Robert Ellis Thompson.

Social science and national economy online

. (page 2 of 38)
Online LibraryRobert Ellis ThompsonSocial science and national economy → online text (page 2 of 38)
Font size
QR-code for this ebook

best way was the indirect way, — to stimulate home industry
and have plenty of commodities to sell, not to put a premium on
foreign coins and prohibit the export of gold. Theirs was a
real science, but in the mechanical stage.

Among the notable writers of this school are Antonio Serra (1613, a
Neapolitan) ; Thomas Munn ( England's Treasure by Foreign Trade, 1664) ;
Andrew Yarranton {England's Improvement by Land and Sea, 1677-81);
John Locke (jOn the Interest and Value of Money, 1691 and 1698); Sir


Wm. Petty (Essays in Political Arithmetic 1691). The systematic writers
are the Abbe Genovesi (Lezzioni di Commercio e di Economico Civile,
1765) and Sir James Steuart (Principles of Political Economy, 1767).
Contemporary opponents are Sir Josiah Child (Brief Observations con-
cerning Trade, 1608); le Sieur de Boisguillebert (Factum de France,
1712, <fcc); Marshal Vauban (Projet d'une Dime lioi/a/e, 1707); and J.
F. Melon (Essai Politique sur le Commerce, 1734.) The opinions of the
Mercantile school are wretchedly caricatured by many modern writers.

The new science was as yet a very subordinate branch of the
larger subject of politics, and political aims predominated in its
treatment of the subject. As we have seen, the questions that
it proposed to solve were not of its own suggestion, but were
propounded by political leaders. It was not yet strong enough
to take the initiative, or to insist on the benefit of an economic
policy to the well-being of the people. The final end held in
view, both in theory and in practice, was the abundant supply
of money for royal coffers, and the practice was far behind the
theory. The most absurd financial methods were kept intact
if they seemed to subserve this end. Monopolies were created
ad libitum, and sold to foreigners; the trade between provinces
of the same kingdom was burdened with customs-duties, as if
between separate kingdoms ; the export of grain, as well as of
gold, was prohibited, that its price might be kept down ; the
industry created and fostered with one hand, was crushed under
excessive taxation and arbitrary regulations with the other.
Even the great Colbert, whose policy was the grandest and most
successful illustration of all of the best and some of the worst
teachings of the school, died broken-hearted with the ruin of his
plans through the royal ambition that wasted the nation's
resources in war, and the royal superstition that was robbing
France of millions of her best and most industrious citizens.

§ 8. The second school is that of the Economistes or Physio-
crates, founded by Quesnay, the physician and "thinker" of
Louis XV. If the mercantile school unduly subordinated the
science to the art, the Economistes went to the other extreme
and made a complete divorce between them. Starting from a
few simple ideas as the postulates of the science, they built up a


fantastic structure of deductions and theories, that stood in no
vital relation to the actual life of society. Their professed aim
was to attain a natural line of thought, and in that age the
" natural" was conceived as the antithesis of civilization, as
then existing.

In Quesnay's view nature, — by which he meant the productive
powers of the soil, — is the sole source of a nation's wealth ;
agricultural labor is therefore the only productive industry, all
others being sterile. That this labor produces more than the
farmer and his household consume, is the origin of all wealth, —
which is merely the net-product of his tillage. The values
produced by all other labor are measured by the cost of the raw
materials and of the workman's food. The web of cotton cloth
is but so much raw cotton and so much corn turned into another
form, but retaining the same value. The utility of the new form is
greater; the amount of wealth the same. From this he inferred
that national policy should do nothing to develop such sterile
industries as commerce and manufactures, but merely remove all
restrictions from agriculture, from the trade in grain, &c. As
agriculture alone produces wealth, it alone must, in the last
resort, bear all the national burdens, however these may be im-
posed. Turgot, his chief disciple, divests the theory of much
that is fantastic, and in his policy as minister of finance applied
for the most part merely its just rejection of the system of mo-
nopolies, close corporations, duties on exports, &c.

Quesnay's first book {Tableau Ecouomique, 1758) was preceded by arti-
cles (on Fermiers and Grains) in the famous Encyclopedic (1756-7). The
elder Mirabeau, "the oldest son of the doctrine,'" wrote much, of which
L'Ami des Hommea (6 vols., 1755-60) is the best known. His greater son
furnished the theoretic part of Mauvillon's voluminous statistical work
on La Monarchic Pruasienne (SeejJ 301). Turgot's chief book is Rejlexiona
anr la Formation et la Distribution ilea Richessea (1766 and 1778). Of the
many other writers, none add either to the substance or the clearness
of the doctrine. Dr. Franklin, whose visit to France occurred at a time
when these opinions were in fashion, became a disciple of Quesnay.

§ 9. The third or Industrial school of economists was founded
by Adam Smith, a Scotch professor, and a friend of Quesnay's.


His great work (An Inquiry into the Nature and Causes of the
Wealth of Nations, 1776, 1778, 1784 and 1788) occupied him
for five years. It shows that he was influenced by the Physio-
crates, yet it is a decided advance upon their teachings. He
finds the source of wealth in all the three forms of industry, but
gives the first place in point of productiveness to agriculture,
the last to foreign commerce; while he classes as unproductive
all those forms of human activity that are not directed to the
production or exchange of commodities. Tracing the natural
growth of the three great industries, through whose association
men advance from the poverty of the savage life to material
welfare, he pronounces against all efforts of the state to direct
and foster any one of the three, as most likely to turn capital
out of more into less productive channels. He, like the Econo-
mistes, would have the State adopt ordinarily a purely passive
policy as regards the industrial life of the people. By leaving
every man to do what he will with his own, and to use it in
whatever way will secure the largest possible returns to himself,
society will receive the largest possible benefit. In the principle
of free competition he discerns the tap-root of all national indus-
trial life and growth ; the enlightened .and active selfishness of
the individuals who make up society, is the source of general
well-being. That which is good for the individual, is good for
society also. If there are inequalities of profits or of wages,
capital or labor will shift from one channel to another, till
things find their natural level.

The chief fault in the book is its failure to fulfil the promise
of the title. Promising to discuss " the wealth of nations," it
practically ignores their existence, and treats the whole question
as if there were no such bodies. Smith writes as if the world were
all under one government, with no boundary lines to restrain
the movement of labor and capital, — no inequalities of national
civilization and industrial status, to affect the competition of
producer with producer. He ignores, therefore, many of the
most important elements of the problem that he undertook to
solve. Sharing in the reaction of the Physiocratists against the


excessively political drift of the Mercantile school, he also goes
to the other extreme, and gives us, not a science of national or
political economy, hut of cosmopolitical economy, which is not
adapted to the actual historical state of the world, but only to a
state of things which has not, nor ever will have, any existence.
This way of thinking was the popular one at that period ; Eu-
rope was in a state of reaction against the nationalist drift of
the previous centuries, and did not recover from it until the
French Revolution had carried many very pretty theories to
their logical consequences, and had shown what they were
worth. To be "a citizen of the world" was the ambition of
educated men, and many of the foremost minds of Europe —
Lessing and Goethe, for instance — formally repudiated the
sentiment of patriotism as unworthy of an enlightened civili-

§ 10. In spite of the great nationalist reaction that began
with Burke and Fichte, the cosmopolitan way of thinking has
not yet lost its attractions for men. The existence of the cos-
mopolitical school of economists for nearly a century, and the
adhesion given to it by a majority of English, and a great num-
ber of Continental and American writers, is a proof of this.

In France Jean Baptiste Say reduced the teachings of Smith
to a more systematic shape, giving them that clearness of expres-
sion and perfection of form for which French literature is
famous. In his hands, the cosmopolitanism of the system is
complete ; his very first title-page dropped the awkward words
" of nations," and from this time the abstract conception of
wealth, its production, distribution and consumption, became
the themes of what was still called " <political economy." lie
enlarged the conception of wealth, however, to embrace imma-
terial as well as material products. Since the passive policy was
especially assailed as leading to a foreign trade in which the
balance may be unfavorable, he devoted especial attention to
the theory of commerce. He was the first to announce that
commodities are always paid for in commodities, and that there-
fore to check the amount of imports is to limit in equal measure


the power of export. Later writers of the same nation have,
like Say, generally spent their pains in the elaboration of the
English theories, without adding much to their substance. Not a
single recognised doctrine of the cosmopolitical economists can
be traced to a French author since Say, while the French litera-
ture, in which those doctrines are defended and enforced, is
even larger than the English.

Chevalier, Rossi, Blanqui and Molinari are the chief French repre-
sentatives of this school. Bastiat belongs to it in his general tendencies,
but his system is a mixture of its doctrines with those of Carey.

In England Rev. T. R. Malthus furnished a discussion of the
other side of the picture — the poverty of nations {Essay on
Population, 1798, 1803, 1807, 1817 and 182G). At a time of
great political disturbances, when the impoverished classes of
Europe were calliug the governments to account for the bad
policy or no policy that had led to so much misery, this gentle-
man, a member of ttie Conservative party, was led to a study of
the economic conditions in which that misery originated, that he
might close the mouths of agitators by showing that govern-
ments had nothing to do with it, — that it was the effect of a
cause beyond the control of the ruling classes. He found that
cause in the excessive growth of population, which led to the
pressure of numbers upon subsistence, and could only be per-
manently controlled by the self-restraint of the lower classes
themselves. This discovery was a godsend to the cosmopolitical
school, as it enabled it to tide over a dangerous period of
popular agitation, when a thousand circumstances seemed to
conspire to enforce upon economists as well as rulers the lesson
that governments are put in trust with the national welfare, as
well as the national honor and safety, and that no mere
passivity of industrial policy could be a sufficient discharge of
the trust.

In the view of Mr. Malthus, the condition of the mass of
the people oscillates between ease and misery ; as soon as any
sudden advance in their welfare takes place, there is a rapid
increase of numbers through the increase of recklessness as to


the future, and then years of scarcity follow hard upon the
years of plenty. It was an easy inference that there is a
natural rate of wages, a medium between these two oscillations,
above which and below which the rate was unstable and could
not be permanent. Also that, calling the amount of capital in
the country that was available for the wages of labor the wage
fund, the only way to increase the rate of wages was to increase
that fund or diminish the number between whom it was to be


Somewhat later, David Ricardo carried the investigation of
the subject a step farther, desiring to show the first cause of
the inequality of condition that distinguishes different classes of
society. Looking through Whig spectacles, as Malthus had
looked through Tory ones, he found that inequality to result not
from the operation of a natural and unavoidable cause, but from
the effects of an artificial monopoly, the tenure of land. The few
who have been lucky enough to possess themselves of the best
soils at the first settlement of a country, forms a privileged class
that can live in idleness upon the labor of others, through exact-
ing payment for the use of the natural powers of those soils.
This theory — though so different in its motive — was accepted by
the school as supplementary to that of Malthus. Both — as they
came to be taught — had the merit of showing how the apparent
anomalies of society grew out of circumstances either natural
or generally accepted as natural ; in the last analysis the
principle of competition was shown to be the tap-root of in-
dustrial phenomena in both cases ; both vindicated the passive
policy as the only wise one, and argued all national interference
to be a fighting against invincible facts.

Mr. Ricardo (following Say and Torrens) also elaborated the
theory of international exchanges, in connection with the notion
that money is a purely passive instrument of exchanges, changing
its purchasing power according to the amount of it that a
country possesses. From this it was an easy inference that a drain
of money from a country would either have no effect, or would
correct itself by so increasing the purchasing power of money in


comparison with commodities, as to make the country a bad
place to sell in, but a good place to buy in.

With him the constructive period of the English school ends,
and, after a time in which the writers are chiefly commentators
on the traditional body of doctrines, a critical period begins.

Ricardo's theory of rent has a great many aspects, according to the side
from which it is studied. Did he, like the earliest writers who followed his
lead, accept the landlord's monopoly as natural and inevitable, or look
upon it as a mischief that society would be well rid of? His dry method
of discussion makes it hard to say. Later writers draw from the theory
the inference that landed property, as differing from all other property
in that its utility is not the product of labor, is especially subject to
national control. This is probably more in accord with Ricardo's own
motive, as may be inferred from his hostility to the legislation by which
the landowner was seoured against foreign competition in the grain
market. His Principles of Political Economy and Taxation (1817) is the
last piece of positive work of the school, — the crowning of the edifice.
McCulloch, James Mill, Chalmers, De Quincey, and many others are his
commentators ; the later writers, from Senior to Thornton, his critics.

§ 11. About the year 1833 English thinking, and its ex-
pression English literature, took a new departure, becoming less
dry and mechanical, more fresh, vigorous and genial. Economic
literature shared in the impulse. N. W. Senior led off (1835)
with a vigorous criticism of both Malthus and Ricardo. He
especially emphasized the fact that as political economy con-
sidered wealth in the abstract, and excluded all political con-
siderations, it had no right to intrude into the political sphere
with its conclusions, and insist on statesmen acting in accordance
with them. At the utmost, they could be but one of many
considerations that should influence them. The divorce of the
science from the art in the English school — a divorce like that
which once existed between the science and the art of music —
was thus candidly confessed. But this nice distinction, as is
commonly the case, was not kept in view by most writers or by
the statesmen who took lessons from them.

Thomas Tooke {History of Prices, 6 vols., 1838-58) gave a
refutation of the theory that money plays a mere passive part
in industry, prices rising in proportion to its increase, and falling


in proportion to its decrease. He thus indirectly brought into
question the theory that an unfavorable balance of trade can be
of no injury to the nation.

"W. T. Thornton showed that the theory of a natural and ne-
cessary rate of wages was not borne out by the facts, — that there
is no uniformity but rather the most arbitrary difference in their
- rate, — that capital can unnaturally depress it below what is right
and natural when the workmen stand alone, — and that work-
men in combination can raise and have raised it. Consequently
the theory of a wage fund, changing in amount with the growth
of capital, and divided pro rata among the workmen of a coun-
try, is a fiction. He especially exhibited the disastrous effects
of English theories upon English agriculture, in separating
the mass of the people from the soil and breaking up the small
farms to make large ones.

Herbert Spencer (partly anticipated by N. W. Senior and
Poulett Scrope, and followed by W. T. Greg) refuted the Mal-
thusian theory by the evidence of facts. He showed that there
has been a pressure of population on subsistence in the earliest
stages of society and those only, and that with every advance in
numbers and the closeness of association, the pressure naturally

German and English students of the history of land tenure
(i. e. Maurer, Von Nasse, Maine and Laveleye) showed that
Ricardo's theory of the origin and nature of rent was not sustained
by history. In the earliest times contracts for land were un-
known, and all payments were determined by custom, not by
competition. They showed that the transition from customary
status to free contract is the great industrial drift of progressive
society; but that the transition is by no means perfect, and that
the assumption that it is, whether as made by jurists or by
economists, has been a fertile source of wrong to the poorer
classes of society.

John Stuart Mill, besides emphasizing Senior's separation of
the science from the art, called in question the whole system
of the distribution of the products of labor and capital, as an


artificial and perhaps dispensable one. Accepting the theories
of Malthus and Ricardo, and seeing no augury of a better future
for the working classes from the present workings of the wages
system, he declared it doomed, unless it proved capable of better
things, to pass away. In this he partly followed those socialists,
who demand a reconstruction of society and the extension of the
sphere of government so as to embrace the direction of industry.

More moderate men, equally convinced of the failure of the sys-
tem of competition, contract and wages under the existing con-
ditions, hope for a change through the voluntary association of
masses of the people, so that they may become their own em-
ployers and their own providers.

All these writers have departed from the spirit and the
method, as well as the teachings, of the recognised masters of
the school. They have reached the conclusions embodied in
these criticisms by an inductive study of the actual facts of
industrial life, instead of coming at them by a series of deductive
inferences from premises assumed at the outset. Prof. J. E.
Cairnes undertakes to vindicate both the method and the con-
clusions (with some unavoidable modifications and extensions)
of the older authorities, and to refute the unhappy concessions
of these later writers.

§ 12. In America the cosmopolitical school has had many adhe-
rents, who have written largely in defence of its doctrines, but
none of them are of any importance in a scientific point of view.
They have rendered less service, even, than its adherents in
France, for while they have added nothing to the substance of
the teaching, they have, at the least, not surpassed their English
masters in vigor of presentation and artistic form.

Deserving of mention are Condy Raguet, Prof. Thomas Cooper of
South Carolina, AV. B. Lawrence, Dr. Wayland, the poet Bryant, Prof. A.
AValker, Prof. A. L. Perry, and David A. Wells.

§ 13. None of the writers that we have named have given
up what we spoke of as the first and chief of Adam Smith's
errors, however they may each have dissented from some of
the parts of the system that Malthus, Say and Ricardo built


upon Smith's foundation. They are all of the cosrnopolitical
school; they discuss wealth, hut not the wealth of nations. In
all, therefore, there is the same divorce between science and art,
and the conclusions of the former need to be combined with a
multitude of other considerations before being reduced to
practice. These concessions, indeed, affect vital parts of the
system, if it can be said to possess vitality ; were any of them
to be carried to its logical consequences, the result would show
that there is such a logical coherence in the whole, that to give
up a part involves the surrender of all.

If we were to regard these criticisms as a whole, we should
find nothing left of the doctrine of the school, except the single
airy notion, that a trade that benefits individuals must equally
benefit society, and that therefore the one duty of statesmen is
to let industry alone. We say " airy notion," for all the founda-
tions and abutments upon which it once rested, — theories about
competition, labor, wages, population, rent, land tenure and
money — have all been given up in succession by one or other
of the recognised disciples of the school.

§ 14. The nationalist school of economists may be traced to
later writers and statesmen of America and Germany. Yet we
might even claim Adam Smith himself as its founder, for in his
happy inconsistencies he gives his sanction to nearly all its prin-
ciples. A still earlier writer, the great Bishop Berkeley of Cloyne
(in his Querist, 1735 and 1752), gives suggestions of a line of na-
tional policy, and of the economic reasons for it, that give him
a clearer as well as a prior claim to the honor. The form of
his work, a series of nearly COO leading questions, has caused
it to be neglected ; but many of the bishop's notions, especially
as to the nature and functions of money, are ahead of current
ideas in our age as well as his own. The wretched condition of
his native Ireland, its lack of money and of manufactures,
furnished the motive to these investigations, while his travels on
the Continent and his knowledge of England furnished him with
materials for comparison.

Passing by statesmen and state-papers (though Alexander


Hamilton and his famous Treasury Report of 1791 deserve
mention), we find an early literary champion of the Nationalist
school iu the great philosopher Fichte. His book (Der gcsclilos-
sene Handelsstaat, 1801), however, is not in strictness an
economic treatise, but as its title page tells us, an appendix to
his treatise on jurisprudence, and a specimen of a larger treatise
on politics. He finds the wealth of the nation in the equilibrium
of the three great industries, and regards it as the function of
the government to produce and perpetuate it by sufficient legis-
lation. Regarding the interchange of national productions,
save of those that cannot be produced in all latitudes, as a rem-
nant of the barbarism and free trade that reigned in Europe
before the existiug nations had taken shape, he would at once
put a stop to it by substituting paper money, current only within
national bounds, for the gold and silver that pass current between
the nations. As to cosmopolitanism and the possibility of a
world-state, it will be time enough to talk of that, when we have
really become nations and peoples. Iu striving to be everything

Online LibraryRobert Ellis ThompsonSocial science and national economy → online text (page 2 of 38)