Political economy, with especial reference to the industrial history of nations

Front matter

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PoHtical economy, with especial referen 3 1924 013 685 353 „,

CHAPTER FIRST. Definition and History of the Science

§ 1. PoMTiCAi, or National Economy is that branch of the science of man which treats of man as existing in society, and in relation to his material wants and welfare. It is therefore a subdivision of the science of Sociology, or the science of social relations, which itself is a subdivision of the greater science of Anthropology, or the science of man. ,

§ 2. It has been objected by some that there can be no such thing as a science of man. " Science," they say, " deals only with things whose actions and reactions can be foretold, after we have mastered the general laws by which they are governed. The test of science, as Comte says, is the power of prediction. There is a science of Chemistry, because there is a possibility of foretelling what compound will be produced by the union of any two elements or known compounds. But man is not governed by laws of that sort; he is a being possessed of affections and a will, which often act in the most arbitrary way, — in a way that no one can foresee or predict."

This objection expresses a truth which can never be left out of sight. If we ignore it we shall miss the conditions under which man's material welfare is to be achieved. Men can never be put to a good use of any sort, while they are regarded or treated as things. To do so will be to keep them poor, as well as to degrade them morally; for the best work and the wisest economy can be got out of them, only by bringing their free will into play in the desirable direction.

But the possibility of constructing a science of man does not rest npon the power to foresee the line of action that each individual man will pursue. Man lives in a world which his will did not create, and whose " constitution and course of nature " he cannot change. If he act in violation of its laws, he must take the penalty. Thus if he indulge in habits that contravene the constitution of his moral nature, then moral degradation, unhappiness and remorse will be the necessary results. Because there is such a moral " constitution and course of nature," there is a science of ethics, which enables us to predict, not the conduct of each individual man, but the consequences of such conduct, whatever it may be. And there exists equally for society an economic " constitution and course of nature ;" the nation that complies with its laws attains to material well-being or wealth, and the nation that disobeys them inflicts poverty upon itself as a whole, or upon the mass of its people. To learn what those laws are, is the business of the student of social science ; to govern a nation according to them is the business of the statesman, and is the art of national economy.

While men are beings possessed of a will, they ordinarily act from motives. This is especially truQ of their conduct in regard to their material welfare; in this connection the same motives act with great uniformity upon almost all men. The same wants exist for all ; the same welfare is desired by all ; so that in this department of the science of man there is so little caprice, that there is nearly as much power to foresee and foretell what men will do, as in some of the sciences to foresee the actions of things. Nearly, but not quite so much ; for while men are agreed as to the end here, there is room for difference of opinion as to the means, and consequently for variety of action — for wise and unwise ways of procedure.

§ 3. What the science of man and of society lacks in certainty,

SOCIETY A PRIMARY FACT. 13

as compared with the sciences of nature, it more than makes up in the higher interest that it excites. Whatever science deals with our own species and its fortunes, comes very close to each one of us. Whatever it can tell us of the probable future of our nation, or our race, concerns us more than predicted eclipses or chemical discoveries. The most brilliant chemical or astronomical certainty could not move an Englishman so deeply as that bare conjecture of Macaulay, that the time may come " when some traveller from New Zealand shall take his seat on a broken arch of Westminster bridge to sketch the ruins of St. Paul's." The other sciences have an independent value ; but they interest us most when we see that they have a bearing upon this, when they open still larger utilities of nature to human possession, and add to the welfare of mankind. We ask the chemist : " Shall the time ever come when we shall no longer be dependent upon our coal deposits for light and warmth, but shall be able to produce both from the decomposition of water ?" We ask the physicist : " Shall we soon be able to use this subtle, omnipresent electric force as a motive power ? Shall we ever be able to move through the air in manageable balloons, with speed and safety ?" These are not the greatest problems that science has to solve, but they have an interest for us all that more abstract questions can never possess.

§ 4. Our Science considers man as existing m society ; we find him, indeed, nowhere else. The old lawyers and political philosophers talked of a state of nature, a condition of savage isolation, out of which men emerged by the social contract, through which society was first constituted. But no one else has any news from that country; everywhere men exist in more or less perfectly organized society; — they are born into the society of the family without any choice of their own ; and they grow up as members of tribes or nations, that grew out of families. All their material welfare rests upon this fact, and must be considered in connection with it. The cooperation by which they emerge from the most utter poverty to wealth, is possible only within society and under its protection. Upon the wise management of its general policy, and the efficiency of its government, the welfare and the security of the individual depend. The natural right to property, by which that welfare is perpetuated from day to day, is realized only in society. The transmission of the things that contribute to material welfare from one generation to another — of real and personal property, of knowledge, skill and methods of industry — would be impossible but for the existence of bodies that outlive the single life, and aim at their own perpetuation. Vita brevis, ars lonffa, or else each new generation would have to begin at the foundation. Hence it is that this science begins with the conception of social state ; not with the study of wealth in the abstract, nor of the individual man and his desires.

At the fall of the civilized societies that made up the ancient world, the useful arts and sciences would have perished in Western Europe with the polities under which they were developed, had not the great Benedictine order gathered both into their monasteries. These were at once schools of learning and industrial establishments, and the only places safe from the barbarous intrusions of half-Christianized barbarians.

§ 5. Political economy is an art as well as a science. The term economy, or house-thrift, does not mean here wise saving, any more than it means wise spending. It is borrowed from the management of the first and simplest of all human societies, the unit out of which all other societies have grown — the family. The adjective political prefixed indicates the transfer of the conception of thrift to the society which exists that justice may be done and natural rights be realized, and which for that purpose is put in trust with the lives and the material possessions of the whole people.

§ 6. The art of political economy is much older than the science. The former came into existence with the first nation, the latter began to be studied about the time of the discovery of America, and first gained a place as a recognised science a century ago. There is nothing unusual in this, for nearly every science lags for a time behind its related art. Themistocles knew "how to make a small city great" long before Plato and Aristotle

ART BEFOKB SCIENCE. 15

founded the science of politics. Dyeing, cooking, and a thousand other applications of chemistry were in use from the earliest historic periods; but the first centennial of Dr. Priestley's discovery of oxygen, that laid- the foundation of that science, has been celebrated in our own time. Sometimes the two— the science and the art— exist together, with little or no influence upon each other, for a long period. Thus there was for centuries a science of music, taught and studied by men who were not practical musicians ; while those that were, pursued their art without giving the slightest heed to the science.

All human experience shows that science can be of the greatest service to its related art. As chemistry has improved and simplified the industrial methods that existed before Priestley and Lavoisier, so the discovery of the economic laws that govern the advance of society in wealth, has greatly changed for the better the economic methods of the nations. Some of the older empirical rules it has vindicated as right ; others it has condemned and set aside as wrong ; it has suggested new and extended the applications of others that were old. It runs the risk, indeed, of rejecting some methods that were clearly right; and it must guard against this, by making the most careful and thorough survey of all the facts of the case.

In the first stages of a science, which we may call the mechanical, empirical rules predominate among the doctrines ; but gradually the simpler and far less numerous scientific jsnrecipfe* that underlie these rules are perceived. When these are once grasped, the process of submitting rules to the test of principles is an easy and safe one. The science has then passed into its dynamical stage.'

The ancients knew no science of political or national economy. Commonplace remarks and moralizing reflections on the subject are found scattered here and there through their literatures. Single facts that could hardly escape their notice, such as the advantage of the division of labor, and of the transition from barter to the use of money, and the difference between value and utility, were remarked upon, especially by Aristotle. In these hint -lay the possible germs of social science, but they Kere not followed up, nor the underlying laws investigated.

§ 7. Tihe rivalry excited in other parts of Europe, by the prosperity ot enice and Genoa, first led men to study the subject, and W.R find it occupying a place in the literatures of Italy and Spain, P.ance and England, from the sixteenth century. The circumstanc''.s of the times gave shape to these studies. This was the nationalist pferiof" ■ . history. Europe had revolted against all the schemes of a universal monarchy ; and independent sovereign kingdoms, with national languages and literatures, and even churches, divided its area among them. That a thing was Spanish or was English, was praise enough in the ears of Spaniard or Englishman. How to aggrandize to the utmost their own country, at whatever expense to others, was the great problem of statesmanship, especially after the religious heats, that had divided Europe into two hostile camps, cooled off somewhat. And of all means to that end, the possession of an abundance of money seemed the best and readiest. After a money-famine -that had begun with the Christian era, and had 'grown in intensity for fifteen centuries, the discovery of America and the East Indies had brought in a vast and sudden supply, which, had given Spain for a time an undue preponderance in European politics, and had everywhere bettered the condition of the people. How to acquire it by a foreign trade that would give a balance in favor of our own country, — how to keep it here at home for general circulation and national uses in case of need, was the question. The Mercantile school of writers, as they are now called, set themselves to find methods. As a rule their books were corrective of common errors ; they showed that the 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') Treasure by Foreign Trade, 1664) ; Andrew Yarranton {England's Improvement by Land and Sea, 1677-81); John Locke {OntJie Interest and Value of Money, 1691 and 1698); Sir

THE MERCANTILE SCHOOL. 17

Wm. Petty (Etmyt in Political Arithmetic 16911. Tho sy.^matio writers are the Abb€ Genovesi {Lezzioni di Commercio c di Economico ' Oiviief 1765) and Sir James Steuart (Principles of Political'^conomy , 1767;. Contemporary oppouenta are Sir Josiah Child {Brie/' Obaei mt}ona concerning Trade, 1668); le Siear de Boisguillebert (J.^tuia de France, 1712, <to.); Marshal Vauban {Projel d'une Dime Royale, 1707); and J. F. Melon {Esaai Politique anr le Commerce, 1734.) ^ J 6pinions of the Mercantile school are wretchedly caricatured by many mod^,rn writers.

The new science was as yet e ypry gubordinate bi-aiich of the larger subject of polities, 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 eofi^ers, 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 Economistei or Ph^gioerates, founded by Quesnay, the physician and "thinker" of Louie XV. If the mercantile school unduly subordinated the science to the art, the Eeonomistes 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 2 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 Quesnaj'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 ia 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 imposed. 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 monopolies, close corporations, duties on exports, &c.

Quesnay's first book {Tableau Economiqne, 1758) was preceded by articles (on Fermiers and Graitw) in the famous Encyelopldie (1756-7). Tlie 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 Toluminous statistical work on La Monarchie Prueaienne (See g 285). Turgot's chief book is Eejlexiona aiir la Formation et la Diatribulion dea Richeaaes (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.

,ADAM smith's "WEALTH OF NATIONS." 19

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 iofluenced by the Physiocrates, 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 efi'orts 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 Ecmiomistes, 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 industrial 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 afi'ect 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

20 ELEMENTS OF I>OLITICAL ECONOMY.

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, but of cosmopolitieal 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 ; Europe 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 — Lessiog and Goethe, for instance — formally repudiated the sentiment of patriotism as unworthy of an enlightened civilization.

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

In France Jean Baptiste Say reduced the teachings of Smith to a more systematic shape, giving them that clearness of expression 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." He enlarged the conception of wealth, however, to embrace immaterial 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 therefore to check the amount of imports is to limit in equal measure

MALTHUS "ON POPULATION." 2]

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 literature, in which those doctrines are defended and enforced, is even larger than the English.

Chevalier, Rossi, Blanqui and Molinari are the chief Trench representatives of this school. Bastiat belongs to it in his general tendencies, but his system is a mixture of its doctrines with those of Carej.

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 1826). At a time of great political disturbances, when the impoverished classes of Europe were calling the governments to account for the bad policy or no policy that had led to so much misery, this gentleman, a member of the Conservative party, was led to a study of the economic conditions in which that misery originated, that ho might close the mouths of agitators by showing that governments 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 permanently 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, ther6 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 divided.

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, form a privileged class that can live in idleness upon the labor of others, through exacting 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 industrial 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 ic

EICARDO AND HIS CRITICS. 23

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 secured against foreign competition in the grain market. His Principles of Political Ecnnomy and Taxation (1817) is the last piece of positive work of the school, — the crowning of the edifice. MoCulloch, 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 expression 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 considered wealth in the abstract, and excluded all political considerations, 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 Teoke {History of Prices, 6 vols., 1838-58) gave a refutation of th« 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 tbus 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 necessary rate of wages was not borne out by the facts, — that there is no uniformity but rather the most arbitrary difiference in their rate, — that capital can unnaturally depress it below what is right and natural when the workmen stand alone, — and that workmen 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 country, 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.