order of life, in which individual slavery to custom caused collective slavery and stagnation, broken only by the caprice of despotism or the caprice of revolution'.

We have been looking at this movement from the English point of view. But other nations are taking their share in it. America faces new practical difficulties with such intrepidity and directness that she is already contesting with England the leadership in economic affairs; she supplies many of the most instructive instances of the latest economic tendencies of the age, such as the growing democracy of trade and industry, and the development of speculation and trade combination in every form, and she will probably before long take the chief part in pioneering the way for the rest of the world. Nor is Australia showing less signs of vigour than her elder sister; she has indeed some advantage over the United States in the greater homogeneity of her people.

On the Continent the power of obtaining important results by free association is less than in English speaking countries; and in consequence there is less resource and less thoroughness in dealing with industrial problems. But their treatment is not quite the same in any two nations: and there is something characteristic and instructive in the methods adopted by each of them; particularly in relation to the sphere of governmental action. In this matter Germany is taking the lead. It has been a great gain to her that her manufacturing industries developed later than those of England; and she has been able to profit by England's experience and to avoid many of her mistakes.

1 The earlier half of this Chapter is much abridged from Principles I. I.; the second half is reproduced with but little change.

§ 1.

CHAPTER IV.

THE GROWTH OF ECONOMIC SCIENCE.

HAVING watched some of the changes which have been wrought in economic conditions by the growth of free enterprise, we may next glance at the parallel changes in the science which studies those conditions.

Origin of modern economics.

Modern economics had its origin in common with other sciences towards the end of the Middle Ages, and at first it was chiefly concerned with the monetary problems which were at that time of paramount interest, as a result of the discovery of the mines of the New World and of other causes.

In all ages, but especially in the early Middle Ages, statesmen and merchants had busied themselves with endeavours to enrich the State by regulating trade. One chief object of their concern had been the supply of the precious metals, which they thought the best indication if not the chief cause of material prosperity, whether of the individual or the nation. But the voyages of Vasco de Gama and Columbus raised commercial questions from a secondary to a dominating position among the nations of Western Europe. Theories with regard to the importance of the precious metals and the best means of obtaining supplies of them, became the arbiters of public policy: they dictated peace and war, they determined alliances that issued in the rise and fall of nations and they governed the migration of peoples over the face of the globe.

Regulations as to trade in the precious metals were but one group of a vast body of ordinances, which undertook,

The early regulation of trade.

with varying degrees of minuteness and severity, to arrange for each individual what he should produce and how he should produce it, what he should earn and how he should spend his earnings. The natural adhesiveness of the Teutons had given custom an exceptional strength in the early Middle Ages. And this strength told on the side of trade gilds, of local authorities and of national Governments when they set themselves to cope with the restless tendency to change that sprang directly or indirectly from the trade with the New World. In France this Teutonic bias was directed by the Roman genius for system, and paternal government reached its zenith; the trade regulations of Colbert have become a proverb'.

§ 2. The first systematic attempt to form an economic science on a broad basis was made in France The Physioabout the middle of the eighteenth century by a crats. group of statesmen and philosophers under the leadership of Quesnay, the noble-minded physician to Louis XV. The corner-stone of their policy was obedience to Nature, and they were therefore called Physiocrats2.

1 It was just at this time that economic theory first took shape and the socalled Mercantile system became prominent. The Mercantilists are commonly believed to have promoted the state regulation of trade and industry. But they did not. The regulations and restrictions which are found in their system belonged to the age; the changes which they set themselves to bring about were in the direction of the freedom of enterprise. In opposition to those who wished to prohibit absolutely the exportation of the precious metals, they argued that it should be permitted in all cases in which the trade would in the long run bring more gold and silver into the country than it took out. They thus started the movement towards economic freedom, which gradually went on broadening till, in the latter half of the eighteenth century, the time was ripe for the doctrine that the well-being of the community almost always suffers when the State attempts to oppose its own artificial regulations to the "natural" liberty of every man to manage his own affairs in his own way. (For details see Principles I. IV. 1.)

2 They fell into a confusion of thought which was common even among scientific men of their time, but which has been banished after a long struggle from the physical sciences. They confused ethical principles of conformity to Nature, which ordain that certain things ought to be done, with those causal

Adam Smith.

The next great step in advance, the greatest step that economics has ever taken, was the work, not of a school but of an individual. Adam Smith was not indeed the only great English economist of his time; but his breadth was sufficient to include all that was best in all his contemporaries, French and English; and, though he undoubtedly borrowed much from others, yet the more one compares him with those who went before and those who came after him, the more excellent does his genius appear.

He developed the Physiocratic doctrine of Free Trade with so much practical wisdom, and with so much knowledge of the actual conditions of business, as to make it a great force in real life; and he is most widely known both here and abroad for his argument that Government generally does harm by interfering in trade'.

But this was not his chief work. His chief work was to give a unity to economic science by combining and developing the speculations of his French and English contemporaries and predecessors as to value. For he was the first to make a careful and scientific inquiry into the manner in which value measures human motive, on the one side measuring the desire of purchasers to obtain wealth, and on the other the efforts and sacrifices (or "Real Cost of Production") undergone by its producers.

None of Adam Smith's contemporaries and immediate successors had a mind as broad and well balanced as his. But they did excellent work, each giving himself up to some class of problems to which he was attracted by the natural laws which science discovers by interrogating Nature, and which state that certain results will follow from certain causes. But the chief motive of their study was not, as it had been with most of their predecessors, to increase the riches of merchants and fill the exchequers of kings; it was to diminish the suffering and degradation which was caused by extreme poverty. They thus gave to economics its modern aim of seeking after such knowledge as may help to raise the quality of human life. (See Principles I. IV. 2.)

1 He was however aware that the interests of the individual trader do not always coincide with those of the public; comp. Principles I. IV. 3.

bent of his genius, or the special events of the time in which he wrote. During the remainder of the eighteenth century the chief economic writings were historical and descriptive, and bore upon the condition of the working classes, especially in the agricultural districts'.

§ 3. But at the beginning of this century statesmen and merchants, with Ricardo3 at their head, again Ricardo and threw themselves into problems of money and his followers. foreign trade with even more energy than they used to do when these questions were first started in the earlier period of the great economic change at the end of the Middle Ages; and so long as they were well within their own province their work was excellent 3.

There was however a certain narrowness in their views of social and economic problems. The people whom they knew most intimately were business men; and they sometimes expressed themselves so carelessly as almost to imply that

1 Arthur Young continued the inimitable records of his tour, Eden wrote a history of the poor which has served both as a basis and as a model for all succeeding historians of industry; while Malthus showed by a careful investigation of history what were the forces which had as a matter of fact controlled the growth of population in different countries and at different times.

2 Ricardo himself, and many of his chief followers were much influenced by Bentham. See Principles I. Iv. 4 and 5 on this subject and for a further notice of the character of Ricardo's work.

3 The theory of currency is just that part of economic science in which but little harm is done by neglecting to take much account of any human motives except the desire for wealth; and the brilliant school of deductive reasoning which Ricardo led was here on safe ground. They next addressed themselves to the theory of foreign trade and cleared away many of the flaws which Adam Smith had left in it. There is no other part of economics except the theory of money, which so nearly falls within the range of pure deductive reasoning. It is true that a full discussion of a free trade policy must take account of many considerations that are not strictly economic; but most of these, though important for agricultural countries, and especially for new countries, had little bearing in the case of England.

During all this time the study of economic facts was not neglected in England; and indeed the public and private collections of statistics and the economic histories that were produced in England at the end of the last century and the beginning of this, may fairly be regarded as the origin of systematic historical and statistical studies in economics.