the necessity for social action. And finally, their nature philosophy made them absolutists attempting to apply their ideas regardless of time or place. But the important contributions they rendered must not be forgotten. For one thing, they did a valuable work by destruction. They exposed old fallacies and departed from the errors of their predecessors. The world makes progress through the realm of thought like a ship which tacks to the windward, swinging now to one side, then to the other, of the straight course, a series of actions and reactions. The Physiocrats threw the tiller over and sailed away on a new tack, and one necessary to progress. Their more positive contributions may be summed up as follows: I. They put economics on a scientific basis by separating it from other sciences, notably jurisprudence, and applying scientific methods, II. They made important contributions to the theory of taxation, III. Their analysis of capital (Turgot), though rudimentary, pointed toward the true nature of that factor. IV. Their emphasis of the surplus or net product was notable, especially in connection with the later development of the rent concept. V. Their emphasis of land was influential, for weal or woe, in bringing about the later threefold classification of the factors of production. The Physiocratic system may be viewed as having a mission to perform in the development of the economic thought of the world, and, so viewed, it must be confessed that its very errors adapted it so much the better to perform its mission. The bold declaration that the only office, of government is to protect life, liberty, and property, and the easily repeated formula, laissez faire, laissez passer, were destined to accomplish much. Any man could appreciate the doctrine that his private business was no concern of government. It was natural that the crisp, sweeping exaggerations of the Physiocratic system should be very effective. It was well, too, that the importance of agriculture, while it is not the sole source of wealth, should be emphasized. Nor is it so surprising as it might at first appear that the Physiocrats regarded the rent of land as the only true produit net. At the time when Quesnay wrote, it was the chief source whence additions were made to the national resources. It is only within a comparatively short time that the profits of capital have taken the most prominent position in the formation of new capital. "During the greater part of the world's history the rent of land has been the chief source of saving. A good deal is saved from rent in England now, and in the rest of the world probably more is saved from it than from profits on capital." There is, moreover, an actual difference between an income derived from land rents and one derived from any other species of property a difference upon which Ricardo founded his theory of rent, and Mill his doctrine of land taxation. 1 But reflection showed that it was quite misleading to designate those classes not in some way connected with agriculture as barren (stérile) or non-productive. It came to be perceived that there is a produit net, a surplus, wherever there is a saving, and that, if they save a part of their income, merchants and artisans add as truly to the wealth of the country as the agricultural laborer; for they must have rendered an equivalent for their income, that is to say, have produced it. A system was needed which should include and elucidate manufacturers and commerce. The one-sidedness of the Physiocrats had to give way to make room for the broader and more catholic political economy of Adam Smith. 1 The Economics of Industry, Alfred Marshall and Mary Paley Marshall (London, 1879), p. 39. CHAPTER X ADAM SMITH WITH HIS IMMEDIATE PREDECESSORS AND THE REVOLUTION IN INDUSTRY THE Scotchman, Adam Smith, born in the year 1723 at the village of Kirkcaldy, published in 1776 the book commonly known as The Wealth of Nations. By this book he won a fame greater than that of any other writer on political economy or allied subjects. Abundantly criticized and with its originality not unassailed, his work still stands as truly epoch-making in the evolution of economic thought, while its maker is called the Father of Political Economy. Immediate Predecessors of Adam Smith. — Though so truly epoch-making, Adam Smith, as is generally the case, built upon the work of his predecessors. Nor can one overlook the forerunners in a study of the master's achievement. Adam Smith was acquainted with the writings of the Mercantilists, the philosophers of the seventeenth and eighteenth centuries, and the Physiocrats; and he stood upon their shoulders. The names of Petty, North, Child, and Steuart, and those of Locke, Berkeley, Mandeville, Hutcheson, Hume, Tucker, and Ferguson, must ever 1 On Adam Smith, his life and work, see: Cannan (editor), Smith's Lectures on Justice, Police, Revenue, and Arms, 1896; Feilbogen, Smith und Turgot; Hasbach, Die allgemeinen philosophischen Grundlagen der von F. Quesnay und Adam Smith begründeten politischen Oekonomie, 1890, and Hasbach, Untersuchen über Adam Smith, 1891; Oncken, Adam Smith und Im. Kant; Rae, Life of Adam Smith; Zeyss, Adam Smith und der Eigenutz. The chapters or essays on Smith in Cannan's Theories of Production and Distribution, Leslie's Essays in Moral and Political Philosophy, Bagehot's Biographical Studies, and Bonar's Philosophy and Political Economy are valuable. be remembered in this connection. Smith also refers to Cantillon; and a work by Harris, a follower of Cantillon, was known to him. Dating from the eighteenth century, too, there are many books and pamphlets, often anonymous, which relate to economic subjects; but inasmuch as there is no evidence that they exerted any influence on the course of economic thought, it does not seem expedient to discuss them here. While remembering Smith's great debt to the Physiocrats, and theirs to the Scotch and English writers, the continuity in England's economic thought should be emphasized; and Hutcheson, Hume, Tucker, and Ferguson may be named as the chief of his immediate predecessors. These men come near to forming one school with Smith as their master. It is highly probable that Smith's emphasis of self-interest and accompanying tendencies were stimulated, if not originated, by the spirit of Mandeville's celebrated Fable of the Bees. Though he at first expressed himself enigmatically, it appears to have been Mandeville's idea that on the multiplicity of wants "depended all those mutual services which the individual members of a society pay to each other: and that consequently, the greater variety there was of wants, the larger number of individuals might find their private interest in laboring for the good of others, and united together, compose one body." Mandeville, too, clearly expressed the idea of division of labor, using the production of watches and clocks as an illustration, and he was perhaps the first to use the words "divided" and "division" in this connection.2 But Hutcheson exerted a deeper and more comprehensive influence over Smith. Hutcheson was a teacher of Smith at Glasgow (1737-1740) and Smith expressed indebtedness to him. His System of Moral Philosophy shows that, while he had some Mercantilistic ideas concerning balance of trade, government regulation, and population, he foreshadowed his pupil's work at 1 Edition of 1724, p. 465. First edition about 1705; second, enlarged, in 1714. * Edition of 1729, part ii, p. 335. See Cannan's introduction to his edi. tion of Adam Smith and note on page 5 of Vol. I. several points. For one thing he handed down to Smith many views of Pufendorf, Grotius, and Locke; gave him, or at least strengthened, his optimistic nature philosophy; and it has even been argued that the arrangement of the Wealth of Nations was affected by Hutcheson's lectures.1 Furthermore Smith may well have gotten from him certain purely economic ideas, notably on division of labor, value, money, and taxation. Thus Hutcheson distinguished utility and value, saying that "the natural ground of all value or price is some sort of use," that wealth is differentiated from utility by labor, and that limitation of supply makes a scarcity value.2 Hutcheson justified interest on the ground that money might be invested in things "naturally productive." Doubtless Hume exercised the greatest influence on the general philosophy of Smith, as well as on his economic opinions. During his stay at Glasgow, Smith made an abstract of Hume's Treatise of Human Nature which pleased the older man and was the beginning of a lasting friendship. Hume was an essayist, writing in a philosophical spirit, but working out no complete economic system. If he had written a systematic treatise in 1752, when his essays appeared, the Wealth of Nations in all probability would not have occupied the unique position it now holds. The chief characteristics of Hume's economic thought are the prominence given to labor, the attention given to changes or transitions, evidences of historical spirit, and the interrelation of economic and other social facts and forces. Though he shows traces of Mercantilism he had a good understanding of foreign trade. Not only as a man but as a British subject I pray for the flourishing commerce of Germany, Spain, Italy and even France itself." Everything that is useful to man springs from the ground; but artisans are necessary to work up most things and in "the stock of labor . . . consists all real power and riches." Hume holds that everything in the world is purchased by labor, and that our passions are the only cause of labor. Money is nothing but the representative of labor and commodities and for any one country its greater or less abun 1 See W. R. Scott's Francis Hutcheson. 3 Of Money. |