Cyclopædia of Political Science, Political Economy, and the Political History of the United States
POLITICAL ECONOMY, History of. The history of the science of economics falls naturally into two periods: that before, and that after, Adam Smith. The year 1776 may fairly enough be called the birth-year of economics, for in that year appeared Adam Smith's immortal work entitled, "An Inquiry into the Nature and Causes of the Wealth of Nations." The science had passed through two stages of its development before that time: the embryonic and the formative periods. Men had thought upon economical subjects for ages in a desultory, blind sort of a way, but had produced nothing which even remotely resembled the science now called economics until within two centuries of Adam Smith. The embryo began to assume shape in the writings of those men who immediately preceded the so-called mercantilists; it appeared in a more developed shape in the formulations of the mercantile writers during the seventeenth century, and assumed a still more definite and orderly form in the theories of the economists or physiocrats of the eighteenth century. It was reserved for Adam Smith, however, to actually bring it into life and start it forth in its career of development. Adam Smith occupies a very similar position in the history of economics to that occupied by Kant in the history of philosophy. All theories and development of the preceding ages culminate in him, all lines of development in the succeeding ages start from him. His work has been before the public over one hundred years, and yet no second book has been produced that deserves to be compared with it in originality or importance. The subsequent history of the science is mainly the history of attempts to broaden and deepen the foundation laid by Adam Smith, to build the superstructure higher and render it more solid.
—Those who have attempted to find the origin of economics in antiquity have met with poor success. Even Roscher, with all his love for the historical method and his wonderful acquaintance with economical writings, has not been able to prove anything more than that ancient writers discussed some phases of various economic subjects—as how could they help doing so, if they touched upon social or political matters at all? One might as well claim that the New Testament contains a systematic treatise on political economy, because it discusses the proper method of treating the poor, and the relations between masters and servants, as to maintain that Plato and Aristotle, in their discussions of the state and its functions, elaborated an economic science, or even laid the foundations for such a science. Greek and Roman writers, it is true, discussed economic questions. So they discussed chemical, physical and geological questions, but it would hardly be claimed, even by their most enthusiastic followers, that they laid the foundations, in any real sense, of the modern sciences of chemistry, physics and geology. They considered nearly all questions which present themselves to the inquiring human mind. But many of them they did not approach from the right direction, and consequently their thought did not result in anything valuable. They reflected upon economic questions, and discussed them to some extent, but not from an economic standpoint. Economic issues were decided, not from economic considerations, but on social, political, religious or even esthetic grounds. Three things prevented the Greeks from elaborating a science of economics: 1, the abstract nature of their science; 2, their economical institutions; 3, their political and social theories. (Eisenhardt.) Greek science was abstractly philosophical. It was pre-eminently a priori. It was in such haste to reach ultimate generalizations that it was not content to make even elementary observations of actual facts. As a consequence it became mere form without content. Its theories were often directly opposed to patent facts. Such a method could not develop a science of economics, whose starting point is certainly the concrete facts of the material and moral world, whatever its subsequent logical method may be. Nor was the social and economic organization of the Grecian states any more favorable to the development of economics than their scientific method. Greece never got beyond the natural economy—that form of social organization in which the community is made up of a mere aggregate of households, each of which is largely independent of the others, since it satisfies its own want of material commodities by producing them itself, instead of depending on acquiring them by exchange. The typical Greek state was based on a landed aristocracy, whose members dwelt each in the midst of an estate, on which he employed enough slaves to work the lands and manufacture the commodities which necessity and comfort required. The economical phenomena of such a social organization could not be so striking as to attract the thoughtful attention of the thinkers and philosophers long enough to result in any valuable system of science. And finally, the Greek idea of labor barred in a most effectual way all attempts to investigate its real nature as an economic factor. Physical labor was held to be degrading. It unfitted a man for the higher and nobler duties of life, those relating to the state. It was necessary, therefore, for human society to be divided into two classes, the slaves and the masters. All physical labor must be performed by the former, so as to leave the latter leisure to live for the higher purposes of life. Plato carefully excluded artisans from his ideal state, and after calling a state organized in their interest a state of swine, he says that it is not worth the trouble to spend any time in discussing them. Aristotle recognized only one kind of physical labor as worthy occupation for free citizens, and that was agriculture. In this respect the Romans resembled Aristotle. Senators were disgraced who took part in undertakings which were not aristocratic, and agriculture was the only kind of physical labor which was allowed to be aristocratic. Of course, with such ideas of labor, there was no possibility of a science of economics, in the modern sense of the term. This bar to the rise of political economy was taken away by the triumph of Christianity, which made the servant equal to the master in the sight of God, and all kinds of labor equally honorable. But early Christian science was as antagonistic to any thoroughgoing investigation of economic problems as had been its predecessors. For, in the first place, it was as abstract and as a priori as Greek philosophy. In fact, it was a mere outgrowth of the latter, and for ages it did not get beyond it. In the second place, the ascetic influence was decidedly prominent. The doctrine of renunciation was preached. The way to get rich is to become so deeply interested in the life beyond the grave that the wealth of this world shall become of no importance. Such an idea was as inimical to the rise of political economy as the ancient idea of labor. Mediæval society also resembled that of antiquity, in that it was essentially a mere aggregate of private households, each largely independent of all the others. The system of barter still prevailed. Society was divided into two classes, lords and serfs. The latter lived for the former, and these, theoretically, for the state and the church, practically, for themselves. But toward the beginning of that period which we call modern times, things began to change, and the conditions began to be realized, one by one, which were necessary to the rise of economics. The first great step was the rise of the cities. The artisan and commercial classes began to work themselves up out of the subordinate positions they had always occupied, to an equality with the clergy and nobility. By coming together in cities they managed to develop a political strength which secured their rights and privileges. By the cheapness of their products they began to build up a trade with the country. The first germs of that vast organism which we may call the industrial economy of the world began to vegetate. Exchange by money began to take the place of exchange by barter. The trades unions insisted on the dignity of labor, and the representatives of the cities claimed equal rank with those of the courts. The growth was rapid. Kings and princes saw in the cities a means of humbling the power of the barons and of increasing the revenue at their disposal. The need of money to sustain their armies led the kings to consider the best way of getting money. The thought and attention of their ministers were directed more and more powerfully to this subject, though of course all the time more toward the practical question of how to get a large revenue, than to the theoretical one of how to establish and maintain national wealth. Works upon money are consequently the earliest writings we have on economical subjects. It might have been a long time, however, before any system of economical theories would have been elaborated, had it not been for the discovery of America. To the gold and silver mines of Mexico and Peru we are probably indebted for the mercantile theory. The revolution in prices in western Europe caused by the influx of gold and silver from America, was both intensive and extensive, and its effects are traceable even to this day. Many modern economists are never tired of belittling the theories of the mercantile school, and of expressing their surprise that men ever held such views. A glance at the conditions under which it rose will do much to explain its raison d'étre. Most modern writers on economics unito in attributing but little importance to the increase in the amount of money in a country. Mill says that if the quantity of money in the possession of every individual in a nation were suddenly doubled, the only economical effect would be a rise in prices equal to the increase in the amount of money in circulation. Now, although this might be true of the case which he supposes (which he does not by any means prove), yet it is plain that, if the same amount of money were put at the disposal of a few men, its passage into circulation might have a most powerful effect on the whole national economy. It might work out a total redistribution of wealth before it had all passed into circulation and produced its legitimate effect of raising prices. Such was the condition of things in the world market from 1500 to 1600. A large addition was made to the money of the world. This addition was in the possession of a single nation. The economical superiority of this nation in western Europe was undisputed. Its political superiority followed as a matter of course. Spain, by virtue of its immense acquisitions of gold and silver, became mistress of the wealth and lands of Europe. Prices rose rapidly, but Spain was in a condition to profit at the expense of the rest of the world. The quantity of money in the European world in 1600 was estimated to be about four times what it was in 1492. Bodin, in his discours sur l'excessive cherté, published in 1574, says that prices had risen ten to twelve fold within seventy years. Bishop Latimer, in his sermons (1575), says that he had to pay sixteen pounds rent for the estate which his father had had for three-fourths of a pound. The European world contemplated this unheard-of and universal rise in prices with dazed fear. If this thing continues, says Latimer, we shall have to pay a pound for a hog after awhile. It was, of course, natural that men should see in such a revolution a real increase in the cost of commodities. It was widely attributed to the usurious manipulations of the large banking houses. It was therefore a long step forward toward the rise of economics when Bodin declared that this whole phenomenon was a mere sinking in the value of gold and silver, and not an increase in the value of other commodities. Just as much corn, cloth, etc., is produced now as before, and at the same expense of labor and capital; the only difference is, that money has become much more plenty, and consequently has sunk in price. But while this expressed a great economic truth, it did not change the fact that while this process was going on it had produced a very different distribution of wealth among the European nations to the advantage of Spain, nor could it obscure the fact that money had been the great instrument in effecting this distribution. The phenomena attendant upon this enormous redistribution of wealth attracted the attention of eminent thinkers of all nations. They naturally attempted to account for them. The theory which they elaborated has become known as the commercial or mercantile system, and was the first attempt to systematize and arrange in scientific order the complicated phenomena of the industrial world, and, as such, deserves a somewhat careful examination. This theory arose from discussions of the money question, and was primarily a mere theory of money and of the laws controlling its creation and distribution. It included, however, the discussion of many other points, and it will be presented here as it appeared in its later form.
—The most striking peculiarity of the mercantile school, as Roscher has happily remarked, consists in a five-fold over-estimation. The mercantile writers, as a rule, over-estimated the importance of a dense population, the value of a large stock of money, the advantages of foreign trade, the importance of manufacturing industry, and the efficiency of governmental control and supervision. We have already explained how naturally they were led by the circumstances of the time to over-value the precious metals, which formed the money stock of the world. The underlying principle of the whole mercantile school was that a nation's wealth is to be measured by the amount of the precious metals which is circulating within its limits as money, and that the national economy is consequently to be organized so as to attract as much money as possible into the country, and to retain it when once obtained. They held that wherever money performs its service as a universal medium of exchange, the individual is rich in proportion as he can control money, and that what is true of the individual must be true of the nation, which is only an aggregate of individuals. Further, that although the wealth of a nation does not consist altogether of gold and silver coins, but of money and what is worth money, yet money is the most important element of wealth, because it is not consumed and destroyed like provisions, and because it forms an essential condition of a lively domestic commerce, and of a great production and consumption, and must also be regarded as an unusually important, nay, indispensable, resource, and as a powerful promoter of international commerce. Again, that the vigor, authority, efficiency and power of the government at home and abroad depend mainly on the amount of money at its disposal, and that great and successful wars can never be waged without abundance of money. Finally, that the importance of money can be seen from the fact that all those states which, by means of manufacturing industry, foreign trade or other expedients, have succeeded in obtaining the largest amount of the precious metals, and in whose territories there is the liveliest circulation of money, have distinguished themselves from other states by a great population, prosperity and power. Starting from these considerations, the value of any branch of national industry, the propriety of any course of national policy, must be tried by its probable effect on the quantity of money at the nation's disposal. Agriculture, although necessary to the existence of a people, can not increase the national wealth very much, because its products, as a rule, are rapidly consumed, and, even if shipped to foreign lands, can not bring back much money, since they are generally exchanged for manufactures. If the products of agriculture were worked over at home and sent abroad in a perfected form they would serve to support a flourishing manufacturing and commercial population, and money would flow into the country in abundance. In the opinion of the mercantilists, then, agriculture is to be fostered as the nourisher of the nation, and as the source of various kinds of raw material which manufacturing industry needs; but as compared with other branches of industry which contribute to increase the quantity of money, the nerve and sinew of national power and prosperity, it is only of secondary importance, and can by no means lay claim to special care and favor. In reference to mining, which is intimately connected with the production of raw materials, the mercantile school held, that the mining of the precious metals is an extremely important source of national wealth, for it contributes immediately to swell the quantity of gold and silver. The opening of mines, then, at home or in the colonies, must be a special care of every government which understands its true interest. Gold and silver mines should be kept open, even if they yield no profit, or indeed if they can be worked only at a loss; for the money with which the costs of mining are defrayed remains in the country, while the precious metals so obtained are a permanent gain to the national wealth.
—In opposition to agriculture the mercantile system recognizes manufacturing industry as especially important to a nation; for it alone furnishes those products and commodities which can be exchanged with foreign countries for cash, while it also prevents money from going to foreign countries in return for manufactures. It is to be regarded, therefore, as a powerful lever in acquiring money. The mercantilists hold that everything which can be produced at home should be produced there, even if the costs of production and prices should be higher than abroad; for the higher prices paid to the producers remain at home. Those branches of industry are of most importance which furnish artistic products for the foreign market, for these not only prevent money from leaving the country to purchase such things elsewhere, but they are the very things that bring in most money. In consequence of the significance, importance and necessity of such industry, it becomes one of the chief functions of the state to further everything which can promote it in any way, and especially to aim at securing low wages of labor, cheap provisions, low rates of interest, cheap raw materials, skilled laborers, large markets, cheap transportation, etc., since these are prime conditions of the expansion and progress of the technical industries. This can only be attained when the government keeps the wages at a proper minimum by police regulations, fixes the prices of the necessaries of life, hinders the export of corn, fixes the rate of interest, and renders difficult the exportation of raw materials, while offering a premium on their importation. It must at the same time attempt to persuade skilled laborers to immigrate from foreign countries, reward and promote skill and inventiveness by patents and pensions, by monopolies and privileges, improve the means of communication and transportation, and regulate domestic and exclude foreign competition. What the landowner, farmer, laborer and capitalist, and the whole class of consumers, lose by this policy, is made up to the state as a whole, for in this way the efflux of money to foreign countries is prevented, and the consequent increase in rapidity of circulation accrues to the advantage of all. In regard to domestic commerce, the mercantile school held that inasmuch as it is exclusively occupied with domestic wares and products, it is of importance, from an economical point of view, only in so far as it assists manufacturing industry by furnishing it good and cheap raw material. Very different is it with foreign commerce, which occupies a most important place in the industrial and mercantile life of nations, and must, therefore, be an object of special care to the state. First of all, care must be taken that no money leaves the land through foreign commerce, or at least that no more flows out than comes back. The "balance of trade" is taken as an indication of the movement of the money. In order to secure a favorable "balance of trade," that is, in order that more money shall be imported than is exported, the importation of foreign manufactures is to be prevented or rendered difficult by customs duties, while the importation of raw material is to be allowed, because it promotes manufacturing industry at home. The exportation of domestic manufactures, on the contrary, is to be promoted by every possible means, since they bring in money the most surely and in the largest quantities. In order that the manufactures may obtain a large market in foreign lands, especial care must be devoted to the cheapness and excellence of the wares and products so as to compete easily with foreign products. The cheapness of the goods is to be secured by the methods mentioned above, by low taxes, etc., while the quality is to be assured by a very detailed system of inspection and control on the part of the government. The latter must examine all commodities destined for foreign markets, insist upon honest and fair workmanship, and confiscate all goods of a poor quality or such as would be likely to injure the prospects of trade. It should further assist and encourage the producers by rebates and premiums on exportation, and should insure them against unavoidable accidents and misfortunes. The mercantilists claimed that premiums on exports do not injure anybody, because they are paid to inhabitants of the country, and consequently remain at home. Foreign commerce is to be encouraged by the establishment of great trading companies, by the planting of colonies, by treaties of commerce with other nations, by great fairs, etc.
—The mercantile school insisted, further, that the mere accumulation of money by mining, manufacturing and trade did no good of itself, but that if the money was to accomplish its true mission, and be of any great advantage, it must circulate rapidly from hand to hand. A large body of consumers, therefore, is necessary to any great advance in national wealth. The state should not be niggardly in its expenditure, for, since the money all remains in the land, a liberal consumption of products and wares promotes production in every line. Their theory of taxation was, that so far as the expenses of government can not be defrayed by domains, monopolies, fees, etc., they should be met by taxing the profits of the citizens. Great care must be exercised, however, not to tax infant industries too heavily, and in many cases they should be exempted from taxation. Since the power and basis of national wealth are to be found in a large and dense population, the state should devote especial attention to promoting, by every means in its power, the growth of population. Their views on population are easily accounted for. Society was in that transition state when every increase in numbers, so far from resulting in greater poverty and distress, acted merely as a stimulant to new undertakings and richer achievements.
—The above set of views, to which the name of the mercantile or commercial theory has been given, ruled the political world during the whole period of modern times down to the close of the French revolution, and still maintains a hold in some places. It is difficult, or rather impossible, to say who was the founder of the mercantile school, or in what land it had its origin. It was such a natural outgrowth of the conditions of society that it made its appearance about the same time in Italy, France and England. And although a good case may be made out for Italian and French thinkers as the earliest theorizers on this subject, yet an exact form was given to these views first by Thomas Mun in a posthumous work published in 1664, and entitled "England's Treasure by Foreign Trade; or, the Balance of our Foreign Trade is the rule of our Treasure."
—One of the practical results of such views, when adopted by statesmen, was a thoroughgoing paternal system of government. The state undertook to regulate every department of life. Free trade was as unknown as free speech or free thought. The economy of the world was forced, as it were, into a strait-jacket. Everything moved along artificial channels. Nothing was natural and free. There came a time, of course, in the progress of civilization when such a state of things was no longer tenable. Men began to grow restive under this continual restraint. They longed for a greater liberty of thought, speech and action. The period of agitation in the intellectual and religious world began in earnest with Voltaire. It was one of his contemporaries and countrymen who voiced the general dissatisfaction of the time in economical matters. Side by side with the champions of political and religious freedom, François Quesnay represented the economical phase of this great struggle. The system which he founded has been called the agricultural or physiocratic. It is a vigorous protest against the theory and practice of the mercantilistic school. Although it never acquired the importance, either theoretically or practically, of the latter, yet it marks an important stage in the development of the science of political economy, and is, therefore, worthy of our special attention.
—If the mercantile theory over-estimated the importance of the technical industries and of the towns, the physiocratic went as far the other way in its valuation of agriculture and of the country. The fundamental principles of the physiocrats were few and simple. The very name itself which was given to the school signifies its most important characteristic. Its first principle was, that all national wealth is derived from the soil; agriculture is the only productive occupation; the production of raw material is the only calling in which the value of the product exceeds the cost of production. The labor of the farmer yields not only enough to support him while engaged in the labor, but a surplus over and above this, which may be called the net product. This net product generally falls to the landlord under the form of rent, and is the fund from which all expenditures of a public nature must be defrayed. The landlords, since they live without labor, are called the classe disponible, and they may devote themselves to the service of the public. Manufacturers and artisans are unproductive. They add value, it is true, to the raw material which they work over, but only as much as is equivalent to the cost of their support while engaged in their work. If they are able to save anything from their income, they do it either by limiting their consumption within too narrow bounds, or by some favoritism of government or of chance, which secures them against competition. Although unproductive, these classes are by no means useless, since by their labor they give permanence to the utilities embodied in raw material, and by their improvements they lessen the cost at which the agricultural classes can supply themselves with the needed manufactures; and so, by diminishing the cost of living of the farmers, they render possible the increase of the ground rent, that is, of the net national revenue. Their views on money were essentially different from those of the mercantile school. While they acknowledged a nation to be rich which possessed much money, yet since money can be obtained from foreign countries only by exchanging agricultural productions, no advantage is gained by such an exchange. They looked upon commerce in the same light as manufacturing industry. It added no value to the commodities beyond the wages of the laborers engaged in transportation. Since the only surplus product of labor is this ground rent, physiocrats maintain that all taxation should fall upon this alone. Any tax upon industry, wages or commerce, tends simply to increase the price of manufactured commodities, and the cost of living of the agricultural classes, and so diminish the ground rent and the net revenue of the nation. The practical consequences of these few principles were sweeping and widespread. They demanded unlimited freedom of competition in every department of economic life, abolition of all import and export duties, the encouragement of agriculture by every possible means, simplification of taxation, and the protecting of industry and trade by leaving it the fullest liberty.
—The rapid spread of the doctrines of the physiocrats is easily accounted for when we take into consideration the economic and political conditions of the time. Not only France, but all Europe, was just emerging from the feverish and excited period of over-speculation which ended with the collapse of John Law's Mississippi bubble. Men had seen every form of property take wings and fly away; all classes in the community had speculated and lost; but the farming class had been relatively safe. Landed property in France had indeed increased somewhat in value: no wonder that men turned their attention thither in the hope of recuperating their lost and ruined fortunes. This seemed like a solid rock in the wild and fluctuating sea of speculative vocations. Quesnay's glorification of agriculture, therefore, fell into good ground and was enthusiastically received.
—The economic views of the physiocrats are intimately connected with their ethico-political ideas. They base their social laws upon natural laws, and seek to establish a harmony between the useful and the just. They were not content with studying merely one phase of national life, the economic side, but endeavored to trace this back to a greater whole, to connect it with the political and moral elements of social life. According to Quesnay's idea, the world and humanity are controlled by certain permanent physical and moral laws, which man is to seek out and use for his own ends. One of the main purposes of human and social life consists in the appropriation and control of matter for human ends, and so in improving and increasing man's prosperity. In following out this aim man must obey the demands of justice in its connection with the idea of the useful. This idea of justice manifests itself in freedom and in property, that is, in the right of every one to do what does not injure the whole, and to acquire, possess and use all commodities so far as this does not come in conflict with the laws of nature and of social organization, with the behests of morality and of political wisdom. Freedom and property, therefore, are fundamental elements of human nature and of political organization, rights of such high importance and sacredness that in every human society they are to be highly valued, and to be protected, secured and promoted, since they form the essential support and condition of the state in general; and without freedom and property, without law and justice, no economical nor intellectual nor political nor moral progress of nations is conceivable. In a word, the physiocrats demanded freedom and justice in all social relations, freedom of conscience and freedom of the press, freedom of trade and commerce, equality before the law for every man, etc., and the example of nature was to be the criterion and model of all social and political institutions.
—The theory of the physiocrats had an ardent admirer and defender in the practical statesman, Turgot who attempted the task of saving and regenerating France by reorganizing the finance and economy of the nation in accordance with physiocratic principles. With his brief and troubled career as prime minister of France, disappeared all hope of putting into practice the doctrines of the physiocrats. The school lost its hold upon the minds of men almost as rapidly as it had acquired it. Adam Smith, however, who gives an account of the school, principally to show up its errors, admits that the system, with all its imperfections, was perhaps the nearest approximation to the truth that had up to his time been published on the subject of political economy, and ascribes important practical results to its temporary but universal acceptance in the French republic of letters.
—The next system of political economy arose in England, and has been called the industrial system. It was the first fairly successful attempt to treat the phenomena of national wealth in a truly scientific manner.
—Adam Smith, the founder of our modern science of political economy, had for years made a study of economic phenomena and economic theories before he resolved to devote himself to the production of the work which has made his name immortal. He spent a year or two in Paris, where he became intimately acquainted with the most prominent French economists, especially with Quesnay, the founder of the physiocratic school, for whom he always entertained the greatest admiration. After returning to England he withdrew to the solitude of private life, and after five years of constant study he began to formulate his economic theories in a systematic treatise. Five years more of unremitting toil were devoted to the writing of the book, and in 1776 appeared his "Inquiry into the Nature and Causes of the Wealth of Nations." It placed him immediately in the very front rank of economists, and marked the opening of a new era in economic science. Adam Smith's career, as Eisenhardt well says, strikingly illustrates the truth that epoch-making works are produced only at the expense of a whole life, and that even in a special department they can only be produced by men of the most comprehensive culture.
—Wealth, according to Adam Smith, consists in all material commodities which are serviceable to the attainment of human ends. It has its origin in human labor, which, in conjunction with natural agents and the results of saving, i.e., capital, effects the gradual advance of nations in prosperity and industry. Labor is most effective and fruitful when properly divided and combined in the various economic occupations, and when left free and unhindered to employ itself as it sees fit in production and exchange. Out of this division and combination and unhindered employment of labor arises such a distribution of wealth as secures to every participant in production his fair share of the product. This last holds true of nations as well as of individuals.
—These ideas pervade all Adam Smith's expositions in political economy. They should be kept in mind as we develop the subject more fully. A prominent feature in Smith's system is the importance he assigns to the psychological element in human activity, particularly in economic activity. Selflove is the ruling principle in the intercourse of human society; it is a justifiable moral force, and is the most powerful agent in the increase of national wealth. As a natural consequence of this view it follows: that nature herself has provided for the gradual increase of national wealth by giving man such a nature and putting him in such a world; that the surest, most effectual, nay, the only, way to make a nation prosperous and rich is by following the example and hints of nature, by letting every individual pursue his own advantage in the way that pleases him, so long as he does not infringe upon his neighbor's rights, and by letting him exchange the fruits of his industry with those of another's without let or hindrance. The free play of self-interest and individual activity furthers generally the common good also, so that there is rarely occasion for the interference of the state in economic matters. This principle is fundamental, and Smith recurs to it again and again. In connection with this he emphasizes the right of individual liberty and equality, and insists upon the abolition of all the restrictions and hindrances to trade and commerce which impeded them in his day. Men have a natural right to apply their property and talents in that business which will bring them the largest return, and the state has no right to interfere except to protect individuals in their natural rights from the encroachment of others. Freedom of individual activity is the animating, fructifying principle of economic life. It is the air in which the body economic lives, the light which vivifies it, the breath which pervades it, and excites everything to activity, the basis of all development and perfection, the lever of all progress, the spell by which everything bad may be exorcised, and all that is good and great and enduring may be excited. (Kautz.) Enlightened self-interest of the individual and the interest of society are one; there is, therefore, an ultimate agreement and harmony of all economic interests.
—Smith's theory has been very properly called a theory of production. It is true that he considered not only production but also exchange and distribution; but exchange he discussed only as a means of increasing production, while he disposed of distribution in such a summary and unsatisfactory way that his views on that subject have not commended themselves to any great number of subsequent economists. Wealth does not consist in land alone, nor in money alone, but in all those material things which are suitable to satisfy human wants and to increase the conveniences and amusements of life. It is produced by labor working in conjunction with natural agents and the products of previous labor, viz., capital. Of these, labor is by far the most important factor. It is rendered efficient by division and combination. (See
—Capital is that portion of one's stock or accumulation of property which is employed productively, i.e., so as to yield a revenue to its owner. It is divided into circulating and fixed capital, the former including such as must pass out of its owner's possession before it can yield a return, the latter being that which may remain in one's possession and still yield a profit. An example of the former is a merchant's stock of goods; of the latter, investments in permanent improvements of a farm or a factory. It will be seen that Smith exaggerates the importance of labor as a factor of production; although he was the first to give us an even approximately complete and satisfactory discussion of the physical conditions of production and distribution. He was also the first to distinguish clearly the idea of capital, and to recognize its accumulative power and its significance in an industrial system. He did not realize, however, the importance of the non-capital stock in the national economy, and consequently left deficiencies in his theory which he could not supply.
—Another field in which Smith did original work was his theory of the circulation or exchange of commodities; the theory of price, of money, of market movements, etc. Money was a necessary consequence of man's tendency to exchange, and also the condition of any extensive system of exchange. Money is not identical with wealth, as many have maintained, nor is it even the most important kind of wealth. It is a simple commodity whose value and price varies like those of any other commodity. It is to be regarded as an unproductive, dead capital, because it leaves no utility fixed in a material object as it passes from hand to hand. The amount of money in a land bears a fixed, though perhaps indeterminable, ratio to the quantity of exchanges to be effected by it. Price is distinguished: 1, as real price, the quantity of necessaries or conveniences of life given for a commodity, and nominal price, or the quantity of money given for it; 2, as natural price and market price. Market price is determined by the higgling of the market, and is affected by temporary demand and supply. Natural price is such a price as is sufficient to pay the costs of production. The former tends to approximate to the latter. Natural price includes, as constituent parts, natural, i.e., ordinary, wages of labor, natural rent for ground, and natural profits of stock employed in raising, preparing and bringing to market the commodity.
—Smith was the first economist to investigate the nature of income, and the conditions and elements of its increase and distribution. He divided national income into wages of labor, ground rent and interest on capital, and developed to some extent the principles which underlie their distribution. Rent forms an essential part of the price of all agricultural products, and since all land cultivated must yield more than enough to sustain the labor employed on it, all land yields a rent. Position is as important an element as fertility in determining the rent of land. The natural reward of labor is the product of the same. But in a civilized society where the land has been appropriated and capital has been accumulated, the laborer only secures a portion of the product as his reward, and must give a portion to the landlord and another to the capitalist. The wages of labor are determined by the general laws which regulate price. We may designate that as the minimum rate of wages which will barely enable the laborer to found a family and keep himself able to work. Under favorable circumstances the laborer may secure for himself a rate far exceeding this. Wages are highest, not in the most wealthy countries, but in those which are increasing in wealth most rapidly. Combinations of workmen to raise wages can seldom accomplish any good, and generally do great injury. The rate of profits on capital varies very greatly in different states of society. It is determined by the relation of demand and supply. It tends to fall as society advances, while rent and wages tend to rise. As labor is the source of all wealth, so saving and economy are the only means of accumulating, i.e., of creating, capital.
—We have called Smith's system a theory of production, and rightly, too, as distinguished from a theory of distribution, which political economy is still waiting for; but Smith was the first to present the interests of consumers as entitled to as much consideration as those of the producers, whose interests as a class had been almost exclusively regarded by previous economists. Consumption is the sole end and purpose of all production, and the interests of producers are to be considered and furthered only so far as they affect the interests of consumers. Smith's ideas of the significance of a large population were distinctly opposed to those of the mercantilists, and foreshadowed, in an indistinct manner, those of Malthus.
—Smith's chapters on taxation marked an epoch in this department also. He developed the economic basis of taxation. He discusses, first, what are the necessary expenses of the government or commonwealth; which of those expenses ought to be defrayed by the general contributions of the whole society, and which of them by that of some particular part only, or of some particular members of it; secondly, what are the different methods in which the whole society may be made to contribute toward defraying the expenses incumbent on the whole society, and what are the principal advantages and inconveniences of each of those methods; and, thirdly and lastly, what are the reasons and causes which have induced almost all modern governments to mortgage some part of this revenue, or to contract debts, and what have been the effects of those debts upon the real wealth, the annual produce of the land and labor of the society. Smith's canons of taxation have become classic, and English and American political economy has not yet got beyond them. (See
—Among other defects we may mention his emphasis of value in exchange and disregard of value in use, his denying to immaterial labor the quality of productiveness, his unsatisfactory treatment of the elements of nature and capital in production, his failure to appreciate the importance and range of combination and association among laborers, his superficial discussion of fundamental concepts and disregard of form and arrangement in grouping his material. Finally, we must characterize as a defect, Smith's conception of the eternal and unchangeable nature of the laws which control and regulate the economic life of nations, and of the absolutely unconditional validity and applicability of all economic principles and truths. Out of this view rose a politico-economic theory which leads to a fatalism, in which the ethical power and freedom of the human will are utterly powerless in the grasp of natural law. No attention is paid to those historic, national and natural peculiarities upon which the different form and development of the various systems of national economy depend, and by which, therefore, the concrete relative significance and truth of economic principles, institutions and systems are conditioned. The attempt was made to construct an abstract, universal science of economics valid at all times and in all places. The attempt was a failure.
—The progress of political economy since Adam Smith has consisted principally in improvements in detail and form. No independent and opposed system has been constructed, if we except socialism, which is worth noticing; but many special departments have been enriched. Among the men who have contributed to the progress of the science we may mention the following: At the beginning of the century, Malthus and Lauderdale in England, J. B. Say and Canard in France; and Sartorius and Buesch in Germany. In the second decade come Ricardo in England; Ganilh and Sismondi in France; Hufeland, Lotz, Storch and Soden in Germany; and Gioja in Italy. After these come the Englishmen, James Mill, Torrens and M'Culloch; the Frenchmen, Tracy, Droz, and Louis Say; the Germans, Rau and Nebenius; and the Italian, Fuoco. St. Chamans in France, and Adam Müller in Germany, may be mentioned as decided opponents of Smith's system. Senior, Eisdell, Scrope in England, Rossi and Chevalier in France, and Hermann, Schoen, Baumstark, Hagen and Riedel in Germany, promoted the progress of the science during the years after 1830. During the decade 1840-50 Dunoyer and Bastiat in France, Thünen, List, Schütz, Hildebrand and Bernhardi in Germany, and John Stuart Mill in England, deserve especial notice. Tooke, Macleod, Sargant, Atkinson and Cairnes in England, Baudrillart, Courcelle-Seneuil in France, Bianchini and Carballo in Italy and Spain, and Roscher, Knies, Mangoldt, Stein and Schäffle complete the list of those who up to 1860 had done very much original work in the science among European writers.
—It is worth while to mention the special topics which have been the objects of thought and attention in connection with those who have made them the subjects of special study. Whately, Senior, Mill, Chevalier, Cairnes and Knies have done valuable work in defining and determining the nature and problems of economic science. Say, Lauderdale, Hufeland, Lotz, Rau, Hermann, Bastiat, Friedländer, Bernhardi, Thomas and Knies have labored at the fundamental ideas of the science, wealth, value, etc. Dunoyer, Hermann, Gioja, Ganilh, Bernhardi and Say have investigated the theory of labor, its productivity and freedom. The theory of capital has been furthered by Say, Hermann and Dietzel; that of price by Hermann and Tooke; that of the productivity of nature by Say, Lotz, Rau, Bernhardi and Malthus; that of money by Hoffmann, Ganilh, Senior, Chevalier; and that of the movement of precious metals by Ricardo, Senior, Jacob, Tooke, Helfferich and Soetbeer. The laws of distribution have been treated at length by Say, Sismondi, Ricardo, Hermann, Thünen, M'Culloch, Rossi, Bernhardi, Nebenius, Read, Mangoldt, Jones, Bastiat and Carey, particularly in connection with the doctrines of rent, wages and profits. The theory of national consumption has been elaborated by Say, M'Culloch, Sismondi, Vorlaender, Hermann and Roscher; that of the equilibrium between consumption and production by Say, Malthus, Hermann, Sismondi and Bernhardi; that of credit by Thornton, Nebenius, Coquelin and Dietzel; that of partnership by Stein: that of banking by Buesch, Thornton, Ricardo, Tooke, Wilson, Fullarton, Coquelin, Macleod, Huebner, Thoel and Gilbert; that of transportation by List, Chevalier and Knies; that of the political economy of agriculture by Roscher, Thünen, Lavergne, Passy and Wolowski; of manufacturing industry by Sismondi, Babbage and Roscher; that of international trade by Say, Ricardo, J. Mill, J. Stuart Mill and Büsch; that of colonization by Wakefield, Torrens, List and Roscher; that of pauperism by Eden, Villeneuve, Villerme, Gerando, Vogt, Mohl, Schütz and Schmidt; that of population by Malthus, Sadler, Senior and Roscher; that of finance by Malthus, Jacob, Schön, Rau, Stein, Ricardo, M'Culloch, Molkte, Nebenius, Baumstark, Augier, Carey, Bianchini, Dietzel, and many practical men of all nations.
—The merest glance at the various tendencies which have revealed themselves in the economic literature of this century will convince one that it is a matter of the greatest difficulty to group the various writers on economics according to particular schools. It is difficult to select a set of views and opinions which any number of eminent authorities consider and acknowledge as their own. The various adherents of a given system do not often acknowledge a principle in the same decided way. The same thinker often belongs not merely to one but to several schools, according to his views on certain fundamental ideas. We may distinguish, however, the following general tendencies: 1. Those who, while they accept Smith's system in general, enlarge the idea of wealth and productivity, and extend it also to immaterial commodities, services and labor. Among these may be mentioned J. B. Say. Ganilh, Rossi, Dunoyer and Garnier, in France; Lauderdale, Wakefield, M'Culloch and Macleod, in England; Hufeland, Soden, Bulau, Storch, Hermann, List, Eiselen, Steinlein, Roscher and Dietzel, in Germany; and Gioja, Bosellini, Boccardo, Scialoja and Bianchini, in Italy. 2. Those who emphasize the idea of value in use, and claim for it an important rôle in political economy: Lauderdale, Schön, Riedel, Rau, Bernhardi, Roscher, Knies, Cherbuliez, Muller, List, Say, Gioja and Bianchini. 3. Those who have resurrected some old mercantilistic and protectionist ideas, condemn the exportation of the precious metals, and the idea of free trade, and under the modern cry of "protection to national labor," attempt to free domestic industry from foreign competition by high import duties: Ferrier, Ganilh, L. Say, Thiers, Goldenberg, St. Chamans and Lebastler, in France; Hopf, Büsch, Pfeiffer, Eisenhart, Brentano and List, in Germany; Colton, Carey and Thompson in America. 4. The school of absolute free trade, embracing most English and French and many American economists, and of the German, Prince-Smith, Hübner, Brüggemann, Hagen, Lotz, Osiender, Wirth and Bergius. The term Manchester party was applied to a wing of this school, composed mostly of practical men, who were instrumental in bringing about the great revolution in England's commercial policy, which, beginning with the abolition of the corn laws in 1846, ended with the free-trade tariff of 1860. They were opposed to any governmental interference in economic matters, and demanded unlimited competition in every department of industrial life. As a party they have opposed all legislation in favor of the laboring classes, such as factory laws, postal savings banks, etc., etc. For a time they had everything their own way, but have already lost their hold on the public mind. 5. The physiocratic tendency, represented by a few economists in France and Germany. 6. The conservative-reactionary tendency, which opposes itself to the very fundamental principles of modern political economy, and sees the only hope of happiness in a return to obsolete institutions and forms, confined to the continent, and represented mainly by theological malcontents and the ultramontanes. 7. The "social" school, which rejects the principle of absolute competition in acquisition and exchange, and seeks to reconcile individual freedom and activity, private interest and advantage, with the interest of the whole, and to bring them into harmony with the higher demands of the organic life of the community. A prominent feature in the theory of many of the adherents of this school is an emphasizing of the ethico-political element, and an acknowledgment of the relative importance and justification of governmental interference in economical matters. The representatives of this school are: in France, Blanqui, Comte, Chevalier, Fix, Baudrillart, Droz, Dunoyer and Sismondi; in Italy, Gioja, Bianchini, Cibrario and Fuoco; in America, Carey and Colton; in Germany, Soden, Baumstark, Mohl, Rossbach, Rau, Schulze, Schuütz, Roscher, Knies, and Hildebrand; in England, J. S. Mill, Chalmers, and Atkinson. 8. The so-called new English or orthodox school represented by Malthus, Ricardo, Mill, Senior, M'Culloch, Cairnes, etc., so far as they had common features. 9. The socialistic school, represented by St. Simon, Fourier, Louis Blanc, LaSalle, Marx etc., etc. 10. The historical school. The adherents of this school aim at uniting in an organic system the previous results of economic investigation, and endeavor to assign to the ethical, political and social elements their proper place in the economic system. They test the various theories of political economy by the standards of historical phenomena which are constantly changing, and are dependent on time and space and upon natural and national conditions. They acknowledge, therefore, neither a general normal national economy, nor an absolutely valid theory of national economy, which shall be applicable to all times and nations. List, Roscher, Knies, and the majority of the younger German economists, and a few French and Italian economists, with Cliffe Leslie and one or two others in England, represent this school.
—The limits of the present article forbid any detailed discussion of these various schools. Political economy is at present in a very chaotic state. The "orthodox" political economy has begun to lose its hold in England and America, and has already ceased to hold the first place in Germany, France and Italy. While in the latter three countries the historical school has become the leading one, it has not been able to secure much of a foothold in either of the two former. This last springs partly from the dense ignorance of continental political economy which prevails for the most part in England and America. In Germany, Rau, Nebenius, Hoffman, von Thünen and Hermann may be classed as strong adherents of Adam Smith, although they modified his opinions in several respects. Their modifications were most frequent in relation to administrative matters, the German economists generally giving larger scope to the action of the state. Friedrich List headed the line of German protectionists, and was eminent for his originality, his patriotism, and the excellence of many of his monographs. He proclaimed the temporary necessity of protectionism as a means of education. His system contains many points of similarity with Carey's. The historic school was founded by Roscher, Hildebrand and Knies. Hildebrand's Die Nationalökonomie der Gegenwart und Zukunft is a clear and searching criticism of the orthodox school of political economy, though his censures are exaggerated. Roscher is in many respects a sound follower of the orthodox school, though he denies the existence of general economic laws, or rather underrates their importance. Knies is no less profound than Roscher, and is his superior in legal learning. His principal works are Die politische Oekonomie rom Standpunkte der Geschichtlichen Methode, and Geld und Kredit. A different tendency is represented by the so-called liberal school, nicknamed by its enemies the Manchester school of Germany. It has devoted itself to bringing about the triumph of complete liberty in commerce and industry. Prince-Smith, Schulze-Delitzsch, Faucher, Braun, Michaelis and Wirth, the last of whom is the author of a course in political economy, which sums up the tendencies of the school, are the principal economists of this group. Rentzsch, Emminghaus and Soetbeer may be classed as moderate adherents of this general tendency.
—A very different standpoint is taken by other economists, among whom may be numbered most of the professors of economics in German universities. Following in the steps of the first writers of the historical and statistical schools, they profess little faith in universal, or as some say natural, laws. They believe only in historical or relative laws, discovered by the inductive method, and deduced from simple psychological and abstract premises. They doubt the omnipotence of the principle of liberty and individual self-government, and assign a large sphere to the modifying action of the social power. Questions concerning the distribution of wealth attract their especial attention, and they endeavor at least to help on the solution of the "social" question. They are distinguished by their ability, their numbers, their culture, and their influence on the cultivated classes. Their doctrines, tending to a reconstruction of economic science, have been published in a large number of special works and in the best economic reviews, such as the Zeitschrift für die gesammte Staatswissenschaft, published at Tubingen, and the Jahrbücher für Nationalökonomie, published at Jena, and edited at present by Conrad of Halle. The not very appropriate name of professorial socialists (Katheder-Socialisten) has been given to the extreme followers of this school, because they support the principle of authority. The most important work of this school is the "Course of Political Economy," by Professor Adolph Wagner, of Berlin, consisting in a new edition of Rau's "Course," which has become somewhat out of date. Nasse has assisted in this work. Wagner's "Science of Finance" is also written from this new standpoint: "These professorial socialists, among whom von Scheel, Schmoller, Nasse, Held, Schäffle, Conrad, etc., may be mentioned had no difficulty in overcoming the arguments of certain weak economists who wished to reproduce in Germany the doctrines of Bastiat at any price. They have deceived themselves, therefore, as to the importance and originality of their discoveries. They confound economics with morals and law under pretext of better harmonizing their results. They do not distinguish theories, which are for the most part general, from applications, which are always contingent. They exaggerate the importance of induction. For the gradual and peaceful evolution of political economy they wish to substitute a revolution, which they justify by an undeservedly severe condemnation of the defects and errors of the classical economists, and especially those of England and France. They start from the false assumption that the scientific progress of other nations at the present time is almost nothing in comparison with the acquisitions of the science in Germany. It can not be denied, however, that the eminent position now occupied by Germany in the progress of economic studies demands from the economists of other countries a patient study of German works. Profound investigation, accurate historical and statistical research, the number and merit of their economic writings, their precise determination of fundamental principles, their separation of economics from the financial and administrative sciences, have gained for them this position." Works of great importance, and showing immense industry and carefulness, have been written by Mohl and Stein on administration, and by Rau, Malchus, Nebenius, Hoffmann, Stein, Hock, Wagner, Vocke and others on finance, and make German science well worth the pains necessary to work through their subtle and oftentimes pedantic controversies. The inelegance and obscurity of the literary style of most German writers on economics form a serious drawback to the general study of their works.
—The following account of the development of political economy since Adam Smith, is inserted here, although it involves some repetition, because it represents very well the views of the most numerous and influential body of German economists. It is condensed from an article by the late Professor Adolf Held, one of the ablest representatives of the Katheder-Socialisten.
—Smith's work on the "Wealth of Nations," which has been published in many editions and translations, and is accessible to every one, is the product of the deepest scientific investigation, and is at the same time written in a most simple and pleasing style. There has been a great deal of discussion as to the method of investigation employed by Adam Smith. Buckle, who divides all men into the two classes of deductive and inductive investigators, classes Adam Smith as a Scotchman with the deductive school. But the truth is, that Smith did not strictly adhere to any one method. He does not tire the reader with continuous expositions according to one definite method, but, in order to reach his results, applies first one method and then another in a pleasing and suggestive variety. We find investigations, in which, from simple premises as to the nature of man, the most far-reaching conclusions as to economical relations and their connection are evolved by deduction, but in the very midst of them occur long historical dissertations and detailed descriptions of contemporary conditions which are also employed in proving his propositions. And with it all Smith does not even adhere to any sharply defined terminology, but discusses the phenomena he investigates in the everyday language of common life. Nothing is more foreign to him than the imposing mathematical exactness of form which is characteristic of Ricardo, for instance. He does not follow out even his own views to their extreme consequences, but modifies his conclusions by new considerations where it is necessary, and where they will thus correspond more closely to the complicated relations of actual life, and so stops short of drawing the logical consequences of his own premises. When we consider this many-sidedness of his treatment of the subject, we can not be surprised that men of exactly opposite opinions appeal to him as a supporter of their views, for, as a matter of fact, the germs of both extremes are to be found in his writings. The absolute free-traders of to-day call him their great master; List, the protectionist and creator of the national political economy, derides and antagonizes him. Carey, on the contrary, who resembles List in many respects, quotes him as an authority in opposition to Malthus and Ricardo; and in very recent times a bitter discussion is going on in the press as to whether the absolute free-traders (Manchesterites) or the realistic political economists (the Katheder-Socialisten), who are most bitterly opposed to each other, are Smith's legitimate successors. The point can never be fully decided if we keep in view all Smith's statements and all his methods of investigation. But if the question be asked, what theories and what methods were the most immediate outgrowth of Smith's work, we can not deny, that, although Smith himself was far above most of the narrow and one-sided ways of regarding things which characterized his immediate successors, yet he was the father of that tendency whose last and most extreme representatives are known as the Manchester school. Two fundamental ideas may be clearly distinguished in his great work, the logical outcome of which was Manchesterism. On the one hand, he entertained the view that the state is nothing but a complement of individual life to assist in protecting private economies; a great insurance company with the least possible jurisdiction, which must be as cheap as possible, and interfere as little as possible with the individual whose rights antedate and are superior to those of the state. He does not appeal to philosophic and jural principles to establish this view, but supports it rather from the advantageous consequences which must result to the economic welfare of men from such an administration, or rather non-administration, of the state. It can not be denied, that in this point Smith was decidedly narrow, and that, influenced by the reaction of his time against the absolutism of paternal governments, he failed to get the proper conception of the state and of the infinite obligations of the individual toward society. The view that the only function of the state is to preserve the original rights of the private individual shows itself in his theory of taxation, his praise of the system of standing armies, and his views of public education. This free individual, under the control of the state only so far as is necessary to make him respect the rights of others, is conceived as endowed with an average amount of prudence and insight, and as moved in all economical actions solely by the motive of self-interest. From these premises everything is deduced. There is no mention of an overreaching of the weak and ignorant by the strong and shrewd, or of a public spirit which works against such a tendency. As has been already said, the work does not consist exclusively of deductions from these premises, but they play a very great part, and form the basis of a simple theoretical system of science. The supposition of equal economic ability, and of self-interest as the sole motive in economical life, was evidently a conscious one sidedness so far as Smith was concerned; for, as his work on the "Theory of Moral Sentiments" proves, he recognized the existence and necessity of other human motives than egoism. But these were ignored in order to be able to attain to simple scientific results by considering only the prevailing motive in economic actions. But as the logical consequences of an uncontrolled although enlightened self-interest do not give a complete picture of social or even of economic life, Smith did not pursue his theories to their extreme results, but interrupted them by historic expositions; it is no wonder, therefore, that the disciples of this great man should first develop those features of his system by which the simplest and most valuable results had been won.
—A second fundamental idea in Smith's system is, that labor, as such, is the sole creator of all value. With this great and simple thought all exaggeration of money or land or trade or agriculture was made impossible, and the basis of a really general economic science was laid. He did not fully develop this thought, however. He pushed it to extremes in one direction by making labor not only the original source, but also the standard, of all value; and by making the distinction between productive and unproductive labor, he prepared the way for an exaggerated and one-sided estimate of purely material wealth. As Smith put the value-creating power of labor at the head of his system, and acknowledged capital, regarded as "accumulated labor," to be an important factor in production based upon labor, the idea crept in that the increase of values, as such, is the ultimate or only end of human economy, nay, even of human endeavor in general, since no other side of human activity than the economic is considered. Many chapters in his work create this impression rather by what is omitted than by what is said. At a time when the expansion of production was attracting the attention of all, and the absolute increase of wealth was, as a matter of fact, the first and most necessary condition of economic prosperity, it was natural that men should pursue this end exclusively. Men did not come to feel the importance of a better distribution of wealth until the labor question of to-day forced it upon their attention. Adam Smith had no harsh feelings toward the lower classes, and if he did not preach the necessity of kindness toward them, it was because the circumstances of his time did not demand it. Nothing was further from his idea than making man directly the servant and instrument of wealth; but when labor was looked at mainly as value-creating power, as a means to the end of increasing wealth, the transition was not violent to a forgetfulness of the wants and aims of the laborers. Smith's expositions foreshadowed the theory, so bitterly attacked by List, which in the value forgets the producing power, and regards the laborer, not as a man, but as a mere instrument. However kindly Smith himself thought of the laboring classes, however humane his feelings toward them, there lies in his theory the germ of the view which values the laborer less than the labor and its result, and which reduces a political economy, which starts from the equal estimate of all labor, to one which is subservient to capital. All this is no reproach to Adam Smith, but simply an explanation how a large school which honors him as its master could arrive at the most one-sided views by simply emphasizing, as they naturally would, those thoughts of their great leader which could be most easily used in developing a simple and consistent theory of wealth. This will appear more clearly when we come to discuss his most prominent followers. Smith lived to see the great success of his work; for even before the close of the preceding century his school had become the predominant one in all civilized countries. Numerous editions and translations carried the book everywhere, while still more numerous disciples delighted to spread abroad his views in their own writings. The development of his school was somewhat different in the three chief nations of Europe, England, France and Germany, although England took the lead until very lately, when German economists began to assume an independent position.
—Of all Smith's followers in England, Ricardo indisputably stands first. Thoroughly different from Adam Smith in every particular, he was just fitted to develop a harsh and rigorous system from the fundamental principles which Smith had popularized. Originally a business man, he began his literary activity with the discussion of a practical question, that of money and banks. From this he passed to more general work, and wrote his "Principles of Political Economy and Taxation." This treatise discussed in detail some of the questions which Smith had passed over rather lightly. On account of the fundamental importance of the questions treated, and the strictly logical and consistent treatment of them, this work produced the effect of a theoretical system, and was of far greater value for the development of the science than the works of Say written about the same time. Adam Smith, a scholar by nature, and educated as a scholar, without any inclination to practical life, had maintained an unusual many-sidedness, an open eye for all points which must be considered, and had sacrificed to this habit of looking at all sides of everything the formal clearness of his reasoning, the theoretical perfection of his system. Ricardo, the practical man, on the contrary, after he once took up his pen, insisted upon the severest adherence to conclusions from abstract and incomplete premises, and is the real father of that abstract theory of political economy which, closing its eyes to all the facts of our changing and shifting life, sees the only truth and salvation in the belief in the necessity of the absolute freedom of the individual. It was Ricardo, not Adam Smith, who made the method of gaining all economical knowledge by deductions from incomplete hypotheses as to the nature of man, his fundamental principle. Ricardo made the theory that labor is not only the source but also the standard of value the foundation of his whole system, and reasoned from that to the conclusion that the instrument of labor (called the laborer) can never have more than barely enough to keep him alive, and that simple and powerful natural laws control the economical life of man, which man may ascertain by deduction, but can not change, and which, on the whole, produce ever-increasing wealth of the land-owners and capitalists, permanent poverty of the poor, and for all an ever-increasing difficulty of obtaining subsistence. We do not use Ricardo's words in this characterization, we seek to show the spirit in which he wrote, or rather, the tendency which the results of his investigation promote. He acquired an extraordinary authority by the formal precision of his expositions. It can not be denied that he did a great work for the science, if it were nothing more than showing to what conclusion one must come when one starts from such premises and uses such a method. Next to Adam Smith, Ricardo is the man whom one must study who wishes to understand the political economy of to-day. The terse precision of his exposition and the severity of his reasoning will always remain instructive. But it is carrying our admiration too far to accept the results of his investigations as infallible truths; for they are only true conditionally, and are as little adapted as the mercantile theory to explain the economical relations of all times and nations. His theory of bank notes, that their value depends upon their quantity, has been disproved by the labors of realistic political economists (Tooke). The theory that the cost of production alone determines the price of commodities whose quantity can be increased at pleasure is untenable, since we can not separate the commodities to which the theory applies from those under the control of monopoly. It was rejected by Hermann and others long ago, and has in recent times shown its weakness in a most decided way by the consequences which Marx and other socialists rightly deduced from it. His theory of rent is relatively true, but the view that land alone follows in every respect different laws from other fixed capital has been given up by later economists, who consider land like other property, and maintain that the theory has a practical value only in old lands, and then only if we accept the fiction that the present landowners are the heirs of the first occupiers of the soil. Ricardo explains the phenomena of economical life from simple causes, and the explanation is correct so long as we close our eyes to the existence of other causes, but it becomes more incomplete and untenable the stronger those causes become which he ignored. Ricardo's method of investigation, which led him to be one-sided for the sake of clearness and simplicity, and which, on the whole, was a valuable service to the theory of the science, was employed for sad purposes by his weaker successors, to oppose any influences which threatened the interests of the propertied classes as offenses against sound political economy. It follows as an absolute necessity from Ricardo's theories that all industrial progress must inure to the benefit of the propertied classes, that increase of capital must be promoted for the sake of the increase of wealth, that it is nonsense to limit calculating egoism, or to make any sacrifice to the welfare of the laborers whose lot as mere instruments of labor is irrevocably fixed. A self-satisfying theory of political economy, complete in itself, was contained in Ricardo's keen propositions. It staved off all objections from other standpoints, and demanded unconditional acknowledgment, undisturbed sway of laissez faire et passer in the interest of the increase of the wealth of the rich. It viewed all sacrifice for the state, all humane acts in social questions, as disturbing and injurious forces. Few have dared to express it, but it is a logical consequence of this self-satisfying political economy, with its natural laws, that all human endeavor which does not aim directly at the production of material wealth is indifferent. What do the natural laws of economy care about states and nations?
—Ricardo had developed what under certain conditions is, and why it is so. Many of his followers insist that they do nothing more than tell the truth: they do not make things as they are, they explain simply. That sounds very plausible. But we must consider that as soon as an explanation of that which is, appears, with the claim that it must naturally be so, and that a struggle against it is fruitless and disturbing, the explanation becomes an active principle, the exposition culminates in a postulate, the theory of immutable natural laws leads to a negative economic policy. This appears very plainly in those successors of Ricardo whose economical reasoning exhausts itself in an appeal to Ricardo's authority, and who content themselves with a comfortable preaching of the laissez faire et passer, and consider the sole function of modern science to be a holding fast to Ricardo's theories. It is impossible to write a political economy which merely discovers and arranges existing laws, like astronomy, for instance. Whoever studies human relations in which he himself moves and lives, will necessarily incorporate in his theories his own wishes, and his views of what is best for man to do.
—Ricardo, somewhat modified in form and practically applied, is what we call Manchesterism. Of course every one protests against having this name applied to him, every one professes, on being interrogated, the most kindly feeling toward the laborers, a great love for the state, and an anti-materialistic sentiment. But there are writers, particularly in other countries than Germany, whose whole circle of thought is taken from Ricardo, and in whose writings so slight traces of such sentiments can be found that they certainly can not exercise any great influence on their economic theories. There are few writers whom one can convict of a thoroughly consistent Manchesterism, but there is a mode of thought which is called Manchesterism, and which shows itself to be the prevailing one in very many writers. To the best known disciples of Ricardo in this sense belongs, in England, M'Culloch, whose services to the science can not be denied but who did not enrich it by any new ideas of fundamental importance. Senior may also fairly enough be called a Manchesterite. It is remarkable that J. S. Mill, whose sympathetic nature gave him a view of life very different from Ricardo's, and whose political and philosophical studies secured for him a wider intellectual horizon, should so often be in abject subjection to Ricardo's authority in purely economic questions. We must remember, however, that in England down to 1860 the great practical question of economic policy was, how to push through free-trade to its ultimate victory, and that in this contest the catchwords of the laissez faire et passer school were of great use. Mill, however, did not allow his theories to prevent him from supporting the establishment of postal savings banks, of a national sanitary commission, of factory legislation, all violations of laissez faire et passer; and in very recent times a marked reaction against Ricardo's theories is showing itself among English economists.
—In France, Say, in his Cours et Traité d'economie politique, made Adam Smith's theories familiar to his countrymen. Although less important and influential then Ricardo, he acquired a great reputation by the beauty of his literary style and the clearness of his expositions. A large number of French writers became adherents of his views, against whom the half socialistic theories of Sismondi made little headway until French political economy acquired a peculiar cast from the struggle with socialism and communism. A detailed discussion of socialism and communism will be found elsewhere, but we must call attention here to the fact that, although the socialists and economists in France regard each other as something absolutely different, yet since scientific socialism and communism busy themselves chiefly with economic problems, they are to a certain extent economic schools. Communism and socialism form the exact opposite of the laissez faire et passer tendency, and also a sharp contrast to the immediate fore-runner of modern economics, i.e., mercantilism. The mercantile system demanded protection of the state for trade and industry. Adam Smith and Ricardo called for freedom in the interest of the third estate; communism and socialism insist upon limitation of the individual by a higher power in the interest of the fourth estate, the laborers. The ideal of the so-called industrial system is tabula rasa for the individual forces, which, after the abolition of all hindrances, should be allowed to develop themselves and compete with one another freely. This was of great advantage compared with the old restrictions of mediæval society, such as vassalage, guild law, trade monopolies, etc. But when, under the free play of economic forces, the stronger mercilessly exploits the weaker, it is but natural to claim that new restrictions adapted to the times, must be raised on this tabula rasa which has been won. This cry for a new organization was raised by communism and socialism in France soon after the first triumphs of the revolution, and it has re-echoed ever since. Almost all of those who call themselves socialists or communists demand, it is true, something impossible and indeed criminal, yet there is a theory, a science, of socialism and communism, which can not be summarily disposed of with moral indignation, like Babœuf's assassination theory or Fourier's ideas on marriage. Real communism demands a complete and permanent community of property and equality of enjoyments, that is only possible in connection with an absolutely despotic commission which superintends this distribution; whether this directing power is to acquire its position by murder and revolution, as Babœuf wished, or by the force of persuasion, as Cabet's ideal demanded. Such a thing is impossible, such an idea is lunacy; but it contains a criticism of the premises from which the prevailing political economy proceeds, i.e., of the supposition of an enlightened self-interest ruling all men which is to bring to all men alike the greatest prosperity. And so as a criticism even real communism has its scientific significance. It is more difficult to define the demands of socialism; for there is a great contest going on as to who should be branded with the name socialist, and there is a world-wide difference in the opinions of those who are generally called by that name. Compare St. Simon, Fourier, Louis Blanc, Proudhon, Owen, Waitling, Engel, Marx, Lasalle, with one another, and all of these with the so-called professorial socialists who make it their boast that they are forging the strongest weapons against Marx and his like. We may describe the socialists as a whole by saying that they reject the complete equality of all men and community of goods, but, on the other hand, they would not permit to the individual the complete exploitation of his powers at the expense of others, but, by some new organization or other, which, as opposed to the previous condition of things, would control the individual more in the interest of the whole, they would seek to bring about a distribution of wealth which should be fairer and more favorable to the poorer classes. The plans for this new organization are very different. The great mass of those called socialists, like the communists, show dangerous and reprehensible tendencies, and it is very difficult to draw a sharp and clear line between such, and those who in a legal, praiseworthy and possible way seek to limit free competition and to subordinate the individual to the community in a somewhat greater degree than hitherto. It is not to be wondered at, therefore, that scientific men with the most praiseworthy desires must be contented to be called socialists.
—The proper course to pursue in regard to communism and utopian socialism is to take their criticism to heart, correct their ideas of liberty and equality, and give up the untenable postulates of individualism. In the politico-economic field in particular it should be our task to study the working of the moral forces in man, and emphasize these, instead of constructing untenable natural laws from one-sided premises; in short, we must free the theories of the English economists from their one, sidedness, develop them, unite them with enlarged views, and seek to do justice to the wants of the present by independent observations of the facts, instead of seeking eternal truth in holding fast to theories which sprang from the spirit of times long past. French science did not do this, however. Men did not content themselves, of course, with suppressing the socialistic elements by force of arms in the battle of June, 1848, and keeping them down afterward by police measures. They attempted to use the arms of science also, but instead of giving up untenable positions and then opposing the excesses of socialism with all the more right, they opposed a sophistical optimism to the dark pictures of existing conditions, from which the socialists had drawn their right to over-throw them. They had to modify Ricardo's theory of rent, of course, and his views on wages, but they did so only in order to glorify all the more the principle of the unconditional freedom of the individual, the theory that the highest possible advantage of all proceeds from the complete sway of egoistic motives alone. This optimism, which found its chief representative in Bastiat, and a second illustrious defender in the American Carey (who is curiously enough a protectionist), ignores completely that there are antagonistic and opposing interests of men, and that a struggle for existence is going on in the economic field which does not always lead to the victory of the best elements, but may lead to the utter destruction of all. All these extreme apostles of freedom acknowledge the necessity of a civil order which shall abridge personal liberty; they acknowledge the necessity of private rights at least, and of their protection by the state; but they draw here an arbitrary line beyond which the reconciling, regulating hand of the state may not reach. They do not deny the necessity of ethics and the sublimity of virtue, but they maintain that in the economic world the free play of egoistic forces results in complete harmony with the highest morality, and forget that the working of eight-year-old children for twelve hours a day in factories is very immoral, but may be very profitable for the factory owner. Extreme and embittered socialists on the one hand, and optimistic followers of Adam Smith and Ricardo on the other, stand opposed to one another in France; and although there are not wanting economists who occupy an intermediate position, yet it is these two extremes which give tone to and control the economic literature of to day. One party emphasizes exclusively the right of man to free action, which benefits the stronger the most; the other, the right of every one, even the poorest, to deserved enjoyment. Both parties regard the state, not as the sovereign regulating representative of all interests, in which and by which every one should serve, as a matter of duty, the highest ends of humanity, but as a means to their ends. However rich and interesting the French literature of both socialists and economists may be, and however suggestive it may become, yet it does not contain the basis of a real advance in economic science.
—Smith's school developed itself in a far different manner in Germany. At first there appeared a great number of writers who adapted Smith's principles to German wants. They acquired for a time a great reputation, but they are of little importance now, as it is better to go directly to English sources. The youngest of this school, who is still of great importance, was Rau. He deserves great praise for the industry displayed in his literary studies, and collections of material, for the clearness of his systematizing, and his ability to weight impartially even the most opposite views, but on all points of fundamental importance he remained a strict adherent of Smith's school. These early Germans, however, were very far from exaggerating or even accepting the one-sided views of Ricardo. They at times accepted principles without critically examining them, it is true, which testify to their superficial conception of the state and to their dependence on foreign thinkers, but they were prevented from a consistent elaboration of one-sided principles by their strict adherence to systematic form; and since they did not convert the theory of police powers and of finance into a mere annex to theoretical political economy, but continued to discuss them in detail and independently, it became impossible to develop a system of political economy which refused to recognize the state as a powerful economic factor. At the beginning of this century, side by side with the slavish followers of Adam Smith, thinkers arose who carried forward original investigations; and at the same time an opposition to Adam Smith appeared, which, although it did not become very prominent, had a critical significance, and testifies to the independence of the German mind. Among the earlier original followers of Adam Smith, Hufeland, Hermann and von Thünen deserve especial mention. Hufeland has received less attention, and has become less influential, than the depth of his thought and the clearness of his expositions deserved. Hermann, on the contrary, exercised a wide influence, and von Thünen's writings after his death received considerable attention in economic literature. Hermann resembles Ricardo in some respects. His "Politico-Economic Investigations," published in the year 1832, do not contain any complete system of economics, but discuss various important questions pertaining to the science. These "Investigations" we may, without hesitation, characterize as the most complete intellectual product of the abstractly deductive school of Adam Smith. With a logical precision, at least equal to Ricardo's, he unites a many-sidedness of view which is foreign to the English economists. Hermann's theories of wants, prices, income, etc., will always remain models, and of fundamental importance. He belongs to the school of Adam Smith, but he develops it farther in an independent way. He breaks the way for a new tendency, far removed, however, from Manchesterism. He acknowledges public spirit as a justifiable motive side by side with egoism. He traces back the phenomenon of value and price, not to the single standard of labor, but explains prices as the result of a multitude of causes. He reforms the conception of income by opposing those definitions which regard the consumption of the laborers, not as the ultimate end of economy, but only as an incident of production. Many German writers have carried on the work in Hermann's spirit, such as Helferich and Mangoldt. Von Thunen's work, "The Isolated State in Relation to Agriculture and Political Economy," is formally far less perfect. Written at various times, and published partly after his death, it is not consistent in every respect. The various theories are also objectionable, in spite of the profundity and wealth of thought displayed. He acknowledges himself a disciple of Adam Smith, but differs from him on many points. For the sake of easier and clearer explanation of economical phenomena, he proceeds from abstractions which relate in the first place only to agriculture. But the special consideration of concrete practical relations, the frequent interpolation of calculations based on practical experience, is unavoidable, and thus a peculiarly realistic element is introduced into his investigation. In his method of deduction itself von Thunen is in so far peculiar as he converts economic concepts, wherever possible, into mathematical quantities, and then reaches his results by mathematical operations. This method is applied in his well-known investigation into the natural rate of wages, but leads in this case, as in all others, to useless conclusions, because economic phenomena, so various and many-sided, can not be forced into mathematical formulas except by violent abstractions and fictions; and although a correct calculation may be made with such formulas, yet the results do not give an even approximately correct picture of reality. The same thing is true of Canard and Cournot, both of whom tried the mathematical method. Von Thunen's warm sympathy for the laboring class, his conviction, far ahead of his time, that the dangers of the labor question could only be averted by a humane course of action on the part of the propertied classes, are of special interest to us. And so, in spite of the imperfections of his results, in spite of all formal weaknesses of the self-educated man, he forms, as a disciple of Adam Smith, an instructive and glorious opposite to Ricardo, and shows how bitterly opposed the German mind is to Manchesterism. The opposition against Adam Smith in German literature at the beginning of this century proceeded from very different tendencies from those which conditioned French communism and socialism, for which there was no chance in Germany, since the minds of the working classes had not been excited, and the relations of modern industry had hardly begun to develop. German opposition, on the contrary, sought safety in a return to older views. There were romanticists (Adam Muller) who opposed to the absolute victory of individual liberty a romantic enthusiasm for mediæval relations of dependence, and displayed great affection for the blessings of feudal simplicity, compared with the beginning development of modern industry and free commerce. There were protectionists, like F. List, who in the regulation of economic relations had an eye first of all to the advantage of their own nation, and wished to favor the development of national wealth and power. The last had powerful allies in North America, where protection against the all-powerful English industry is a natural policy. Romanticists and protectionists were both on a false road. It was an idle attempt to oppose a school which corresponded, although incompletely, to modern wants and conditions, by the resurrection of obsolete views. Neither set of economists, therefore, had many followers. But if we must allow a certain critical merit in the communists and extreme socialists of France, we must grant this in a still greater degree to the romanticists and protectionists. Both oppose the theory which seeks eternally valid natural laws in economics, and which considers the natural condition of unlimited personal freedom as the only justifiable one, without regard to the needs of special times and nations. They called our attention to the fact that we must approach the study of economic relations in an historic spirit, that the same system is not suited to all. They declaimed, further, against the exclusive consideration of the increase of material wealth, and taught us, that, for the prosperous development of even purely economic conditions, the preservation of the ideal wealth of the nation, the harmonious development of the whole man is by no means a matter of indifference. Finally, they emphasized the fact, that, in a politically regulated society, there is a difference between the ruling and the ruled, that the jural order is of the highest importance to economic development, that the state is not a necessary evil, but an independent factor, an inspiring and regulating element of the highest importance to the national economy. List's agitation for the formation of the customs union, however false his views of it in detail, and for the building of the net of German railways, shows that his fundamental ideas, in spite of their passionate one-sideness, were not unfruitful for the development of the science. Since 1850 a series of German writers have followed these earlier Germans, who without breaking with the English school, and without falling into the errors of the Romanticists and protectionists, have been constantly carrying new ideas into the old English system. At first several famous economists undertook to carry the historical method into the dogmatic system of political economy, and with a complete recognition of the relative truth in the propositions of Smith and Ricardo; yet, in the place of the one-sided, absolutely valid natural laws, to acknowledge everywhere, according to the stage of civilization of a people, a difference in the actual forces in economic life, and a difference in the need of state interference. The labors of Roscher, Hildebrand, Knies and others were epoch-making in this direction. The right of this historical school to exist, which had long before celebrated its victory in the field of jurisprudence, was recognized by all German economists. Others, who had less to do with the introduction of this historical method, have endeavored, in hearty sympathy with the spirit of the historical school, to enlarge and correct the current conception of the state, and have emphasized the interaction of economical and other social and political forces. All the more prominent of the living German economists have labored in this direction, such as Stein, Schäffle, Dietzel, Schmoller, etc. Our science received a peculiar and fruitful impulse from the science of statistics, which since Quetelet's appearance (1835) had taken a new start, and, by the extensive activity of some German statisticians, has strongly influenced the younger economists. Statistics has oddly enough created here and there the belief in a strange utopia, the thought, namely, that we may discover unassailable, universally valid laws of economic life by inductive investigation upon the basis of exact statistical observations in mass, and so arrive by a new road to a completely satisfactory mechanical explanation of social life. This thought, however, to which the exaggerated ideas of Quetelet and Buckle led, has been rather expressed than acted upon and the influence of statistics has been, as a matter of fact, a thoroughly healthy one. It consists in this, that men have been led, in all cases where the statistical material has been sufficient, to leave the basis of abstract premises in the explanation of present relations, and to take the carefully observed concrete facts as a starting-point and seek to ascertain their causal connection. On many questions, such as the bank question, we have thus arrived at highly satisfactory results, and a large number of valuable special investigations according to this method have given us a very welcome supplement to the system as elaborated by the historical school. Finally, the fact must be emphasized that the labor question has had a very great influence upon the treatment of the whole science of economics in Germany. Communistic and socialistic ideas invaded Germany as early as 1830-40. But the labor question did not acquire a great significance until after 1848, when the railroads and factories began to increase rapidly, and the way was broken for the sway of modern industry. German science did not assume the protesting position of the orthodox French economists. Hildebrand's "Political Economy of the Present and the Future," and Stein's initiative investigations into communism and socialism, gave immediate evidence of a desire to do justice to the causes of the movements of the proletary by impartial and thorough examination of all claims. The labor question has become the most important chapter of political economy, and the various tendencies which exist within the science show themselves clearly in the treatment of this question. Most of the younger economists devote their special attention to the labor question, and following the example of Hildebrand and Stein, seek to learn from socialism instead of holding themselves aristocratically aloof from it. Various principles, which are to be found among the earlier German economists, have acquired a new significance from the labor question. The pressing problem of state-help or self-help, led necessarily to a more careful study of the functions of the state in economic matters. The observation of the war of classes waged between the proletary and the propertied classes, placed the importance of public spirit in a new light. The pressing cry for a solution of the labor question directed attention from the search after natural laws ruling in economics, to the question, what ought to prevail, what should be done? As a natural consequence, in opposition to the rationalistic explanation of what is, the teaching of the moral duty of men in economic actions became more prominent. The opposition of the German science of Roscher, Hildebrand, Knies, Schäffle, Stein, etc., to Manchesterism, expresses itself in the great stress laid on the ethical element, and this has become more marked in the younger economists, from Adolph Wagner down to Brentano. Thus by various roads German political economy has advanced far beyond Adam Smith, Ricardo and J. B. Say. It has attained to new views, new methods and new results, and its advances have been far more consistent and complete than the acquisitions of even a John Stuart Mill, let alone the ideas of a Bastiat and a Carey, which are new rather in form and terms of expression than in content. German science has not, it is true, as yet evolved any entirely new system of economics, which independent in form and content, can look down on Adam Smith as obsolete, as the latter could look down on the mercantile system. The relative truth of the results of the English masters, as well as the relative justifiableness of their method, is fully recognized, because, as a matter of fact, in many economical matters the uncontrolled freedom of the individual leads to the best results for society as a whole because, as a matter of fact, particularly in the sphere of commercial activity, egoism is naturally the prevailing motive; and because our observations of concrete phenomena are still too incomplete to allow us to dispense entirely with the method of abstract deduction. The English masters have determined for us thus far the general limits of the science as a whole, and of various fundamental questions. But as German science advances with success by independent roads from the basis already laid, it forms a sharp contrast to that slavish dependence upon the English and upon Manchesterism which delights in following to their greatest extremes the weaknesses and one-sidedness of those great masters.
—Recent English political economy has been enriched by the writings of Prof. Cairnes, Hearn, Musgrave, Shadwell, Jevons, Fawcett, W. T. Thornton, H. D. Macleod, Bagehot, J. E. Thorold Rogers, Cliffe Leslie and J. K. Ingram. J. S. Mill's great work, which is still the best general treatise on economics in English, marked a turning point in English political economy. It summed up all the contributions to the science which had up to that time been made by the Smith-Ricardo school of economists. In that very work, however, Mill showed signs of disagreement with some of the fundamental tenets of the school. His views of distribution and of the limits of state interference mark a sharp contrast to those of some of his immediate predecessors. Before his death he gave signs of a still more fundamental difference in giving up the wagesfund theory, upon which he had laid such stress in his great work. He was moved to this by an able work of W. T. Thornton's on "Labor." Cliffe Leslie and Professor Ingram may be said to belong to the historical school, and have distinguished themselves by their opposition to the orthodox economists. To these latter belong Cairnes and Fawcett, the former of whom in his works on the "Logical Method of Political Economy," and "Some Leading Principles of Political Economy Newly Expounded," has made valuable additions and corrections in the science. Rogers' "History of Agriculture and Prices in England," Jevons' "Theory of Political Economy," and "Money and the Mechanism of Exchange," and Macleod's and Bagehot's writings on financial subjects, are among the most valuable contributions of English writers to economic science in the last twenty years.
—Recent (i.e., since 1850) French political economy has not received the attention it deserves from foreign writers. Several economic periodicals are maintained, and many valuable monographs have been published during the last thirty years. In 1851-3 the Dictionnaire de l'Economie, edited by Coquelin and Guillaumin, was published—a vast treasure-house of economic science. Among recent economists Michel Chevalier stands first. He wrote chiefly on financial questions, though he published also a "Course of Political Economy." Wolowski was a vigorous opponent of Chevalier, an adherent of the historical school, and a prolific writer on monetary questions. He favored a double standard. Among other economists we may mention the following: Passy, Reybaud; De Parieu, the author of an excellent treatise on taxation; Garnier, a writer on finance; Baudrillart, Cournot and Walras, the last two devoted believers in the mathematical method of investigating economic phenomena; A. Clèment, and Paul Leroy-Beaulieu. The tendencies of these writers are as various, and in general the same, as those already noticed in Germany and England. Among the recent economists in the other continental countries we may mention Prof. Ferrara, Boccardo, Mora, Bianchini, Messedaglia, Nazzani and Cossa, in Italy; Brasseur, Périn, De Molinari and De Lavelaye, in Belgium; Cherbuliez and Sismondi, in Switzerland; Estrada, Colmeiro and Santillan, in Spain; and Forjaz de Sampajo, in Portugal. Of these, Ferrara was a man of remarkable ability, and did the science great service by his acute and brilliant criticism; and by his enthusiasm for economic studies he contributed greatly to that widespread interest in such branches which is characteristic of the new Italy. Cherbuliez was an economist of great ability, and his Précis de la science économique is the ablest exposition of political economy in the French language.
—The history of political economy in America is yet to be written. American economists, even still more than their English brethren, have devoted their attention rather to practical than to theoretical questions. Most of our economical works have been written to defend one view or the other of our great political and economical problems. In general the same tendencies are observable here as in other countries. We have our irreconcilable free-traders, our bitter and bigoted protectionists, our laissez faire, laissez passer school, and our defenders of a paternal government. With the exception of Henry Carey, our economists have attracted no particular attention abroad, and exercised no considerable influence. The study of economics is becoming daily more and more widespread, and the foundation of departments of political science in connection with our colleges is becoming quite common. Few countries in the world offer as many advantages to the inductive student of economics as America. Here everything is on such a grand scale, and the machinery of society is still so simple, that extraordinary opportunities are offered to study the fundamental elements of the great national economy in their simplicity. There is but little doubt that the near future will see valuable original work done in economics by American students. Among our early writers on economics, Benjamin Franklin may fairly lay claim to having anticipated, by a full generation, Adam Smith's theory that labor is the only proper measure of value, and also Malthus' theory of population, that man tends to increase in numbers in a greater ratio than the means of subsistence. Alexander Hamilton discussed in his reports many economic questions with great ability. Daniel Raymond published his "Elements of Political Economy" in 1819. He took decided ground against Adam Smith, emphasizing the distinction between individual and national wealth, maintaining that our aim should be to increase the latter even at the expense of the former. He opposed Malthus' theory, and demanded protection for home manufactures by means of a tariff. Cooper's "Lectures on the Elements of Political Economy," published in 1826, took exactly opposite ground, and insisted on the necessity of free trade. The word "nation," he says, is an empty word. The wealth of a nation is nothing but the wealth of the individuals who compose it, etc.
—The most important, original and acute American economist was Henry C. Carey. Men oftentimes further the progress of a science quite as much by their errors as by the new truth they discover. Carey is one of those writers whose views, although they are not tenable either as a whole or in detail, have been received with attention and appreciation by the whole scientific world. He has had devoted followers in Germany, France and Italy, and although his views have not been generally accepted, yet they have exercised considerable influence in a negative way, leading those whose theories he attacked to a more careful formulation of whatever truth they contain. Carey, like Bastiat, proceeds in all his writings upon the assumption of a complete harmony between natural and social interests. In self-interest and in the innate desire of man to better his external condition, he finds the surest road to prosperity, the natural basis of the moral progress of society. He not only denies any antagonism between labor and capital, but sees in the co-operation of these two factors the most powerful means of promoting an increased production, which will surely and continually improve the condition of the laboring classes. He boldly proclaims the possibility of an endless and boundless growth. He starts with a thorough discussion of the ideas of value, labor and production. He bases value upon labor, and makes the cost of reproduction the standard of value. He then passes to the theory of distribution, and makes his harmony of interests the fundamental principle. The tendency of man to increase is surpassed by that of capital to multiply. The productivity of labor is conditioned by the density of the population. The more numerous the people, the more extensive man's control over nature, and the more rapid the increase of capital. The share of the laborer in the product becomes absolutely and relatively greater, and that of the capitalist, although relatively decreasing, is becoming absolutely larger all the while. A constant diminution in the unproductive classes follows this continued development. Cary is, as will be seen, an opponent of Malthus. He urges the possibility of emigration, the possibility of a fairer distribution of wealth and the immense tracts of unoccupied land in the world as proof of the falsity of Malthus' view. In his earlier writings Cary (in agreement with Ricardo) assumed that cultivation proceeds from the most productive to the less and less productive lands. The increasing productivity of labor, however, causes a depreciation in the value of the capital expended on lands in early times, and consequently in the value of the lands themselves. Lands rent at any given time only for such a sum as represents the interest on the capital required at that time to bring similar lands into cultivation. This sum is always far less than the sum actually expended on any piece of ground. The value of land is consequently controlled by the same laws as the value of all other kinds of property. In his later works he maintains that cultivation does not proceed from the most productive to the less productive, but in just the contrary order, from the least productive to the most productive. With the establishment of this proposition, he proposes to overthrow the whole doctrine of rent as set forth by Ricardo. Carey's writings are permeated with a feeling of bitter hostility to England, and are full of gross errors of fact. In striking contrast with his doctrine of the perfect harmony of all human interests and of the advantages of freedom, Carey is a pronounced protectionist, maintaining that English competition would ruin American industry, and that in order to insure that diversity of employments necessary to the highest civilization, the active interference of the government is necessary.
—Most American economists agree with Carey in rejecting the doctrines of Malthus and Ricardo, though on various grounds. Among recent economists the following deserve especial mention: Prof. A. L. Perry of Williams college, Prof. Francis A. Walker of the Boston technological school, Prof. Sumner of Yale college, Prof. Thompson of Philadelphia, and Prof. Henry George of California. Prof. Perry is a pronounced free trader of the Bastiat type. His text book on political economy has been perhaps more widely used than any other recent publication in America. It contains some valuable chapters on the history of the sciences, on value, and on the tariff and currency. Prof. Walker's works on "Money" and "Wages" have placed him in the front rank of American economists. His father's work on the "Science of Wealth" is one of the best economic works which has appeared in America. Prof. Thompson has published a work, written to set forth the doctrines of the Carey school in a more scientific form. Among American economists Mr. David A. Wells also occupies an exalted position. His earliest economic writing was a cogent examination of the debt and resources of the country, written during the rebellion. This tract brought him into notice as a statistician, and led to his appointment to the position of special commissioner of the revenue (1865-9), and the reports he prepared in these years are models of clear reasoning and close application of general principles to facts. While in this position he became convinced of the many inconsistencies of the protective system, and he has since become one of the leaders of a movement for a reform of the tariff, and the greater part of his writings have had reference to this subject. As one of the commissioners to revise the laws for the assessment and collection of taxes in New York state, he made two reports, the great merits of which have been widely recognized, and greatly enhanced his reputation as a writer on taxation. Mr. Wells' writings, which are scattered in many periodicals, are marked by great clearness and accuracy, and form valuable contributions to the economic literature of the country. He belongs to no particular school of economists. He has edited a volume of Bastiat's essays, and prepared, in 1881, a "History of the American Merchant Marine," a work which ad mirably illustrates his methods. Among contemporary economists in America, Prof. W. G. Sumner of Yale college occupies a very high rank. His chief published economic works are his "History of American Currency," 1874; his "History of Protection in the United States," 1877; his collection of papers on "What the social classes owe to each other," 1883. Prof. Sumner's strongest work, however, is not seen in his published books. It has been in his oral instruction. Prof. George's principal work is entitled "Progress and Poverty," and is mainly devoted to a discussion of distribution. There are many able writers on economics connected with the press of the country. But America is still waiting for the man to appear who shall make her contributions to the science as great and valuable as those of any other nation.
—LITERATURE. Die geschichtliche Entwickelung der Nationalökonomik und ihrer Literature, by Julius Kautz; Die Ge schichte der Nationalökonomik, by II. Eisenhardt; Histoire de l'Economie politique en Europe, by Ad. Blanqui; Geschichte der Nationalökonomik in Deutschland, by W. Roscher, and the Guide to the Study of Political Economy, by L. Cossa, are the works which, aside from the original authorities, have been chiefly consulted in compiling the preceding article. Some of the expositions of the doctrines held by the various schools have been taken with but little change from the above-named works. Prof. Cossa's little work, based on the larger special works in French, German and Italian, is a very convenient summary of the most valuable works on political economy in all languages.
E. J. JAMES.
Return to top