Adam Smith's Influence
- Powerful landowners favored Smith's anti-mercantilism
- Pardoned for his Physiocratic radicalism
- Malthus and Ricardo "respectabilized" the science
- Repeal of corn-laws passed for free trade and strengthened incoherencies
- Scholastic advocates confident
- Say's belief in colleges pursuing political economy
- Torrens's confidence
- Other countries fail to follow England
- Cairnes skepticism of economics in colleges
- Vindicated by the subsequent breakdown
- The true reason
Epigraphs to Book II
Definitions are the basis of systematic reasoning.
The mixture of those things by speech which are by nature divided is the mother of all error.
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the schools, this work of genius which swayed all Europe in its day, is laid upon the shelf as an antiquated affair, superseded by the smaller and duller men who have pulled his system to pieces and are offering us the fragments as a science most of whose first principles are still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.
The Science of Political Economy
Book II, The Nature of Wealth
Smith'S Influence on Political Economy
Showing What the Wealth of Nations Accomplished and the Course of the Subsequent Development of Political Economy
Adam Smith was not a propagandist or a politician, as were the Physiocrats. He was simply a philosopher, addressing primarily a small, comfortable and cultured class, whose sympathies and feelings were identified with the existing social order, and he wielded a power which requires the fruition of time and the opening of opportunity for its culmination in action -- a power which men of affairs are in its first beginnings apt to underrate.
When the first few copies of my Progress and Poverty were printed in an author's edition in San Francisco, a large landowner (the late General Beale, proprietor of the Tejon Ranch, and afterwards United States Minister to Austria), sought me to express the pleasure with which he had read it as an intellectual performance. This, he said, he had felt at liberty to enjoy, for to speak with the freedom of philosophic frankness, he was certain my work would never be heard of by those whom I wished it to affect.
In the same way, but to a much greater degree, the small class whom alone the Wealth of Nations could first reach were able to enjoy its greatness as an intellectual performance that widened the circle of thought. Few of them were disturbed by any fear of its ultimate effect on special interests. At that time a popular press was not yet in existence, and books of this kind were addressed only to the "superior orders." The House of Commons, the nominal representative of the unprivileged in Great Britain, was filled by the appointees of the great landowners; and the oligarchy that ruled in the British Islands was really stronger than the similar class under the absolute monarchy of France. It was only a few years before the publication of the Wealth of Nations that the landlord's right of pit and gallows, i.e., of life and death, had been abolished in Scotland, not as a matter of justice, but by purchase, as a matter of dynastic expediency; and workmen in coal -- pits and salt -- works were still virtually slaves, being formally denied the right of habeas corpus.
Adam Smith had avoided arousing antagonism from the landed interests. And in turning the aggressive side of the new science against the mercantile system, as he styled what has since been known as the protective system, he found favor with, rather than excited prejudice among, the cultured class -- the only class to which such a book as his could at that time be addressed. Such a class, under the conditions then existing in Great Britain, is apt to feel contempt tinged with anger for traders beginning to aspire towards sharing the power and place of "born masters of the soil." Thus the indignation with which he speaks of how "the sneaking arts of underling tradesmen are erected into political maxims for the conduct of a great empire," and with which he compares "the capricious ambition of kings and ministers" -- "the violence and injustice of the rulers of mankind, for which, perhaps, the nature of human affairs can scarce afford a remedy," with "the impertinent jealousy, the mean rapacity, the monopolizing spirit of merchants and manufacturers who neither are nor ought to be the rulers of mankind," could not fail to strike a sympathetic chord in the spirit then intellectually as politically dominant in Great Britain. This would render unnoticed the quiet way in which he shows that "superiority of birth" is but "an ancient superiority of fortune"* and attributes the difference between the philosopher and the street porter to the difference in the accidents under which they have been placed.
Yet with the outbreak of the French Revolution the radicalism of the Wealth of Nations did not pass entirely unnoticed. A note appended by Dugald Stewart, in 1810, to the second edition of the biography of Adam Smith, first read before the Royal Society of Edinburgh in 1793, explains as a reason why he had in the first edition confined himself to a much more general view of the Wealth of Nations than he had once intended, that:
- The doctrine of a free trade was itself represented as of a revolutionary tendency; and some who had formerly prided themselves on an intimacy with Mr. Smith, and on their zeal for the propagation of his liberal system, began to call in question the expediency of subjecting to the disputations of philosophers the arcana of state policy and the unfathomable wisdom of the feudal ages.
And William Playfair, in his annotated edition of the Wealth of Nations (London, 1805), deems it necessary to apologize for Smith's sympathy with the Physiocrats by declaring that "the real fact is that Dr. Smith, as well as many of the Economists themselves, was ignorant of the secret belonging to the sect" -- that "simply pretending to reduce to practice the Economical Table, they were silently laboring to overturn the thrones of Europe." This ignorance, since it was shared at the same time by "a monarch of such eminent abilities and penetration" as the great Frederick of Prussia, Playfair thinks may be well pardoned to Dr. Smith. And pardoned it was. Or rather the objections made to Dr. Smith on the score of radicalism attracted so little attention that it is only by delving in forgotten literature that any trace of them can be found. The larger fact is that Adam Smith, opening the study of political economy at a lower level than the Physiocrats, found less resistance, and his book began to secure so permanent a recognition for the new science that its continuance to our time is properly traced to him as its founder rather than to them.
In 1798, five years after Stewart read his biography of Smith before the Royal Society of Edinburgh, and eight years after the author of the Wealth of Nations, lamenting with his last breath that he had done so little, was laid to rest in the Edinburgh Cannongate, the English clergyman Malthus brought forward his famous theory of population. This at once, like "a long-felt want," took its place in the crystallizing system of political economy which Smith had brought into shape, and which, if it was lacking in a clear and consistent definition of wealth, was not on that account objectionable to the spirit of the learned institutions which soon began to make its teaching a function of their official faculties. A few years after Malthus came Ricardo, to correct mistakes into which Smith had fallen as to the nature and cause of rent, and to formulate the true law of rent; but to do this by laying stress on the fact that rent would increase as the necessities of increasing population forced cultivation to less and less productive land, or to less and less productive points on the same land.
Thus, the theory of wages into which Adam Smith fell when, as though fearful of the radical conclusions to which it must lead, he suddenly abandons his true perception that "the produce of labor constitutes the natural recompense or wages of labor," to consider the master as providing from his capital the wages of his workmen, together with the theory of the tendency of population to increase faster than subsistence, and the apprehension of the theory of rent as resulting from the forcing of exertion to less and less productive land, with what was deemed its corollary, "the law of diminishing productiveness in agriculture," became cardinal doctrine. These linking with and buttressing each other, in what soon became the accepted system of political economy as developed from the Wealth of Nations, did away effectually with any fear that the study of natural laws of the production and distribution of wealth might be dangerous to the great House of Have. For in this way political economy was made to serve the purpose of an assumed scientific demonstration that the shocking contrasts in the material conditions of men which our advancing civilization presents, result not from the injustice and mistakes of human law, but from the immutable law of Nature -- the decrees of the All-originating, All-maintaining Spirit.
So far from showing any menace to the great special interests, a political economy, so perverted, soon took its place with a similarly perverted Christianity to soothe the conscience of the rich and to frown down discontent on the part of the poor. In text -- books and teachings from which Adam Smith's recurring perceptions of the natural equality of men were eliminated, it became indeed "the dismal science." It was held by its admirers that it needed only to be sufficiently taught them to convince even the "lower orders," that things as they are are things as they ought to be, except perhaps that "the monopolizing spirit of merchants and manufacturers," and "the sneaking arts of underling tradesmen" should no longer be permitted to be erected into maxims for governmental interferences with trade.
Thus as the system of political economy presented by Adam Smith began to attract the attention of the thoughtful and cultured, it did not meet the resistance it would have encountered had the special interests which it threatened been really those of the growing class of merchants and manufacturers. On the other hand, the apparent turning of its aggressive side against merchants and manufacturers prevented the powerful landed interest from perceiving fully its relation to their own monopoly until it had gained the weight of recognized philosophic authority.
Now the course of social development in the civilized world generally, but particularly in Great Britain, in the era of steam which immediately followed Adam Smith, was enormously to increase the relative social weight of the mercantile and manufacturing classes. But when, fifty years after the death of Adam Smith, what he called the mercantile system came into political issue in the agitation for the repeal of the corn-laws, it was not among merchants and manufacturers, but in the power of the landed interest, that the strong defense of this system was seen to lie. The repeal of the corn-laws was earned against the strenuous resistance of the landowners by a combination of merchants and manufacturers with the working-classes, urged by bitter discontent and growing aspirations. But it was not carried until it became evident to the more thoughtful that if the agitation went on it would be sure to lead to an inquiry into the right by which a few individuals called landowners, claimed the land of the British Islands as their property.
The truth is that merchants and manufacturers, as merchants and manufacturers, are not the ultimate beneficiaries of the protective system, and that mercantile interests can long profit by it only when sheltered behind some special monopoly. This has been shown in the United States, where the owners of coal and mineral and timber and sugar land have constituted the backbone of the political strength that has carried protection to such monstrous length.
The repeal of the English corn-laws passed in Great Britain for a victory of free trade as far as it was practicable to carry free trade. And in scholastic circles in that country and in the United States, and throughout the civilized world that took its intellectual impulse from England, it greatly increased the hopefulness of the professed economists.
Thus strengthened by this powerful impulse, there continued to grow up under the sanction and development of a series of able and authoritatively placed men, whose efforts were devoted to smoothing away difficulties and covering up incongruities, an accredited system of political economy which found its most widely accepted expounder in John Stuart Mill, and reached perhaps its highest point of authority in scholastic circles about or shortly after the centennial of the publication of the Wealth of Nations. Yet it was as wanting in coherence as the image that Nebuchadnezzar saw in his dream. It contained much real truth well worked out. But this was conjoined with fallacies which could not stand examination. The attempt to define its object -- noun, wealth, and the sub-term of wealth, capital, made them much more indefinite and confused than they had been left by Adam Smith. And it was never attempted to bring together what were given as the laws of the distribution of wealth, as that would have shown at a glance their want of relation.
This political economy had no real hold on common thought, and was regarded even by ordinarily intelligent men as a scholastic or esoteric science. But it was spoken of by its professors with the utmost confidence as an assured science, and their belief in its success was greatly increased.
From the beginning until well past the middle of the nineteenth century the temper of the recognized expounders of the political economy which took shape from Adam Smith's foundation was hopeful and confident. They believed they had hold of a true science, which needed only development to be universally recognized.
In what was printed as the introduction to the first American edition of Jean Baptiste Say's treatise on political economy** -- which being translated into English and widely circulated on both sides of the Atlantic became for a long time, in the United States at least, perhaps the most popular of the expositions of the science that Adam Smith had founded -- Say points out certain difficulties that political economy must have to encounter: "that opinions in political economy are not only maintained by vanity, but by the self-interest enlisted in the maintenance of a vicious order of things; that "writers are found who possess the lamentable faculty of composing articles for journals, pamphlets and even whole volumes upon subjects which, according to their own confession, they do not understand;" and that "such is the indifference of the public that they rather prefer trusting to assertions than be at the trouble of investigating them."
But he continues:
- Everything, however, announces that this beautiful, and above all, useful science, is spreading itself with increasing rapidity. Since it has been perceived that it does not rest upon hypothesis, but is founded upon observation and experience, its importance has been felt. It is now taught wherever knowledge is cherished. In the universities of Germany, of Scotland, of Spain, of Italy, and of the north of Europe, professorships of political economy are already established. Hereafter this science will be taught in them, with all the advantages of a regular and systematic study. Whilst the University of Oxford proceeds in her old and beaten track, within a few years that of Cambridge has established a chair for the purpose of imparting instruction in this new science. Courses of lectures are delivered in Geneva and various other places; and the merchants of Barcelona have, at their own expense, founded a professorship on political economy. It is now considered as forming an essential part of the education of princes; and those who are called to that high distinction ought to blush at being ignorant of its principles. The Emperor of Russia has desired his brothers, the Grand Dukes Nicholas and Michael, to pursue a course of study on this subject under the direction of M. Storch. Finally, the Government of France has done itself lasting honor by establishing in this kingdom, under the sanction of public authority, the first professorship of political economy.
This hopefulness as to what was to be accomplished by the regular and systematic study of political economy pervaded for a long time all economic writings. Even when it was necessary to admit that the unanimity that had been confidently expected had not come, it was always just about to come.
Thus Colonel Torrens, in the introduction to his Essay on the Production of Wealth, says in 1821:
- In the progress of the human mind, a period of controversy among the cultivators of any branch of science must necessarily precede the period of unanimity. With respect to political economy, the period of controversy is passing away, and that of unanimity rapidly approaching. Twenty years hence there will scarcely exist a doubt respecting any of its fundamental principles.
With the great defeat of protection in 1846, the confidence of political economists became even greater than before. But the predictions that the example of Great Britain in abolishing protective duties would be quickly followed throughout the civilized world -- predictions based on the assumption that this partial victory for freedom had been won by the advance of an intelligent political economy, were not realized; and fostered by such tremendous political events as the great fight between the American States and the Franco -- German war, a wave of reaction in favor of protection seemed to sweep over pretty nearly all the civilized world outside of Great Britain.
And while in the scholastic world, of the English-speaking countries at least, the triumph of Adam Smith's opposition to the principles of the mercantile system seemed to have established firmly an accepted science of political economy, and chairs for its teaching formed an indispensable adjunct of every institution of education, the real incoherencies which had been slurred over began more and more to show themselves.
In 1856 Professor J. E. Cairnes, delivering in Dublin University on the Whately Foundation a series of lectures afterwards reprinted under the title of The Character and Logical Method of Political Economy, quoted what he called the unlucky prophecy of Torrens, made in 1821, that the period of controversy had passed and that of unanimity was rapidly approaching, and that in twenty years from then there would scarcely exist a doubt respecting any of the fundamental principles of political economy. Professor Cairnes did this only to give point to a statement that fundamental questions "are still vehemently debated, not merely by sciolists and smatterers, who may always be expected to wrangle, but by the professed cultivators and recognized expounders of the science," and that:
- So far from the period of controversy having passed, it seems hardly yet to have begun -- controversy, I mean, not merely respecting propositions of secondary importance, or the practical application of scientific doctrines (for such controversy is only an evidence of the vitality of a science, and is a necessary condition of its progress), but controversy respecting fundamental principles which lie at the root of its reasonings, and which were regarded as settled when Colonel Torrens wrote.
Cairnes continues with a passage, which as showing a perception by a leading professor of political economy of the effect of the establishment of professorships, from which Say a generation before had hoped so much and from which up to this very time so much continued as it still continues to be hoped by those who know no better, is worth my quoting:
- When Political Economy had nothing to recommend it to public notice but its own proper and intrinsic evidence, no man professed himself a political economist who had not conscientiously studied and mastered its elementary principles; and no one who acknowledged himself a political economist discussed an economic problem without constant reference to the recognized axioms of the science. But when the immense success of free trade gave experimental proof of the justice of those principles on which economists relied, an observable change took place both in the mode of conducting economic discussions and in the class of persons who attached themselves to the cause of political economy. Many now enrolled themselves as political economists who had never taken the trouble to study the elementary principles of the science; and some, perhaps, whose capacities did not enable them to appreciate its evidence; while even those who had mastered its doctrines, in their anxiety to propitiate a popular audience, were too often led to abandon the true grounds of the science, in order to find for it in the facts and results of free trade a more popular and striking vindication. It was as if mathematicians, in order to attract new adherents to their ranks, had consented to abandon the method of analysis, and to rest the truth of their formulas on the correspondence of the almanacs with astronomical events. The severe and logical style which characterized the cultivators of the science in the early part of the century has thus been changed to suit the different character of the audience to whom economists now addressed themselves. The discussions of Political Economy have been constantly assuming more of a statistical character; results are now appealed to instead of principles; the rules of arithmetic are superseding the canons of inductive reasoning; till the true course of investigation has been well -- nigh forgotten, and Political Economy seems in danger of realizing the fate of Atalanta.
At the present time it is clearly to be seen that the worst fears of Cairnes have been more than realized. The period of controversy instead of having passed, had indeed, it has since been proved, hardly then begun. The accelerating tendency since his time as in the period of which he then spoke, has been away from, not towards, uniformity; controversy has become incoherence, and what he then thought to be the science of political economy has been destroyed at the hands of its own professors.
But while Cairnes realized the true drift of a tendency that most of his contemporaries did not understand, and saw the real effect of a study of political economy for the purpose of filling professorships and writing books, he did not see the real cause which so much faster and farther than he could have imagined has given sober reality to his more than half-rhetorical prediction. The reason of the constantly increasing confusion of the scholastic political economy has lain in the failure of the so-called science to define its subject-matter or object-noun. Statistics cannot aid us in the search for a thing until we know what it is we want to find. It is the Tower of Babel over again. Men who attempt to develop a science of the production and distribution of wealth without first deciding what they mean by wealth cannot understand each other or even understand themselves.