POLITICAL ECONOMY 



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defined as a system of natural liberty. In view 

 of the ill-judged or antiquated regulations of the 

 past he advocated liberty ; and to all that was arti- 

 ficial in such regulation he opposed a natural order, 

 thus following Hie school of Rousseau in the return 

 to nature from a perverted civilisation. Indeed, 

 both in his assertion of freedom and in the appeal 

 to nature, Smith was only applying to political 

 economy principles that were dominant in other 

 spin-res of thought. Smith also followed the 

 example of his predecessors, and showed himself in 

 harmony with the new era, in regarding labour as 

 the source of wealth. With regard to other 

 economic questions relating to capital, rent, in- 

 terest, &c. Smith has saiu much which, though 

 it has not always gained the assent of subsequent 

 Hconomists, has at least had the merit of starting 

 important discussion. Smith's pre-eminence as an 

 economist lies in the fact that he summed up and 

 presented in lucid perspective the best economic 

 thought of the times preceding, while his writings 

 were the starting-point of all further development. 



The greatness of Smith becomes all the more 

 apparent when we contrast him with his suc- 

 cessors, for in none of them do we see the same 

 combination of humanity, moderation, and open- 

 mindedness, fullness of knowledge, width of view, 

 and philosophic culture. Malthas had many of 

 the same qualities, but he fully applied them only 

 to the elucidation of a single aspect of the subject, 

 the population question. In Ricardo the historic 

 factor almost disappears in the abstract ; his theory 

 of rent, for which he has been most celebrated, is 

 particularly abstract and artificial, and has been 

 much overrated. The main body of J. S. Mill's 

 economic work was simply a re-statement of the 

 traditionary doctrine, and as an achievement for 

 his time cannot be compared witli what Smith did 

 for the 18th century. His later writings as well as 

 the later editions of his Political Economy show a 

 perception of the fresh problems which are opening 

 up to the economist, but lie never brought his 

 economic system as a whole into harmony with his 

 new views. His economic writings represent a 

 process of transition, in which the old was not 

 fused or transformed by the new. 



The political economy of Adam Smith had great 

 influence on the continent of Europe. J. B. Say 

 in France, and Kau and Hermann in Germany, 

 followed Smith more or less faithfully. But 

 Smith's teaching, or what is alleged to have been 

 his teaching, lias also met with strong opposition. 

 His doctrines have l>een variously criticised as 

 being too abstract and individualistic, as incul- 

 cating selfishness, as based on doubtful theological 

 assumptions. It is a special objection that his 

 tendency to individualism and cosmopolitanism 

 prevents him from seeing the importance of the 

 nation as an element in economic development. 

 Here we find the most fundamental point of differ- 

 ence between the economics of Germany and of 

 Kngland, plainly arising out of the different cir- 

 cumstances of the two countries. The national 

 element found conspicuous expression in the sys- 

 tem of List, who has been followed by the Ameri- 

 can economist Carey, the gist of this doctrine 

 being that the political economy of each country 

 is and must be adapted to the particular conditions 

 of its national development ; in other words, that 

 circumstances render protection necessary to the 

 national life and growth of Germany and the 

 United States. 



The school of political economy which has long 

 been most prevalent on the continent of Europe 

 is usually described as historical. It holds that 

 economic factors must l>e studied in the light of the 

 historic conditions of each time and country con- 

 ditions legal, political, social, and ethical. The 

 383 



historical school is a protest against abstractness 

 and absoluteness in economic science. No reason- 

 able adherent of the school would deny that there 

 are permanent factors in economics, but all would 

 assert that even the most stable elements are 

 subject to continual variation. That being so, 

 much will depend on whether the economist is 

 disposed to dwell on the stable or the variable 

 elements in economic development. Roscher 

 was the founder of the school. He and Adolf 

 Wagner are its greatest recent representatives. 

 Their works are true to the leading principle of 

 the school ; they are studies of economic principles 

 conducted with all the lights which a vast histori- 

 cal learning can supply. Schaffle is more than 

 historical, as he has given ample recognition to 

 the evolution principle in his Ban und Leben des 

 Sozialen Korpers. 



At present it will be generally admitted by 

 students of political economy that the subject is 

 in an unsettled and unsatisfactory condition. 

 Various explanations of this may be given, but 

 the real and substantial grounds must be found in 

 the following great facts which have emerged since 

 the time of Adam Smith, and which seem to 

 necessitate a reconstruction, or at least a large 

 modification, of the science. 



( 1 ) The greatly improved study of history, and 

 the application of the historical method to all 

 departments of inquiry. The charge of neglect- 

 ing the teachings of history can be urged justly 

 enough against many of Smith's school; against 

 Smith himself it is most unfair. It would be 

 absurd to say that an age which produced Smith 

 and Gibbon was entirely lacking in the historical 

 spirit ; both men are amongst the finest examples 

 of it that have appeared. Yet they were only 

 isolated instances of a method which has now 

 become universal among competent inquirers. The 

 comparative study of history, and especially of 

 historical institutions, has practically come into 

 existence since their time, and has thrown entirely 

 new light on the growth and working of economic 

 forces. 



(2) The general acceptance of the theory of 

 evolution, especially as taught by Darwin. We 

 can now see that Smith's theory of natural liberty 

 really meant that individual struggle for existence 

 carried on within the limits prescribed by law which 

 we call the competitive system ; and that the pro- 

 tective system favoured on the European continent 

 is only a moment in the struggle for existence 

 carried on between vast organised communities 

 like France, Germany, and Russia. In the United 

 States it may be considered as a moment in the 

 struggle for a better national existence against the 

 industrial power of England. 



(3) The industrial revolution, whereby hand 

 labour has been superseded by machinery, and 

 individual effort has given place to labour organised 

 in vast industrial and commercial undertakings, 

 such as factories, railway and shipping companies. 

 This revolution was just beginning when Adam 

 Smith wrote his Wealth of Nations, which was 

 published in the very year when Watt produced the 

 first effective steam-engine (1776). The change in 

 industrial technique and organisation have been 

 vastly greater since Adam Smith's time than they 

 were in the whole period between Aristotle and 

 Smith. 



(4) The growth of democracy, which took a 

 fresh start with the American revolution also in 

 the same year that saw the publication of the 

 Wealth of Nations, in 1776, to be followed thir- 

 teen years later by the great French Revolution of 

 1789. 



(5) The increasing prominence of the social ques- 

 tion, of which we need not further speak here. 



