Smith and the Physiocrats

Epigraphs to Book II

Definitions are the basis of systematic reasoning.

-- Aristotle

The mixture of those things by speech which are by nature divided is the mother of all error.

-- Hooker

Bacon made us sensible of the emptiness of the Aristotelian philosophy; Smith, in like manner, caused us to perceive the fallaciousness of all the previous systems of political economy; but the latter no more raised the superstructure of this science, than the former created logic.... We are, however, not yet in possession of an established text-book on the science of political economy, in which the fruits of an enlarged and accurate observation are referred to general principles that can be admitted by every reflecting mind; a work in which these results are so complete and well arranged as to afford to each other mutual support, and that many everywhere and at all times be studied with advantage.

-- J.B. Say, 1803

We may cite as examples of such inchoate but yet incomplete discoveries the great Wealth of Nations by Adam Smith -- a work which still stands out, and will ever stand out, as that of a pioneer, and the only book on political economy which displays its genius to every kind of intelligent reader. But among the specialists and the schools, this work of genius which swayed all Europe in its day, is laid upon the shelf as an antiquated affair, superseded by the smaller and duller men who have pulled his system to pieces and are offering us the fragments as a science most of whose first principles are still under dispute.

-- Professor (Greek) J.P. Mahaffy, "The Present Position of Egyptology," "Nineteenth Century," August, 1894.

Henry George
The Science of Political Economy

Book II, The Nature of Wealth

Chapter V
Adam Smith and the Physiocrats

Showing the Relation Between Adam Smith and the Physiocrats

Smith and Quesnay -- The Wealth of Nations and Physiocratic ideas -- Smith's criticism of the Physiocrats -- His failure to appreciate the single tax -- His prudence 01

On the continental trip he made between 1764 and 1766, after resigning his Glasgow professorship of moral philosophy to accompany as tutor the young Duke of Buccleuch, Adam Smith made the personal acquaintance of Quesnay and some of the "men of great learning and ingenuity," who regarded the "King's Thinker" with an admiration "not inferior to that of any of the ancient philosophers for the founders of their respective systems," and was, while in Paris, a frequent and welcome visitor at the apartments in the palace, where, unmindful of the gaieties and intrigues of the most splendid and corrupt court of Europe that went on but a floor below them, this remarkable group discussed matters of the highest and most permanent interest to mankind.


This must have been a fruitful time in Adam Smith's intellectual life. During this time the almost unknown Scottish tutor, notable among his few acquaintances for his fits of abstraction, must have been mentally occupied with the work which ten years after was to begin a fame that for more than a century has kept him at the very head of economic philosophers and in the first rank of the permanently illustrious men of his generation.


Upon this work he entered immediately after his return from the continent, in the leisure afforded him by the ample pension that the trustees of the Duke had agreed should continue until he could be provided with a profitable government place. The Duke himself, on coming to his majority and estates, seems to have made no effort to release himself from this payment by securing such a place for the man whom he always continued to regard with respect and affection, thinking doubtless that its duties, however nearly nominal, might somewhat interfere with his freedom to devote himself to his long work. And when, the Wealth of Nations having been at last published, its author was appointed by Lord North to be one of the Commissioners of Customs in Scotland -- an appointment which seems to have been due to the gratitude of the Premier for hints received from that book as to new sources of taxation rather than to any pressure of the Buccleuch interest, and which raised the simple -- mannered student to comparative opulence -- the Duke insisted on making no change in his payment, but continued the pension for life.


The "liberal and generous system" of the French Economists could not fail to appeal powerfully to a man of Adam Smith's disposition, and the Wealth of Nations bears ample evidence of the depth of the opinion he in one place expresses in terms, that this system, "with all its imperfections, is perhaps the nearest approximation to the truth that has yet been published upon the subject of political economy." It was indeed his original intention as stated to his friend and biographer, Professor Dugald Stewart, to dedicate to Quesnay the fruits of his ten years' application. But the French philosopher died in 1774, two years before the Scotsman's great work saw the light. Thus it appeared without any indication of an intention which, had it been expressed, might, in the bitter prejudice soon afterwards aroused against the Physiocrats by the outbreak of the French Revolution, have seriously militated against its usefulness.


The resemblance of the views expressed in this work to those held by the Physiocrats has, however, been noticed by all critics, and both on the side of their opponents and their advocates there have not been wanting intimations that Smith borrowed from them. But while he must have been eminently ready to absorb any idea that commended itself to his mind, there is no reason to regard these views as not originally Adam Smith's own. The keenness of observation and analysis, the vigor of imagination and solidity of learning, that characterize the Wealth of Nations are shown in the Theory of the Moral Sentiments, written before Smith had left the University of Glasgow, and which indeed led to the invitation that he should accompany the young nobleman on his trip. They are shown as well in the paper on the formation of languages, and the papers on the principles which lead and direct philosophical inquiry, as illustrated in the history of various sciences, which are usually published with that work. It appears from the Theory of the Moral Sentiments that Adam Smith was even then meditating some such a book as the Wealth of Nations, and there is no reason to suppose that without knowledge of the Physiocrats it would have been essentially different.


It is a mistake to which the critics who are themselves mere compilers are liable, to think that men must draw from one another to see the same truths or to fall into the same errors. Truth is, in fact, a relation of things, which is to be seen independently because it exists independently. Error is perhaps more likely to indicate transmission from mind to mind; yet even that usually gains its strength and permanence from misapprehensions that in themselves have independent plausibility. Such relations of the stars as that appearance in the north which we call the Dipper or Great Bear, or as that in the south which we call the Southern Cross, are seen by all who scan the starry heavens, though the names by which men know them are various. And to think that the sun revolves around the earth is an error into which the testimony of their senses must cause all men independently to fall, until the first testimony of the senses is corrected by reason applied to wider observations.


In what is most important, I have come closer to the views of Quesnay and his followers than did Adam Smith, who knew the men personally. But in my case there was certainly no derivation from them. I well recall the day when, checking my horse on a rise that overlooks San Francisco Bay, the commonplace reply of a passing teamster to a commonplace question, crystallized, as by lightning-flash, my brooding thoughts into coherency, and I there and then recognized the natural order -- one of those experiences that make those who have had them feel thereafter that they can vaguely appreciate what mystics and poets have called the "ecstatic vision." Yet at that time I had never heard of the Physiocrats, or even read a line of Adam Smith.


Afterwards, with the great idea of the natural order in my head, I printed a little book, Our Land and Land Policy, in which I urged that all taxes should be laid on the value of land, irrespective of improvements. Casually meeting on a San Francisco street a scholarly lawyer, A. B. Douthitt, we stopped to chat, and he told me that what I had in my little book proposed was what the French "Economists" a hundred years before had proposed.


I forget many things, but the place where I heard this, and the tones and attitude of the man who told me of it, are photographed on my memory. For, when you have seen a truth that those around you do not see, it is one of the deepest of pleasures to hear of others who have seen it. This is true even though these others were dead years before you were born. For the stars that we of today see when we look were here to be seen hundreds and thousands of years ago. They shine on. Men come and go, in their generations, like the generations of the ants.


This pleasure of a common appreciation of truth not yet often accepted, Adam Smith must have had from his intercourse with the Physiocrats. Widely as he and they may have differed, there was yet much that was common in their thought. He was a free trader as they were, though perhaps not so logical and thorough-going. And though differing in temper and widely differing in conditions, both were bent on struggling against what must have seemed at the time insuperable difficulties.


Adam Smith's knowledge of, and admiration for, the Physiocrats must at least have affected his thought and expression, sometimes by absorption and sometimes perhaps by reaction. But no matter how much of his economic views were original with him and how much he imbibed consciously or unconsciously from them, it is certain that his political economy, as far as it goes on all fours, is the system of natural order proclaimed by them.


What Adam Smith meant by the wealth of nations is in most cases, and wherever he is consistent, the material things produced from land by labor which constitute the necessities and conveniences of human life; the aggregate produce of society, using the word produce as expressive of the sum of material results, in the same way that we speak of agricultural produce, of factory produce, of the produce of mines, or fisheries, or the chase. Now this is what the Physiocrats meant by wealth, or as they sometimes termed it, the gross product of land and labor.


But this is also, as I shall hereafter show, the primary or root meaning of the word wealth in its common use. And whoever will read Smith's Considerations Concerning the First Formation of Languages, originally published with his Moral Sentiments, in 1759, will see from his manner of tracing words to their primary uses, that whenever he came to think of it, he would have recognized the original and true meaning of the word wealth to be that of the necessities and conveniences of human life, brought into being by the exertion of labor upon land.


The difference between Smith and the Physiocrats is this:


The Physiocrats, on their part, clearly laid down and steadily contended that nothing that did not have material existence, or was not produced from land, could be included in the category of the wealth of society. Adam Smith, however, with seeming inadvertence, has fallen in places into the inconsistency of classing personal qualities and obligations as wealth. This is probably attributable to the fact that what it seemed to him possible to accomplish was much less than what the Physiocrats aimed at. The task to which he set himself, that in the main of showing the absurdity and impolicy of the mercantile or protective system, was sufficiently difficult to make him comparatively regardless of speculations that led far beyond it. With the disproval of the current notion that the wealth of nations consists of the precious metals, his care as to what is and what is not a part of that wealth relaxed. He went with the Physiocrats in their condemnation of the attempts of governments to check commerce, but stopped both where they had carried the idea of freeing all production from tax or restraint to the point of a practical proposition, and where they had fallen into obvious error. He neither proposed the single tax nor did he fall into the mistake of declaring agriculture the only productive occupation. That there is a natural order he saw; and that to this natural order our perceptions of justice conform, he also saw. But that involved in this natural order is a provision for the material needs of advancing society he seems never to have seen.


Whether Adam Smith's failure to grasp the great truth that the French "Economists" perceived, though "as through a glass, darkly," was due to their erroneous way of stating it, or to some of those environments of the individual mind which seem on special points to close its powers of perception, there is no means that I know of for determining. Adam Smith saw that the Physiocrats must be wrong in regarding manufactures and exchanges as sterile occupations, but he did not see the true answer to their contention, the answer that would have brought into the light of a larger truth that portion of truth they had wrongly apprehended. The answer he makes to them in Book IV, Chapter IX, of the Wealth of Nations could hardly have been entirely satisfactory to himself. In this he does not venture to contend that the labor of artificers, manufacturers and merchants is as productive of wealth as the labor of agriculturists. He only contends that it is not to be considered as utterly sterile, and that "the revenue of a trading and manufacturing country must, other things being equal, always be much greater than that of one without trade and manufactures," because "a smaller quantity of manufactured produce purchases a great quantity of rude produce." That he himself, indeed, regarded agriculture as at least the most productive of occupations is shown directly in other places in his great work.


And there is one part of this answer that is extremely unsatisfactory and utterly out of its author's usual temper. No one better than Adam Smith could see the fallacy of comparing a philosopher who declared that the political body would thrive best under conditions of perfect liberty and perfect justice with a physician who "imagined that the health of the human body could be preserved only by a certain precise regimen of diet and exercise." And that he should resort to an illustration which depended for its effect upon such a suppressio veri to explain or emphasize his dissent from a man whom he esteemed so highly as Quesnay, shows a latent uncertainty. Both in quality and in temper of mind, Smith seems the last of men to use such an argument except in despair of finding a better one.


There are passages in the Wealth of Nations where Adam Smith checks his inquiry with a suddenness that shows an indisposition to venture on ground that the possessing classes would deem dangerous. But in nothing he left after him (just before his death he destroyed all manuscripts he did not wish published), is there an indication that he was more than puzzled by the attempt of the Physiocrats to explain the great truth that they saw with wrong apprehension. He clearly perceived that "the produce of labor constitutes the natural recompense or wages of labor," and that it was the appropriation of land that had deprived the laborer of his natural due. But he had evidently never looked further into the phenomena of rent than to see that "the landlords, like all other men, love to reap where they never sowed." He passes over the great subject of the relations of men to the land they inhabit, as though the appropriation by a few of what nature has provided as the dwelling-place and storehouse of all must now be accepted as if it were a part of the natural order. And so, indeed, in his times and conditions it must have appeared to him.


Even if Adam Smith had seen the place of the single tax in the natural order, as the natural means for the supply of the natural needs of civilized societies, prudence might well have suggested that his inquiry should not be carried so far. I mean, not merely that prudence of the individual which impelled Copernicus to withhold until after his death any publication of his discovery of the movement of the earth about the sun; but that prudence of the philosopher which, from a desire to do the utmost that he can for Truth and Justice in his own time, may prevent him from advancing a larger measure of truth than his own time can receive.


In that part of the eighteenth century when the Physiocrats dreamed that they were on the verge of carrying their great reform and Smith wrote painfully his Wealth of Nations, there was a wide difference between the conditions of France and Scotland.


Sheltered under the friendship of a king whose dynasty had reduced the great feudal landlords to servitors and courtiers; seeking with the aphorism, "Poor peasants, poor kingdom; poor kingdom, poor king," to arouse the strongest power in the state to the relief of the most downtrodden; cherishing the hope that the emancipation of man might be accomplished by the short and royal road of winning the mind and conscience of a young and amiable sovereign, the French philosophers might have some prospect of getting a hearing in their advocacy of the single tax. But, on the other side of the Channel, the "landed interest," gorged with the spoil of Church and Crown and peasants and clansmen, reigned supreme. For a solitary man of letters to have attacked this supreme power in front would have been foolishness.


That Adam Smith, "all-round man" that he was, possessed both the prudence of the man and the prudence of the philosopher, is shown by the fact that he managed to do what he did, without arousing in greater degree the ire of the defenders of vested wrongs. Whoever will intelligently read the Wealth of Nations will find it full of radical sentiment, an arsenal from which lovers of liberty and justice may still draw weapons for victories remaining to be won. Yet its author was a college professor, traveling tutor of a Duke, held a lucrative government position and died Lord Rector of Glasgow University.


For the present times at least, the Scotsman succeeded where the Frenchman failed. It is he, not Quesnay, who has come down to us as the "father of political economy."


This position is recognized even by economists who differ from what they deem his school. Thus Professor James, of the University of Pennsylvania, himself belonging to the "new school," says of Adam Smith in the article "Political Economy" in Lalor's Cyclopedia, 1884:


    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 and 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.

It is for this reason that I take Adam Smith's Wealth of Nations as the great landmark in the history of Political Economy.