rivers to form lakes in the valleys, the glaciers to pour down in cataracts.” But are we to treat these results as achieved, because forces are in operation which may ultimately bring them about? All human questions are largely questions of time; and the economic phenomena which really belong to the several stages of the human movement must be studied as they are, unless we are content to fall into grievous error both in our theoretic treatment of them and in the solution of the practical problems they present.
Jones is remarkable for his freedom from exaggeration and one-sided statement; thus, whilst holding Malthus in, perhaps, undue esteem, he declines to accept the proposition that an increase of the means of subsistence is necessarily followed by an increase of population; and he maintains what is undoubtedly true, that with the growth of population, in all well-governed and prosperous states, the command over food, instead of diminishing, increases.
Much of what he has left us—a large part of which is unfortunately fragmentary—is akin to the labours of Cliffe Leslie at a later period. The latter, however, had the advantage of acquaintance with the sociology of Comte, which gave him a firmer grasp of method, as well as a wider view of the general movement of society; and, whilst the voice of Jones was but little heard amidst the general applause accorded to Ricardo in the economic world of his time, Leslie wrote when disillusion had set in, and the current was beginning to turn in England against the a priori economics.
Comte somewhere speaks of the “transient predilection” for political economy which had shown itself generally in western Europe. This phase of feeling was specially noticeable in England from the third to the fifth decade of the present century. “Up to the year 1818,” said a writer in the Westmisster Review, “ the science was scarcely known or talked of beyond a small circle of philosophers; and legislation, so far from being in conformity with its principles, was daily receding from them more and more.” Mill has told us what a change took place within a few years. “Political economy,” he says, “had asserted itself with great vigour in public affairs by the petition of the merchants of London for free trade, drawn up in 1820 by Mr. Tooke and presented by Mr. Alexander Baring, and by the noble exertions of Ricardo during the few years of his parliamentary life. His writings, following up the impulse given by the bullion controversy, and followed up in their turn by the expositions and comments of my father and M'Culloch (whose writings in the Edinburgh Review during those years were most valuable), had drawn general attention to the subject, making at least partial converts in the Cabinet itself; and Huskisson, supported by Canning, had commenced that gradual demolition of the protective system which one of their colleagues” [Peel] “virtually completed in 1846, though the last vestiges were only swept away by Mr. Gladstone in 1860.” Whilst the science was thus attracting and fixing the attention of active minds, its unsettled condition was freely admitted. The differences of opinion among its professors were a frequent subject of complaint. But it was confidently expected that these discrepancies would soon disappear, and Colonel Torrens predicted that in twenty years there would scarcely “exist a doubt respecting any of its more fundamental principles.” “The prosperity,” says Mr. Sidgwick, “that followed on the abolition of the corn laws gave practical men a most impressive and satisfying proof of the soundness of the abstract reasoning by which the expediency of free trade had been inferred,” and when, in 1848, “a masterly expositor of thought had published a skilful statement of the chief results of the controversies of the preceding generation,” with the due “explanations and qualifications” of the reigning opinions, it was for some years generally believed that political economy had “emerged from the state of polemical discussion,” at least on its leading doctrines, and that at length a sound construction had been erected on permanent bases.
This expositor was John Stuart Mill (1806–73). He exercised, without doubt, a greater influence in the field of English economics than any other writer since Ricardo. His systematic treatise has been, either directly or through manuals founded on it, especially that of Fawcett, the source from which most of our contemporaries in these countries have derived their knowledge of the science. But there are other and deeper reasons, as we shall see, which make him, in this as in other departments of knowledge, a specially interesting and significant figure.
In 1844 he published five Essays on some Unsettled Questions of Political Economy, which had been written as early as 1829 and 1830, but had, with the exception of the fifth, remained in manuscript. In these essays is contained any dogmatic contribution which he can be regarded as having made to the science. The subject of the first is the laws of interchange between nations. He shows that, when two countries trade together in two commodities, the prices of the commodities exchanged on both sides (which, as Ricardo had proved, are not determined by cost of production) will adjust themselves, through the play of reciprocal demand, in such a way that the quantities required by each country of the article which it imports from its neighbour shall be exactly sufficient to pay for one another. This is the law which appears, with some added developments, in his systematic treatise under the name of the “equation of international demand.” He then discusses the division of the gains. The most important practical conclusion (not, however, by any means an undisputed one) at which he arrives in this essay is, that the relaxation of duties on foreign commodities, not operating as protection but maintained solely for revenue should be made contingent on the adoption of some corresponding degree of freedom of trade with England by the nation from which the commodities are imported. In the second essay, on the influence of consumption on production, the most interesting results arrived at are the propositions—(1) that absenteeism is a local, not a national, evil, and (2) that, whilst there cannot be permanent excess of production, there may be a temporary excess, not only of any one article, but of commodities generally,—this last, however, not arising from over-production, but from a want of commercial confidence. The third essay relates to the use of the words “productive” and “unproductive” as applied to labour, to consumption, and to expenditure. The fourth deals with profits and interest, especially explaining and so justifying Ricardo's theorem that “profits depend on wages, rising as wages fall and falling as wages rise.” What Ricardo meant was that profits depend on the cost of wages estimated in labour. Hence improvements in the production of articles habitually consumed by the labourer may increase profits without diminishing the real remuneration of the labourer. The last essay is on the definition and method of political economy, a subject later and more maturely treated in the author's System of Logic.
In 1848 Mill published his Principles of Political Economy, with some of their Applications to Social Philosophy. This title, though, as we shall see, open to criticism, indicated on the part of the author a less narrow and formal conception of the field of the science than had been common amongst his predecessors. He aimed, in fact, at producing a work which might replace in ordinary use the Wealth of Nations, which in his opinion was “in many parts obsolete and in all imperfect.” Adam Smith had invariably associated the general principles of the subject with their applications, and in treating those applications had often appealed to other and far larger considerations than pure political economy affords. And in the same spirit Mill desired, whilst incorporating all the results arrived at in the special science by Smith's successors, to exhibit purely economic phenomena in relation to the most advanced conceptions of his own time on the general philosophy of society, as Smith had done in reference to the philosophy of the eighteenth century.
This design he certainly failed to realise. His book is very far indeed from being a “modern Adam Smith.” It is an admirably lucid and even elegant exposition of the Ricardian economics, the Malthusian theory being of course incorporated with these, but, notwithstanding the introduction of many minor novelties, it is, in its scientific substance, little or nothing more. When Cliffe Leslie says that Mill so qualified and amended the doctrines of Ricardo that the latter could scarcely have recognized them, he certainly goes a great deal too far; Senior really did more in that direction. Mill's effort is usually to vindicate his master where others have censured him, and to palliate his admitted laxities of expression. Already his profound esteem for Ricardo's services to economics had been manifest in his Essays, where he says of him, with some injustice to Smith, that, “having a science to create,” he could not “occupy himself with more than the leading principles,” and adds that “no one who has thoroughly entered into his discoveries” will find any difficulty in working out “even the minutiæ of the science.” James Mill, too, had been essentially an expounder of Ricardo; and the son, whilst greatly superior to his father in the attractiveness of his expository style, is, in regard to his economic doctrine, substantially at the same point of view. It is in their general philosophical conceptions and their views of social aims and ideals that the elder and younger Mill occupy quite different positions in the line of progress. The latter could not, for example, in his adult period have put forward as a theory of government the shallow sophistries which the plain good sense of Macaulay sufficed to expose in the writings of the former; and he had a nobleness of feeling which, in relation to the higher social questions, raised him far above the ordinary coarse utilitarianism of the Benthamites.
The larger and more philosophic spirit in which Mill dealt with social subjects was undoubtedly in great measure due to the influence of Comte, to whom, as Bain justly says, he was under greater obligations than he himself was disposed to admit. Had he more completely undergone that influence we are sometimes tempted to think he might have wrought the reform in economics which still remains to be achieved, emancipating the science from the a priori system, and founding a genuine theory of industrial life on observation in the broadest sense. But probably the time was not ripe for such a construction, and it is possible that Mill's native intellectual defects might have made him unfit for the task, for, as Roscher has said, “ein historischer Kopf war er nicht.” However this might have been, the effects of his early training, in which positive were largely alloyed with metaphysical elements, sufficed in fact to prevent his attaining a perfectly normal mental attitude. He never altogether overcame the vicious direction which he had received from the teaching of his father, and the influence of the Benthamite group in which he was brought up. Hence it was that, according to the striking expression of Roscher, his whole view of life was “zu wenig aus Einem Gusse.” The incongruous mixture of the narrow dogmas of his youthful period with the larger ideas of a later stage gave a wavering and indeterminate character to his entire philosophy He is, on every side, eminently “un-final;” he represents tendencies to new forms of opinion, and opens new vistas in various directions, but founds scarcely anything, and remains indeed, so far as his own position is concerned, not merely incomplete but incoherent. It is, however, precisely this dubious position which seems to us to give a special interest to his career, by fitting him in a peculiar degree to prepare and facilitate transitions.
What he himself thought to be “the chief merit of his treatise” was the marked distinction drawn between the theory of production and that of distribution, the laws of the former being based on unalterable natural facts, whilst the course of distribution is modified from time to time by the changing ordinances of society. This distinction, we may remark, must not be too absolutely stated, for the organization of production changes with social growth, and, as Lauderdale long ago showed, the nature of the distribution in a community reacts on production. But there is a substantial truth in the distinction, and the recognition of it tends to concentrate attention on the question—How can we improve the existing distribution of wealth? The study of this problem led Mill, as he advanced in years, further and further in the direction of socialism; and, whilst to the end of his life his book, however otherwise altered, continued to deduce the Ricardian doctrines from the principle of enlightened selfishness, he was looking forward to an order of things in which synergy should be founded on sympathy.
The gradual modification of his views in relation to the economic constitution of society is set forth in his Autobiography. In his earlier days, he tells us, he “had seen little further than the old school” (note this significant title) “of political economy into the possibilities of fundamental improvement in social arrangements. Private property, as now understood, and inheritance appeared the dernier mot of legislation.” The notion of proceeding to any radical redress of the injustice “involved in the fact that some are born to riches and the vast majority to poverty” he had then reckoned chimerical. But now his views were such as would “class him decidedly under the general designation of socialist;” he had been led to believe that the whole contemporary framework of economic life was merely temporary and provisional, and that a time would come when “the division of the produce of labour, instead of depending, as in so great a degree it now does, on the accident of birth, would be made by concert on an acknowledged principle of justice.” “The social problem of the future” he considered to be “how to unite the greatest individual liberty of action,” which was often compromised in socialistic schemes, “with a common ownership in the raw material of the globe, and an equal participation in all the benefits of combined labour.” These ideas, he says, were scarcely indicated in the first edition of the Political Economy, rather more clearly and fully in the second, and quite unequivocally in the third,—the French Revolution of 1848 having made the public more open to the reception of novelties in opinion.
Whilst thus looking forward to a new economic order, he yet thinks its advent very remote, and believes that the inducements of private interest will in the meantime be indispensable. On the spiritual side he maintains a similar attitude of expectancy. He anticipates the ultimate disappearance of theism, and the substitution of a purely human religion, but believes that the existing doctrine will long be necessary as a stimulus and a control. He thus saps existing foundations without providing anything to take their place, and maintains the necessity of conserving for indefinite periods what he has radically discredited. Nay, even whilst sowing the seeds of change in the direction of a socialistic organisation of society, he favours present or proximate arrangements which would urge the industrial world towards other issues. The system of peasant proprietorship of land is distinctly individualistic in its whole tendency; yet he extravagantly praises it in the earlier part of his book, only receding from that laudation when he comes to the chapter on the future of the labouring classes. And the system of so-called co-operation in production which he so warmly commended in the later editions of his work, and led some of his followers to preach as the one thing needful, would inevitably strengthen the principle of personal property, and, whilst professing at most to substitute the competition of associations for that of individuals, would by no means exclude the latter.
The elevation of the working classes he bound up too exclusively with the Malthusian ethics, on which he laid quite an extravagant stress, though, as Bain has observed, it is not easy to make out his exact views, any more than his father's, on this subject. We have no reason to think that he ever changed his opinion as to the necessity of a restriction on population; yet that element seems foreign to the socialistic idea to which he increasingly leaned. It is at least difficult to see how, apart from individual responsibility for the support of a family, what Malthus called moral restraint could be adequately enforced. This difficulty is indeed the fatal flaw which, in Malthus's own opinion, vitiated the scheme of Godwin.
Mill's openness to new ideas and his enthusiasm for improvement cannot be too much admired. But there appears to have been combined with these fine traits in his mental constitution a certain want of practical sense, a failure to recognize and acquiesce in the necessary conditions of human life, and a craving for “better bread than can be made of wheat.” He entertained strangely exaggerated, or rather perverted, notions of the “subjection,” the capacities, and the rights of women. He encourages a spirit of revolt on the part of working men against their perpetual condemnation, as a class, to the lot of living by wages, without giving satisfactory proof that this state of things is capable of change, and without showing that such a lot, duly regulated by law and morality, is inconsistent with their real happiness. He also insists on the “independence” of the working class—which, according to him, farà da sè—in such a way as to obscure, if not to controvert, the truths that superior rank and wealth are naturally invested with social power, and are bound in duty to exercise it for the benefit of the community at large, and especially of its less favoured members. And he attaches a quite undue importance to mechanical and indeed, illusory expedients, such as the limitation of the power of bequest and the confiscation of the “unearned increment” of rent.
With respect to economic method also, he shifted his position; yet to the end occupied uncertain ground. In the fifth of his early essays he asserted that the method a priori is the only mode of investigation in the social sciences, and that the method a posteriori “is altogether inefficacious in those sciences, as a means of arriving at any considerable body of valuable truth.” When he wrote his Logic, he had learned from Comte that the a posteriori method—in the form which he chose to call “inverse deduction”—was the only mode of arriving at truth in general sociology; and his admission of this at once renders the essay obsolete. But, unwilling to relinquish the a priori method of his youth, he tries to establish a distinction of two sorts of economic inquiry, one of which, though not the other, can be handled by that method. Sometimes he speaks of political economy as a department “carved out of the general body of the science of society;” whilst on the other hand the title of his systematic work implies a doubt whether political economy is a part of “social philosophy” at all, and not rather a study preparatory and auxiliary to it. Thus, on the logical as well as the dogmatic side, he halts between two opinions. Notwithstanding his misgivings and even disclaimers, he yet remained, as to method, a member of the old school, and never passed into the new or “historical” school, to which the future belongs.
The question of economic method was also taken up by the ablest of his disciples, John Elliott Cairnes (1824–75), who devoted a volume to the subject (Logical Method of Political Economy, 1857; 2d ed., 1875). Professor Walker has spoken of the method advocated by Cairnes as being different from that put forward by Mill, and has even represented the former as similar to, if not identical with, that of the German historical school. But this is certainly an error. Cairnes, notwithstanding some apparent vacillation of view and certain concessions more formal than real, maintains the utmost rigour of the deductive method; he distinctly affirms that in political economy there is no room for induction at all, “the economist starting with a knowledge of ultimate causes,” and being thus, “at the outset of his enterprise, at the position which the physicist only attains after ages of laborious research.” He does not, indeed, seem to be advanced beyond the point of view of Senior, who professed to deduce all economic truth from four elementary propositions. Whilst Mill in his Logic represents verification as an essential part of the process of demonstration of economic laws, Cairnes holds that, as they “are not assertions respecting the character or sequence of phenomena” (though what else can a scientific law be?), “they can neither be established nor refuted by statistical or documentary evidence.” A proposition which affirms nothing respecting phenomena cannot be controlled by being confronted with phenomena. Notwithstanding the unquestionable ability of his book, it appears to mark, in some respects, a retrogression in methodology, and can for the future possess only an historical interest.
Regarded in that light, the labours of Mill and Cairnes on the method of the science, though intrinsically unsound, had an important negative effect. They let down the old political economy from its traditional position, and reduced its extravagant pretensions by two modifications of commonly accepted views. First, whilst Ricardo had never doubted that in all his reasonings he was dealing with human beings as they actually exist, they showed that the science, as he conceived it, must be regarded as a purely hypothetic one. Its deductions are based on unreal, or at least one-sided, assumptions, the most essential of which is that of the existence of the so-called “economic man,” a being who is influenced by two motives only, that of acquiring wealth and that of avoiding exertion; and only so far as the premises framed on this conception correspond with fact can the conclusions be depended on in practice. Senior in vain protested against such a view of the science, which, as he saw, compromised its social efficacy; whilst Torrens, who had previously combated the doctrines of Ricardo, hailed Mill's new presentation of political economy as enabling him, whilst in one sense rejecting those doctrines, in another sense to accept them. Secondly, beside economic science, it had often been said, stands an economic art,—the former ascertaining truths respecting the laws of economic phenomena, the latter prescribing the right kind of economic action; and many had assumed that, the former being given, the latter is also in our possession—that, in fact, we have only to convert theorems into precepts, and the work is done. But Mill and Cairnes made it plain that this statement could not be accepted, that action can no more in the economic world than in any other province of life be regulated by considerations borrowed from one department of things only; that economics can suggest ideas which are to be kept in view, but that, standing alone, it cannot direct conduct— an office for which a wider prospect of human affairs is required. This matter is best elucidated by a reference to Comte's classification, or rather hierarchical arrangement, of the sciences. Beginning with the least complex, mathematics, we rise successively to astronomy, physics, chemistry, thence to biology, and from it again to sociology. In the course of this ascent we come upon all the great laws which regulate the phenomena of the inorganic world, of organised beings, and of society. A further step, however, remains to be taken—namely, to morals; and at this point the provinces of theory and practice tend to coincide, because every element of conduct has to be considered in relation to the general good. In the final synthesis all the previous analyses have to be used as instrumental, in order to determine how every real quality of things or men may be made to converge to the welfare of Humanity.
Cairnes's most important economic publication was his last, entitled Some Leading Principles of Political Economy newly Expounded, 1874. In this work, which does not profess to be a complete treatise on the science, he criticises and emends the statements which preceding writers had given of some of its principal doctrines, and treats elaborately of the limitations with which they are to be understood, and the exceptions to them which may be produced by special circumstances. Whilst marked by great ability, it affords evidence of what has been justly observed as a weakness in Cairnes's mental constitution—his “deficiency in intellectual sympathy,” and consequent frequent inability to see more than one side of a truth.
The three divisions of the book relate respectively to (1) value, (2) labour and capital, and (3) international trade. In the first he begins by elucidating the meaning of the word “value,” and under this head controverts the view of Jevons that the exchange value of anything depends entirely on its utility, without, perhaps, distinctly apprehending what Jevons meant by this proposition. On supply and demand he shows, as Say had done before, that these, regarded as aggregates, are not independent, but strictly connected and mutually dependent phenomena—identical, indeed, under a system of barter, but, under a money system, conceivable as distinct. Supply and demand with respect to particular commodities must be understood to mean supply and demand at a given price; and thus we are introduced to the ideas of market price and normal price (as, following Cher-buliez, he terms what Smith less happily called natural price). Normal price again leads to the consideration of cost of production, and here, against Mill and others, he denies that profit and wages enter into cost of production; in other words, he asserts what Senior (whom he does not name) had said before him, though he had not consistently carried out the nomenclature, that cost of production is the sum of labour and abstinence necessary to production, wages and profits being the remuneration of sacrifice and not elements of it. But, it may well be asked, How can an amount of labour be added to an amount of abstinence? Must not wages and profits be taken as “measures of cost”? By adhering to the conception of “sacrifice” he exposes the emptiness of the assertion that “dear labour is the great obstacle to the extension of British trade”—a sentence in which “British trade” means capitalists' profits. At this point we are introduced to a doctrine now first elaborated, though there are indications of it in Mill, of whose theory of international values it is in fact an extension. In foreign trade cost of production, in Cairnes's sense, does not regulate values, because it cannot perform that function except under a régime of effective competition, and between different countries effective competition does not exist. But, Cairnes asks, to what extent does it exist in domestic industries? So far as capital is concerned, he thinks the condition is sufficiently fulfilled over the whole field—a position, let it be said in passing, which he does not seem to make out, if we consider the practical immobility of most invested, as distinct from disposable, capital. But in the case of labour the requisite competition takes place only within certain social, or rather industrial, strata. The world of industry may be divided into a series of superposed groups, and these groups are practically “non-competing,” the disposable labour in any one of them being rarely capable of choosing its field in a higher. The law that cost of production determines price cannot, therefore, be absolutely stated respecting domestic any more than respecting international exchange; as it fails for the latter universally, so it fails for the former as between non-competing groups. The law that holds between these is similar to that governing international values, which may be called the equation of reciprocal demand. Such a state of relative prices will establish itself amongst the products of these groups as shall enable that portion of the products of each group which is applied to the purchase of the products of all other groups to discharge its liabilities towards those other groups. The reciprocal demand of the groups determines the “average relative level” of prices within each group; whilst cost of production regulates the distribution of price among the individual products of each group This theorem is perhaps of no great practical value; but the tendency of the whole investigation is to attenuate the importance of cost of production as a regulator of normal price, and so to show that yet another of the accepted doctrines of the science had been propounded in too rigid and absolute a form. As to market price, the formula by which Mill had denned it as the price which equalises demand and supply Cairnes shows to be an identical proposition, and he defines it as the price which most advantageously adjusts the existing supply to the existing demand pending the coming forward of fresh supplies from the sources of production.
His second part is chiefly remarkable for his defence of what is known as the wages fund doctrine, to which we adverted when speaking of Senior. Mill had given up this doctrine, having been convinced by Thornton that it was erroneous; but Cairnes refused to follow his leader, who, as he believes, ought not to have been convinced. After having given what is certainly a fallacious reply to Longe's criticism of the expression “average rate of wages,” he proceeds to vindicate the doctrine in question by the consideration that the amount of a nation's wealth devoted at any time to the payment of wages—if the character of the national industries and the methods of production employed remain the same—is in a definite relation to the amount of its general capital; the latter being given, the former is also given. In illustrating his view of the subject, he insists on the principle (true in the main, but too absolutely formulated by Mill) that “demand for commodities is not demand for labour.” It is not necessary here to follow his investigation, for his reasoning has not satisfied his successors, with the exception of Fawcett, and the question of wages is now commonly treated without reference to a supposed determinate wages fund. Cairnes next studies trades-unionism in relation to wages, and arrives in substance at the conclusion that the only way in which it can affect their rate is by accelerating an advance which must ultimately have taken place independently of its action. He also takes occasion to refute Mr. (now Lord) Brassey's supposed law of a uniform cost of labour in every part of the world. Turning to consider the material prospects of the working classes, he examines the question of the changes which may be expected in the amount and partition of the fund out of which abstinence and labour are remunerated. He here enunciates the principle (which had been, however, stated before him by Ricardo and Senior) that the increased productiveness of industry will not affect either profit or wages unless it cheapen the commodities which the labourer consumes. These latter being mostly commodities of which raw produce is the only or principal element, their cost of production, notwithstanding improvements in knowledge and art, will increase unless the numbers of the labouring class be steadily kept in check; and hence the possibility of elevating the condition of the labourer is confined within very narrow limits, if he continues to be a labourer only. The condition of any substantial and permanent improvement in his lot is that he should cease to be a mere labourer—that profits should be brought to reinforce the wages fund, which has a tendency, in the course of industrial progress, to decline relatively to the general capital of a country. And hence Cairnes—abandoning the purely theoretic attitude which he elsewhere represents as the only proper one for the economist—recommends the system of so-called co-operation (that is, in fact, the abolition of the large capitalist) as offering to the working classes “the sole means of escape from a harsh and hopeless destiny,” and puts aside rather contemptuously the opposition of the Positivists to this solution, which yet many besides the Positivists, as, for example, Leslie and F. A. Walker, regard as chimerical.
The third part is devoted mainly to an exposition of Ricardo's doctrine of the conditions of international trade and Mill's theory of international values. The former Cairnes modifies by introducing his idea of the partial influence of reciprocal demand, as distinguished from cost of production, on the regulation of domestic prices, and founds on this rectification an interesting account of the connection between the wages prevailing in a country and the character and course of its external trade. He emends Mill's statement, which represented the produce of a country as exchanging for that of other countries at such values “as are required in order that the whole of her exports may exactly pay for the whole of her imports” by substituting for the latter phrase the condition that each country should by means of her exports discharge all her foreign liabilities—in other words, by introducing the consideration of the balance of debts. This idea was not new; it had been indicated by John Leslie Foster as early as 1804, and was touched on by Mill himself; but Cairnes expounds it well; and it is important as clearing away common misconceptions, and sometimes removing groundless alarms. Passing to the question of free trade, he disposes of some often-repeated protectionist arguments, and in particular refutes the American allegation of the inability of the highly-paid labour of that country to compete with the “pauper labour” of Europe. He is not so successful in meeting the “political argument,” founded on the admitted importance for civilization of developing diversified national industries; and he meets only by one of the highly questionable commonplaces of the doctrinaire economists Mill's proposition that protection may foster nascent indutries really adapted to a country till they have struck root and are able to endure the stress of foreign competition.
We have dwelt at some length on this work of Cairnes, not only because it presents the latest forms of several accepted economic doctrines, but also because it is, and, we believe, will remain, the last important product of the old English school. The author at the outset expresses the hope that it will strengthen, and add consistence to, the scientific fabric “built up by the labours of Adam Smith, Malthus, Ricardo, and Mill.” Whilst recognizing with him the great merits of Smith, and the real abilities and services of his three successors here named, we cannot entertain the same opinion as Cairnes respecting the permanance of the fabric they constructed. We hold that a new edifice is required, incorporating indeed many of the materials of the old, but planned on different ideas and in some respects with a view to different ends—above all, resting on different philosophic foundations, and having relation in its whole design to the more comprehensive structure of which it will form but one department, namely, the general science of society.
Cairnes's Slave Power (1862) was the most valuable work which appeared on the subject of the great American conflict.
All the later European schools presuppose—in part adopting, in part criticising—the work of the English economists from Smith to Ricardo and the Epigoni. The German school has had in a greater degree than any other a movement of its own—following, at least in its more recent period, an original method, and tending to special and characteristic conclusions. The French school, on the other hand,—if we omit the Socialists, who do not here come under consideration,—has in the main reproduced the doctrines of the leading English thinkers,—stopping short, however, in general of the extremes of Ricardo and his disciples. In the field of exposition the French are unrivalled; and in political economy they have produced a series of more or less remarkable systematic treatises, text-books, and compendiums, at the head of which stands the celebrated work of J. B. Say. But the number of seminal minds which have appeared in French economic literature—of writers who have contributed important truths, introduced improvements of method, or presented the phenomena under new lights—has not been large. Sismondi, Dunoyer, and Bastiat will deserve our attention, as being the most important of those who occupy independent positions (whether permanently tenable or not), if we pass over for the present the great philosophical renovation of Auguste Comte, which comprehended actually or potentially all the branches of sociological inquiry. Before estimating the labours of Bastiat. we shall find it desirable to examine the views of Carey, the most renowned of American economists, with which the latest teachings of the ingenious and eloquent Frenchman are, up to a certain point, in remarkable agreement. Cournot, too, must find a place among the French writers of this period, as the chief representative of the conception of a mathematical method in political economy.
Of Jean Baptiste Say (1767–1832) Ricardo says—“He was the first, or among the first, of Continental writers who justly appreciated and applied the principles of Smith, and has done more than all other Continental writers taken together to recommend that enlightened and beneficial system to the nations of Europe.” The Wealth of Nations in the original language was placed in Say's hands by Clavière, afterwards minister, then director of the assurance society of which Say was a clerk; and the book made a powerful impression on him. Long afterwards, when Dupont de Nemours complained of his injustice to the physiocrats, and claimed him as, through Smith, a spiritual grandson of Quesnay and nephew of Turgot, he replied that he had learned to read in the writings of the mercantile school, had learned to think in those of Quesnay and his followers, but that it was in Smith that he had learned to seek the causes and the effects of social phenomena in the nature of things, and to arrive at this last by a scrupulous analysis. His Traité d'Économie Politique (1803) was essentially founded on Smith's work, but he aimed at arranging the materials in a more logical and instructive order. He has the French art of easy and lucid exposition, though his facility sometimes degenerates into superficiality; and hence his book became popular, both directly and through translations obtained a wide circulation, and diffused rapidly through the civilized world the doctrines of the master. Say's knowledge of common life, says Roscher, was equal to Smith's; but he falls far below him in living insight into larger political phenomena, and he carefully eschews historical and philosophical explanations. He is sometimes strangely shallow, as when he says that “the best tax is that smallest in amount.” He appears not to have much claim to the position of an original thinker in political economy. Ricardo, indeed, speaks of him as having “enriched the science, by several discussions, original, accurate, and profound.” What he had specially in view in using these words was what is, perhaps rather pretentiously, called Say's théorie des débouchés, with his connected disproof of the possibility of a universal glut. The theory amounts simply to this, that buying is also selling, and that it is by producing that we are enabled to purchase the products of others. Several distinguished economists, especially Malthus and Sismondi, in consequence chiefly of a misinterpretation of the phenomena of commercial crises, maintained that there might be general over-supply or excess of all commodities above the demand. This Say rightly denied. A particular branch of production may, it must indeed be admitted, exceed the existing capabilities of the market; but, if we remember that supply is demand, that commodities are purchasing power, we cannot accept the doctrine of the possibility of a universal glut without holding that we can have too much of everything—that “all men can be so fully provided with the precise articles they desire as to afford no market for each other's superfluities.” Whatever services, however, Say may have rendered by original ideas on those or other subjects, his great merit is certainly that of a propagandist and populariser.
The imperial police would not permit a second edition of his work to be issued without the introduction of changes which, with noble independence, he refused to make; and that edition did not therefore appear till 1814. Three other editions were published during the life of the author—in 1817, 1819, and 1826. In 1828 Say published a second treatise, Cours complet d'Économic Politique pratique, which contained the substance of his lectures at the Conservatoire des Arts et Métiers and at the Collége de France. Whilst in his earlier treatise he had kept within the narrow limits of strict economics, in his later work he enlarged the sphere of discussion, introducing in particular many considerations respecting the economic influence of social institutions.
Jean Charles L. Simonde de Sismondi (1773–1842), author of the Histoire des Républiques Italiennes du moyen âge, represents in the economic field a protest, founded mainly on humanitarian sentiment, against the dominant doctrines He wrote first a treatise De la Richesse Commerciale (1803), in which he followed strictly the principles of Adam Smith. But he afterwards came to regard these principles as insufficient and requiring modification. He contributed an article on political economy to the Edinburgh Encyclopædia, in which his new views were partially indicated. They were fully developed in his principal economic work, NouveauxPrincipes d'Économie Politique, ou de la Richesse dans ses rapports avec la Population (1819; 2d ed., 1827). This work, as he tells us, was not received with favour by economists, a fact which he explains by the consideration that he had “attacked an orthodoxy—an enterprise dangerous in philosophy as in religion.” According to his view, the science, as commonly understood, was too much of a mere chrematistic: it studied too exclusively the means of increasing wealth, and not sufficiently the use of this wealth for producing general happiness. The practical system founded on it tended, as he believed, not only to make the rich richer, but to make the poor poorer and more dependent; and he desired to fix attention on the question of distribution as by far the most important, especially in the social circumstances of recent times.
The personal union in Sismondi of three nationalities, the Italian, the French, and the Swiss, and his comprehensive historical studies, gave him a special largeness of view; and he was filled with a noble sympathy for the suffering members of society. He stands nearer to socialism than any other French economist proper, but it is only in sentiment, not in opinion, that he approximates to it; he does not recommend any socialistic scheme. On the contrary, he declares in a memorable passage that, whilst he sees where justice lies, he must confess himself unable to suggest the means of realising it in practice; the division of the fruits of industry between those who are united in their production appears to him vicious; but it is, in his judgment, almost beyond human power to conceive any system of property absolutely different from that which is known to us by experience. He goes no further than protesting, in view of the great evils which he saw around him, against the doctrine of laisser faire, and invoking, somewhat vaguely, the intervention of Governments to “regulate the progress of wealth” and to protect the weaker members of the community.
His frank confession of impotence, far wiser and more honourable than the suggestion of precipitate and dangerous remedies, or of a recurrence to outworn mediæval institutions, has not affected the reputation of the work. A prejudice was indeed early created against it in consequence of its partial harmony of tone, though, as we have seen, not of policy, with socialism, which was then beginning to show its strength, as well as by the rude way in which his descriptions of the modern industrial system, especially as it existed in England, disturbed the complacent optimism of some members of the so-called orthodox school. These treated the book with ill-disguised contempt, and Bastiat spoke of it as preaching an économie politique a rebours. But it has held its place in the literature of the science, and is now even more interesting than when it first appeared, because in our time there is a more general disposition, instead of denying or glossing over the serious evils of industrial society, to face and remove or at least mitigate them. The laisser faire doctrine, too, has been discredited in theory and abandoned in practice; and we are ready to admit Sismondi's view of the State as a power not mere intrusted with the maintenance of peace, but charged also with the mission of extending the benefits of the social union and of modern progress as widely as possible through all classes of the community. Yet the impression which his treatise leaves behind it is a discouraging one; and this because he regards as essentially evil many things which seem to be the necessary results of the development of industry. The growth of a wealthy capitalist class and of manufacture on the great scale, the rise of a vast body of workers who live by their labour alone, the extended application of machines, large landed properties cultivated with the aid of the most advanced appliances—all these he dislikes and deprecates; but they appear to be inevitable. The problem is, how to regulate and moralise the system they imply; but we must surely accept it in principle, unless we aim at a thorough social revolution. Sismondi may be regarded as the precursor of the German economists known under the inexact designation of “Socialists of the Chair;” but their writings are much more hopeful and inspiring.
To the subject of population he devotes special care, as of great importance for the welfare of the working classes. So far as agriculturists are concerned, he thinks the system of what he calls patriarchal exploitation, where the cultivator is also proprietor, and is aided by his family in tilling the land—a law of equal division among the natural heirs being apparently presupposed—the one which is most efficacious in preventing an undue increase of the population. The father is, in such a case, able distinctly to estimate the resources available for his children, and to determine the stage of sub-division which would necessitate the descent of the family from the material and social position it had previously occupied. When children beyond this limit are born, they do not marry, or they choose amongst their number one to continue the race. This is the view which, adopted by J. S. Mill, makes so great a figure in the too favourable presentation by that writer of the system of peasant proprietors.
In no French economic writer is greater force or general solidity of thought to be found than in Charles Dunoyer (1786–1862), author of La Liberté du Travail (1845; the substance of the first volume had appeared under a different title in 1825), honourably known for his integrity and independence under the régime of the Restoration. What makes him of special importance in the history of the science is his view of its philosophical constitution and method. With respect to method, he strikes the keynote at the very outset in the words “rechercher expérimentalement,” and in professing to build on “les données de l'observation et de l'experience.” He shows a marked tendency to widen economics into a general science of society, expressly describing political economy as having for its province the whole order of things which results from the exercise and development of the social forces. This larger study is indeed better named Sociology; and economic studies are better regarded as forming one department of it. But the essential circumstance is that, in Dunoyer's treatment of his great subject, the widest intellectual, moral, and political considerations are inseparably combined with purely economic ideas. It must not be supposed that by liberty, in the title of his work, is meant merely freedom from legal restraint or administrative interference; he uses it to express whatever tends to give increased efficiency to labour. He is thus led to discuss all the causes of human progress, and to exhibit them in their historical working.
Treating, in the first part, of the influence of external conditions, of race, and of culture on liberty in this wider sense, he proceeds to divide all productive effort into two great classes, according as the action is exercised on things or on men, and censures the economists for having restricted their attention to the former. He studies in his second and third parts respectively the conditions of the efficiency of these two forms of human exertion. In treating of economic life, strictly so called, he introduces his fourfold division of material industry, in part adopted by J. S. Mill, as “(1) extractive, (2) voiturière, (3) manufacturière, (4) agricole,” a division which is useful for physical economics, but will always, when the larger social aspect of things is considered, be inferior to the more commonly accepted one into agricultural, manufacturing, and commercial industry, banking being supposed as common president and regulator. Dunoyer, having in view only action on material objects, relegates banking, as well as commerce proper, to the separate head of exchange, which, along with association and gratuitous transmission (whether inter vivos or mortis causa), he classes apart as being, not industries, in the same sense with the occupations named, but yet functions essential to the social economy. The industries which act on man he divides according as they occupy themselves with (1) the amelioration of our physical nature, (2) the culture of our imagination and sentiments, (3) the education of our intelligence, and (4) the improvement of our moral habits; and he proceeds accordingly to study the social offices of the physician, the artist, the educator, and the priest. We meet in Dunoyer the ideas afterwards emphasised by Bastiat that the real subjects of human exchange are services; that all value is due to human activity; that the powers of nature always render a gratuitous assistance to the labour of man; and that the rent of land is really a form of interest on invested capital. Though he had disclaimed the task of a practical adviser in the often-quoted sentence—“Je n'impose rien; je ne propose même rien; j'exposs,” he finds himself, like all economists, unable to abstain from offering counsel. And his policy is opposed to any state interference with industry. Indeed he preaches in its extreme rigour the laisser faire doctrine, which he maintains principally on the ground that the spontaneous efforts of the individual for the improvement of his condition, by developing foresight, energy, and perseverance, are the most efficient means of social culture. But he certainly goes too far when he represents the action of Governments as normally always repressive and never directive. He was doubtless led into this exaggeration by his opposition to the artificial organizations of labour proposed by so many of his contemporaries, against which he had to vindicate the principle of competition; but his criticism of these schemes took, as Comte remarks, too absolute a character, tending to the perpetual interdiction of a true systematisation of industry.
At this point it will be convenient to turn aside and notice the doctrines of the American economist Carey. Not much had been done before him in the science by citizens of the United States. Benjamin Franklin, otherwise of world-wide renown, was author of a number of tracts, in most of which he merely enforces practical lessons of industry and thrift, but in some throws out interesting theoretic ideas. Thus, fifty years before Smith, he suggested (as Petty, however, had already done) human labour as the true measure of value (Modest Inquiry into the Nature and Necessity of a Paper Currency, 1721), and in his Observations concerning the Increase of Mankind (1751) he expresses views akin to those of Malthus. Alexander Hamilton, secretary of the treasury, in 1791 presented in his official capacity to the House of Representatives of the United States a Report on the measures by which home manufactures could be promoted. In this document he gives a critical account of the theory of the subject, represents Smith's system of free trade as possible in practice only if adopted by all nations simultaneously, ascribes to manufactures a greater productiveness than to agriculture, and seeks to refute the objections against the development of the former in America founded on the want of capital, the high rate of wages, and the low price of land. The conclusion at which he arrives is that for the creation of American manufactures a system of moderate protective duties was necessary, and he proceeds to describe the particular features of such a system. There is some reason to believe that the German economist List, of whom we shall speak hereafter, was influenced by Hamilton's work, having, during his exile from his native country, resided in the United States.
Henry Charles Carey (1793–1879), son of an American citizen who had emigrated from Ireland, represents a reaction against the dispiriting character which the Smithian doctrines had assumed in the hands of Malthus and Ricardo. His aim was, whilst adhering to the individualistic economy, to place it on a higher and surer basis, and fortify it against the assaults of socialism, to which some of the Ricardian tenets had exposed it. The most comprehensive as well as mature exposition of his views is contained in his Principles of Social Science (1859). Inspired with the optimistic sentiment natural to a young and rising nation with abundant undeveloped resources and an unbounded outlook towards the future, he seeks to show that there exists, independently of human wills, a natural system of economic laws, which is essentially beneficent, and of which the increasing prosperity of the whole community, and especially of the working classes, is the spontaneous result,—capable of being defeated only by the ignorance or perversity of man resisting or impeding its action. He rejects the Malthusian doctrine of population, maintaining that numbers regulate themselves sufficiently in every well-governed society, and that their pressure on subsistence characterises the lower, not the more advanced, stages of civilization. He rightly denies the universal truth, for all stages of cultivation, of the law of diminishing returns from land. His fundamental theoretic position relates to the antithesis of wealth and value.
Wealth had been by most economists confounded with the sum of exchange values; even Smith, though at first distinguishing them, afterwards allowed himself to fall into this error. Ricardo had, indeed, pointed out the difference, but only towards the end of his treatise, in the body of which value alone is considered. The later English economists had tended to regard their studies as conversant only with exchange; so far had this proceeded that Whately had proposed for the science the name of Catallactics. When wealth is considered as what it really is, the sum of useful products, we see that it has its origin in external nature as supplying both materials and physical forces, and in human labour as appropriating and adapting those natural materials and forces. Nature gives her assistance gratuitously; labour is the sole foundation of value. The less we can appropriate and employ natural forces in any production the higher the value of the product, but the less the addition to our wealth in proportion to the labour expended. Wealth, in its true sense of the sum of useful things, is the measure of the power we have acquired over nature, whilst the value of an object expresses the resistance of nature which labour has to overcome in order to produce the object. Wealth steadily increases in the course of social progress; the exchange value of objects, on the other hand, decreases. Human intellect and faculty of social combination secure increased command over natural powers, and use them more largely in production, whilst less labour is spent in achieving each result, and the value of the product accordingly falls. The value of the article is not fixed by its cost of production in the past; what really determines it is the cost which is necessary for its reproduction under the present conditions of knowledge and skill. The dependence of value on cost, so interpreted, Carey holds to be universally true; whilst Ricardo maintained it only with respect to objects capable of indefinite multiplication, and in particular did not regard it as applicable to the case of land. Ricardo saw in the productive powers of land a free gift of nature which had been monopolised by a certain number of persons, and which became, with the increased demand for food, a larger and larger value in the hands of its possessors. To this value, however, as not being the result of labour, the owner, it might be maintained, had no rightful claim; he could not justly demand a payment for what was done by the “original and indestructible powers of the soil.” But Carey held that land, as we are concerned with it in industrial life, is really an instrument of production which has been formed as such by man, and that its value is due to the labour expended on it in the past,—though measured, not by the sum of that labour, but by the labour necessary under existing conditions to bring new land to the same stage of productiveness. He studies the occupation and reclamation of land with peculiar advantage as an American, for whom the traditions of first settlement are living and fresh, and before whose eyes the process is indeed still going on. The difficulties of adapting a primitive soil to the work of yielding organic products for man's use can be lightly estimated only by an inhabitant of a country long under cultivation. It is, in Carey's view, the overcoming of these difficulties by arduous and continued effort that entitles the first occupier of land to his property in the soil. Its present value forms a very small proportion of the cost expended on it, because it represents only what would be required, with the science and appliances of our time, to bring the land from its primitive into its present state. Property in land is therefore only a form of invested capital—a quantity of labour or the fruits of labour permanently incorporated with the soil; for which, like any other capitalist, the owner is compensated by a share of the produce. He is not rewarded for what is done by the powers of nature, and society is in no sense defrauded by his sole possession. The so-called Ricardian theory of rent is a speculative fancy, contradicted by all experience. Cultivation does not in fact, as that theory supposes, begin with the best, and move downwards to the poorer soils in the order of their inferiority. The light and dry higher lands are first cultivated; and only when population has become dense and capital has accumulated, are the low-lying lands, with their greater fertility, but also with their morasses, inundations, and miasmas, attacked and brought into occupation. Rent, regarded as a proportion of the produce, sinks, like all interest on capital, in process of time, but, as an absolute amount, increases. The share of the labourer increases, both as a proportion and an absolute amount. And thus the interest of these different social classes are in harmony.
But, Carey proceeds to say, in order that this harmonious progress may be realised, what is taken from the land must be given back to it. All the articles derived from it are really separated parts of it, which must be restored on pain of its exhaustion. Hence the producer and the consumer must be close to each other; the products must not be exported to a foreign country in exchange for its manufactures, and thus go to enrich as manure a foreign soil. In immediate exchange value the landowner may gain by such exportation, but the productive powers of the land will suffer. And thus Carey, who had set out as an earnest advocate of free trade, arrives at the doctrine of protection: the “co-ordinating power” in society must intervene to prevent private advantage from working public mischief. He attributes his conversion on the question to his observation of the effects of liberal and protective tariffs respectively on American prosperity. This observation, he says, threw him back on theory, and led him to see that the intervention referred to might be necessary to remove (as he phrases it) the obstacles to the progress of younger com munities created by the action of older and wealthier nations. But it seems probable that the influence of List's writings, added to his own deep-rooted and hereditary jealousy and dislike of English predominance, had something to do with his change of attitude.
The practical conclusion at which he thus arrived, though it is by no means in contradiction to the doctrine of the existence of natural economic laws, accords but ill with his optimistic scheme; and another economist, Frederic Bastiat, accepting his fundamental ideas, applied himself to remove the foreign accretion, as he regarded it, and to preach the theory of spontaneous social harmonies in relation with the practice of free trade as its legitimate outcome.
Bastiat (1801–1850), though not a profound thinker, was a brilliant and popular writer on economic questions. Though he always had an inclination for such studies, he was first impelled to the active propagation of his views by his earnest sympathy with the English anti-corn-law agitation. Naturally of an ardent temperament, he threw himself with zeal into the free-trade controversy, through which he hoped to influence French economic policy, and published in 1845 a history of the struggle under the title of Cobden et la Ligue. In 1845–48 appeared his Sophismes £conomiques (Eng. trans, by G. R. Porter, 1849, and by P. J. Stirling, 1873), in which he exhibited his best qualities of mind. Though Cairnes goes too far in comparing this work with the Lettres Provinciales, it is certainly marked by much liveliness, point, and vigour. But to expose the absurdities of the ordinary protectionism was no difficult task; it is only in such a form as the policy assumed in the scheme of List, as purely provisional and preparatory, that it deserves and demands consideration. After the revolution of 1848, which for a time put an end to the free-trade movement in France, the efforts of Bastiat were directed against the socialists. Besides several minor pieces possessing the same sort of merit as the Sophismes, he produced, with a view to this controversy, his most ambitious as well as characteristic work, the Harmonies. Économiques (Eng. trans, by P. J. Stirling, 1860). Only the first volume was published; it appeared in 1850, and its author died in the same year. Since then the notes and sketches which he had prepared as materials towards the production of the second volume have been given to the public in the collected edition of his writings (by Paillottet, with Life by Fontenay, 7 vols.), and we can thus gather what would have been the spirit and substance of the later portions of the book.
It will always be historically interesting as the last incarnation of thoroughgoing economic optimism. This optimism, recurring to its first origin, sets out from theological considerations, and Bastiat is commended by his English translator for treating political economy “in connection with final causes.” The spirit of the work is to represent “all principles, all motives, all springs of action, all interests, as co-operating towards a grand final result which humanity will never reach, but to which it will always increasingly tend, namely, the indefinite approximation of all classes towards a level, which steadily rises,—in other words, the equalisation of individuals in the general amelioration.”
What claimed to be novel and peculiar in his scheme was principally his theory of value. Insisting on the idea that value does not denote anything inherent in the objects to which it is attributed, he endeavoured to show that it never signifies anything but the ratio of two “services.” This view he develops with great variety and felicity of illustration. Only the mutual services of human beings, according to him, possess value and can claim a retribution; the assistance given by nature to the work of production is always purely gratuitous, and never enters into price. Economic progress, as, for example, the improvement and larger use of machinery, tends perpetually to transfer more and more of the elements of utility from the domain ol property, and therefore of value, into that of community, or of universal and unpurchased enjoyment. It will be observed that this theory is substantially identical with Carey's, which had been earlier propounded; and the latter author in so many words alleges it to have been taken from him without acknowledgment. It has not perhaps been sufficiently attended to that very similar views are found in Dunoyer, of whose work Bastiat spoke as exercising a powerful influence on “the restoration of the science,” and whom Fontenay, the biographer of Bastiat, tells us he recognised as one of his masters, Charles Comte being the other.
The mode which has just been explained of conceiving industrial action and industrial progress is interesting and instructive so far as it is really applicable, but it was unduly generalised. Cairnes has well pointed out that Bastiat's theoretic soundness was injuriously affected by his habit of studying doctrines with a direct view to contemporary social and political controversies. He was thus predisposed to accept views which appeared to lend a sanction to legitimate and valuable institutions, and to reject those which seemed to him to lead to dangerous consequences. His constant aim is, as he himself expressed it, to “break the weapons” of anti-social reasoners “in their hands,” and this preoccupation interferes with the single-minded effort towards the attainment of scientific truth. The creation or adoption of his theory of value was inspired by the wish to meet the socialistic criticism of property in land; for the exigencies of this controversy it was desirable to be able to show that nothing is ever paid for except personal effort. His view of rent was, therefore, so to speak, foreordained, though it may have been suggested, as indeed the editor of his posthumous fragments admits by the writings of Carey. He held, with the American author, that rent is purely the reward of the pains and expenditure of the landlord or his predecessors in the process of converting the natural soil into a. farm by clearing, draining, fencing, and the other species of permanent improvements. He thus gets rid of the (so-called) Ricardian doctrine, which was accepted by the socialists, and by them used for the purpose of assailing the institution of landed property, or, at least, of supporting a claim of compensation to the community for the appropriation of the land by the concession of the “right to labour.” As Cairnes has said, “what Bastiat did was this: having been at infinite pains to exclude gratuitous gifts of nature from the possible elements of value, and pointedly identified” [rather, associated] “the phenomenon with ‘human effort’ as its exclusive source, he designates human effort by the term ‘service,’ and then employs this term to admit as sources of value those very gratuitous natural gifts the exclusion of which in this capacity constituted the essence of his doctrine.” The justice of this criticism will be apparent to any one who considers the way in which Bastiat treats the question of the value of a diamond. That what is paid for in most cases of human dealings is effort no one can dispute. But it is surely a reductio ad absurdum of his theory of value, regarded as a doctrine of universal application, to represent the price of a diamond which has been accidentally found as remuneration for the effort of the finder in appropriating and transmitting it. And, with respect to land, whilst a large part of rent, in the popular sense, must be explained as interest on capital, it is plain that the native powers of the soil are capable of appropriation, and that then a price can be demanded and will be paid for their use.
Bastiat is weak on the philosophical side; he is filled with the ideas of theological teleology, and is led by these ideas to form a priori opinions of what existing facts and laws must necessarily be. And the jus natures, which, like metaphysical ideas generally, has its root in theology, is as much a postulate with him as with the physiocrats. Thus, in his essay on Free Trade, he says:—“Exchange is a natural right like property. Every citizen who has created or acquired a product ought to have the option of either applying it immediately to his own use or ceding it to whosoever on the surface of the globe consents to give him in exchange the object of his desires.” Something of the same sort had been said by Turgot; and in his time this way of regarding things was excusable, and even provisionally useful; but in the middle of the I9th century it was time that it should be seen through and abandoned
Bastiat had a real enthusiasm for a science which he thought destined to render great services to mankind, and he seems to have believed intensely the doctrines which gave a special colour to his teaching. If his optimistic exaggerations favoured the propertied classes, they certainly were not prompted by self-interest or servility. But they are exaggerations; and, amidst the modern conflicts of capital and labour, his perpetual assertion of social harmonies is the cry of “peace, peace,” where there is no peace. The freedom of industry, which he treated as a panacea, has undoubtedly brought with it great benefits; but a sufficient experience has shown that it is inadequate to solve the social problem. How can the advocates of economic revolution be met by assuring them that everything in the natural economy is harmonious—that, in fact, all they seek for already exists? A certain degree of spontaneous harmony does indeed exist, for society could not continue without it, but it is imperfect and precarious; the question is, How can we give to it the maximum of completeness and stability?
Augustin Cournot (1801–1877) appears to have been the first who, with a competent knowledge of both subjects, endeavoured to apply mathematics to the treatment of economic questions. His treatise entitled Recherches sur les Principes Mathématiques de la Theorie des Richesses was published in 1838. He mentions in it only one previous enterprise of the same kind (though there had in fact been others)—that, namely, of Nicolas Francois Canard, whose book, published in 1802, was crowned by the Institute, though “its principles were radically false as well as erroneously applied.” Notwithstanding Cournot's just reputation as a writer on mathematics, the Recherches made little impression. The truth seems to be that his results are in some cases of little importance, in others of questionable correctness, and that, in the abstractions to which he has recourse in order to facilitate his calculations, an essential part of the real conditions of the problem is sometimes omitted. His pages abound in symbols representing unknown functions, the form of the function being left to be ascertained by observation of facts, which he does not regard as a part of his task, or only some known properties of the undetermined function being used as bases for deduction. Jevons includes in his list of works in which a mathematical treatment of economics is adopted a second treatise which Cournot published in 1863, with the title Principes de la Theorie des Richesses. But in reality, in the work so named, which is written with great ability, and contains much forcible reasoning in opposition to the exaggerations of the ordinary economists, the mathematical method is abandoned, and there is not an algebraical formula in the book. The author admits that the public has always shown a repugnance to the use of mathematical symbols in economic discussion, and, though he thinks they might be of service in facilitating exposition, fixing the ideas, and suggesting further developments, he acknowledges that a grave danger attends their use. The danger, according to him, consists in the probability that an undue value may be attached to the abstract hypotheses from which the investigator sets out, and which enable him to construct his formulæ. And his practical conclusion is that mathematical processes should be employed only with great precaution, or even not employed at all if the public judgment is against them, for “this judgment,” he says, “has its secret reasons, almost always more sure than those which determine the opinions of individuals.” It is an obvious consideration that the acceptance of unsound or one-sided abstract principles as the premises of argument does not depend on the use of mathematical forms, though it is possible that the employment of the latter may by association produce an illusion in favour of the certainty of those premises. But the great objection to the use of mathematics in economic reasoning is that it is necessarily sterile. If we examine the attempts which have been made to employ it, we shall find that the fundamental conceptions on which the deductions are made to rest are vague, indeed metaphysical, in their character. Units of animal or moral satisfaction, of utility, and the like, are as foreign to positive science as a unit of dormitive faculty would be; and a unit of value, unless we understand by value the quantity of one commodity exchangeable under given conditions for another, is an equally indefinite idea. Mathematics can indeed formulate ratios of exchange when they have once been observed; but it cannot by any process of its own determine those ratios, for quantitative conclusions imply quantitative premises, and these are wanting. There is then no future for this kind of study, and it is only waste of intellectual power to pursue it. But the importance of mathematics as an educational introduction to all the higher orders of research is not affected by this conclusion. The study of the physical medium, or environment, in which economic phenomena take place, and by which they are affected, requires mathematics as an instrument; and nothing can ever dispense with the didactic efficacy of that science, as supplying the primordial type of rational investigation, giving the lively sentiment of decisive proof, and disinclining the mind to illusory conceptions and sophistical combinations. And a knowledge of at least the fundamental principles of mathematics is necessary to economists to keep them right in their statements of doctrine, and prevent their enunciating propositions which have no definite meaning. Even distinguished writers sometimes betray a serious deficiency in this respect; thus they assert that one quantity “varies inversely as” another, when what is meant is that the sum (not the product) of the two is constant; and they treat as capable of numerical estimation the amount of an aggregate of elements which, differing in kind, cannot be reduced to a common standard. As an example of the latter error, it may be mentioned that “quantity of labour,” so often spoken of by Ricardo, and in fact made the basis of his system, includes such various species of exertion as will not admit of summation or comparison.
The first Italian translation of the Wealth of Nations appeared in 1780. The most distinguished Italian economist of the period here dealt with was, however, no disciple of Smith. This was Melchiorre Gioja, author, besides statistical and other writings, of a voluminous work entitled Nuovo Prospetto delle Scienze Economiche (6 vols., 1815–17; the work was never completed), intended to be an encyclopædia of all that had been taught by theorists, enacted by Governments, or effected by populations in the field of public and private economy It is a learned and able treatise, but so overladen with quotations and tables as to repel rather than attract readers. Gioja admired the practical economic system of England, and enlarges on the advantages of territorial properties, manufactures, and mercantile enterprises on the large as opposed to the small scale. He defends a restrictive policy, and insists on the necessity of the action of the state as a guiding, supervising, and regulating power in the industrial world. But he is in full sympathy with the sentiment of his age against ecclesiastical domination and other mediæval survivals. We can but very briefly notice Romagnosi (d. 1835), who, by his contributions to periodical literature, and by his personal teaching, greatly influenced the course of economic thought in Italy; Antonio Scialoja (Principii d'Economia Sociale, 1840; and Carestia e Governo, 1853), an able advocate of free trade (d. 1877); Luigi Cibrario, well known as the author of Economia Politica, del media evo (1839; 5th ed., 1861: French trans, by Barneaud, 1859), which is in fact a view of the whole social system of that period; Girolamo Boccardo (b. 1829; Trattato Teorico-pratico di Economia Politica, 1853); the brilliant controversialist Francesco Ferrara, professor at Turin from 1849 to 1858 (in whose school most of the present Italian teachers of the science were, directly or indirectly, educated), a partisan of the laisser faire doctrine in its most extreme form, and an advocate of the peculiar opinions of Carey and Bastiat on the subject of rent; and, lastly, the Neapolitan minister Ludovico Bianchini (Principii della Scienza del Ben Vivere Sociale, 1845 and 1855), who is remarkable as having followed in some degree an historical direction, and asserted the principle of relativity, and who also dwelt on the relations of economics with morals, by a due attention to which the Italian economists have, indeed, in general been honourably distinguished.
The Wealth of Nations was translated into Spanish by J. A. Ortiz in 1794. It may perhaps have influenced Caspar de Jovellanos, who in 1795 presented to the council of Castile and printed in the same year his celebrated Informe de la Sociedad Economica de Madrid en expediente de Ley Agraria, which was a powerful plea for reform, especially in taxation and the laws affecting agriculture, including those relating to the systems of entail and mortmain. An English version of this memoir is given in the translation (1809) of Laborde's Spain, vol. iv.
Roscher observes that Smith did not at first produce much impression in Germany. He does not appear to have been known to Frederick the Great; he certainly exercised no influence on him. Nor did Joseph II. take notice of his work. And of the minor German princes, Karl Friedrich of Baden, as a physiocrat, would not be accessible to his doctrines. It was otherwise in the generation whose principal activity belongs to the first decade of the igth century. The Prussian statesmen who were grouped round Stein had been formed as economists by Smith, as had also Gentz, intellectually the most important man of the Metternich régime in Austria.
The first German expositors of Smith who did more than merely reproduce his opinions were Christian Jacob Kraus (1753–1807), Georg Sartorius (17.66–1828), and August Ferdinand Lüder (1760–1819). They contributed independent views from different standpoints,—the first from that of the effect of Smith's doctrine on practical government, the second from that of its bearing on history, the third from that of its relation to statistics. Somewhat later came Gottlieb Hufeland (1760–1817), Johann Friedrich Eusebius Lotz (1771–1838), and Ludwig Heinrich von Jakob (1759–1827), who, whilst essentially of the school of Smith, apply themselves to a revision of the fundamental conceptions of the science. These authors did not exert anything like the wide influence of Say, partly on account of the less attractive form of their writings, but chiefly because Germany had not then, like France, a European audience. Julius von Soden (1754–1831) is largely founded on Smith, whom, however, he criticises with undue severity, especially in regard to his form and arrangement; the Wealth of Nations he describes as a series of precious fragments, and censures Smith for the absence of a comprehensive view of his whole subject, and also as one-sidedly English in his tendencies.
The highest form of the Smithian doctrine in Germany is represented by four distinguished names:—Karl Heinrich Rau (1792–1870), Friedrich Nebenius (1784–1857), Friedrich Benedict Wilhelm Hermann (1795–1868), and Johann Heinrich von Thünen (1783–1850).
Rau's characteristic is “erudite thoroughness.” His Lehrbuch (1826–32) is an encyclopædia of all that up to his time had appeared in Germany under the several heads of Volkswirthschaftslehre, Volkswirthschaftspolitik, and Finanzwissenschaft. His book is rich in statistical observations, and is particularly instructive on the economic effects of different geographical conditions. It is well adapted for the teaching of public servants whose duties are connected with economics, and it was in fact the source from which the German official world down to the seventies of the igth century derived its knowledge of the science. In his earlier period Rau had insisted on the necessity of a reform of economic doctrine (Ansichten der Volkswirthschaft, 1821), and had tended towards relativity and the historical method; but he afterwards conceived the mistaken notion that that method “only looked into the past without studying the means of improving the present,” and became himself purely practical in the narrower sense of that word. He has the merit of having given a separate treatment of Unternehmergewinn, or “wages of management.” Nebenius, minister in Baden, who was largely instrumental in the foundation of the Zollverein, was author of a highly esteemed monograph on public credit (1820). The Staatswirthschaftliche Untersuchungen (1832; 2d ed., 1870) of Hermann do not form a regular system, but treat a series of important special subjects. His rare technological knowledge gave him a great advantage in dealing with some economic questions. He reviewed the principal fundamental ideas of the science with great thoroughness and acuteness. “His strength,” says Roscher, “lies in his clear, sharp, exhaustive distinction between the several elements of a complex conception, or the several steps comprehended in a complex act.” For keen analytical power his German brethren compare him with Ricardo. But he avoids several one-sided views of the English economist. Thus he places public spirit beside egoism as an economic motor, regards price as not measured by labour only but as a product of several factors, and habitually contemplates the consumption of the labourer, not as a part of the cost of production to the capitalist, but as the main practical end of economics. Thünen is known principally by his remarkable work entitled Der Isolirte Staat in Beziehung auf Landwirthschaft und National-ökonomie (1826; 3d ed., 1875). In this treatise, which is a classic in the political economy of agriculture, there is a rare union of exact observation with creative imagination. With a view to exhibit the natural development of agriculture, he imagines a state, isolated from the rest of the world, circular in form and of uniform fertility, without navigable rivers or canals, with a single large city at its centre, which supplies it with manufactures and receives in exchange for them its food-products, and proceeds to study the effect of distance from this central market on the agricultural economy of the several concentric spaces which compose the territory. The method, it will be seen, is highly abstract, but, though it may not be fruitful, it is quite legitimate. The author is under no illusion blinding him to the unreality of the hypothetic case. The supposition is necessary, in his view, in order to separate and consider apart one essential condition—that, namely, of situation with respect to the market. It was his intention (imperfectly realised, however) to institute afterwards several different hypotheses in relation to his isolated state, for the purpose of similarly studying other conditions which in real life are found in combination or conflict. The objection to this method lies in the difficulty of the return from the abstract study to the actual facts; and this is probably an insuperable one in regard to most of its applications. The investigation, however, leads to trustworthy conclusions as to the conditions of the succession of different systems of land economy. The book abounds in calculations relating to agricultural expenditure and income, which diminish its interest to the general reader, though they are considered valuable to the specialist. They embody the results of the practical experience of the author on his estate of Tellow in Mecklenburg-Schwerin. Thünen was strongly impressed with the danger of a violent conflict between the middle class and the proletariate, and studied earnestly the question of wages, which he was one of the first to regard habitually, not merely as the price of the commodity labour, but as the means of subsistence of the mass of the community. He arrived by mathematical reasonings of some complexity at a formula which expresses the amount of “natural wages” as = √ap, where a is the necessary expenditure of the labourer for subsistence, and p is the product of his labour. To this formula he attributed so much importance that he directed it to be engraved on his tomb. It implies that wages ought to rise with the amount of the product; and this conclusion led him to establish on his estate a system of participation by the labourers in the profits of farming, of which some account will be found in Mr. Sedley Taylor's Profit-sharing between Capital and Labour (1884). Thünen deserves more attention than he has received in England; both as a man and as a writer he was eminently interesting and original; and there is much in Der Isolirte Staat and his other works that is awakening and suggestive.
Roscher recognizes what he calls a Germane-Russian (deutsch-russische) school of political economy, represented principally by Heinrich Storch (1766–1825). Mercantilist principles had been preached by a native (“autochthonen”) economist, Ivan Possoschkoff, in the time of Peter the Great. The new ideas of the Smithian system were introduced into Russian by Christian Von Schlözer (1774–1831) in his professorial lectures and in his Anfangsgr¨nde der Staatswirthschaft, oder die Lehre vom National-reichthume (1805–1807). Storch was instructor in economic science of the future emperor Nicholas and his brother the grand-duke Michael, and the substance of his lessons to them is contained in his Cours d'Économie Politique (1815). The translation of this treatise into Russian was prevented by the censorship; Rau published a German version of it, with annotations, in 1819. It is a work of a very high order of merit. The epithet “deutsch-russisch” seems little applicable to Storch; as Roscher himself says, he follows mainly English and French writers—Say, Sismondi, Turgot, Bentham, Steuart, and Hume, but, above all, Adam Smith. His personal position (and the same is true of Schlözer) led him to consider economic doctrines in connection with a stage of culture different from that of the Western populations amongst which they had been formulated; this change of the point of view opened the door to relativity, and helped to prepare the Historical method. Storch's study of the economic and moral effects of serfdom is regarded as especially valuable. The general subjects with which he has particularly connected his name are (i) the doctrine of immaterial commodities (or elements of national prosperity), such as health, talent, morality, and the like; (2) the question of “productive” and “unproductive,” as characters of labour and of consumption, on which he disagreed with Smith and may have furnished indications to Dunoyer; and (3) the differences between the revenue of nations and that of individuals, on which he follows Lauderdale and is opposed to Say. The latter economist having published at Paris (1823) a new edition of Storch's Cours, with criticisms sometimes offensive in tone, he published by way of reply to some of Say's strictures what is considered his ripest and scientifically most important work, Considérations sur la nature du Revenu National (1824; translated into German by the author himself, 1825).
A distinct note of opposition to the Smithian economics was sounded in Germany by two writers, who, setting out from somewhat different points of view, animated by different sentiments, and favouring different practical systems, yet, so far as their criticisms are concerned, arrive at similar conclusions; we mean Adam Müller and Friedrich List.
Adam Müller (1779–1829) was undoubtedly a man of real genius. In his principal work Èlemente der Staatskunst (1809), and his other writings, he represents a movement of economic thought which was in relation with the (so-called) Romantic literature of the period. The reaction against Smithianism of which he was the coryphæus was founded on an attachment to the principles and social system of the Middle Ages. It is possible that the political and historical ideas which inspire him, his repugnance to contemporary liberalism, and his notions of regular organic development, especially in relation to England, were in some degree imbibed from Edmund Burke, whose Reflections on the Revolution in France had been translated into German by Friedrich Gentz, the friend and teacher of Müller. The association of his criticisms with mediæval prepossessions ought not to prevent our recognizing the elements of truth which they contain.
He protests against the doctrine of Smith and against modern political economy in general on the ground that it presents a mechanical, atomistic, and purely material conception of society, that it reduces to nullity all moral forces and ignores the necessity of a moral order, that it is at bottom no more than a theory of private property and private interests, and takes no account of the life of the people as a whole in its national solidarity and historical continuity. Exclusive attention, he complains, is devoted to the immediate production of objects possessing exchange value and to the transitory existence of individuals; whilst to the maintenance of the collective production for future generations, to intellectual products, powers, possessions and enjoyments, and to the State with its higher tasks and aims, scarcely a thought is given. The truth is that nations are specialised organisms with distinct principles of life, having definite individualities which determine the course of their historical development. Each is through all time, one whole; and, as the present is the heir of the past, it ought to keep before it constantly the permanent good of the community in the future. The economic existence of a people is only one side or province of its entire activity, requiring to be kept in harmony with the higher ends of society; and the proper organ to effect this reconciliation is the State, which, instead of being merely an apparatus for the administration of justice, represents the totality of the national life. The division of labour, Müller holds, is imperfectly developed by Smith, who makes it to arise out of a native bent for truck or barter; whilst its dependence on capital—on the labours and accumulations of past generations—is not duly emphasised, nor is the necessary counterpoise and completion of the division of labour, in the principle of the national combination of labour, properly brought out. Smith recognizes only material, not spiritual, capital; yet the latter, represented in every nation by language, as the former by money, is a real national store of experience, wisdom, good sense, and moral feeling, transmitted with increase by each generation to its successor, and enables each generation to produce immensely more than by its own unaided powers it could possibly do. Again, the system of Smith is one-sidedly British; if it is innocuous on the soil of England, it is because in her society the old foundations on which the spiritual and material life of the people can securely rest are preserved in the surviving spirit of feudalism and the inner connection of the whole social system—the national capital of laws, manners, reputation, and credit, which has been handed down in its integrity in consequence of the insular position of the country. For the continent of Europe a quite different system is necessary, in which, in place of the sum of the private wealth of individuals being viewed as the primary object, the real wealth of the nation and the production of national power shall be made to predominate, and along with the division of labour its national union and concentration—along with the physical, no less the intellectual and moral, capital shall be embraced. In these leading traits of Müller's thought there is much which foreshadows the more recent forms of German economic and sociological speculation, especially those characteristic of the “Historical” school.
Another element of opposition was represented by Fried-rich List (1789–1846), a man of great intellectual vigour as well as practical energy, and notable as having powerfully contributed by his writings to the formation of the German Zollverein. His principal work is entitled Das Nationals System der Politischen Oekonomie (1841; 7th ed., 1883: Eng. trans., 1885). Though his practical conclusions were different from Müller's, he was largely influenced by the general mode of thinking of that writer, and by his strictures on the doctrine of Smith. It was particularly against the cosmopolitan principle in the modern economic system that he protested, and against the absolute doctrine of free trade, Which was in harmony with that principle. He gave prom i-nence to the National idea, and insisted on the special requirements of each nation according to its circumstances and especially to the degree of its development.
He refuses to Smith's system the title of the industrial, which he thinks more appropriate to the mercantile system, and designates the former as “the exchange-value system.” He denies the parallelism asserted by Smith between the economic conduct proper to an individual and to a nation, and holds that the immediate private interest of the separate members of the community will not lead to the highest good of the whole. The nation is an existence, standing between the individual and Humanity, and formed into a unity by its language, manners, historical development, culture, and constitution. This unity is the first condition of the security, wellbeing, progress, and civilization of the individual; and private economic interests, like all others, must be subordinated to the maintenance, completion, and strengthening of the nationality. The nation having a continuous life, its true wealth consists—and this is List's fundamental doctrine—not in the quantity of exchange-values which it possesses, but in the full and manysided development of its productive powers. Its economic education, if we may so speak, is more important than the immediate production of values, and it may be right that the present generation should sacrifice its gain and enjoyment to secure the strength and skill of the future. In the sound and normal condition of a nation which has attained economic maturity, the three productive powers of agriculture, manufactures, and commerce should be alike developed. But the two latter factors are superior in importance, as exercising a more effective and fruitful influence on the whole culture of the nation, as well as on its independence. Navigation, railways, all higher technical arts, connect themselves specially with these factors; whilst in a purely agricultural state there is a tendency to stagnation, absence of enterprise, and the maintenance of antiquated prejudices. But for the growth of the higher forms of industry all countries are not adapted—only those of the temperate zones, whilst the torrid regions have a natural monopoly in the production of certain raw materials; and thus between these two groups of countries a division of labour and confederation of powers spontaneously takes place. List then goes on to explain his theory of the stages of economic development through which the nations of the temperate zone, which are furnished with all the necessary conditions, naturally pass, in advancing to their normal economic state. These are (i) pastoral life, (2) agriculture, (3) agriculture united with manufactures; whilst in the final stage agriculture, manufactures, and commerce are combined. The economic task of the state is to bring into existence by legislative and administrative action the conditions required for the progress of the nation through these stages. Out of this view arises List's scheme of industrial politics. Every nation, according to him, should begin with free trade, stimulating and improving its agriculture, by intercourse with richer and more cultivated nations, importing foreign manufactures and exporting raw products. When it is economically so far advanced that it can manufacture for itself, then a system of protection should be employed to allow the home industries to develop themselves fully, and save them from being overpowered in their earlier efforts by the competition of more matured foreign industries in the home market. When the national industries have grown strong enough no longer to dread this competition, then the highest stage of progress has been reached; free trade should again become the rule, and the nation be thus thoro ighly incorporated with the universal industrial union. In List's time, according to his view, Spain, Portugal, and Naples were purely agricultural countries; Germany and the United States of North America had arrived at the second stage, their manufactures being in process of development. France was near the boundary of the third or highest stage, which England alone had reached. For England, therefore, as well as for the agricultural countries first-named, free trade was the right economic policy, but not for Germany or America. What a nation loses for a time in exchange-values during the protective period she much more than gains in the long run in productive power,—the temporary expenditure being strictly analogous, when we place ourselves at the point of view of the life of the nation, to the cost of the industrial education of the individual. The practical conclusion which List drew for his own country was that she needed for her economic progress an extended and conveniently bounded territory reaching to the sea-coast both on north and south, and a vigorous expansion of manufactures and commerce, and that the way to the latter lay through judicious protective legislation with a customs union comprising all German lands, and a German marine with a Navigation Act. The national German spirit, striving after independence and power through union, and the national industry, awaking from its lethargy and eager to recover lost ground, were favourable to the success of List's book, and it produced a great sensation. He ably represented the tendencies and demands of his time in his own country; his work had the effect of fixing the attention, not merely of the speculative and official classes, but of practical men generally, on questions of Political Economy; and he had without doubt an important influence on German industrial policy. So far as science is concerned, the emphasis he laid on the relative historical study of stages of civilization as affecting economic questions, and his protest against absolute formulas, had a certain value; and the preponderance given to the national development over the immediate gains of individuals was sound in principle; though his doctrine was, both on its public and private sides, too much of a mere chrematistic, and tended in fact to set up a new form of mercantilism, rather than to aid the contemporary effort towards social reform.
Most of the writers at home or abroad hitherto mentioned continued the traditions of the school of Smith, only developing his doctrine in particular directions, sometimes not without one-sidedness or exaggeration, or correcting minor errors into which he had fallen, or seeking to give to the exposition of his principles more of order and lucidity. Some assailed the abuse of abstraction by Smith's successors, objected to the conclusions of Ricardo and his followers their non-accordance with the actual facts of human life, or protested against the anti-social consequences which seemed to result from the application of the (so-called) orthodox formulas. A few challenged Smith's fundamental ideas, and insisted on the necessity of altering the basis of general philosophy on which his economics ultimately rest. But, notwithstanding various premonitory indications, nothing substantial, at least nothing effective, was done, within the field we have as yet surveyed, towards the establishment of a really new order of thinking, or new mode of proceeding, in this branch of inquiry. Now, however, we have to describe a great and growing movement, which has already considerably changed the whole character of the study in the conceptions of many, and which promises to exercise a still more potent influence in the future. We mean the rise of the Historical School, which we regard as marking the third epoch in the modern development of economic science.