A HISTORY OF
ECONOMIC DOCTRINES

A HISTORY OF
ECONOMIC DOCTRINES
FROM THE TIME OF THE PHYSIOCRATS
TO THE PRESENT DAY

BY CHARLES GIDE
PROFESSOR OF SOCIAL ECONOMICS IN THE
FACULTY OF LAW UNIVERSITY OF PARIS

AND

CHARLES RIST
PROFESSOR OF POLITICAL ECONOMY IN THE
FACULTY OF LAW IN THE UNIVERSITY OF
MONTPELLIER

AUTHORISED TRANSLATION FROM THE SECOND REVISED
AND AUGMENTED EDITION OF 1913

UNDER THE DIRECTION OF THE LATE
PROFESSOR WILLIAM SMART

BY
R. RICHARDS B.A.
LECTURER IN THE UNIVERSITY COLLEGE OF
NORTH WALES

D. C. HEATH AND COMPANY
BOSTON NEW YORK CHICAGO
DALLAS ATLANTA LONDON SAN FRANCISCO

All rights reserved

Printed in Great Britain at The Ballantyne Press by
Spottiswoode, Ballantyne & Co. Ltd.
Colchester, London & Eton

PREFATORY NOTE

Gide’s Principles of Political Economy, of which there are several translations, is probably better known to English students than any similar work of foreign origin on the subject, and many readers of that book will welcome an opportunity of perusing this volume which Professor Gide has produced in collaboration with Professor Rist.

The remarkable dearth of literature of this kind in English may be pleaded in further extenuation of the attempt to present the work in an English garb, and readers of the Preface will be able to contrast the position in this country with the very different condition of things prevailing across the Channel. The contrast might even be carried a stage farther, and it would be interesting to speculate upon the historical causes which have made Germany supreme in the field of economic research and history, which influenced France in her choice of the history of theory, and which decreed that England should on the whole remain faithful to the tradition of the “pure doctrine.” Can it be that something like a “territorial division of labour” applies in matters intellectual as well as economic?

Be that as it may, we can hardly pretend to be satisfied with the position of our country in this matter of doctrinal history. Of the nine names mentioned in the Preface, only two are English, namely, Ashley and Ingram; and it is no disparagement to Ashley’s illuminating study of mediæval England to say that the main interest of his work is not doctrinal, and that Cunningham’s name might with equal appropriateness have been included in the list.

Omitting both Ashley and Cunningham, whose labours have been largely confined to the realm of economic history, we are thus left with Ingram’s short but learned work as the sole contribution of English scholarship to the history of economic thought.

English readers may possibly be puzzled by the omission of any references, except a stray quotation or two, to Cannan’s History of the Theories of Production and Distribution. But the microscopic care with which the earlier theories are examined and elucidated in that work have resulted in its being regarded as a most valuable contribution to economic theory itself, and under the circumstances the absence of any reference to it in the Preface is not altogether surprising.

Our apparent indifference to the development which theory has undergone in the course of the last 150 years is all the more difficult to explain when we recall the fact that England has always been the classic home of theory, both orthodox and socialist, and our backwardness in this respect contrasts very unfavourably with the progress made in the kindred study of economic history during the last twenty-five years under the inspiration of writers like Ashley, Cunningham, Maitland, Round, and Seebohm.

Most critics are by this time agreed that Ingram’s work, lucid and learned though it is, is somewhat marred by being written too exclusively from the standpoint of a Positivist philosopher who thought he saw in the rapid rise of the Historical school an indisputable proof of the soundness of the Comtean principles and a presage of their ultimate triumph.

Complete impartiality in the writing of history, even were it attainable, may not be altogether desirable, and the present authors have hastened to disclaim any such qualification. Notwithstanding this, some of their readers will possibly feel that certain French schools, both ancient and modern, have been dealt with at disproportionate length, and that scarcely enough attention has been paid to certain English and American writers. But it will surely do us little harm occasionally “to see ourselves as others see us.”

The chief interest of the present volume will probably be found to consist in the attempt made to give us something like a true perspective of certain modern theories by connecting them with their historical antecedents; and we can imagine its later pages being scanned with a great deal of justifiable curiosity. After all, the verdict of history upon the achievements of Smith, the measure of his indebtedness to his immediate predecessors, and the extent to which the “car of economic progress” was accelerated or retarded in its movements at the hands of Ricardo and his contemporaries is fairly well established by this time. On one point only do the present writers seem to challenge that verdict, namely, in their designation of Ricardo and Malthus as Pessimists.

It is otherwise with the more modern writers, however. Their work has not the distinctness of that of the earlier writers, partly because we are not sufficiently removed from it as yet, and partly because some of it is obscured by the haze of party strife. But it may help us to a better understanding of their relative positions to learn, for example, that the Historical school, which set out on its career of conquest with a considerable flourish of trumpets, has not yet succeeded in giving us a new science of Political Economy; that the Marxian doctrine is already antiquated, in the opinion of certain members of that school; that the Socialism of the Fabian Society is merely a recrudescence of Ricardian economics, and that Anarchism is nothing but a violent form of Liberalism.

I cannot hope to have succeeded in retaining in this translation the freshness and vivacity of the original. But I have endeavoured to make the rendering as accurate as possible; and with this object in view considerable trouble has been taken to verify the quotations.

As the title-page implies, the work was originally begun at the suggestion of the late Professor Smart of Glasgow, and to-day more than ever I am conscious of what I owe to his kindly criticism and genial encouragement.

The passage of the book through the press has been watched with assiduous care by Mr. C. C. Wood, who is also responsible for the Index at the end of the volume. I can scarcely express the measure of my indebtedness to him. To my friends Mr. W. H. Porter, M.A., and Mr. J. G. Williams, M.A., both of Bangor, I am also indebted for reading some of the proofs.

R. RICHARDS

PREFACE

In the economic curricula of French universities much greater stress is laid upon the history of economic theory than is the case anywhere else. Attached to the Faculty of Law in each of these universities is a separate chair specially devoted to this subject; at the examination for the doctor’s degree a special paper is set in the history of theory, and if necessary further proof of competence is demanded from the student before his final admission to the degree. At the Sorbonne, where there is only one chair in economics, that chair is exclusively devoted to the history of doctrines, and the same is true of the chair recently founded at the École des Hautes Études.

Such prominence given to the history of theory must seem excessive, especially when it is remembered that in economic history, as distinct from the history of economics, there is not a single chair in the whole of France. Those who believe that the French people are somewhat prone to ideology will not fail to see in this fact a somewhat unfortunate manifestation of that tendency. Elsewhere the positions are reversed, the premier place being given to the study of facts rather than ideas. Extreme partisans of the historical method, especially the advocates of historical materialism, regard doctrines and systems as nothing better than a pale reflection of facts. It is a part of their belief that facts are the only things that matter, and that the history of the evolution of property or the rise of the wage system may prove quite as instructive as the history of the controversies concerning the nature of the right of property or the wages-fund theory.

Such views as we have just expressed, however, are not altogether devoid of exaggeration, though of a kind directly opposite to that which we would naturally impute to them. The influence exerted by the economic environment, whence even the most abstract economist gets material for reflection and the exercise of his logical acumen, is indisputable. The problems which the theorist has to solve are suggested by the rise of certain phenomena which at one moment cut a very prominent figure and at another disappear altogether. Such problems must vary in different places and at different times. The peculiar economic condition in which England found herself at the beginning of the nineteenth century had a great deal to do in directing Ricardo’s thought to the study of the problems of rent and note issue. But for the advent of machinery, with the subsequent increase in industrial activity and the parallel growth of a proletarian class, followed by the recurrence of economic crises, we may be certain that neither the doctrine of Sismondi nor that of Karl Marx would ever have seen the light of day. It is equally safe to assume that the attention which economists have recently bestowed upon the theory of monopoly is not altogether unconnected with the contemporary development of the trust movement.

But, while recognising all this, it is important that we should remember that facts alone are not sufficient to explain the origin of any doctrines, even those of social politics, and still less those of a purely scientific character. Ideas even are not independent of time and place. Similar conditions in the same epoch of history have not infrequently given rise to heterogeneous and even antagonistic theories—J. B. Say’s and Sismondi’s, for example, Bastiat’s and Proudhon’s, Schulze-Delitzsch’s and Marx’s, Francis Walker’s and those of Henry George. With what combination of historical circumstances are we to connect Cournot’s foundation of the Mathematical school in France, or how are we to account for the simultaneous discovery in three or four countries of the theory of final utility?

Although anxious not to seem to make any extravagant claims for the superiority of the history of theory, we are not ashamed of repeating our regrets for the comparative neglect of economic history, and we are equally confident in claiming for our subject the right to be regarded as a distinct branch of the science.[1] We shall accordingly omit all reference to the history of economic facts and institutions except in so far as such reference seems indispensable to an understanding of either the appearance or disappearance of such and such a doctrine or to the better appreciation of the special prominence which a theory may have held at one moment, although it is quite unintelligible to us to-day. Sometimes even the facts are connected with the doctrines, not as causes, but as results, for, notwithstanding the scepticism of Cournot, who was wont to declare that the influence exerted by economists upon the course of events was about equal to the influence exerted by grammarians upon the development of language, it is impossible not to see a connection between the commercial treaties of 1860, say, and the teachings of the Manchester school, or between labour legislation and the doctrine of State Socialism.

To write a history of economic doctrines which should not exceed the limits of a single volume was to attempt an almost impossible task, and the authors cannot pretend that they have accomplished such a difficult feat. Even a very summary exposition of such doctrines as could not possibly be neglected involved the omission of others of hardly less importance.

But in the first place it was possible to pass over the pioneers by taking the latter part of the eighteenth century as the starting-point. There is no doubt that the beginnings of economic science lie in a remoter past, but the great currents of economic thought known as the “schools” only began with the appearance of those two typical doctrines, individualism and socialism, in the earlier half of the nineteenth century.[2] Moreover, the omission is easily made good, for it so happens that the earlier periods are those most fully dealt with in such works as have already appeared on the subject. For the period of antiquity we have the writings of Espinas[3] and Souchon; the mediæval and post-mediæval periods, right up to the eighteenth century, are treated of in the works of Dubois and Rambaud; while, in addition to these, we have the writings of Ashley, Ingram, Hector Denis, Brants, and Cossa, to mention only a few. Modern theories, as contrasted with those of the earlier periods, have received comparatively little attention.

Not only have we been obliged to confine our attention to certain periods, but we have also had to restrict ourselves to certain countries. We would claim the indulgence of those of our readers who feel that French doctrines have been considered at disproportionate length, reminding them that we had French students chiefly in view when writing. Each author is at liberty to do the same for his own particular country, and it is better so, for readers generally desire to learn more about those things of which they already know something. But, despite the prominence given to France, England and Germany were bound to receive considerable attention, although in the case of the latter country we had to make considerable omissions. With regard to the other countries, which we were too often obliged to pass by in silence or to mention only very casually in connection with some theory or other, we are most anxious not to appear indifferent to the eminent services rendered by them, and especially Italy and the United States, to the cause of economic science, both in the past and in the present.

But, notwithstanding such restrictions, the field was still too wide, and we were obliged to focus attention on the minimum number of names and ideas, with a view to placing them in a better light. Our ambition has been, not to write as full or detailed a history as we possibly could, but merely to draw a series of pictures portraying the more prominent features of some of the more distinct epochs in the history of economic doctrines.

Such choice must necessarily be somewhat arbitrary, for it is not always an easy matter to fix upon the best representative of each doctrine. Especially is this the case in a science like economics, where the writers, unknown to one another, not infrequently repeat the same ideas, and it becomes a matter of some difficulty to decide the claim to priority. But although it may be difficult to hit upon the exact moment at which a certain idea first made its appearance, it is comparatively easy to determine when such an idea attracted general attention or took its place in the hierarchy of accepted or scarcely disputed truths. This has been our criterion. With regard to those whose names do not figure in our list, although quite worthy of a place in the front rank, we cannot believe that they will suffer much through this temporary eclipse, especially in view of the partiality of the age for the pioneers. That we are not unduly optimistic in this matter may be inferred from the numerous attempts recently made to discover the poetæ minores of the science, and to make amends for the scant justice done them by the more biased historians of the past.

Not only was selection necessary in the case of authors, but a similar procedure had to be applied to the doctrines. It must be realised, however, that a selection of this character does not warrant the conclusion that the doctrines dealt with are in any way superior to those which are not included, either from the standpoint of moral value, of social utility, or of abstract truth, for we are not of the number who think with J. B. Say that the history of error can serve no useful purpose.[4] We would rather associate ourselves with Condillac when he remarks: “It is essential that everyone who wishes to make some progress in the search for truth should know something of the mistakes committed by people like himself who thought they were extending the boundaries of knowledge.” The study of error would be thoroughly well justified even though the result were simply a healthy determination to avoid it in future. It would be even more so if Herbert Spencer’s version of the saying of Shakespeare, that there is no species of error without some germ of truth in it, should prove correct. One cannot, moreover, be said to possess a knowledge of any doctrine or to understand it until one knows something of its history, and of the pitfalls that lay in the path of those who first formulated it. A truth received as if it has fallen from the sky, without any knowledge of the efforts whereby it has been acquired, is like an ingot of gold got without toil—of little profit.

Moreover, it is to be remembered that this book is intended primarily for students, and that it may be useful to show them in what respects certain doctrines are open to criticism, either from the point of view of logic or of observation. We have attempted to confine such criticism within the strictest limits, partly because we did not wish the volume to become too bulky, and partly because we felt that what is important for our readers are not our own opinions, but the opinions of the masters of the science with which we deal. Wherever possible these have been given the opportunity of speaking for themselves, and for this reason we have not been afraid to multiply quotations.

A special effort has been made to bring into prominence such doctrines—whether true or false—as have contributed to the formation of ideas generally accepted at the present time, or such as are connected with these in the line of direct descent. In other words, the book is an attempt to give an answer to the following questions: Who is responsible for formulating those principles that constitute the framework—whether provisionary or definitive it is not for us to determine—of economics as at present taught? At what period were these principles first enunciated, and what were the circumstances which accounted for their enunciation just at that period? Thus we have thought it not altogether out of place to pay some attention to those ideas which, although only on the borderland of economics, have exercised considerable influence either upon theory itself, upon legislation, or upon economic thought in general. We refer to such movements as Christian Socialism, Solidarism, and Anarchism. Had we considered it advisable to retain the official title by which this kind of work is generally known, we should have had to describe it as A History of the Origin and Evolution of Contemporary Economic Doctrines.

The plan of a history of this kind was a matter that called for some amount of deliberation. It was felt that, being a history, fairly close correspondence with the chronological order was required, which meant either taking a note of every individual doctrine, or breaking up the work into as many distinct histories as there are separate schools. The former procedure would necessitate giving a review of a great number of doctrines in a single chapter, which could only have the effect of leaving a very confused impression upon the reader’s mind. The alternative proposal is open to the objection that, instead of giving us a general outline, it merely treats us to a series of monographs, which prevents our realising the nature of that fundamental unity that in all periods of history binds every doctrine together, similar and dissimilar alike. We have attempted to avoid the inconveniences and to gain something of the advantages offered by these alternative methods by grouping the doctrines into families according to their descent, and presenting them in their chronological order. This does not mean that we have classified them according to the date of their earliest appearance; it simply means that we have taken account of such doctrines as have reached a certain degree of maturity. There is always some culminating-point in the history of every doctrine, and in deciding to devote a separate chapter to some special doctrine we have always had such a climacteric in mind. Nor have we scrupled to abandon the chronological order when the exigencies of the exposition seemed to demand it.

The first epoch comprises the end of the eighteenth and the beginning of the nineteenth centuries. It deals mainly with the founders of Classical political economy, with the Physiocrats, Smith and Say, and with Malthus and Ricardo, the two writers whose gloomy forebodings were to cloud the glory of the “natural order.”

The second epoch covers the first half of the nineteenth century. The “adversaries” include all those writers who either challenged or in some way disputed the principles which had been laid down by their predecessors. To these writers five chapters are devoted, dealing respectively with Sismondi, Saint-Simon, the Associative Socialists, List, and Proudhon.

A third epoch deals with the middle of the nineteenth century and the triumph of the Liberal school, which had hitherto withstood every attack, though not without making some concessions. It so happened that the fundamental doctrines of this school were definitely formulated about the same time, though in a very different fashion, of course, in the Principles of Stuart Mill in England and the Harmonies of Bastiat in France.

The second half of the nineteenth century constitutes a fourth period. Those who dissented from the Liberalism of the previous epoch are responsible for the schisms that began to manifest themselves in four different directions at this time. The Historical school advocates the employment of the inductive method, and the State Socialists press the claims of a new social policy. Marxism is an attack upon the scientific basis of the science, and Christian Socialism a challenge to its ethical implications.

A fifth epoch comprises the end of the nineteenth century and the beginning of the twentieth. The heading “Recent Doctrines” includes several theories that are already well known to us, but which seem transfigured—or disfigured, as some would prefer to put it—in their new surroundings. The Hedonistic doctrine and the theory of rent represent a kind of revision of the Classical theories. Solidarism is an attempt to bridge the gap that exists between individualism and socialism, whilst Anarchism can only be described as a kind of impassioned Liberalism.

This order of succession must not be taken to imply that each antecedent doctrine has either been eliminated by some subsequent doctrine or else incorporated in it. The rise of the Historical school in the middle of the nineteenth century, for example, happened to be contemporaneous with the triumph of the Liberal school and the revival of Optimism. In a similar fashion the new Liberalism of the Austrian school was coincident with the advent of State intervention and the rise of Collectivism.

We cannot, however, help noticing a certain rhythmical sequence in this evolutionary process. Thus we find the Classical doctrine, as it is called, outlined in the earliest draft of the science, but disappearing under the stress of more or less socialistic doctrines, to reappear in a new guise later on. There is no necessity for regarding this as a mere ebb and flow such as distinguishes the fortunes of political parties under a parliamentary régime. Such alternation in the history of a doctrine has its explanation not so much in the character of the doctrine itself as in the favour of public opinion, which varies with the fickleness of the winds of heaven.

But doctrines and systems have a vitality of their own which is altogether independent of the vagaries of fashion. It were better to regard their history, like all histories of ideas, as a kind of struggle for existence. At one moment conflicting doctrines seem to dwell in harmony side by side, content to divide the empire of knowledge between them. Another moment witnesses them rushing at each other with tumultuous energy. It may happen that in the course of the struggle some of the doctrines are worsted and disappear altogether. But more often than not their conflicting interests are reconciled and the enmity is lost in the unity of a higher synthesis. And so it may happen that a doctrine which everybody thought was quite dead may rise with greater vigour than ever.

The bibliography of the subject is colossal. In addition to the general histories, which are already plentiful, the chapters devoted to the subject in every treatise on political economy, and the numerous articles which have appeared in various reviews, there is scarcely an author, however obscure, who is not the subject of a biography. To have attempted to enumerate all these works would merely have meant increasing the bulk of the book without being able to pretend that our list was exhaustive. It is scarcely necessary to add that this meant that we had to confine ourselves to the work done by the “heroes” of this volume. Their commentators and critics only came in for our attention when we had to borrow either an expression or an idea directly from them or when we felt it necessary that the reader should fill up the gaps left by our exposition. This accounts for the number of names which had to be relegated to the foot-notes. But such deliberate excision must not prevent our recognising at the outset the debt that we owe to the many writers who have traversed the ground before us. They have facilitated our task and have a perfect right to regard themselves as our collaborators. We feel certain that they will find that their labours have not been ignored or forgotten.

Although this book, so far as the general task of preparation and revision is concerned, must be regarded as the result of a collective effort on the part of the two authors whose names are subjoined, the actual work of composition was undertaken by each writer separately. The Contents will sufficiently indicate the nature of this division of labour.

The authors refuse to believe that collaboration in the production of a scientific history of ideas need imply absolute agreement on every question that comes up for consideration. Especially is this the case with the doctrines of political and social economy outlined herein; each of the authors has retained the fullest right of independent judgment on all these matters. Consequently any undue reserve or any extravagant enthusiasm shown for some of these doctrines must be taken as an expression of the personal predilection of the signatory of the particular article.

CHARLES GIDE

CHARLES RIST

CONTENTS

BOOK I: THE FOUNDERS

CHAPTER I: THE PHYSIOCRATS

Political Economy as the name of a special science is the invention of one Antoine de Montchrétien, who first employed the term about the beginning of the seventeenth century. Not until the middle of the eighteenth century, however, does the connotation of the word in any way approach to modern usage. A perusal of the article on Political Economy which appeared in the Grande Encyclopédie of 1755 will help us to appreciate the difference. That article was contributed by no less a person than Jean Jacques Rousseau, but its medley of politics and economics seems utterly strange to us. Nowadays it is customary to regard the adjective “political” as unnecessary, and an attempt is made to dispense with it by employing the terms “economic science” or “social economics,” but this article clearly proves that it was not always devoid of significance. It also reveals the interesting fact that the science has always been chiefly concerned with the business side of the State, especially with the material welfare of the citizens—“with the fowl in the pot,” as Henry IV put it. Even Smith never succeeded in getting quite beyond this point of view, for he declares that “the object of the political economy of every nation is to increase the riches and the power of that country.”[5]

But the counsels given and the recipes offered for attaining the desired end were as diverse as they were uncertain. One school, known as the Mercantilist, believed that a State, like an individual, must secure the maximum of silver and gold before it could become wealthy. Happy indeed was a country like Spain that had discovered a Peru, or Holland, which, in default of mines, could procure gold from the foreigner in exchange for its spices. Foreign trade really seemed a quite inexhaustible mine. Other writers, who were socialists in fact though not in name—for that term is of later invention—thought that happiness could only be found in a more equal distribution of wealth, in the abolition or limitation of the rights of private property, or in the creation of a new society on the basis of a new social contract—in short, in the foundation of the Utopian commonwealth.

It was at this juncture that Quesnay appeared. Quesnay was a doctor by profession, who now, when on the verge of old age, had turned his attention to the study of “rural economy”—the problem of the land and the means of subsistence.[6] Boldly declaring that the solution of the problem had always lain ready to hand, needing neither inventing nor discovering, he further maintained that all social relations into which men enter, far from being haphazard, are, on the contrary, admirably regulated and controlled. To those who took the trouble to think, the laws governing human associations seemed almost self-evident, and the difficulties they involved no greater than the difficulties presented by the laws of geometry. So admirable were these laws in every respect that once they were thoroughly known they were certain to command allegiance. Dupont de Nemours cannot be said to have exaggerated when, in referring to this doctrine, he spoke of it as “very novel indeed.”[7]

It is not too much to say that this marks the beginning of a new science—the science of Political Economy. The age of forerunners is past. Quesnay and his disciples must be considered the real founders of the science. It is true that their direct descendants, the French economists, very inconsiderately allowed the title to pass to Adam Smith, but foreign economists have again restored it to France, to remain in all probability definitely hers. But, as is the case with most sciences, there is not very much to mark the date of its birth or to determine the stock from which it sprang; all that we can confidently say is that the Physiocrats were certainly the first to grasp the conception of a unified science of society. In other words, they were the first to realise that all social facts are linked together in the bonds of inevitable laws, which individuals and Governments would obey if they were once made known to them. It may, of course, be pointed out that such a providential conception of economic laws has little in common with the ordinary naturalistic or deterministic standpoint of the science, and that several of the generalisations are simply the product of their own imaginations. It must also be admitted that Smith had far greater powers of observation, as well as a superior gift of lucid exposition, and altogether made a more notable contribution to the science. Still, it was the Physiocrats who constructed the way along which Smith and the writers of the hundred years which follow have all marched. Moreover, we know that but for the death of Quesnay in 1774—two years before the publication of the Wealth of Nations—Smith would have dedicated his masterpiece to him.

The Physiocrats must also be credited with the foundation of the earliest “school” of economists in the fullest sense of the term. The entrance of this small group of men into the arena of history is a most touching and significant spectacle. So complete was the unanimity of doctrine among them that their very names and even their personal characteristics are for ever enshrouded by the anonymity of a collective name.[8]

Their publications follow each other pretty closely for a period of twenty years, from 1756 to 1778.[9]

Turgot was the only literary person among them, but like his confrères he was devoid of wit, though the age was noted for its humorists. On the whole they were a sad and solemn sect, and their curious habit of insisting upon logical consistency—as if they were the sole depositaries of eternal truth—must often have been very tiresome. They soon fell an easy prey to the caustic sarcasm of Voltaire.[10] But despite all this they enjoyed a great reputation among their more eminent contemporaries. Statesmen, ambassadors, and a whole galaxy of royal personages, including the Margrave of Baden, who attempted to apply their doctrines in his own realm, the Grand Duke Leopold of Tuscany, the Emperor Joseph II of Austria, Catherine, the famous Empress of Russia, Stanislaus, King of Poland, and Gustavus III of Sweden, were numbered among their auditors. Lastly, and most unexpectedly of all, they were well received by the Court ladies at Versailles. In a word, Physiocracy became the rage. All this may seem strange to us, but there are several considerations which may well be kept in view. The society of the period, raffiné and licentious as it was, took the same delight in the “rural economy” of the Physiocrats as it did in the pastorals of Trianon or Watteau. Perhaps it gleaned some comfort from the thought of an unchangeable “natural order,” just when the political and social edifice was giving way beneath its feet. It may be that its curiosity was roused by that terse saying which Quesnay wrote at the head of the Tableau economique: “Pauvres paysans, pauvre royaume! Pauvre royaume, pauvre roi!” or that it felt in those words the sough of a new breeze, not very threatening as yet, but a forerunner of the coming storm.

An examination of the doctrine, or the essential principles as they called them, must precede a consideration of the system or the proposed application of those principles.

I

I: THE NATURAL ORDER

The essence of the Physiocratic system lay in their conception of the “natural order.” L’Ordre naturel et essential des Societés politiques is the title of Mercier de la Rivière’s book, and Dupont de Nemours defined Physiocracy as “the science of the natural order.”

What are we to understand by these terms?

It is hardly necessary to say that the term “natural order” is meant to emphasise the contrast between it and the artificial social order voluntarily created upon the basis of a social contract.[11] But a purely negative definition is open to many different interpretations.

In the first place, this “natural order” may be conceived as a state of nature in opposition to a civilised state regarded as an artificial creation. To discover what such a “natural order” really was like man must have recourse to his origins.

Quotations from the Physiocrats in support of this view might easily be cited.[12] This interpretation has the further distinction of being in accord with the spirit of the age. The worship of the “noble savage” was a feature of the end of the eighteenth century. It pervades the literature of the period, and the cult which began with the tales of Voltaire, Diderot, and Marmontel reappears in the anarchist writers of to-day. As an interpretation of the Physiocratic position, however, it must be unhesitatingly rejected, for no one bore less resemblance to a savage than a Physiocrat. They all of them lived highly respectable lives as magistrates, intendants, priests, and royal physicians, and were completely captivated by ideas of orderliness, authority, sovereignty, and property—none of them conceptions compatible with a savage state. “Property, security, and liberty constitutes the whole of the social order.”[13] They never acquiesced in the view that mankind suffered loss in passing from the state of nature into the social state; neither did they hold to Rousseau’s belief that there was greater freedom in the natural state, although its dangers were such that men were willing to sacrifice something in order to be rid of them, but that nevertheless in entering upon the new state something had been lost which could never be recovered.[14] All this was a mere illusion in the opinion of the Physiocrats. Nothing was lost, everything was to be gained, by passing from a state of nature into the civilised state.

In the second place, the term “natural order” might be taken to mean that human societies are subject to natural laws such as govern the physical world or exercise sway over animal or organic life. From this standpoint the Physiocrats must be regarded as the forerunners of the organic sociologists. Such interpretation seems highly probable because Dr. Quesnay through his study of “animal economy” (the title of one of his works) and the circulation of the blood was already familiar with these ideas. Social and animal economy, both, might well have appeared to him in much the same light as branches of physiology. From physiology to Physiocracy was not a very great step. At any rate, the Physiocrats succeeded in giving prominence to the idea of the interdependence of all social classes and of their final dependence upon nature. And this we might almost say was a change tantamount to a transformation from a moral to a natural science.[15]

Even this explanation seems to us insufficient. Dupont, in the words which we have quoted in the footnote below, seems to imply that the laws of the beehive and the ant-hill are imposed by common consent and for mutual benefit. Animal society, so it seemed to him, was founded upon social contract. But such a conception of “law” is very far removed from the one usually adopted by the natural sciences, by physicians and biologists, say. And, as a matter of fact, the Physiocrats were anything but determinists. They neither believed that the “natural order” imposed itself like gravitation nor imagined that it could ever be realised in human society as it is in the hive or the ant-hill. They saw that the latter were well-ordered communities, while human society at its present stage is disordered, because man is free whereas the animal is not.

What are we to make of this “natural order” then? The “natural order,” so the Physiocrats maintained, is the order which God has ordained for the happiness of mankind. It is the providential order.[16] To understand it is our first duty—to bring our lives into conformity with it is our next.

But can a knowledge of the “order” ever be acquired by men? To this they reply that the distinctive mark of this “order” is its obviousness. This word occurs on almost every page they wrote.[17] Still, the self-evident must in some way be apprehended. The most brilliant light can be seen only by the eye. By what organ can this be sensed? By instinct, by conscience, or by reason? Will a divine voice by means of a supernatural revelation show us the way of truth, or will it be Nature’s hand that shall lead us in the blessed path? The Physiocrats seem to have ignored this question, for every one of them indifferently gives his own answer, regardless of the fact that it may contradict another’s. Mercier de la Rivière recalls the saying of St. John concerning the “Light which lighteth every man that cometh into the world.” This may be taken to be an internal light set by God in the heart of every man to enable him to choose his path. Quesnay, so Dupont affirms, “must have seen that man had only to examine himself to find within him an inarticulate conception of these laws. In other words, introspection clearly shows that men are unwittingly guided by an “inherent” knowledge of Physiocracy.”[18] But, after all, it seems that this intuitive perception is insufficient to reveal the full glory of the order. For Quesnay declared that a knowledge of its laws must be enforced upon men, and this afforded a raison d’être for an educational system which was to be under the direct control of the Government.

To sum up, we may say that the “natural order” was that order which seemed obviously the best, not to any individual whomsoever, but to rational, cultured, liberal-minded men like the Physiocrats. It was not the product of the observation of external facts; it was the revelation of a principle within. And this is one reason why the Physiocrats showed such respect for property and authority. It seemed to them that these formed the very basis of the “natural order.”

It was just because the “natural order” was “supernatural,” and so raised above the contingencies of everyday life, that it seemed to them to be endowed with all the grandeur of the geometrical order, with its double attributes of universality and immutability. It remained the same for all times, and for all men. Its fiat was “unique, eternal, invariable, and universal.” Divine in its origin, it was universal in its scope, and its praises were sung in litanies that might rival the Ave Maria.[19] Speaking of its universality, Turgot writes as follows: “Whoever is unable to overlook the accidental separation of political states one from another, or to forget their diverse institutions, will never treat a question of political economy satisfactorily.”[20] Referring to its immutability, he adds: “It is not enough to know what is or what has been; we must also know what ought to be. The rights of man are not founded upon history: they are rooted in his nature.”

It looked as if this dogmatic optimism would dominate the whole Classical school, especially the French writers, and that natural law would usurp the functions of Providence. To-day it is everywhere discredited, but when it first loomed above the horizon its splendour dazzled all eyes. Hence the many laudatory remarks, which to us seem hyperbolical, if not actually ridiculous.[21] But it was no small thing to found a new science, to set up a new aim and a fresh ideal, to lay down the framework which others were to fill in.

It was the practical results, however, that revealed the full powers of the “natural order.” It so happened that the mass of regulations which constituted the old régime fell to the ground before its onslaughts almost immediately, and it all came about in this fashion.

Knowledge of the “natural order” was not sufficient. Daily life must also conform to the knowledge. Nothing could be easier than this, for “if the order really were the most advantageous”[22] every man could be trusted to find out for himself the best way of attaining it without coercion of any kind.[23]

This psychological balance which every individual was supposed to carry within himself, and which, as the basis of the Neo-Classical school, is known as the Hedonistic principle, is admirably described by Quesnay.[24] “To secure the greatest amount of pleasure with the least possible outlay should be the aim of all economic effort.” And this was what the “order” aimed at. “When every one does this the natural order, instead of being endangered, will be all the better assured.” It is of the very essence of that order that the particular interest of the individual can never be separated from the common interest of all, but this happens only under a free system. “The movements of society are spontaneous and not artificial, and the desire for joy which manifests itself in all its activities unwittingly drives it towards the realisation of the ideal type of State.”[25] This is laissez-faire pure and simple.[26]

These famous formulæ have been so often repeated and criticised since that they appear somewhat trite to-day. But it is certain that they were not so at the time. It is easy to laugh at their social philosophy, to mock at its naïveté and simplicity, and to show that such supposed harmony of interests between men does not exist, that the interests of individuals do not always coincide with those of the community, and that the private citizen is not always the best judge even of his own interests. It was perhaps necessary that the science should be born of such extreme optimism. No science can be constructed without some amount of faith in a pre-established order.

Moreover, laissez-faire does not of necessity mean that nothing will be done. It is not a doctrine of passivity or fatalism. There will be ample scope for individual effort, for it simply means leaving an open field and securing fair play for everyone, free from all fear lest his own interests should injure other people’s or in any way prejudice those of the State. It is true that there will not be much work for the Government, but the task of that body will by no means be a light one, especially if it intends carrying out the Physiocratic programme. This included upholding the rights of private property and individual liberty by removing all artificial barriers, and punishing all those who threatened the existence of any of these rights; while, most important of all, there was the duty of giving instruction in the laws of the “natural order.”

II: THE NET PRODUCT

Every social fact had a place within the “natural order” of the Physiocrats. Such a wide generalisation would have entitled them to be regarded as the founders of sociology rather than of economics. But there was included one purely economic phenomenon which attracted their attention at an early stage, and so completely captivated their imaginations as to lead them on a false quest. This was the predominant position which land occupied as an agent of production—the most erroneous and at the same time the most characteristic doctrine in the whole Physiocratic system.

Every productive undertaking of necessity involves certain outgoings—a certain loss. In other words, some amount of wealth is destroyed in the production of new wealth—an amount that ought to be subtracted from the amount of new wealth produced. This difference, measuring as it does the excess of the one over the other, constitutes the net increase of wealth, known since the time of the Physiocrats as the “net product.”

The Physiocrats believed that this “net product” was confined to one class of production only, namely, agriculture. Here alone, so it seemed to them, the wealth produced was greater than the wealth consumed. Barring accidents, the labourer reaped more than he consumed, even if we included in his consumption his maintenance throughout a whole year, and not merely during the seasons of harvest and tilth. It was because agricultural production had this unique and marvellous power of yielding a “net product” that economy was possible and civilisation a fact.[27] It was not true of any other class of production, either of commerce or of transport, where it was very evident that man’s labour produced nothing, but merely replaced or transferred the products already produced. Neither was it true of manufacture, where the artisan simply combined or otherwise modified the raw material.[28]

It is true that such transfer or accretion of matter may increase the value of the product, but only in proportion to the amount of wealth which had to be consumed in order to produce it; because the price of manual labour is always equal to the cost of the necessaries consumed by the worker. All that we have in this case, however, is a collection of superimposed values with some raw material thrown into the bargain. But, as Mercier de la Rivière put it, “addition is not multiplication.”[29]

Consequently, industry was voted sterile. This implied no contempt for industry and commerce. “Far from being useless, these are the arts that supply the luxuries as well as the necessaries of life, and upon these mankind is dependent both for its preservation and for its well-being.”[30] They are unproductive in the sense that they produce no “extra” wealth.

It may be pointed out, on the other hand, that the “gains,” both in industry and commerce, are far in excess of those of agriculture. All this was immaterial to the Physiocrats, for “they were gained, not produced.”[31] Such gains simply represented wealth transferred from the agricultural to the industrial classes.[32] The agricultural classes furnished the artisans not only with raw material, but also with the necessaries of life. The artisans were simply the domestic servants, or, to use Turgot’s phrase, the hirelings of the agriculturists.[33] Strictly speaking, the latter could keep the whole net product to themselves, but finding it more convenient they entrust the making of their clothes, the erection of their houses, and the production of their implements to the artisans, giving them a portion of the net product as remuneration.[34] It is possible, of course, that, like many servants in fine houses, the latter manage to make a very good living at their masters’ expense.

The “sterile classes” in Physiocratic parlance simply signifies those who draw their incomes second-hand. The Physiocrats had the good sense to try to give an explanation of this unfortunate term, which threatened to discredit their system altogether, and which it seemed unfair to apply to a whole class that had done more than any other towards enriching the nation.

It is a debatable point whether the Physiocrats attributed this virtue of furnishing a net product solely to agriculture or whether they intended it to apply to extractive industries, such as mining and fishing. They seem to apply it in a general way to mines, but the references are rare and not infrequently contradictory. We can understand their hesitating, for, on the one hand, mines undoubtedly give us new wealth in the form of raw materials, just as the land or sea does; on the other hand, the fruits of the earth and the treasures of the deep are not so easily exhausted as mines. Turgot put it excellently when he said, “The land produces fruit annually, but a mine produces no fruit. The mine itself is the garnered fruit,” and he concludes that mines, like industrial undertakings, give no net product, that if any one had any claim to that product it would be the owner of the soil, but that in any case the surplus would be almost insignificant.[35]

This essential difference which the Physiocrats sought to establish between agricultural and industrial production was at bottom theological. The fruits of the earth are given by God, while the products of the arts are wrought by man, who is powerless to create.[36] The reply is obvious. God would still be creator if He decreed to give us our clothes instead of our daily bread. And, although man cannot create matter, but simply transform it, it is important to remember that the cultivation of the soil, like the fashioning of iron or wood, is merely a process of transformation. They failed to grasp the truth which Lavoisier was to demonstrate so clearly, namely, that in nature nothing is ever created and nothing lost. A grain of corn sown in a field obtains the materials for the ear from the soil and atmosphere, transmuting them to suit its own purpose, just as the baker, out of that same corn, combined with water, salt, and yeast, will make bread.

But they were sufficiently clear-sighted to see that all natural products, including even corn, were influenced by the varying condition of the markets, and that if prices fell very low the net product disappeared altogether. In view of such facts can it still be said that the earth produces real value or that its produce differs in any essential respects from the products of industry?

The Physiocrats possibly thought that the bon prix—i.e. the price which yielded a surplus over and above cost of production—was a normal effect of the “natural order.” Whenever the price fell to the level of the cost of production it was a sure sign that the “order” had been destroyed. Under these circumstances there was nothing remarkable in the disappearance of the net product. This is doubtless the significance of Quesnay’s enigmatic saying: “Abundance and cheapness are not wealth, scarcity and dearness are misery, abundance and dearness are opulence.”[37]

But if the bon prix simply measures the difference between the value of the product and its cost of production, then it is not more common in agriculture than in other modes of production. Nor does it extend over a longer period in the one case than in the other, provided competition be operative in both cases; on the contrary, it will become manifest in the one case as easily as in the other, especially if there be any scarcity. It remains to be seen then whether monopoly values are more prevalent in agricultural production than in industrial. In a very general way, seeing that there is only a limited quantity of land, we may answer in the affirmative, and admit a certain degree of validity in the Physiocratic theory. But the establishment of protective rights and the occurrence of agricultural crises clearly prove that competition also has some influence upon the amount of that revenue.

The net product was just an illusion. The essence of production is not the creation of matter, but simply the accretion of value. But it is not difficult to appreciate the nature of the illusion if we recall the circumstances, and try to visualise the kind of society with which the Physiocrats were acquainted. One section of the community, consisting solely of nobility and clergy, lived upon the rents which the land yielded. Their luxurious lives would have been impossible if the earth did not yield something over and above the amount consumed by the peasant. It is curious that the Physiocrats, while they regarded the artisans as nothing better than servants who depended for their very existence upon the agriculturists, failed to recognise the equally complete dependence of the worthless proprietor upon his tenants. If there had existed instead a class of business men living in ease and luxury, and drawing their dividends, it is quite possible that the Physiocrats would have concluded that there was a net product in industrial enterprise.

So deeply rooted was this idea of nature, or God operating through nature, as the only source of value that we find traces of it even in Adam Smith. Not until we come to Ricardo do we have a definite contradiction of it. With Ricardo, rent, the income derived from land, instead of being regarded as a blessing of nature—the Alma Parens—which was bound to grow as the “natural order” extended its sway, is simply looked upon as the inevitable result of the limited extent and growing sterility of the land. No longer is it a free gift of God to men, but a pre-imposed tax which the consumer has to pay the proprietor. No longer is it the net product; henceforth it is known as rent.

As to the epithet “sterile,” which was applied to every kind of work other than agriculture, we shall find that it has been superseded, and that the attribute “productive” has been successively applied to every class of work—first to industry, then to commerce, and finally to the liberal professions. Even if it were true that industrial undertakings only yield the equivalent of the value consumed, that is not enough to justify the epithet “sterile,” unless, as Adam Smith wittily remarks, we are by analogy to consider every marriage sterile which does not result in the birth of more than two children. To invoke the distinction between addition and multiplication is useless, because arithmetic teaches us that multiplication is simply an abridged method of adding.

It seems very curious that that kind of wealth which appeared to the Physiocrats to be the most legitimate and the most superior kind should be just the one that owed nothing to labour, and which later on, under the name of rent, seems the most difficult to justify.

But we must not conclude that the Physiocratic theory of the net product possessed no scientific value.

It was a challenge to the economic doctrines of the time, especially Mercantilism. The Mercantilists thought that the only way to increase wealth was to exploit neighbours and colonists, but they failed to see that commerce and agriculture afforded equally satisfactory methods. Nor must we forget the Physiocrats’ influence upon practical politics. Sully, the French minister, betrays evidence of their influence when he remarks that the only two sources of national wealth are land and labour. Let us also remember that, despite some glaring mistakes, agriculture has never lost the pre-eminence which they gave it, and that the recent revival of agricultural Protection is directly traceable to their influence. They were always staunch Free Traders themselves, but we can hardly blame them for not being sufficiently sanguine to expect such whole-hearted acceptance of their views as to anticipate some of the more curious developments of their doctrines. It is almost certain that if they were living to-day they would not be found supporting the Protectionist movement. At least this is the opinion of M. Oncken, the economist, who has made the most thorough study of their ideas.[38]

Although the Physiocratic distinction between agriculture and industry was largely imaginary, it is nevertheless true that agriculture does possess certain special features, such as the power of engendering the forces of life, whether vegetable or animal. This mysterious force, which under the term “nature” was only very dimly understood by the Physiocrats, and still is too often confused with the physico-chemical forces, does really possess some characteristics which help us to differentiate between agriculture and industry. At some moments agriculture seems inferior because its returns are limited by the exigencies of time and place; but more often superior because agriculture alone can produce the necessaries of life. This is no insignificant fact; but we are trenching on the difficult problems connected with the name of Malthus.

III: THE CIRCULATION OF WEALTH

The Physiocrats were the first to attempt a synthesis of distribution. They were anxious to know—and it was surely a praiseworthy ambition—how wealth passed from one class in society to another, why it always followed the same routes, whose meanderings they were successful in unravelling, and how this continual circulation, as Turgot said, “constituted the very life of the body politic, just as the circulation of the blood did of the physical.”

A scholar like Quesnay, the author of the work on animal economy[39] and a diligent student of Harvey’s new discovery, was precisely the man to carry the biological idea over into the realm of sociology. He made use of the idea in his Tableau économique, which is simply a graphic representation of the way in which the circulation of wealth takes place. The appearance of this table caused an enthusiasm among his contemporaries that is almost incredible,[40] although Professor Hector Denis declares that he is almost ready to share in Mirabeau’s admiration.[41]

We know by this time that this circulation is much more complicated than the Physiocrats believed, but it is still worth while to give an outline of their conception.[42]

Quesnay distinguishes three social classes:

1. A productive class consisting entirely of agriculturists—perhaps also of fishermen and miners.

2. A proprietary class, including not only landed proprietors, but also any who have the slightest title to sovereignty of any kind—a survival of feudalism, where the two ideas of sovereignty and property are always linked together.

3. A sterile class, consisting of merchants and manufacturers, together with domestic servants and members of the liberal professions.

The first class, being the only productive class, must supply all that flow of wealth whose course we are now to follow. Let us suppose, then—the figures are Quesnay’s and seem sufficiently near the facts—that the value of the total wealth produced equals 5 milliard francs. Of this 5 milliards 2 milliards are necessary for the upkeep of the members of this class and its oxen during harvest and sowing. This portion does not circulate. It simply remains where it was produced. The produce representing the remaining 3 milliards is sold. But agricultural products alone do not suffice for the upkeep of Class 1. Manufactured goods, clothes, and boots also are required, and these are got from the industrial classes, for which a milliard francs is given.

There remain just 2 milliards, which go to the landowners and the Government in rents and taxes. By and by we shall see how they attempted to justify this apparent parasitism.

Let us pass on to consider the propertied class. It manages to live upon the 2 milliards which it receives by way of rents, and it lives well. Its food it must obtain from the agricultural class (unless, of course, the rents are paid in kind), and for this it possibly pays a milliard francs. It also requires manufactured goods, which it must get from the sterile class, and for which it pays another milliard francs. This completes their account.

As to the sterile class, it produces nothing, and so, unlike the preceding class, it can only get its necessaries second-hand from the productive class. These may be got in two ways: a milliard from the agricultural class in payment for manufactured goods and another milliard from the landed proprietors. The latter milliard being one of the two which the landed proprietors got from the agriculturists, has in this way described the complete circle.

The 2 milliards obtained as salaries by the sterile class are employed in buying the necessaries of life and the raw material of industry. And since it is only the productive class that can procure these necessaries and raw materials, this 2 milliards passes into the hands of the agriculturists. The 2 milliards, in short, return to their starting-point. Adding the milliard already paid by the landed proprietors to the 2 milliards’ worth of products unsold, the total of 5 milliards is replaced in the hands of the productive class, and so the process goes on indefinitely.[43]

This résumé gives but a very imperfect idea of the vast complexities and difficulties involved in tracing the growth of revenues—an evolution which the Physiocrats followed with the enthusiasm of children. They imagined that it was all very real.[44] The rediscovery of their millions intoxicated them, but, like many of the mathematical economists of to-day, they forgot that at the end of their calculations they only had what they had assumed at the beginning. It is very evident that the table proves nothing as to the essential point in their system, namely, whether there really exist a productive and a sterile class.[45]

The most interesting thing in the Physiocratic scheme of distribution is not the particular demonstration which they gave of it, but the emphasis which they laid upon the fact of the circulation of wealth taking place in accordance with certain laws, and the way in which the revenue of each class was determined by this circulation.

The singular position which the proprietors hold in this tripartite division of society is one of the most curious features of the system.

Anyone examining the table in a non-Physiocratic fashion, but simply viewing it in the modern spirit, must at once feel surprised and disappointed to find that the class which enjoys two-fifths of the national revenue does nothing in return for it. We should not have been surprised if such glaring parasitism had given to the work of the Physiocrats a distinctly socialistic tone. But they were quite impervious to all such ideas. They never appreciated the weakness of the landowners’ position, and they always treated them with the greatest reverence. The epithet “sterile” is applied, not to them, but to manufacturers and artisans! Property is the foundation-stone of the “natural order.” The proprietors have been entrusted with the task of supplying the staff of life, and are endued with a kind of priestly sacredness. It is from their hands that all of us receive the elements of nutrition. It is a “divine” institution—the word is there.[46] Such idolatry needs some explanation.

One might have expected—even from their own point of view—that the premier position would have been given to the class which they termed productive, i.e. to the cultivators of the soil, who were mostly farmers and métayers. The land was not of their making, it is true. They had simply received it from the proprietors. This latter class takes precedence because God has willed that it should be the first dispenser of all wealth.[47]

There is no need to insist on this strange aberration which led them to look for the creator of the land and its products, not amid the cultivators of the soil, but among the idlers.[48] Such was the logical conclusion of their argument. We must also remember that the Physiocrats failed to realise the inherent dignity of all true labour simply because it was not the creator of wealth. This applied both to the agricultural labourer and the industrial worker, and though the former alone was considered productive it was because he was working in co-operation with nature. It was nature that produced the wealth and not the worker.

Something must also be attributed to their environment. Knowing only feudal society, with its economic and political activities governed and directed by idle proprietors, they suffered from an illusion as to the necessity for landed property similar to that which led Aristotle to defend the institution of slavery.[49]

Although they failed to foresee the criticisms that would be levelled against the institution of private property, they were very assiduous—especially the Abbé Baudeau—in seeking an explanation of its origin and a justification of its existence. The reasons which they advanced are more worthy of quotation than almost any argument that has since been employed by conservative economists.

The most solid argument, in their opinion—at least the one that was most frequently used—is that these proprietors are either the men who cleared and drained the land or else their rightful descendants. They have incurred or they are incurring expenditure in clearing the land, enclosing it and building upon it—what the Physiocrats call the avances foncières.[50] They never get their revenues through some one else as the manufacturers do, and they are anything but parasites. Their portion is optimo jure, in virtue of a right prior and superior even to that of the cultivators, for although the cultivators help to make the product, the proprietors help to make the land. The three social classes of the Physiocratic scheme may be likened to three persons who get their water from the same well. It is drawn from the well by members of the productive class in bucketfuls, which are passed on to the proprietors, but the latter class gives nothing in return for it, for the well is of their making. At a respectable distance comes the sterile class, obliged to buy water in exchange for its labour.[51]

The Physiocrats failed to notice the contradiction involved in this. If the revenue which the proprietor draws represents the remuneration for his outlay and the return for his expenditure it is no longer a gift of nature, and the net product vanishes, for, by definition, it represented what was left of the gross product after paying all initial expenses—the excess over cost of production. If we accept this explanation of the facts there is no longer any surplus to dispose of. It is as capitalists pure and simple and not as the representatives of God that proprietors obtain their rents.

Must we really believe that although these outlays afford some explanation of the existence of private property they supply no means of measuring or of limiting its extent? Is there no connection between these outlays and the revenues which landed proprietors draw?

Or must we distinguish between the two portions of the revenue—the one, indispensable, representing the reimbursement of the original outlay, and in every respect comparable to the revenue of the farmer, and the other, being a true surplus, constituting the net product? How can they justify the appropriation of the latter?

There is another argument held in reserve, namely, that based upon social utility. They point out that the cultivation of land would cease and the one source of all wealth would become barren if the pioneer were not allowed to reap the fruits of his labour.

The new argument is a contradiction of the old. In the former case land was appropriated because it had been cultivated. In the present case land must be appropriated before it can be cultivated. In the former labour is treated as the efficient cause, in the latter as the final cause of production.

Finally, the Physiocrats believed that landed proprietorship was simply the direct outcome of “personal property,” or of the right of every man to provide for his own sustenance. This right includes the right of personal estate, which in turn involves the right of landed property. These three kinds of property are so closely connected that in reality they form one unit, and no one of the three can be detached without involving the destruction of the other two.[52] They were full of veneration for property of every description—not merely for landed property. “The safety of private property is the real basis of the economic order of society,” says Quesnay.[53] Mercier de la Rivière writes: “Property may be regarded as a tree of which social institutions are branches growing out of the trunk.”[54] We shall encounter this cult of property even during the terrible days of the French Revolution and the Reign of Terror. When all respect for human life was quite lost there still remained this respect for property.

The defence of private property was already well-nigh complete.[55] But if they were strong in their defence of the institution they did not fail to impose upon it some onerous duties—which counterbalanced its eminent dignity. Of course, every proprietor should always be guided by reason and be mannerly in his behaviour, and he should never allow mere authority to become the rule of life.[56] Their duties are as follows:

1. They must continue without fail to bring lands into cultivation, i.e. they must continue the avances foncières.[57]

2. They must dispose of the wealth which the nation has produced in such a way as to further the general interest; this is their task as the stewards of society.[58]

3. They must aim during their leisure at giving to society all those gratuitous services which they can render, and which society so sorely needs.

4. They must bear the whole burden of taxation.

5. Above all they must protect their tenants, the agriculturists, and be very careful not to demand more than the net product. The Physiocrats never go the length of advising them to give to their tenants a portion of the net product, but they impress upon them the importance of giving them the equivalent of their annual expenditure and of dealing liberally with them. It does not seem much, but it must have been something in those days. “I say it boldly,” writes Baudeau, “cursed be every proprietor, every sovereign and emperor that puts all the burden upon the peasant, and the land, which gives all of us our sustenance. Show them that the lot of the worthy individuals who employ their own funds or who depend upon those of others is to none of us a matter of complete indifference, that whoever hurts or degrades, attacks or robs them is the cruellest enemy of society, and that he who ennobles them, furthers their well-being, comfort, or leisure increases their output of wealth, which after all is the one source of income for every class in society.”[59] Such generous words, which were none too common at the time, release the Physiocrats from the taunt of showing too great a favour to the proprietors. In return for such privileges as they gave them they demanded an amount of social service far beyond anything that was customary at the time.

II

So far we have considered only the Physiocratic theory. But the Physiocratic influence can be much more clearly traced if we turn to applied economics and examine their treatment of such questions as the regulation of industry, the functions of the State, and the problems of taxation.[60]

I: TRADE

All exchange, the Physiocrats thought, was unproductive, for by definition it implies a transfer of equal values. If each party only receives the exact equivalent of what it gives there is no wealth produced. It may happen, however, that the parties to the exchange are of unequal strength, and the one may grow rich at the expense of the other.[61] In giving a bottle of wine in exchange for a loaf of bread there is a double displacement of wealth, which evidently affords a fuller satisfaction of wants in both cases, but there is no wealth created, for the objects so exchanged are of equal value. To-day the reasoning would be quite different. The present-day economist would argue as follows: “If I exchange my wine for your bread, that is a proof that my hunger is greater than my thirst, but that you are more thirsty than hungry. Consequently the wine has increased in utility in passing from my hands into yours, and the bread, likewise, in passing from your hands into mine, and this double increase of utility constitutes a real increase of wealth.” Such reasoning would have appeared absurd to the Physiocrats, who conceived of wealth as something material, and they could never have understood how the creation of a purely subjective attribute like utility could ever be considered productive.

We have already had occasion to remark that industry and commerce were considered unproductive. This was a most significant fact, so far as commerce was concerned, because all the theories that held the field under Mercantilism, notably the doctrine that foreign commerce afforded the only possible means of increasing a country’s wealth, immediately assumed a dwindling importance. For the Mercantilists the prototype of the State was a rich merchant of Amsterdam. For the Physiocrats it was John Bull.

And foreign trade, like domestic, produced no real wealth: the only result was a possible gain, and one man’s gain is another man’s loss. “Every commercial nation flatters itself upon its growing wealth as the outcome of foreign trade. This is a truly astonishing phenomenon, for they all believe that they are growing rich and gaining from one another. It must be admitted that this gain, as they call it, is a most remarkable thing, for they all gain and none loses.”[62] A country must, of course, obtain from foreigners the goods which it cannot itself produce in exchange for those it cannot itself consume. Foreign trade is quite indispensable, but Mercier de la Rivière thinks that it is a necessary evil[63] (he underlines the word). Quesnay contents himself with referring to it merely as a pis aller.[64] He thought that the only really useful exchange is one in which agricultural products pass directly from producers to consumers, for without this the products would be useless and would simply perish in the producer’s hands. But that kind of exchange which consists in buying products in order to resell them—trafficking, or a commercial transaction, as we call it—is sheer waste, for the wealth instead of growing larger becomes less, because a portion of it is absorbed by the traffickers themselves.[65] We meet with the same idea in Carey. Mercier de la Rivière ingeniously compares such traders to mirrors, arranged in such a way that they reflect a number of things at the same time, all in different positions. “Like mirrors, too, the traders seem to multiply commodities, but they only deceive the superficial.”[66]

That may be; but, admitting a contempt for commerce, what conclusions do they draw from it? Shall they prohibit it, or regulate it, or shall they just let it take its own course? Any one of these conclusions would follow from their premises. If commerce be as useless as they tried to make out, the first solution would be the best. But it was the third that they were inclined to adopt, and we must see why.

It seems quite evident that the Physiocrats would have condemned both the Mercantile and the Colbertian systems. Both of these aimed at securing a favourable balance of trade—an aim which the Physiocrats considered illusory, if not actually immoral. But if they thought all trade was useless it is not easy to understand their enthusiasm for Free Trade. Those economists who nowadays favour Free Trade support it in the belief that it is of immense benefit to every country wherein it is practised, and that the more it is developed the richer will the exchanging countries become. But such was not the Physiocratic doctrine. It is a noteworthy fact that they are to be regarded as the founders of Free Trade, not because of any desire to favour trade as such, but because their attitude towards it was one of disdainful laissez-faire. They were not, perhaps, altogether free from the belief that laissez-faire would lead to the disappearance of commerce altogether. They were Free Traders primarily because they desired the freedom of domestic trade, and we must not lose sight of those extraordinary regulations which completely fettered its movements at this time.[67]

The “natural order” also implied that each one would be free to buy or sell wherever he chose, within or without the country. It recognised no frontiers,[68] for only through “liberty” could the “good price” be secured. The “good price” meant the highest price and not the lowest, dearth and not cheapness. “Free competition with foreign merchants can alone secure the best possible price, and only the highest price will enable us to increase our stock of wealth and to maintain our population by agriculture.”[69] This is the language of agriculturists rather than of Free Traders. It is the natural result of thinking about agricultural problems, and especially about the question of raising corn; and since Free Trade at this time gave rise to no fears on the score of importation, free exchange meant free exportation. Oncken points out that the commercial régime which the Physiocrats advocated was identical with that in operation in England about this time, where in case of over-abundance exportation was encouraged in order to keep up the price, and in case of dearth importation was permitted in order to ensure a steady supply and to prevent the price rising too much.[70]

In a word, Free Trade meant for the Physiocrats the total abolition of all those measures which found so much favour with the Mercantilists, and which aimed at preventing exportation to places outside the country and checking the growth of free intercourse within it.[71] Narrow as their conception of Free Trade at first was, it was not long in growing out of the straitened circumstances which gave it birth, and it developed gradually into the Free Trade doctrine as we know it, which Walras expressed as follows: “Free competition secures for every one the maximum final utility, or, what comes to the same thing, gives the maximum satisfaction.” We no longer admit that international trade is a mere pis aller. But all the arguments which have been used in its defence on the Free Trade side were first formulated by the Physiocrats. We shall refer to a few of them.

The fallacy lurking behind the “balance of trade” theory is exposed with great neatness by Mercier de la Rivière. “I will drown the clamour of all your blind and stupid policies. Suppose that I gave you all the money which circulates among the nations with whom you trade. Imagine it all in your possession. What would you do with it?” He goes on to show how not a single foreign country will any longer be able to buy, and consequently all exportation will cease. The result of this excessive dearness will be that buying from foreign countries will be resorted to, and this will result in the exportation of metallic currency, which will soon readjust matters.[72]

The contention that import duties are paid by the foreigner is also refuted. Nothing will be sold by the foreigner at a lower price than that which other nations would be willing to give him. An import duty on such goods will increase the real price, which the foreigner will demand, and this import duty will be paid by those who buy the goods.[73]

There is also a refutation of the policy known as reciprocity. “A nation levies an import duty upon the goods of another nation, but it forgets that in trying to injure the selling nation it is really checking the possible consumption of its own goods. This indirect effect, of course, is inevitable, but can nothing be done to remedy this by means of reprisals? England levies a heavy duty on French wines, thereby reducing its debit account with France very considerably, but more French wine will not be bought if a tax is also placed upon the goods which England exports to France. Do you think that the prejudice which England has taken against France can be remedied in this way?”

We have multiplied instances, for during the whole of the hundred years which have since elapsed has anyone deduced better arguments?

These theories immediately received legal sanction in the edicts of 1763 and 1766 establishing free trade in corn, first within the country and then without, but some very serious restrictions were still retained. Unfortunately Nature proved very ungrateful to her friends. For four or five years she ran riot with a series of bad harvests, for which, as we may well imagine, the Physiocratic régime and its inspirers were held responsible. Despite the protests of the Physiocrats, this liberal act was repealed in 1770. It was re-established by Turgot in 1774, and again repealed by Necker in 1777—a variety of fortune that betokens a fickleness of public opinion.

This new piece of legislation, and, indeed, the whole Physiocratic theory, was subjected to severe criticism by an abbot of the name of Galiani. Galiani was a Neapolitan monsignor residing at the French court. At the age of twenty-four he had written a remarkable work in Italian dealing with money, and in 1770, written in splendid French, appeared his Dialogues sur le Commerce des Blés. It was an immediate success, and it won the unqualified approval of Voltaire, who was possibly attracted more by the style than by the profundity of thought. Galiani was not exactly opposed to laissez-faire. “Liberty,” he wrote, “stands in no need of defence so long as it is at all possible. Whenever we can we ought to be on the side of liberty.”[74] But he is opposed to general systems and against complete self-surrender into the hands of Nature. “Nature,” says he, “is too vast to be concerned about our petty trifles.”[75] He shares the realistic or historical views of the writers of to-day, and thinks that before applying the principles of political economy some account should be taken of time, place, and circumstances. “The state of which the Physiocrats speak—what is it? Where is it to be found.”[76]

Along with Galiani we must mention the great financier Necker, who in a bulky volume entitled La Législation et le Commerce des Grains (1775) advocates opportunistic views almost identical in character with those of Galiani, and who, as Minister of State (1776-81 and 1788-90), put an end to free trade in corn.

In monetary matters, especially on the question of interest, the Physiocrats were willing to recognize an exception to their principle of non-intervention. Mirabeau thought that whenever a real increase of wealth resulted from the use of capital, as in agriculture, the payment of interest was only just. It was simply a sign or symbol of the net product. But in trade matters he thought it best to limit if not to prohibit it altogether. It often proved very harmful, and frequently was nothing better than a tax levied by order of “the corrosive landowners.” Quesnay could not justify it except in those cases where it yielded a net product, but he was content simply to suggest a limitation of it. The Physiocrats are at least logical. If capital sunk in industrial and commercial undertakings yields no income it is evident that the interest must be taken from the borrower’s pocket, and they condemned it just as they condemned taxing the industrial and commercial classes.

Turgot[77] is the only one of them who frankly justifies taking interest. The reason that he gives is not the usual Physiocratic argument, but rather that the owner of capital may either invest it in the land or undertake some other productive work—capital being the indispensable basis of all enterprise[78]—and that, consequently, the capital will never be given to anyone who will offer less than what might have been made out of it did the owner himself employ it. This argument implies that every undertaking is essentially a productive one, and indeed one of the traits which distinguishes Turgot from the other Physiocrats is the fact that he did not think that industry and commerce were entirely unproductive.

II: THE FUNCTIONS OF THE STATE

Seeing that the Physiocrats believed that human society was pervaded by the principle of “natural order,” which required no adventitious aid from any written law, and since Nature’s voice, without any artificial restraint, was sufficient guide for mankind, it might have been expected that the trend of Physiocracy would have been toward the negation of all legislation, of all authority—in a word, toward the subversion of the State.

It is certain that the Physiocrats wished to reduce legislative activity to a minimum, and they expressed the belief—which has often been repeated since by every advocate of laissez-faire—that the most useful work any legislative body can do is to abolish useless laws.[79] If any new laws are required they ought simply to be copies of the unwritten laws of Nature. Neither men nor Governments can make laws, for they have not the necessary ability. Every law should be an expression of that Divine wisdom which rules the universe. Hence the true title of lawgiver, not law-maker.[80] It is in this connexion that we meet with those anecdotes—some of more than doubtful authenticity it is true—that have gathered round their names. Of these the best known is that which tells of Mercier de la Rivière’s visit to St. Petersburg, and his laconic reply to Catherine the Great. He had been invited there to advise the Empress about a new constitution for the country. After dilating upon the great difficulties of the undertaking and the responsibilities it involved, he gave it as his opinion that the best way of achieving her object was just to let things take their course. Whereupon the Empress promptly wished him good-bye.

But it would be a great mistake to think of the Physiocrats as anarchists. What they wanted to see was the minimum of legislation with a maximum of authority. The two things are by no means incompatible. The liberal policy of limitation and control would have found scant favour with them. Their ideal was neither democratic self-government, as we have it in the Greek republics, nor a parliamentary régime such as we find in England. Both were detested.[81]

On the other hand, great respect was shown for the social hierarchy, and they were strong in their condemnation of every doctrine that aimed at attacking either the throne or the nobility. What they desired was to have sovereign authority in the guise of a hereditary monarchy. In short, what they really wanted—and they were not frightened by the name—was despotism.[82]

“The sovereign authority should be one, and supreme above all individual or private enterprise. The object of sovereignty is to secure obedience, to defend every just right, on the one hand, and to secure personal security on the other. A government that is based upon the idea of a balance of power is useless.”[83]

This should help us to realise the distance separating the Physiocrats from the Montesquieuian idea of the distribution of the sovereign authority, and from the other idea of local or regional control. There is no mention of representation as a corollary of taxation. This form of guarantee, which marks the beginnings of parliamentary government, could have no real significance for the Physiocrats. Taxation was just a right inherent in the conception of proprietary sovereignty, a territorial revenue, which was in no way dependent upon the people’s will.

It seems strange that such should be the opinion of a future President of the Constituent Assembly. How can we explain this apparent contradiction and such love of despotism among the apostles of laissez-faire?

Despotism, in the eyes of the Physiocrats, had a peculiar significance of its own. It was the work of freedom, not of bondage. It did not signify the rule of the benevolent despot, prepared to make men happy, even against their own will. It was just the sovereignty of the “natural order”[84]—nothing more. Every reasonable person felt himself bound to obey it, and realised that only through such obedience could the truth be possibly known.

It is quite different from the despotism of the ancient maxim, Sicut principi placuit legis habet vigorem.[85] They would never have subscribed to the doctrine that the king’s word is law, but they were equally energetic in rejecting the claim of the popular will.[86] They are as far from modern democracy as they are from monarchical absolutism.

This despotism was incarnate in the person of the sovereign or king. But he is simply an organ for the transmission of those higher laws which are given to him. They would compare him with the leader of an orchestra, his sceptre being the baton that keeps time. The conductor’s despotism is greater than the Tsar’s, for every musician has to obey the movement of the hand, and that immediately. But this is not tyranny, and whoever strikes a false note in a spirit of revenge is not simply a revolter, but also an idiot.

Sovereignty appealed to the Physiocrats in the guise of hereditary monarchy, because of its associations with property under the feudal régime, and since hereditary rights were connected with landed property so must royalty be. The sovereign who best represents the Physiocratic ideal is perhaps the Emperor of China.[87] As the Son of Heaven he represents the “natural order,” which is also the “divine order.” As an agricultural monarch he solemnly puts his hand to the plough once a year. His people really govern themselves; that is, he rules them according to custom and the practice of sacred rites.[88]

In practice there will be nothing of great importance for the despot to do. “As kings and governors you will find how easy it is to exercise your sacred functions, which simply consist in not interfering with the good that is already being done, and in punishing those few persons who occasionally attack private property.”[89] In short, the preservation of the “natural order” and the defending of its basis—private property—against the attacks of the ignorant and the sacrilegious is the first and most important duty of the sovereign. “No order of any kind is possible in society unless the right of possession is guaranteed to the members of that society by the force of a sovereign authority.”[90]

Instruction is the second duty upon which the Physiocrats lay special stress. “Universal education,” says Baudeau, “is the first and only social tie.” Quesnay is specially anxious for instruction on the “natural order,” and the means of becoming acquainted with it. Further, the only guarantee against personal despotism lies in well-diffused instruction and an educated public opinion. If public opinion, as Quesnay said, is to lead, it should be enlightened.

Public works are also mentioned. A wise landlord has good roads on his property, for good roads and canals improve it. These represent a species of avances foncières, similar to those undertaken by proprietors.

This is by no means all.[91] There are a number of duties recognised as belonging to the State, of which every economist of the Liberal school up to Bastiat and M. de Molinari approves.

We will add one other trait. Like the Liberal school, the Physiocrats were whole-hearted “internationalists.” In this respect they differ from their prototypes, the Chinese. They believed that all class distinctions and all international barriers ought to be removed in the interest of political development, as well as in that of scientific study.[92] The peace advocates of to-day would do well to make the acquaintance of their illustrious predecessors.

III: TAXATION

The bulk of the Physiocratic system is taken up with the exposition of a theory of taxation, which really forms one of the most characteristic portions of their work. Though inextricably bound up with the theory of the net product and with the conception of landed proprietorship, curiously enough, it has survived the rest of their doctrine, and quite recently has been given a new lease of life.

In the table showing the distribution of the national income three participators only are mentioned—the landed proprietor, the farmer, and the artisan. But there is also a fourth—the Physiocratic sovereign, who is none other than the State itself, and who thoroughly deserves a share. This benevolent despot, whose duties we have just mentioned, cannot be very exacting, for, having little to do, his demands must be moderate. In addition to his double mission of maintaining security and giving instruction, he must also contribute towards increasing the productivity of the land by establishing public works, making roads, etc.[93] Money is required for all this, and the Physiocrats argued that taxes ought to be paid liberally,[94] and not grudgingly, as is too often the case under a parliamentary régime. Where is this money to come from?

The reply is obvious if we have grasped their system. The only available fund is the net product, which is the only new wealth that is really dispensable—the rest is necessarily absorbed in the repayment of the advances made for the upkeep of the agricultural and industrial classes. Were taxation to absorb a proportion of the revenues that are devoted to production it would gradually drain away the source of all wealth. So long as it only takes the surplus—the true net product, which is a mere tributary of the main stream—no harm will be done to future production.

All this is quite clear. But if taxation is to absorb the net product the question arises as to who is to pay it. It is equally evident that it can only be taken from those who already possess it, namely, from the landed proprietors, who must bear the whole burden of taxation. Just now we were amazed at the privileges which the Physiocrats so light-heartedly granted them: this is the ransom, and it is no light one. The next problem is how to assess this tax.

The Physiocrats were extremely loth to rob the gentry of their incomes, and a number of pages in their writings are devoted to a justification of their claims upon them. Not only were they willing to leave them everything that was necessary to compensate them for the outlay of capital and labour, but also all that might be required to make the property thoroughly valuable and the position of the landowner a most enviable one.[95] The preference shown for the landowner is just the result of the social importance attributed to him by the Physiocrats. “If some other class were preferable,” says Dupont de Nemours, “people would turn their attention to that.” They would no longer spend their capital in clearing or improving the land. But if the possession of land be so desirable, is there not some danger lest everybody should become a landlord and neglect the other walks of life? The Physiocrats thought not, for, since Nature has set a limit to the amount of land in existence, there must also be a limit to the number of landowners.

A third of the net product, or, if we accept Baudeau’s figures, six-twentieths, i.e. 30 per cent., was to be paid in taxes. Taking the net product at 2 milliard francs, which is the figure given in the Explication du Tableau économique, this gives us exactly 600 million francs as the amount of the tax.[96]

The proprietors, who were then for the most part free from taxation, felt that this was a very considerable contribution, and that the Physiocrats demanded a heavy price for the high honour which they had conferred upon them. Even to-day a tax of 30 per cent. on the gross revenue of landlords would cause some consternation. The Physiocrats anticipated this objection, and in reply brought forward an argument which shows that they possessed exceptionally keen economic insight. They argued that none would feel the burden, seeing that no one was really paying it. Land would now be bought at 70 per cent. of its former value, so that the 30 per cent. nominally paid by the proprietor was in reality not paid by him at all.[97] Land let at £10,000 would be valued at £200,000. But with a tax of £3000 it is really only yielding £7000, and its value will be £140,000. The buyer who pays this price, despite the fact that he has paid a tax of £3000, will enjoy all the revenue to which he has any claim, for he can only lay claim to what he has paid for, and he did not pay for that portion of the revenue which is affected by the tax. It is exactly as if he had only bought seven-tenths of the land, the remaining three-tenths being the State’s. And if at some later time this tax should be abolished, it would merely mean making him a present of £3000 a year—the equivalent of a lump sum of £60,000.[98]

The reasoning was excellent for those buying land after the tax had been levied. It had, however, a much wider import than the Physiocrats thought, for it might be applied not merely to taxes on land, but also to taxes on capital. But this gave little consolation to those who were to have the honour of inaugurating the new régime, and the first task evidently was to convert them.[99]

The sovereign’s position in the main is like that of the landed proprietors, which is in agreement with the Physiocratic conception of sovereignty. The landed proprietors and the king in reality form one class of fellow landowners, with the same rights, the same duties, and the same revenues. Hence the sovereign’s interests are completely bound up with those of his country.[100]

The Physiocrats attached the greatest practical importance to their fiscal system, and were thoroughly convinced that the misery of the people was due to the unequal distribution of the burden of taxation. They thought that this was the true source of injustice—in short, that this was the social problem. To-day we ascribe misery to unequal distribution of wealth rather than to any particular fiscal system, and consequently the Physiocratic view seems to us somewhat extreme. Still, it was perhaps not so difficult to justify, in view of the frightful conditions of fiscal organisation under the old régime.

The objections which a single tax, levied only on the landed interest, was bound to provoke were not unforeseen by the Physiocrats, nor did they neglect to answer them.

To the objection that it was unjust to place the burden of taxation upon the shoulders of a single class of the nation,[101] instead of distributing it equally among all classes, the Physiocrats replied that the statesman’s ideal was not equal taxation, but the complete abolition of all taxation. This could only be achieved by taxing the “net product.”

Suppose that we agree that the taxes should be paid by some other class. The question then is to determine what class of the community should be chosen.

Shall we say that the farmer must pay them? But after deducting the “net product” what remains for the farmer is just the bare equivalent of his original outlay. Consequently, if we take 600 millions from the farmers by way of taxation there will be so much less capital for the land, resulting in a smaller gross product the following year,[102] unless they agitate for a reduction of 600 millions in their rents. If they succeed this will leave the proprietors in the position of having paid over the 600 millions to the State. But we must also reckon the losses and friction incurred in every deviation from the “natural order.” Suppose we decide that the sterile classes should pay the taxes. This class is ex hypothesi sterile—that is, it produces the exact equivalent of what it consumes. To take 600 millions from this class is tantamount to a reduction of its consumption by 600 millions, or an equivalent limitation of its purchases of raw material. The result would be a diminished product in the future, unless the industrial classes succeeded in increasing prices by an equivalent amount. Even in that case the landed proprietors will have to bear the brunt of it: firstly, they will have to reduce their own consumption, and secondly, their tenants’, whose efficiency will thereby be impaired.[103]

This process of reasoning seems to imply that the revenues of the agricultural and industrial classes are not squeezable because they represent the indispensable minimum necessary for the expenses of production. This seems to be an anticipation of the notorious “iron law.” Turgot’s formula incisively stating this law, but containing no attempt at a justification, is known to most people.[104] Long before his day, however, it had been stated by Quesnay in terms no less pronounced, though perhaps not so well known. “It is useless to urge that wage-earners can pay the tax so levied upon them, by restricting consumption and depriving themselves of luxuries without thereby causing the burden to fall upon the classes who pay the wages. The rate of wages, and consequently the amount of comfort and luxury which wages can purchase, are fixed at the irreducible minimum by the action of the competition which prevails among them.” This is quite a characteristic trait.[105] The author of the “natural order,” without any hesitation, admits that the direct outcome of the establishment of that order would be to reduce the life of the wage-earners to a level of bare subsistence.

It is also remarkable that in their study of the industrial classes wages should have claimed the exclusive attention of the Physiocrats. Profits even then were by no means unsqueezable, but curiously enough they failed to realise this. Voltaire’s rich banker would have proved embarrassing here. They would have had some difficulty in showing how a reduction of his extravagance could possibly have endangered production. But they might have replied that since he had so little difficulty in squeezing the 400,000 livres out of his fellow-citizens he would not experience much more trouble in getting another 400,000 out of them and paying them over to the State.

Another objection consists in the insufficiency of a single tax to meet all the needs of the State. “In some States it is said that a third, a half, or even three-fourths of the clear net revenue from all sources of production is insufficient to meet the demands of the Treasury, and consequently other forms of taxation are necessary.”[106]

In reply to this the Physiocrats would point out that the mere application of their fiscal system would result in such an increase in the net product that the yield from the tax would progressively grow. We must also take account of the economies resulting from the simplicity of the tax, and the almost complete absence of expenses of collection. But the most interesting point of all is that they thought the State should adapt its needs to meet its revenue, and not vice versa. The great advantage of the Physiocratic impôt, however, was that it was regulated by a natural norm, which gave the amount of the net product. Without this, taxation becomes arbitrary.[107] At bottom the system affords a barrier against the autocracy of the sovereign—a barrier that is much more effective than a parliamentary vote.

One of the disciples of Quesnay put the theory to the test of practice. The Margrave of Baden had the advantage of being a prince, and he proceeded to experiment on his own subjects. The system was tried in three communes of his principality, but, like most social experiments, failed. In two of the communes it was abandoned at the end of four years. In a third, despite its evil effects, it was prolonged until 1802. The increase in the land tax caused a veritable slump in the value of property just when the remission of taxes upon consumption was resulting in the rapid multiplication of wineshops and beerhouses.[108] It is unnecessary to add that the failure of the experiment did nothing to weaken the faith of the Margrave or his fellow Physiocrats. An experiment on so small a scale could not possibly be accepted as decisive. This is the usual retort of innovators when social experiments prove failures, but we must recognise the element of truth contained in their reply.

But if we wish to see the real results of the Physiocratic system we must look beyond the private experiments of a prince. Elsewhere the effects were much more far-reaching.

The fiscal aspect of the French Revolution owed its guiding inspiration to their ideas. Out of a budget of 500 million francs the Constituent Assembly decreed that about half of it—that is, 240 millions—should be got out of a tax levied upon land, equal to a tax of 2400 million francs nowadays; and the greatest part of it was to be raised by direct taxation.

Distrust of indirect taxation, and of all taxes on commodities, is also a consequence of the Physiocratic system—a distrust that is bound to grow as society becomes more democratic. Most of the arguments in favour of direct taxation are to be found in the Physiocratic writings. But the chief one employed nowadays—namely, that indirect taxes often bear no proportion to the amount of the revenue, but weigh heaviest upon those who have least, is not among them. This concern about proportionality, which is merely another word for justice, was quite foreign to their thoughts.[109]

At a later stage of this work it will be our duty to call attention to the enthusiasm aroused by this old theory of an impôt unique as advocated in the works of an eminent American economist,[110] who renders homage to the Physiocrats for inspiring him with ideals altogether opposed to those of the landed proprietors. And a similar movement under the very same name—the single-tax system—is still vigorous in the United States.

IV: RÉSUMÉ OF THE PHYSIOCRATIC DOCTRINE. CRITICS AND DISSENTERS

A brief résumé of the contributions made to economic science by the Physiocrats will help us to realise their great importance.

From the theoretical point of view we have:

1. The idea that every social phenomenon is subject to law, and that the object of scientific study is to discover such laws.

2. The idea that personal interest if left to itself will discover what is most advantageous for it, and that what is best for the individual is also best for everybody. But this liberal doctrine had many advocates before the Physiocrats.

3. The conception of free competition, resulting in the establishment of the bon prix, which is the most advantageous price for both parties, and implies the extinction of all usurious profit.

4. An imperfect but yet searching analysis of production, and of the various divisions of capital. An excellent classification of incomes and of the laws of their distribution.

5. A collection of arguments which have long since become classic in favour of landed property.

From a practical point of view we have:

1. The freedom of labour.

2. Free trade within a country, and an impassionate appeal for the freedom of foreign trade.

3. Limitation of the functions of the State.

4. A first-class demonstration of the superiority of direct taxation over indirect.

It is unjust to reproach the Physiocrats, as is sometimes done, with giving us nothing but social metaphysics. A little over-systemisation may prove useful in the early stages of a science. Its very faults have some usefulness. We must admit, however, that although their conception of the “natural order” supplied the foundation, or at least the scaffolding, for political economy, it became so intertwined with a kind of optimism that it nullified the work of the Liberal school, especially in France.[111]

But the greatest gap in the Physiocratic doctrine is the total absence of any reference to value, and their grossly material, almost terrestrial, conception of production. They seldom mention value, and what little they do say is often confused and commonplace. Herein lies the source of their mistakes concerning the unproductive character of exchange and industry, which are all the more remarkable in view of the able discussions of this very question by a number of their contemporaries. Among these may be mentioned Cantillon,[112] who resembles them in some respects and whose essay on commerce was published in 1755; the Abbé Galiani, who dealt with the question in his Della Moneta (1750); and the Abbé Morellet, who discussed the same topic in his Prospectus d’un Nouveau Dictionnaire du Commerce (1769). More important than any of them, perhaps, is Condillac, whose work Du Commerce et du Gouvernement was unfortunately not published until 1776; but by that time the Physiocratic system had been completed, and their pre-eminence well established.

Turgot, though one of their number, is an exception. He was never a thoroughgoing Physiocrat, and his ideas concerning value are much more scientific.[113] He defines it as “an expression of the varying esteem which man attaches to the different objects of his desire.” This definition gives prominence to the subjective character of value, and the phrases “varying esteem” and “desire” give it greater precision.[114] It is true that he also added that besides this relative attribute value always implied “some real intrinsic quality of the object.” He has frequently been reproached for this, but all that he meant to say was that our desire always implies a certain correctness of judgment, which is indisputable unless every judgment is entirely illusory. But Turgot would never have admitted that.

It is possible that Turgot inspired Condillac, and that he himself owed his inspiration to Galiani, whose book, which appeared twenty years earlier, he frequently quotes. This work contains a very acute psychological analysis of value, showing how it depends upon scarcity on the one hand and utility on the other.

Besides a difference in his general standpoint, there are other considerations which distinguish Turgot from the members of the Physiocratic school, and it would have been juster to him as well as more correct to have devoted a whole chapter to him.[115] Generally speaking, his views are much more modern and more closely akin to Smith’s. In view of the exigencies of space we must be content to draw attention to the principal doctrines upon which he differs from the Physiocrats.

1. The fundamental opposition between the productivity of agriculture and the sterility of industry, if not altogether abandoned, is at least reduced in importance.

2. Landed property is no longer an institution of divine origin. Even the appeal to the “ground expenses” is dropped. As an institution it rests merely upon the fact of occupation and public utility.

3. Movable property, on the other hand, holds a prominent place. The function of capital is more carefully analysed and the legitimacy of interest definitely proved.

But we must turn to Condillac’s book if we want to see how the Physiocratic doctrine should be completed and expurgated of its errors. Condillac was already well known as a philosopher when, in his sixtieth year, he published this new work in 1776. This admirable book, entitled Le Commerce et le Gouvernement considérés relativement l’un à l’autre, contains an outline of most modern problems. The title gives no adequate indication of the character of the work, and possibly accounts for the oblivion into which the book has fallen.

It is a genuine economic treatise, and not a medley of economic and political suggestions concerning social science, with an admixture of ethics and jurisprudence. Value is regarded as the foundation of the science, and the Physiocrats are thus out-classed from the very first.[116] Value itself is considered to be based upon utility, which is stripped of its popular meaning, and given a scientific connotation which it has never lost. It no longer implies an intrinsic, physical property of matter, but connotes a degree of correspondence between a commodity and a given human want. “Value is not an attribute of matter, but represents our sense of its usefulness, and this utility is relative to our need. It grows or diminishes according as our need expands or contracts.” This is the foundation of the psychological theory of value.[117]

But this is not all—though a great deal. He clearly realises that utility is not the only determinant of value; that quantity, i.e. scarcity or abundance, also exercises an important influence. With admirable judgment he seizes upon the connection between them, and shows how the two statements are united in one, for quantity only influences value according as its action upon utility intensifies or weakens demand. “But since the value of things is based upon need it is natural that a more keenly felt need should endow things with greater value, while a less urgent need endows them with less. Value increases with scarcity and diminishes with plenty. In case of plenty it may even disappear; a superabundant good will be valueless if one has no use for it.”[118] This could not be put more clearly to-day. Here we have the germ of the theories of Jevons and the Austrian school, though it took a long time to develop.

We might naturally expect a superior treatment of exchange following upon this new theory of value. If value is simply the satisfaction of want, exchange creates two values when it satisfies two needs at the same time. The characteristic of exchange is that each of the two parties yields what it has in superabundance in return for what it needs. But what is given up is superabundant, is useless, and consequently valueless; what is demanded has greater utility, and consequently greater value. Two men come to market each with a useless thing, and each returns with a useful one.[119] Consequently the Physiocratic saying that exchange means no gain to anyone, or at least that the gain of one only compensates for the loss of the others, is seen to be radically false. The Physiocrats—notably Trosne—attempted a reply, but, for reasons already given, they never succeeded in realising the subjective character of value.

This same theory should have carried Condillac a stage further, and helped in the rectification of the Physiocratic error concerning production. If value is simply utility and utility itself is just the correspondence between things and our demand for them, what is the agency that produces this harmony between things and desires? It is very seldom that nature succeeds in establishing it. “Nature is frequently fertile in things we have no desire for and lavish of what is useless”—a profound remark that ought to have cooled the Physiocrats’ love of the Alma Parens. “Matter is transformed and made useful by dint of human labour. Production means giving new form to matter.”[120] If this be true, then there is no difference between agricultural and industrial production, for they both transform what already exists.[121]

Moreover, the theory proves very clearly that if artisans and proprietors are dependent upon the agriculturists—as, indeed, they are—the latter in their turn are nothing but artisans. “If someone asks whether agriculture ought to be preferred to manufacture or manufacture to agriculture, we must reply that we have no preferences, and that the best use should be made of both.”[122]

Lastly, his definition of wages, short as it is, is of immense significance. “Wages represent the share of the product which is due to the workers as co-partners.”[123] Wages only “represent” the share that is due to the workers. In other words, the wage-earner, either through want of will or of power, cannot exercise his rightful claim to his own work, and simply surrenders the claim in return for a money price. This constitutes his salary, which is regulated, like every other price, by competition between buyers and sellers. Condillac makes no reference to an iron law of wages, but regards them as determined by the forces of demand and supply. He does, however, hint at the implicit alliance which exists between capital and labour.[124]

From a practical standpoint also, especially in his defence of free labour and his condemnation of corporations, Condillac is more categorical than the Physiocrats. “All these iniquitous privileges,” he writes, “have no claim to a place in the order beyond the fact that they are already established.” He is as persistent as Turgot in his justification of the taking of interest and in his demand for the determination of the rate by competition. This very elegant argument is employed to show its similarity to exchange: Exchange implies compensation for overcoming the drawbacks of distance, whether of place or of time.[125] Exchange generally refers to place, interest to time, and this is really the foundation of the modern theory.

CHAPTER II: ADAM SMITH

Notwithstanding the originality and vigour displayed by the Physiocrats, they can only be regarded as the heralds of the new science. Adam Smith,[126] it is now unanimously agreed, is its true founder. The appearance of his great work on the Wealth of Nations in 1776 instantly eclipsed the tentative efforts of his predecessors. To-day the Physiocratic doctrines scarcely do more than arouse historical curiosity, while Smith’s work has been the guide for successive generations of economists and the starting-point of all their speculation. Even at the present day, despite many changes in the fundamental principles of the science, no economist can afford to neglect the old Scotch author without unduly narrowing his scientific horizon.

Several reasons account for the commanding position held by this book—a position which no subsequent treatise has ever successfully rivalled.

First is its supreme literary charm. It is above all an interesting book, bristling with facts and palpitating with life. The burning questions of the hour, such as the problems presented by the colonial régime, the trading companies, the mercantile system, the monetary question, and taxation, supply the author with congenial themes for his treatment. His discussion of these questions is marked by such mastery of detail and such balance of judgment that he convinces without effort. His facts are intermixed with reasoning, his illustrations with argument. He is instructive as well as persuasive. Withal there is no trace of pedantry, no monotonous reiteration in the work, and the reader is not burdened with the presence of a cumbersome logical apparatus. All is elegantly simple. Neither is there the slightest suggestion of the cynic. Rather a passion of genuinely human sympathy, occasionally bordering upon eloquence, breathes through the pages. Thanks to rare qualities such as these we can still feel something of the original freshness of this old book.

In addition to this, Smith has been successful in borrowing from his predecessors all their more important ideas and welding them into a more general system. He superseded them because he rendered their work useless. A true social and economic philosophy was substituted for their fragmentary studies, and an entirely new value given to their contributions. Taken out of their isolation, they help to illustrate his general theory, becoming themselves illuminated in the process.

Like most great writers, Smith knows how to borrow without impairing his originality. Over a hundred authors are quoted in his book, but he does not always acknowledge them. The names of some of the writers who exercised such influence over him, and opened up the path which he afterwards followed, deserve more than a passing reference.

The first place among these belongs, perhaps, to Hutcheson, Smith’s predecessor in the chair of Moral Philosophy at Glasgow. The divisions of the subject are almost identical with those given by Hutcheson, and many of Smith’s best known theories can be traced in the System of Moral Philosophy published by Hutcheson in 1755, but which we know was written long before. Hutcheson laid great stress upon the supreme importance of division of labour, and his views on such questions as the origin and variations in the value of money and the possibility of corn or labour affording a more stable standard of value closely resemble those of the Wealth of Nations.

David Hume is a near second. Smith refers to him as “by far the most illustrious philosopher and historian of the present age,”[127] and from 1752 onward they were the closest of friends. Hume was already the author of some essays on economic questions, the most important among them dealing with money, foreign trade, the rate of interest, etc. These, along with several other writings, were published in the Political Discourses in 1752. Hume’s examination of these problems displays his original penetrative thought, and there is evident the profundity and lucidity of treatment characteristic of all his writings. The absurdity of the Mercantile policy and of interfering with the natural tendency of money to adapt itself to the needs of each community, the sophistry of the balance of trade theory, and the impious consequences resulting from commercial jealousy among nations are exposed with admirable force in these essays. No doubt the essays left a great impression upon Smith. He quoted them in his lectures at Glasgow, and Hume consulted him before bringing out a second edition. It is true that Smith eventually became the stauncher Liberal of the two. Hume, in his essay on the Balance of Trade, recognized the legitimacy of certain protective rights which Smith wished removed altogether. Still it was to Hume that Smith owed his conversion to the Liberal faith.

On this matter of commercial liberty there was already, towards the end of the seventeenth and the beginning of the eighteenth centuries, a small but a growing band of Mercantilists who had begun to protest against the irksomeness of the Customs regulations. They were, of course, still largely imbued with mercantile prejudice, but they are rightly classed as “Liberals.” Just as in France Boisguillebert had foreshadowed the Physiocrats, so in England Child, Petty, Tucker, Dudley North, and Gregory King had been preparing the way for a more liberal policy in foreign trade.[128]

In addition to Hutcheson and Hume one other writer must be mentioned in this connection, namely, Bernard de Mandeville. He was not an economist at all, but a doctor with considerable philosophical interests. In 1704 he had published a small poem, which, along with a number of additions, was republished in 1714 under the title of The Fable of the Bees; or, Private Vices Public Benefits. The fundamental idea of the book, which caused quite a sensation at the time, and which was seized by order of the Government, is that civilisation—understanding by that term not only wealth, but also the arts and sciences—is the outcome, not of the virtues of mankind, but of what Mandeville calls its vices; in other words, that the desire for well-being, comfort, luxury, and all the pleasures of life arises from our natural wants. The book was a sort of apology for the natural man and a criticism of the virtuous.

Smith criticised Mandeville in his Theory of Moral Sentiments,[129] and reproached him particularly for referring to tastes and desires as vices though in themselves they were nowise blameworthy. But despite his criticism Mandeville’s idea bore fruit in Smith’s mind. Smith in his turn was to reiterate the belief that it was personal interest (in his opinion no vice, but an inferior virtue) that unwittingly led society in the paths of well-being and prosperity. A nation’s wealth for Smith as well as for Mandeville is the result, if not of a vice, at least of a natural instinct which is not itself virtuous, but which is bestowed upon us by Providence for the realisation of ends that lie beyond our farthest ken.

Such are the principal writers in whose works we may find an outline of some of the more important ideas which Smith was to incorporate in a true system.

Mere systematisation, however, would not have given the Wealth of Nations its unique position. Prior to Smith’s time attempts had been made by Quesnay and the Physiocrats to outline the scope of the science and to link its various portions together by means of a few general principles. Although he was not the first to produce a connected scientific treatise out of this material, he had a much greater measure of success than any of his predecessors.

Smith owed much to the Physiocrats, but he had little personal acquaintance with them beyond that afforded by his brief stay in Paris in 1765. Slight as the intimacy was, however, there is no doubt about the influence they had upon him. It is also very improbable that he had read all their works: Turgot’s Réflexions, for example, written in 1766, but only published in 1769-70, was probably not known to him. But frequent personal converse with both Turgot and Quesnay had helped him in acquiring precise first-hand knowledge of their views. We can easily guess which ideas would attract him most.

On one point at least he had no need to be enlightened, for in the matter of economic liberalism he had long been known as a doughty champion. But the ardent faith of the Physiocrats must have strengthened his own belief very considerably.

On the other hand, it appears that he borrowed from the Physiocrats the important idea concerning the distribution of the annual revenue between the various classes in the nation. In his lectures at Glasgow he scarcely mentions anything except production, but in the Wealth of Nations an important place is given to distribution. The difference can hardly be explained except upon the hypothesis of Smith’s growing acquaintance with the Tableau économique and the theory of the “net product.”

But admitting that he borrowed what was most characteristic and most suggestive in their teaching, his treatment of its many complicated aspects is altogether superior to theirs. The Physiocrats were so impressed by the importance of agriculture that they utterly failed to see the problem in its true perspective. They scanned the field through a crevice, and their vision was consequently narrow and limited. Smith, on the other hand, took the whole field of economic activity as his province, and surveyed the ground from an eminence where the view was clearest and most extensive.

The economic world he regarded as a vast workshop created by division of labour, one universal psychological principle—the desire of everyone to better his lot—supplying unity to its diverse phenomena. Political economy was at last to be based, not on the interests of a particular class, whether manufacturing or agricultural, but upon a consideration of the general interest of the whole community. Such are the directing principles that inspire the whole work, the guiding lines amidst what had hitherto seemed a mere chaos of economic facts. Contemporaries never counted upon the difficulties which the new science was bound to encounter, so great was their enthusiasm at having a fixed standpoint from which for the first time the complex interests of agriculture, industry, and commerce might be impartially surveyed. With Smith the study emerged from the “system” stage and became a science.

Our examination of Smith’s views will be grouped around three points:

(I) Division of labour.

(II) The “natural” organisation of the economic world under the influence of personal interest.

(III) Liberalism.

I: DIVISION OF LABOUR

It was Quesnay who had propounded the theory that agriculture was the source of all wealth, both the State’s and the individual’s.[130] Adam Smith seized upon the phrase and sought to disprove it in his opening sentence by giving to wealth its true origin in the general activity of society. “The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour or in what is purchased with that produce from other nations.”

Labour is the true source of wealth. When Smith propounded this celebrated theory, which has given rise to so many misunderstandings since, it was not intended that it should minimise the importance of natural forces or depreciate the part which capital plays in production.[131] No one, except perhaps J. B. Say, has been more persistent in emphasising the importance of capital, and to the land, as we shall presently see, he attributed a special degree of productivity. But from the very outset Smith was anxious to emphasise the distinction between his doctrine and that of the Physiocrats. So he definitely affirms that it is human activity and not natural forces which produces the mass of commodities consumed every year. Without the former’s directing energy the latter would for ever remain useless and fruitless.

He is not slow to draw inferences from this doctrine. Work, employed in the widest sense, and not nature, is the parent of wealth—not the work of a single class like the agriculturists, but the work of all classes. Hence all work has a claim to be regarded as productive. The nation’s annual income owes something to everyone who toils. It is the result of their collaboration, of their “co-operation” as he calls it. There is no longer any need for the distinction between the sterile and the productive classes, for only the idle are sterile.

A nation is just a vast workshop, where the labour of each, however diverse in character, adds to the wealth of all. The passage in which Adam Smith expresses this idea is well known, but no apology is needed for quoting it once again.[132] “What a variety of labour too is necessary in order to produce the tools of the meanest of those workmen! To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labour is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting-house, the brick-maker, the brick-layer, the workmen who attend the furnace, the mill-wright, the forger, the smith, must all of them join their different arts in order to produce them. Were we to examine, in the same manner, all the different parts of his dress and household furniture, the coarse linen shirt which he wears next his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen-grate at which he prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth, and brought to him perhaps by a long sea and a long land carriage, all the other utensils of his kitchen, all the furniture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in preparing his bread and his beer, the glass window which lets in the heat and the light, and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these northern parts of the world could scarce have afforded a very comfortable habitation, together with the tools of all the different workmen employed in producing those different conveniencies; if we examine, I say, all these things, and consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to, what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.”

Division of labour is simply the spontaneous realisation of a particular form of this social co-operation. Smith’s peculiar merit lies in placing this fact in its true position as the basis of his whole work. The book opens upon this note, whose economic and social importance has been so frequently emphasised since that it sounds almost commonplace to-day.

This division of labour effects an easy and natural combination of economic efforts for the creation of the national dividend. Whereas animals confine themselves to the direct satisfaction of their individual needs,[133] men produce commodities to exchange them for others more immediately desired. Hence there results for the community an enormous increase of wealth; and division of labour, by establishing the co-operation of all for the satisfaction of the desires of each, becomes the true source of progress and of well-being.

In order to illustrate the growth in total production as the outcome of division of labour, Smith gives an example of its effects in a particular industry. “The effects of the division of labour, in the general business of society, will be more easily understood by considering in what manner it operates in some particular manufactures.” It is in this connection that he introduces his celebrated description of the manufacture of pins. “A workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day.”[134]

Such is the picture of man as we find him in society. Division of labour and exchange have resulted in augmenting production a hundredfold, and thus increasing his well-being, whereas left to himself he could scarcely supply his most urgent needs.

In a subsequent analysis Smith ascribes the gain resulting from division of labour to three principal causes: (1) The greater dexterity acquired by each workman when confined to one particular task; (2) the economy of time achieved in avoiding constant change of occupation; (3) the number of inventions and improvements which suggest themselves to men absorbed in one kind of work.

Criticism has been levelled at Smith for his omission to mention the disadvantages of division of labour which might possibly counterbalance its many advantages. The omission is the result of his method of treating the whole question, and it is not of much real importance. The disadvantages, moreover, were not altogether lost sight of, and it would be difficult to find a more eloquent plea for some counteracting influence than that which Smith puts forward in the fifth book of the Wealth of Nations. “In the progress of the division of labour,” he remarks, “the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations; frequently to one or two.” But “the man whose whole life is spent in performing a few simple operations, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become.”[135]

This passage seems in contradiction with the ideas expressed above. At one moment constant application to one particular kind of work is regarded as the mother of invention, at another the unremitting task is branded as a fertile cause of stupefaction. The contradiction is, however, more apparent than real. An occupation at first stimulating to the imagination may, if constantly pursued, result in mental torpor. Smith’s conclusions are at any rate interesting. In order to remove the inconveniences resulting from over-specialisation he emphasises the need for bringing within reach of the people, even of imposing upon them, a system of education consisting of the three R’s[136]—such education to be supplied through institutions partly supported by the State. We can imagine the shock which such heterodoxy must have given to the prophets of laissez-faire. Fortunately it was not the only one they had to bear.

Smith next proceeds to indicate the limits of this division of labour. Of such limits he mentions two: (1) In the first place it must be limited by the extent of the market. “When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for.”[137] This is why foreign trade, including trade with the colonies, by extending the market for some products is favourable to further division of labour and a further increase of wealth. (2) The other consideration which, according to Smith, limits division of labour is the quantity of capital available.[138] The significance of this observation is not quite so obvious as that of the former one. Here it seems to us that a conclusion drawn from one particular trade has been applied to industry as a whole. It may be true of a private manufacturer that he will be able to push technical division of labour further than any of his rivals provided he has more capital than they; but taking society as a whole it is clear that the existence of division of labour enables the same product to be produced with less capital than is necessary for the single producer.[139]

Such is an outline of Adam Smith’s theory of division of labour—a theory so familiar to everyone to-day that we are often unable to realise its importance and to appreciate its originality, and this despite the fact that certain sociologists like Durkheim have hailed it as supplying the basis of a new ethic. Juxtaposed with the Physiocratic theory, it is not very difficult to realise its superiority.

To the Physiocrats the economic world was a hierarchy of classes. The agriculturist in some mysterious way bore the “whole weary weight of this unintelligible world” upon his own shoulders, giving to the other classes a modicum of that sustenance which he had wrested from the soil. Hence the fundamental importance of the agricultural classes and the necessity for making the whole economic system subordinate to them. Adam Smith, on the other hand, attempted to get a view of production as a whole. He regarded it as the result of a series of joint undertakings engineered by the various sections of society and linked together by the tie of exchange. The progress of each section is bound up with that of every other. To none of these classes is entrusted the task of keeping all the others alive; all are equally indispensable. The artisan who spares the labourer the task of building his house or of making his shoes contributes to the accumulation of agricultural products just as much as the ploughman who frees the artisan from turning the furrow or sowing the seed. The progress of national wealth cannot be measured in terms of a single net product; it must be estimated by the increase in the whole mass of commodities placed at the disposal of consumers.

One very evident practical conclusion follows; namely, that taxation should fall, not upon one class, as the Physiocrats wished, but upon all classes alike. As against the impôt unique, Smith advocates multiple taxation which shall strike every source of revenue equally, labour and capital as well as land; and the fundamental rule which he lays down is as follows: “The subjects of every State ought to contribute towards the support of the Government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State.”[140] This is his famous maxim of equality so frequently quoted in every financial discussion.[141]