POLITICAL ECONOMY 



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POLITICAL ECONOMY 



on a footing of equality. Later 

 writers, indeed, could not be con- 

 tent, either with Smith's super- 

 ficial analysis of the play of in- 

 dividual wills in the bargaining 

 process, or with the want of rela- 

 tion, in Smith's treatment, be- 

 tween the doctrine of value and the 

 rest of the exposition. 



Accordingly, some of them have 

 since given an amount of attention 

 to the psychology of value which 

 has been doubtfully remunerative ; 

 chief among them Jevons, Theory 

 of Political Economy, 1871, and 

 Menger and " the Austrian school," 

 whose line of thought has been 

 made accessible to English readers 

 by Smart, Introduction to the 

 Theory of Value, 1891. Others, 

 notably Marshall, Principles of 

 Economics, 1890, have sought to 

 present the forces of supply and 

 demand, which determine value, 

 as determining fundamentally the 

 whole of economic life, and thus to 

 make the doctrine of value the key 

 to every part of political economy. 

 As one among diverse methods of 

 approach, such an attempt is un- 

 doubtedly helpful, but to force all 

 the rich material of economic 

 inquiry into the framework of a 

 theory of value stretches the for- 

 mulae to the breaking point. It 

 would probably occur to no one 

 to-day who came to economic 

 study after a training in present 

 methods of scientific inquiry, and 

 it seems to be only explicable as 

 a survival from a long-lived 

 academic tradition. - 



Development in the 18th Century 



The second strain in Smith's 

 economics, and therefore in subse- 

 quent English economics, came 

 from the prevailing moral phil- 

 osophy of his time. This sprang 

 out of the same root ideas as natural 

 jurisprudence ; but in the first 

 part of the 18th century it received 

 special development at the hands 

 of a number of writers, of whom 

 Shaftesbury was the most influen- 

 tial ; so that by 1729 it could be 

 marked off from the general field of 

 philosophy and made the special 

 subject of Hutcheson's professor- 

 ship at Glasgow, to which Smith 

 subsequently succeeded. In essen- 

 tials, Smith's teaching was an appli- 

 cation to the economic field of 

 Shaftesbury' s ideas but slightly 

 modified. It started from the in- 

 dividualistic point of view ; it re- 

 garded benefit to society as the 

 criterion of the moral character of 

 actions ; and it held that, within 

 very wide and ill-defined limits, 

 the well-being of society was brought 

 about by individuals following 

 their natural passions or feelings. 

 In particular, the pursuit of indi- 

 vidual material self-interest, though 



in fact dictated in the individual 

 by mere selfishness, was justified, 

 it held, by its results to society. 



This belief was both an effect and 

 a cause of a quite genuine opti- 

 mistic theism, though hardly the 

 theism of the Christian Gospels. 

 The Author or Director of Nature 

 had " contrived," so it was held, 

 " the machine of the universe so as 

 at all times to produce the greatest 

 possible quantity of happiness." 

 Foremost among the natural im- 

 pulses with which humanity had 

 been started on its career was the 

 motiveof self-interest. Superficially, 

 its operation might often appear 

 repulsive, but since " no partial 

 evil " could have been " admitted 

 into the system of divine govern- 

 ment " which was not " necessary 

 for the universal good," one might 

 " admire the wisdom of God even 

 in the weakness and folly of men." 

 Political Economy a Science 



These are expressions from 

 Smith's Theory of Moral Senti- 

 ments, 1759, which gives the phil- 

 osophical basis of The Wealth of 

 Nations. But he does not hesitate 

 to be equally explicit in his econo- 

 mic treatise where a confession of 

 ultimate faith seemed to be called 

 for. Speaking of what happens 

 when governmental restraints on 

 the investment of capital are re- 

 moved, " every individual," he 

 says, " intends only his own gain, 

 and he is in this, as in many other 

 cases, led by an Invisible Hand to 

 promote an end which was no part 

 of his intention." 



Such a view had a vital effect on 

 the subsequent development of 

 political economy. In the first 

 place, it transformed it from an 

 art to a science, in the senses in 

 which these terms are usually con- 

 trasted. By an art is here meant a 

 body of rules for practice, of pre- 

 scriptions for conduct, of ideals ; 

 by science a body of statements of 

 fact, or of conclusions as to the 

 necessary result of assumed pre- 

 mises. This is clear, in spite of the 

 somewhat befogging expressions of 

 Smith himself. He started, for in- 

 stance, the literary practice of re- 

 garding the writers on economic 

 topics in the generations pre- 

 ceding him subsequently known 

 as Mercantilists (from Mun, Eng- 

 land's Treasure by Forraign Trade, 

 1664, to Steuart, Political Oecon- 

 omy, 1767) as economists with a 

 system comparable with his own. 

 It is true that formally much of 

 their teaching may be represented 

 as corollaries from a belief, " scien- 

 tific " if erroneous, in the peculiar 

 importance to a country of money. 

 But their usual attitude was really 

 that of persons giving a particular 

 piece of advice or urging a par- 



ticular policy ; they had usually 

 some definite purpose before them ; 

 and they were many of them in- 

 spired by an ideal that of state- 

 making ; they did not pause for 

 any conscious analysis of fact or 

 tracing of causal sequence. 



The still earlier Canonist teach- 

 ing the teaching of medieval 

 churchmen and schoolmen ex- 

 ceedingly different as it was from 

 Mercantilism in its precepts, resem- 

 bled it in driving directly at prac- 

 tice. Its lessons as to usury and 

 just price laid down rules for per- 

 sonal conduct, which were but- 

 tressed, no doubt, by a certain num- 

 ber of theoretic conceptions and 

 unconsciously founded on a correct 

 perception of existing conditions, 

 but they drew their authority from 

 a direct appeal to the Christian con- 

 science and to Scripture. Much the 

 same must be said, mutatis mutan- 

 dis, of the economic observations 

 to be found in Plato and Aristotle 

 and the Greek philosophers ; they 

 are ideals or rules for personal guid- 

 ance. We of to-day can put to- 

 gether something like a Mercanti- 

 list or a Canonist or a Greek science 

 of Economics, but it is only by 

 doing for them a work of system- 

 atisation and analysis which they 

 did not do for themselves. 

 The Policy of Laissez Faire 



It is noteworthy that Smith did 

 not himself draw the distinction we 

 are now considering, and, while he 

 described political economy as a 

 science, defined it as an art : 

 " Political Economy, considered as 

 a branch of the science of a states- 

 man or legislator, proposes two dis- 

 tinct objects : first, to provide a 

 plentiful revenue or subsistence for 

 the people . . . ; and secondly, to 

 supply the state or commonwealth 

 with a revenue sufficient for the 

 public services. It proposes both 

 to enrich the people and the sover- 

 eign." Here the first clause repeats 

 in slightly different language a 

 definition already framed by his 

 Mercantilist predecessor Steuart ; 

 but Smith inserts, in the space left 

 vacant above, the significant ex- 

 planation : " or, more properly, to 

 enable them to provide such a 

 revenue or subsistence for them- 

 selves." This insertion leads the 

 way for the transition from the 

 standpoint of an art to that of a 

 science. For if, as Smith thought, 

 " all systems either of preference 

 or restraint being completely taken 

 away, the obvious and simple sys- 

 tem of natural liberty establishes 

 itself of its own accord " ; and if, 

 when " every man is left perfectly 

 free to pursue his own interest his 

 own way " the best possible social 

 results follow, then all the econo- 

 mist has to do, when once restraints 



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