Political Economy is essentially a modern department of learning.
It may be defined as the science which treats of the production,
distribution and exchange of commodities. In the ancient world we
have only fitful adumbrations of the conception of such a science.
In the Middle Ages proper, as might naturally be expected, no
advance is made. Indeed, the idea itself is even lost. Production
was almost exclusively for use, and trade or exchange were so
little developed that the economic aspect of things never presented
itself distinctively. At the end of the fourteenth century,
however, when the medieval order was gradually breaking up, and the
germination of the modern industrial system was beginning to be
apparent, a French bishop in the service of Charles V. of France,
and a translator of Aristotle, revived the teaching of the great
master of ancient speculation, but with no immediate results. Early
in the sixteenth century, the famous astronomer and mathematician,
Copernicus, wrote a treatise on the coining of money, again based
on the principles of Aristotle; and toward the end of the century
modern economic science began to take shape in the great mercantile
theory which held sway more or less almost until the days of Adam
Smith. Before his time there were, however, isolated writers who
attacked with more or less perspicuity the fallacies of this
theory, and had glimpses, in some cases not inconsiderable, of the
more scientific doctrines developed in later times. The leading
developments of political economy since Adam Smith's time have been
(1) the classical economy expounded by Ricardo, Malthus, J. B. Say,
James Mill, etc., which for a long time held almost undisputed
possession of the field; (2) as a later development, what is known
as the "vulgar economy," consisting of the attempts made by writers
such as Wagner, Laveleye, Jevons, and Sidgwick, to modify the
classical economy in such a way as to justify legislative
interference with the unrestrained freedom of modern capitalist
production; and (3) the socialistic economy of Karl Marx and his
school.
Among the Greeks, where commerce (in the ancient sense of
the word, implying the direct exchange of commodities) was
considerably extended, are found the first germs of this as of all
other sciences. Economic questions could hardly escape the notice
of philosophers, least of all of those in the first rank.
Accordingly we find Plato and Aristotle alluding to the more
important matters connected with the exchange of wealth in a manner
which shows considerable insight into the question. Its production,
however, entered but slightly into their calculations. The
institution of slavery, upon which ancient industry was based,
could not fail to obscure the importance of this aspect of the
subject. Plato, indeed, perceives that labor is the source of all
wealth; but the conditions of his time prevented him from seeing in
their true light the consequences of this doctrine. In the
"Republic" he says: "That which gives rise to society is our
inability to satisfy our own desires, and the need we have for a
large number of things. Thus necessity having compelled men to
combine with one another, society is established for the sake of
mutual assistance.... One gives to another what he has in return for
what he has not, only because he believes it will be to his
advantage." And then he goes on to show the beneficial results of
the division of labor.
A much less important figure, Xenophon, has also some
interesting observations on the subject. His "Oikonomikos," or "The
Economist," though primarily dealing with the domestic economy of
the Greeks and the practice of agriculture, is interspersed with
passages concerned with social economy in its wider sense. He
quaintly speaks of wealth as whatever is useful to a man. "A man's
wealth is only what benefits him. Suppose a man used his money to
buy a mistress by whose influence his body, his soul, and his
household would be all made worse, how could we then say that his
money was of any advantage to him?... We may then exclude money also
from being counted as wealth, if it is in the hands of one who does
not know how to use it." But he believes that money differs
essentially from other kinds of wealth. "There is this difference,"
he writes, "between silver-getting and other professions, that
whereas other men-braziers and blacksmiths, for instance-when their
trades are overstocked, are injured because the price of their
commodities is necessarily lowered by the multitude of sellers,
similarly a good harvest and a plentiful vintage does harm to the
farmers, and forces them to leave their occupations, and to turn
merchants or bankers; with silver it is otherwise; the more ore is
found, and the more mines are worked, the more people seek to
possess it, and the more men are employed.... If there are any who
have more than they require, they hoard it up with as much pleasure
as if they actually made use of it.... And in war what resource have
we left but silver to purchase necessaries for our support, and to
hire allies for our defence?" We find here the germs of the
mercantile theory, although Xenophon, in common with most of his
contemporaries, regarded agriculture as the only industrial
occupation not altogether contemptible for the free man. His view
of the relative advantages to the human constitution of the
agricultural and the handicraft life displays a considerable amount
of enlightenment, on one side of the question at least. "Not only
are the mechanical arts despised, but States also have a bad
opinion of them-and justly. For they injure the health of the
workmen and overseers, by compelling them to sit indoors, and often
all day before a fire, and when the body is weakened the mind also
is made weaker and weaker." But in this depreciation of the
artisan's craft we see the beginning of the physiocratic fallacy
that agriculture is the only original source of wealth. The
following extract from the "Oikonomikos" will illustrate the view
of slavery common to the ancients, and which appears, as will be
seen, no less in Aristotle and later writers. He takes it for
granted that the citizen will have slaves to work for him. "Men do
not live as animals do, under the open vault of heaven, but
evidently require shelter. To have anything to bring within that
shelter, they must also have men to perform the works of the field,
such as tilling and sowing, planting trees, tending the flocks,
from which are obtained the necessaries of life. And, further, when
these necessaries are brought within, they must have others to look
after them, as well as a wife to superintend the business of the
house."
Before leaving Xenophon we will give one more extract which
may be taken as the anticipation in the ancient world of the modern
economic objection to war as held by the Cobden-Bright school. "If
any man," he writes, "can have so wild a notion as to imagine that
war will contribute more to the increase of riches than peace, I
know no better way to decide the controversy than by appealing to
the experience of former ages, and producing precedents to the
contrary out of our own story.... It is an absurd supposition to
imagine that peace will weaken our strength, and ruin our authority
and reputation abroad, for of all governments those are happiest
who have continued longest without war."
The views of Aristotle on the subject of economy are
contained partly in his "Ethics" and partly in his "Politics." The
chapters of the fifth book of the "Ethics," relating to the
subject, are too familiar to need quotation. The "Politics"
contains the following statement on the subject of money, in which,
as will be seen, an approximation is made to a correct view of the
function of money. Plato also appears to have had reasonable views
upon this subject. Speaking of early societies, Aristotle writes:
"There were different things which they had to give in exchange for
what they wanted, a kind of barter which is still practiced among
barbarous nations who exchange with one another the necessaries of
life: giving and receiving wine, for example, in exchange for coin
and the like.... But the various necessaries of life are not easily
carried about, and hence men agreed to employ in their dealings
with each other something which was intrinsically useful, and
easily applicable to the purposes of life-for example, iron,
silver, and the like. Of this the value was at first measured by
size and weight; but in process of time a stamp was put upon it to
save the trouble of weighing, and to mark the value.... Wealth is
assumed by many to be only a quantity of coin.... Others maintain
that coined money is a sham, a thing not natural, but conventional
only, which would have no value or use for any of the purposes of
daily life if another commodity were substituted by the users.
Indeed, he who is rich in coin may often be in want of necessary
food. And how can that be wealth of which a man may have a great
abundance, and yet perish with hunger, like Midas in the fable,
whose insatiable prayer turned everything that was set before him
into gold."
In the same connection Aristotle considers the various ways
of money-making, and incidentally refers to the abhorrence of the
trade of money-lending, which was universal throughout the ancient
world. "The most hated sort," he writes, "of money-making, and with
reason, is usury."
Another passage, also from the "Politics," shows that the
ancients looked upon slavery as no less a natural and permanent
institution, than the modern middle-class economists regard the
system of wage labor at the present time. Aristotle would have
considered quite as Utopian the idea of a condition of society in
which the relation of master and slave no longer existed, as the
late Professor Jevons, for example, might have looked upon the
conception of a society in which the antithesis of capitalist and
laborer did not obtain. The passage in question is as follows: "It
is nature herself who has created slavery.... There are in the human
race individuals as inferior to others as the body is to the soul,
or as the beast is to man; these are beings suitable for the labors
of the body alone, and incapable of doing anything more perfect.
These individuals are destined by nature to slavery because there
is nothing better for them to do than to obey.... Let us conclude
from these principles that nature creates some men for liberty and
others for slavery; that it is useful and just that the slave
should obey." The reader will perceive how exactly this passage is
paralleled by the statements of middle-class economists, that
incapacity, laziness, and thriftlessness will inevitably condemn a
large portion of the population always to labor for a mere
subsistence wage.
Such ideas as the Romans had upon economy were, as might be
expected, essentially similar to those of the Greeks. The trade of
the Roman Empire was so intimately bound up with the fiscal system
that it consisted of little more than the gathering of taxes,
either in the form of agricultural products or the precious metals.
Hence there was even less likelihood than among the Greek peoples
of the foundation of an economical science properly so called. The
only question which seems to have interested the Roman mind in this
connection was that as to the nature of money. Pliny advocates the
prevention of the exportation of money on mercantilist grounds, and
in common with other Roman writers condemns usury in most
unqualified terms. In the second century, the great jurisconsult,
Paullus, expounds clearly enough the true origin and function of
money: "The origin of buying and selling is in exchange. Formerly
there were no coins, and merchandise was in no way distinguished
from money. Every man, according to the necessity of the time and
of things, exchanged what was useless to him for what was useful,
and it was generally the case that what one had abundance of,
another was deficient in. But as it did not always easily happen
that when one person had what another desired, that other had also
what the first desired: a substance was chosen whose general and
durable value obviated the difficulties of exchange by being a
common measure. This substance, having received a public stamp, has
use and value less as a material than as a quantity, and is no
longer called merchandise, but money."
Henceforward, as already intimated, there is a great gap in
the history of economic science. Agriculture had been throughout
the entire ancient world the dominating branch of production.
During the Empire the system of
latifundia, or agriculture on a large scale, increasingly
tended to sweep away the
petite culture. The
latifundium was a large estate which was cultivated by a
large number of slaves, under the command of a
villicus, or overseer, who was also a slave, though his
power was practically absolute over his subordinates. A similar
system was adopted in the case of pasture lands. But as the owners
became impoverished and the towns decayed, the
latifundia were divided up into small portions, which were
distributed among the cultivators. These received for their labor
only a sixth or even a ninth part of the year's produce. Then many
of these were united together into colonies, and paid a total fixed
sum every year to the owners. They were not slaves, nor yet were
they free, and were the direct forerunners of the villeins or serfs
of the Middle Ages.
Trade and industry were never the special characteristics
of the conquering Romans; it was in usury and tax-gathering that
their talents chiefly lay so far as concerns matters economic. What
had already been acquired from trade rapidly broke up under the
pressure of taxation; what remained existed chiefly in the eastern
part of the Empire. "Universal impoverishment, retrogression in the
matter of communication, of manufactures, of art, decline of
population, decay of towns, the degeneration of agriculture into
more primitive forms-such was the final result of the Roman
world-empire." The feudal system, which arose on the ruins of the
Roman world, was, in many respects, a return to the early forms of
tribal and gentile life in which so-called primitive or natural
communism prevailed, and which had been the stage of social
evolution obtaining among the Germanic peoples previous to their
migrations.
From all this it will be seen that the conditions of life
in the Middle Ages were such as to render economic science an
impossibility, even had the intellectual development of the time
permitted it. Nicole Oresme, bishop of Lisieux, was the first to
break the long silence. In Aristotle, the fount of medieval
philosophy, he naturally looked for light on the economic question
now with the growth of towns again beginning to present itself. In
his treatise on the origin, etc., of money, following and expanding
Aristotle, he speaks of it as "an artificial instrument invented
for the easier exchange of wealth." He does not fall into the
common error of supposing that money is the only form of wealth,
but writes: "All moneys are artificial wealth, and not otherwise,
for it may happen that a man has abundance of them, and yet may die
of hunger"; and he quotes the story of Midas, previously cited by
Aristotle in his "Politics," to prove this. He goes on to show what
make gold and silver the most suitable substances to use as money,
and the evils which result from debasing the coinage. After Oresme,
who died in 1382, there is again silence until the small treatise
by Copernicus, previously mentioned, which appeared in 1526. Both
were directly inspired by the necessities of taxation, the one by
those of France, and the other of Poland.
Toward the close of the sixteenth century, when the
conditions of medieval, were rapidly giving place to those of
modern, life, attention begins to be directed, in various quarters,
toward economic problems. Almost simultaneously in Italy, France,
and England we find the first modern economical treatises
published. Unconsciously in the minds of men a theory of commerce
had grown up, based upon the simplest and most superficial
observation of economic phenomena, to wit, that the precious metals
were the concentrated form of all wealth, and this in spite of the
clear insight of Aristotle and his followers to the contrary.
Enthusiasm for commerce had arisen with the recent expansion of the
world-market, and men, seeing trade continually produce large
fortunes, instinctively came to the conclusion that in trade-that
is, exchange-is to be found the source of wealth, and that its
symbol and agent, money, was its sole repository. This was the
celebrated mercantile system; the great corollary from it being the
doctrine of the balance of trade, so called, which declared it
necessary to the prosperity of a country that the exports should
always exceed the imports, inasmuch as by this means bullion flowed
into the country, while otherwise there was a loss. The rise in
prices, due to the influx of gold and silver from the newly
discovered America, had dislocated the commercial relations of the
time, and set men thinking on the nature of economic processes,
while the attempts of government, arising out of the mercantile
theory, to debase the coinage in the hope of thereby increasing
their wealth, gave a practical turn to the various controversies.
Jean Bodin, a French writer, was author of "Les six livres de la
Republique," and also of a book on witchcraft, in which he was a
firm believer. The latter work, "Le Demonomanie des Sorciers,"
advocates the enactment of ferocious penalties against sorcery. In
the person of Bodin it will thus be seen that the medieval and the
modern curiously blend themselves. His most important economical
treatise is a little tract against a Sieur Malestroict, who had
denied that there had been a general rise of prices during the
preceding three centuries. In this little book Bodin showed very
conclusively that prices had risen, and also the cause of their
rise: "The abundance of gold and silver, which is the wealth of a
country, ought in part to explain the rise in prices: for if there
was a scarcity of them as in the past times, it is very certain
that everything would be as much cheaper as the gold and silver
were dearer."
A book with practically the same purpose was published in
England shortly after Bodin's by W. S. (William Stafford), in which
the rise in prices is again discussed, and shown to be due to the
influx of gold and silver from America. About the same time two
Italian writers, Count Gasparo Scaruffi and Bernardo Davanzati,
both published works dealing with the money question. Both attack
the debasement of the coinage, and the former propounds a scheme
for the adoption of universal money. A little later Antonio Serra
published his "Brief Tract on the Causes which produce abundance of
gold and silver."
The first writer who employed the term "political economy"
in its modern sense was a Frenchman named M. Chrétien de
Watteville. In his "Treatise on Political Economy,"
he gives a formal exposition of the mercantile system. This system
also found in
Thomas Mun, a large English merchant, a zealous and able defender.
Mun wrote two works, one published at the beginning of the century
on the East India trade, and the second in 1664, with the title,
"England's Treasure by Foreign Trade." The latter work contains the
following statements, which embody the teaching of the mercantile
school: "The ordinary means to encrease our wealth and treasure is
by
Forraign Trade, wherein we must ever observe this rule; to
sell more to strangers yearly than we consume of theirs in value"
(p. 11); and, "we have no other means to get treasure but by
forraign trade" (p. 85). He pleads for sumptuary laws, "so that men
would soberly refrain from excessive consumption of foreign wares
in their diet and rayment, with such often change of fashions as is
used so much the more to encrease the waste and charge; which vices
are more notorious amongst us than in former ages" (p. 16). In this
way, he thinks, importations would be diminished, and the amount of
wealth,
i.e., treasure, annually received, be increased. He is,
however, obliged to slightly modify his system, so far as to allow
money to be occasionally carried out of the country, but only in
order that it might return with other money that it had gathered as
it rolled.
The importance, indeed, of the mercantile error lay not so
much in the belief that money was synonymous with wealth as in the
corollary from it, that wealth was only to be obtained by means of
trade; and the later English writers were all more or less
conscious of this. Glimmerings of the truth begin to appear among
them. Sir William Temple, in his "Observations upon the United
Provinces of the Netherlands" (1672), writes: "The time of laboring
or industrious men is the greatest native commodity of any
country"; and Charles Davenant writes in 1696 ("Works," i. 382):
"Industry and skill to improve the advantages of soil and situation
are more truly riches to a people than even the possession of gold
and silver mines." In Germany the mercantile theory had a great
hold. Schröder gives one of the most thoroughgoing statements of
the mercantilist position: "A country grows rich in proportion as
it draws gold or money from the earth or from other countries, poor
in proportion as money leaves it. The wealth of a country must be
estimated by the quantity of gold and silver in it."
Schröder's book provoked a passionate attack from a French
writer, Pierre Boisguillebert, in his "Dissertation on the Nature
of Wealth" (1697), while in England the mercantilist advocates
found in Sir William Petty a powerful opponent. Petty is by far the
most important figure in political economy which the seventeenth
century produced, although he wrote no large treatise specially
concerned with economical matters. To him was first due the
conception of labor as the ground or basis of value. "Labor," he
wrote, "is the father and active principle of wealth; lands are the
mother." And, again, in another place: "If a man can bring to
London an ounce of silver out of the earth in Peru, in the same
time that he can produce a bushel of corn, then one is the natural
price of the other; now if by reason of new and more easie mines a
man can get two ounces of silver as easily as formerly he did one,
then Corn will be as cheap at ten shillings the bushel as it was
before at five shillings,
ceteris paribus." He also anticipates, as the following
passage will show, the theory of economic rent, its full conception
only escaping him just as it escaped Adam Smith nearly a century
later. "Suppose a man could with his own hands plant a certain
scope of land with corn, could dig or plow, harrow, weed, reap,
carry home, thresh and winnow so much of the husbandry as this land
requires; and had withal seed wherewith to sow the same, I say that
when this man hath subducted his seed out of the process of his
harvest, and also what himself hath both eaten and given to others
in exchange for clothes and other natural necessaries, that the
remainder of corn is the natural and true rent for that year."
Among seventeenth century economists, Sir Dudley North
ranks next to Petty in reputation and influence upon after-thought.
In his "Discourses upon Trade" (1691) he shows very clearly that
commerce is the exchange of commodities, and that it is not money
people want when trade is bad, but other commodities for which to
exchange their products. "Commerce and Trade, as hath been said,
first springs from the Labor of Man, but as the Stock increases it
dilates more and more. If you suppose a Country to have nothing in
it but the Land itself and the Inhabitants; it is plain that at
first the People have only the Fruits of the Earth and the Metals
raised from the Bowels of it, to Trade withal, either by carrying
out into Foreign parts, or by selling to such as will come to buy
of them, whereby they may be supplied with the Goods of other
Countries wanted there. In this course of Trade Gold and Silver are
in no sort different from other commodities, but are taken from
them who have plenty and carried to them who want, or desire them,
with as good profit as other Merchandises. So that an active,
prudent Nation groweth rich and the sluggish Drones grow poor; and
there cannot be any other Policy than this, which being introduced
and practiced shall avail to increase Trade and Riches. But this
Proposition, as single and plain as it is, is seldom so well
understood, as to pass with the generality of mankind; but they
think by force of Laws to retain in their Country all the Gold and
Silver which Trade brings in; and thereby expect to grow rich
immediately: All which is a profound Fallacy" (p. 11,
et seq.).
And on page 11: "What do these people want who cry out for
more money?... Money is not their want but a Price for their Corn
& Cattle, which they would sell but cannot." Summing up the
whole of his principles in his postscript, he exclaims: "We may
labor to hedge in the Cuckoo but in vain: for no People ever yet
grew rich by Policies; but it is Peace, Industry and Freedom that
brings Trade and Wealth, and nothing else." John Bellers wrote his
"Proposals for raising a College of Industry" in 1696, in which he
attacks the mercantilist system, and at the same time anticipates
many doctrines of the classical economists.
Of all the opponents of the mercantile system none seem to
have had so much sympathy with the toiling and suffering classes as
Le Prestre de Yauban, Marshal of France. Yauban was probably a
survival of the benevolent feudal baron who hated the progress of
trade and the trading class, and, above all, the policy of the
representative of that class, Colbert, the great financial minister
of Louis XIV. He proposed that a tax,
le dixme Royale, should be levied impartially on all
incomes, to be paid in kind by the agriculturists, and in money by
manufacturers and traders, all other taxes being abolished. It was
probably only by his death, which occurred shortly after the
publication of his book, "Le Dixme Royale," in 1707, that he
escaped the vengeance of the powerful trading faction. His
principal opinions may be gleaned from the following extracts: "...
The real wealth of a people consists in an abundance of those
things the use of which is so necessary to sustain the life of man,
that they cannot at all be dispensed with" (p. 26). "It is the
lower class of the people that by its labor and its commerce, and
by that which it pays to the king, enriches both him and all his
kingdom.... It is they who make all the commerce and the manufactures
of the kingdom; who furnish all the laborers, vine-dressers, and
tillers of the fields; who tend the cattle; who sow the corn and
harvest it; who tend the vine, and make the wine; in short, it is
they who do all things great and small in the country and in the
towns. Such is this portion of the nation, so useful and so
despised, who have suffered, and who still suffer so much" (p. 21).
By the middle of the eighteenth century, the extreme
mercantile theory had wellnigh succumbed to the various attacks
made upon it. The last English exponent of Mercantilism, pure and
simple, was John Gee, who wrote "Trade and Navigation of Great
Britain Considered," the second edition of which was published in
1730. In this he laments that: "So mistaken are many people, that
they cannot see the difference between having a vast treasure of
Silver and Gold in the Kingdom, and the Mint employed in coining
Money, the only true token of Treasure and Riches, and having it
carried away; but they say Money is a Commodity like other things,
and think themselves never the poorer for what the nation daily
exports" (p. 8).
Although, however, the mercantile theory was practically
destroyed, the policy which had been based upon it continued to
subsist even after the time of Adam Smith. This policy was the
endeavor, by legislation or other arbitrary means, to secure a
balance of trade in favor of a particular nation-its classical
heroes being the great statesmen Colbert in France, and Walpole in
England. Protection was one of the great cornerstones of the
system, since by protection the imports of a country were
diminished, even if the exports were not increased. The aim of
middle-class statesmanship up to this time had been to secure
monopolies. This notion of monopoly to be acquired by high imposts
and other means was a relic of medieval methods, albeit applied for
the advantage of a class, which as a class embodied the new
principle opposed to that of the Middle Ages. It is needless to
say, that with the more complete development of that principle and
of its correlative class, it soon became apparent that while
subserving the immediate ends of the individuals then representing
the latter, it was really an obstacle to its complete success as a
class. The unconsciousness of this fact is perceptible even in Adam
Smith, who at times attacks protection, etc., apparently in the
belief that he is attacking the special interests of the trading
classes as such, whereas he is of course really placing those
interests on a solid theoretic foundation.
The reaction against the fundamental principle of the
mercantile system, that money was the sole repository of wealth,
with its corollary that trade was the only means of attaining it,
appeared in France in the guise of the "physiocratic" system, which
maintained that land was the sole repository of wealth, with
its corollary that agriculture was the sole means of
realizing it. The ideas of this school first originated with a
merchant named Cantillon, but did not attract attention until
definitely formulated in detail by François Quesnay and Jean de
Gournay, who were the chiefs of "The Economists," as they were
called at the time, or "The Physiocrats," as they were afterward
named. In Cantillon's "Essai," however, the root idea of the system
is to be found. "The earth," he wrote, "is the source or the matter
whence is drawn all wealth; the labor of man is the instrument
which produces it." This was the idea that was worked out with
great elaboration of detail in Quesnay's "Tableau Economique"
(1755), and in his "Maximes générales de Grouvernement Economique
d'un Royaume Agricole" (1758). In the latter work, which consists
of a number of maxims for the guidance of rulers and peoples, the
following passages occur:
"Maxim iii. Let the Ruler and the Nation never forget that
the earth is the sole source of wealth, and that it is agriculture
which augments it. For the increase of wealth assures that of the
population; men and wealth make agriculture prosper, extend
commerce, animate industry, add to and perpetuate wealth. On this
abundant source depends the success of every part of the government
of the nation."
"Maxim xxv. Let absolute freedom of commerce be maintained;
for the surest guardian of internal and external commerce, the most
exact and the most profitable to the Nation and the State, lies in
the unlimited freedom of competition."
The "Tableau Economique" bears as its motto the phrase,
Pauvres paysans, pauvre royaume; pauvre royaume, pauvre
roi. To Gournay is due the phrase since become proverbial,
Laissez faire, laissez aller. The most distinguished
disciples of the physiocratic school were the elder Mirabeau and
the celebrated finance minister, Turgot. Mirabeau wrote several
works explaining the system, from one of which, "La Philosophie
Rurale" (1763), we take the following: "The artisans who weave
stuffs, the merchants who trade in them, the carriers who transport
them, the tailors who make them into clothes, the lawyer who pleads
a cause, the servant who attends him, all these people can consume
only because of the recompense which is paid to them by those who
employ them, or who buy their products. For their labor and their
goods produce for them nothing beyond this recompense, which is
itself an expense for those who pay. If this payment be traced to
its source ... it will be found to come solely from the earth, which
alone produces all the commodities we use" (p. 15).
It is Turgot who gives perhaps the most complete and
systematic exposition of the system of the economists or
physiocrats. In his "Réflexions sur la formation et la Distribution
des Richesses" (1766), he supplies a brief but fairly complete
survey of the whole of the science of political economy, and
begins, like Adam Smith, by showing the advantage and necessity of
the division of labor and how from it results a systematic exchange
of commodities. "Every one attaching himself to a particular
species of labor, succeeds much better therein. The husbandman
draws from his field the greatest quantity it is able to produce,
and procures for himself, with greater facility, all the other
objects of his wants, by an exchange of his superflux than he could
have done by his own labor. The shoemaker by making shoes for the
husbandman, secures to himself a portion of the harvest of the
latter. Every workman labors for the wants of the workmen of every
other trade who, on their side, toil also for him" (§ 4).
He then goes on to show that the labor of the husbandman
upon the land is the original source of all wealth, since food is
the first necessity of man, but then erroneously argues, as a
physiocrat, that only the land produces wealth. "The husbandman is
the only one whose industry produces more than the wages of his
labor. He, therefore, is the only source of all wealth" (§ 7).
He shows clearly how wages are reduced to the limit of
subsistence by competition, and, like Petty and Smith, only just
misses arriving at the conception of economic rent. Turgot writes
(§ 12): "Every piece of ground is not equally fertile; two men with
the same extent of land may reap a very different harvest; this is
the second source of inequality."
He has a correct conception of exchange value. "Commerce
gives to all merchandise a current value with respect to any other
merchandise; from which it follows that all merchandise is the
equivalent for a certain quantity of any other merchandise, and may
be looked on as a pledge to represent it. Every merchandise
therefore may serve as a scale or common measure, by which to
compare the value of any other." Then he goes on to show that all
money is merchandise and why it is that the most precious metals
are most fitted to serve as money. He also has sound notions of the
sources and function of capital. The work is very clear and
succinct, and had, no doubt, a powerful influence, as one of its
immediate precursors, on the "Wealth of Nations."
In England, Tucker, Hume, and Stewart may all be regarded
as leading up to Adam Smith. Sir James Stewart, indeed, in his
comprehensive but confused "Inquiry into the Principles of
Political Economy" (1767), sees dimly many of the truths which
Smith clearly expressed only ten years later. The Rev. Josiah
Tucker wrote his "Important Questions on Commerce" in 1755, and in
it argues against the mercantilists, and in favor of free-trade,
while Hume, in his "Political Discourses" (1752), enunciates some
detached economic truths, as when he says: "In the national stock
of labor consists all real power and riches."
In 1776 the first edition of the "Wealth of Nations" was
published, and with it scientific political economy first came into
existence. Of the work and of its author it is not necessary to say
much. The former largely speaks for itself, and the preceding
historical review has shown the condition of economic science in
its day. This historical review is, indeed, not so much intended to
be a complete account of all that had been previously accomplished
in the department of economic science, as a prefatory sketch which
should contribute to a better understanding of the import of Adam
Smith's great departure. The notes which have been appended to the
text call attention to the more special features of the work. It
remains for us to consider the further advances which have been
made since Adam Smith's time in the elucidation and solution of
economic problems.
First, perhaps, attention should be called to the third
book, which is the earliest attempt to treat economic problems,
and, indeed, it may be said, one of the earliest to treat any
social problem from the historical point of view. This alone would
constitute the "Wealth of Nations" an epoch-making work.
Adam Smith's book, as will be readily seen, was based upon
the manufacture-industry which had as yet not been supplanted by
the great machine-industry of modern times. It is important to bear
this in mind in considering many of the views advanced in the work.
Those who followed in his footsteps had necessarily to take into
account the great industrial revolution which supervened but a few
years after his death. The more immediate result of his teaching
and the one which has maintained itself until the present day was
the complete overthrow, in this country at least, of the doctrine
of protection, and the establishment of free-trade as the basis of
orthodox middle-class economics on their practical side.
Thomas Robert Malthus (1756-1834), originally led to speculate on
economic questions by the Rousseauite theories of his father,
supplied to the classical middle-class economy in his theory of
population a new buttress-a buttress which was required against the
socialistic aspirations the new conditions were calling forth, more
than against the humanitarian sentimentalism of the eighteenth
century which was the original occasion of it. The rapid extension
of machinery and the consequent displacement of hand labor was
driving thousands into the direst poverty and misery, and it
behooved economists to find some explanation of this. Malthus
thought he had discovered it in his theory that the growth of
population always tends to outstrip the food supply, and that hence
the cure of poverty lies in the limitation of the numbers of the
human race. Since his time this has been accepted as axiomatic by
almost all the writers of the classical school of economy, and is
generally admitted in one shape or another even by their
successors, the "vulgar" economists of today. The "Essay on the
Principle of Population," in which his theory was elaborated, was
first published in 1798 and expanded into a larger volume in 1803.
David Ricardo (1772-1823) was the first important successor
to Adam Smith in the strictly economic field. He published his
"Principles of Political Economy" in the year 1817. Ricardo's great
service consisted in pointing out that wealth, whether in the form
of capital or otherwise, is merely the accumulated product of
labor, and in enforcing Adam Smith's position that labor is the
sole basis of value, with its corollary that the "natural price" of
a commodity expresses the total amount of embodied social labor it
contains. We should also mention that he was the first to
definitely formulate the theory of "economic rent," by which is
meant the surplus yield or produce from any land over and above
that of the worst land in cultivation.
Adam Smith, Malthus, and Ricardo constitute the trinity of
the classical economy. The doctrines laid down by them were
expanded, illustrated and popularized by a series of writers whom
the Germans have named
epigoni, and who consisted of James Mill, McCulloch,
Senior, and others.
Before saying a few words on what is called the "vulgar"
economy, we must not forget to mention John Stuart Mill
(1806-1873), who, although in no sense an original thinker, is one
of the most popular writers on political economy. His "Principles
of Political Economy," published in 1848, though in substance
little more than a manual of the classical system, is distinguished
by breadth of sympathy, and by the consciousness that the so-called
economic laws, that is, the deductions of political economy based
on the present conditions of society, have not the absolute
character other exponents of the science were apt to assign to
them. At the same time it must be remembered that J. S. Mill was
totally deficient in what has been sometimes called the "historical
sense" and had little conception of the historical method. His
heart rebelled against the hard and fast conclusions and pretended
laws of the orthodox economy, but his intellect saw no effectual
means of escaping them. In consequence, his book is an alternation
of clear statements of the current views and confused attempts to
evade their consequences.
The recent developments of Socialist economy, combined with
general economic conditions, have resulted in the formation of a
school of economists called in Germany the "Katheder-Sozialisten,"
or the "Socialists of the Professorial Chair," which, while
criticising the classical economy, both as to premises and
conclusions, recognizes its fundamental principles, and seeks to
harmonize them with rejection of
laissez-faire and a systematized State regulation of
industrial relations. Among its representatives the names of Held,
Rösler, and Wagner are the most prominent. Schäffle may also be
noticed in this connection, though, in some respects, leaning more
to the Socialist side. Similar tendencies have not been wanting on
other parts of the continent or in this country. Prominent among
non-German exponents of this school, though differing in the degree
of their alienation from the orthodox system, as well as in the
nature of their results, are the Belgian writer Laveleye and the
English economists Jevons and Sidgwick. Emile de Laveleye would
apparently refuse to recognize the existence of any determinate
lines of economic development, and hence of economics at all as a
science. He would thus reduce the solution of the whole question to
the goodwill of individuals, a position which necessarily cuts at
the root of the historical method, though the only consistent one
for the Christian or Sentimental Socialist to adopt.
A very different writer, Professor Henry Sidgwick, is one
of the most prominent exponents in the direction above referred to.
His avowed aim is to amend the
laissez-faire economy so as to leave room under certain
circumstances for industrial action by government. His work on
political economy, published in 1883, is so well known that it is
unnecessary to say more about it here.
The late Professor Jevons may be roughly classed as
belonging to this school. Value he expresses in terms of what he
calls the "final utility" of a commodity, that is the degree of
need for it, at the moment, on the part of the consumer. This
degree of utility is determined by the supply, and the supply in
turn is dependent on the cost of production or the labor expended
on it. This, it will be seen, does not absolutely differ from the
labor theory of Adam Smith, and still less from Ricardo's; but the
mathematical language in which this writer exhibits much of his
reasoning is pedantic, and often meaningless. Some of his equations
are perhaps useful as a concise mode of expression: others appear
to illustrate the impossibility of dealing with abstract ideas by
mathematical processes. He is, consequently, often credited with
the obviously absurd theory that the ultimate criterion of value is
the current estimation of a commodity, or, to use the ill-chosen
Jevonian expression, "the final degree of utility." Such a theory,
like many others of a similar kind, would confound the essence or
the substance of a thing with its mere phenomenal expression or
manifestation. No one denies, or ever has denied, that supply and
demand enter into the temporary value or the price of anything, but
this is very different from confounding the mere expression of
value in any particular instance with that value which constitutes
the substance of every economic object, and without which that
object could not be. It has never been denied that "supply and
demand" is the
ratio existendi, the empirical cause, of the value of a
commodity; but this does not touch the fact that the ground of its
essential being (its
ratio essendi) is "labor." This economic value is the
point round which the temporary differences of price due to the
fluctuations of the market, that is, the inequalities between
supply and demand, circulate. Whenever supply and demand balance
each other this essential or substantive value is realized, and in
all the fluctuations of the market, however great, it tends toward
realization. The above mixed systems, viz., those of the
"Katheder-Sozialisten" of Germany, and of the non-orthodox
political economists of other countries whose views tend in the
same direction, are, as already stated, sometimes collectively
known as the "vulgar economy."
The Socialist school, of which the late Karl Marx is the
foremost exponent, while accepting the Smith-Ricardian doctrine of
value, draws from it conclusions very divergent from those of the
classical economy. When Adam Smith wrote things were very different
from what they are now. He stood in no fear of consequences, and
therefore followed out the natural results of his own thought.
Nowadays, every non-socialist economist has the dread of Socialism
before his eyes, and, consequently, feels bound to caution in the
statement of conclusions. For instance, the doctrine that labor is
the basis of value seems to the ordinary economist to remove any
theoretic justification in the nature of things for the independent
function of the capitalist. In consequence, we have the various
attempts of the "vulgar economy" to "nibble" at this and other
orthodox definitions which seem to have dangerous implications.
Marx draws from the Ricardian theory of value the following
conclusions:
1. That the value of a commodity is the labor power
embodied in that commodity.
2. That the primal form of exchange is an exchange of
equivalent values embodied in commodities.
3. That money is a commodity whose value is also the labor
power embodied in it.
4. That in the exchange of commodities for money and of
money for commodities-
i.e., buying and selling-the primal form would still be
the same-an exchange of equal values.
5. That in the inverted, or "commercial" form of exchange
this is not so; but money is exchanged for commodities and
commodities back into money, in order that money may be increased,
the increase being called surplus value.
6. That it is this power of money of increasing by exchange
which converts it into capital.
But next arises the question, whence comes this surplus
value? How is it that money can increase itself in a way in which
no other commodity can? "The common-sense mind explains it at once,
by seeing in the whole affair merely a swindling transaction, in
which the capitalist gets more commodities than he pays for, and is
paid for more commodities than he sells. But," says Marx, "the
totality of the capitalist class in a country cannot outwit
itself." "The change of value that occurs in the case of money
intended to be converted into capital cannot take place in the
money itself.... In order to be able to extract value from the
consumption of a commodity, our friend Moneybags must be so lucky
as to find within the sphere of circulation, in the market, a
commodity whose use-value possesses the peculiar property of being
a source of value; whose actual consumption, therefore, is itself
an embodiment of labor, and, consequently, a creator of value. The
possessor of money does find on the market such a special commodity
in capacity for labor or labor power." From this, therefore, comes
the surplus value. In other words, the surplus value is unpaid
labor. This idea Marx develops with great detail, embodying much
trenchant criticism of previous economists. In Part IV. of the
first volume of "Das Kapital" Marx shows the development of the
modern capitalist system historically, beginning at the break-up of
the Middle Ages, during which simple individual or family labor
obtained; leading up to simple co-operation, this rapidly
developing into the manufacture system prevalent during the
so-called
période manufacturi?re, which dates, roughly speaking,
from the middle of the sixteenth to the end of the eighteenth
century; and this mode of production again, toward the close of the
last century and the beginning of the present, passing into the
"great industry" of modern times, in which all but the simplest
forms of direct human labor are superseded by machinery.
The above cannot, of course, give more than a hint on one
or two points dealt with, in what is, in its bearing on human life
generally, perhaps the most important work of the century. We may
here again remind the reader that the preceding introduction does
not profess in any way to be a complete history of the science.
Such a history is at present a desideratum. What has been attempted
has been to outline the course of the development of economic
theory, so that the "Wealth of Nations" may be better understood,
both in its relation to the past, and its bearing on the present
and future.
