POLITICAL ECONOMY 



POLITICAL ECONOMY 



are removed, is to state as a fact 

 how Nature's machine actually 

 works. The economic art shrinks 

 into the simple rule " leave people 

 alone," laissez faire. 



Influence of the Physiocrats 



Much of the economic discussion 

 in subsequent times, as soon as the 

 glow of optimistic assurance began 

 to fade away, has been occupied 

 with the scrutiny of this position. 

 Two questions in particular have 

 had to be faced. First, to what 

 extent now, or at other periods, 

 do men and women indeed act 

 on motives of material self-interest, 

 so far as they are left alone by 

 the state or their fellows ? Smith 

 undoubtedly supposed that they 

 are so far actually moved by self- 

 interest, that the picture of a 

 world governed by that motive is a 

 picture of the real world. 



Later writers, notably Bagehot, 

 have argued that the science, as 

 Smith and Ricardo created it, is 

 essentially hypothetical ; not neces- 

 sarily presenting a picture of the 

 tangible and visible phenomena, 

 but simply a scientific device to 

 get near to reality in a limited 

 part of the field, and a first, 

 though often a most imperfect, 

 approximation to it, in the rest 

 of the field. The second question 

 is involved in the optimistic inter- 

 pretation. Are the results of the 

 pursuit of self-interest predomin- 

 antly good, as Smith clearly took 

 for granted ? Is the world of com- 

 petition in the main a good world, 

 or only the best of possible worlds ? 

 Or is it not even that ? 



It was the third and latest in- 

 fluence on Smith which finally de- 

 termined the shape political econ- 

 omy has since assumed. This was 

 the influence of the group of French 

 writers now only called "the 

 Physiocrats," but then, and for half 

 a century, known all over Western 

 Europe as " the Economists." The 

 founder of this school, or sect, 

 was Franfois Quesnay, a court 

 physician of Louis XV. By Ques- 

 nay the current philosophy of the 

 beneficence of Nature was applied, 

 in a series of writings, first to the 

 medical art, opposing the practice 

 of bleeding and asking that nature 

 should be left to itself ; and then 

 to the art of government, especi- 

 ally in the economic sphere. His 

 Tableau Economique, the much 

 lauded arithmetical formula giving 

 a graphic presentation of his views, 

 appealed in 1760, and during the 

 whole of 1766 Adam Smith, then 

 residing in Paris, frequented the 

 gatherings of the inner circle of 

 his disciples. 



The Physiocrats were charac- 

 terised by a particular doctrine 

 from which Smith was prudent 



enough to dissociate himself in 

 terms, though he accepted it in 

 essence, the doctrine that agricul- 

 ture alone is " productive " and 

 that manufactures and commerce 

 are " sterile." What was more 

 permanently important, they were 

 characterised by a conception of 

 the shape and content of their 

 science which Smith took over 

 without comment ; though it was 

 left to Ricardo and his followers to 

 give the idea its dominating place 

 in the fabric of economic science. 

 It was the conception which identi- 

 fied the main body of the science 

 with a theory of " distribution." 



By " the distribution of wealth " 

 was not meant by them or by 

 economists afterwards either the 

 physical distribution of com- 

 modities from their places of pro- 

 duction, nor the partition of wealth 

 among its actual holders, but, in 

 the language of Smith, " the 

 order in which the produce of 

 labour is naturally distributed 

 among the different ranks of the 

 people." By " different ranks " 

 the context shows he means 

 " labourers," " employers of 

 capital " (or " capitalists " as 

 James Mill in his Elements of 

 Political Economy, 1821, set the 

 example of calling them), and 

 " landlords." The " natural distri- 

 bution " was that set forth in the 

 doctrines .or " laws " (as they were 

 later designated, e.g. by John 

 Stuart Mill in his Principles of 

 Political Economy, 1848) of wages, 

 profits, and rent. With the growth 

 of capital in the 19th century, and 

 the increasing separation in real 

 life between the ownership and the 

 use of capital, profits have been 

 split up by later economists into 

 interest and " pure" or "net" profit. 

 Creators of 19th Century Economics 



But however the Physiocratic 

 and Smithian conception of Dis- 

 tribution may since have been 

 refined, it starts with assuming 

 what is a large part of the problem 

 to be explained, namely the 

 existence of " the different ranks 

 of the people." Granting the 

 existence of landowners and 

 capitalists and labourers, and 

 granting that they are governed by 

 motives of personal and material 

 interest and unrestrained by the 

 state or by smaller groups, it is not 

 difficult to trace what the results 

 will be in the way of rent, profit, 

 and wages. But the forces of self- 

 interest operate in conditions 

 created by a long course of history, 

 and imply the acceptance and 

 enforcement of specific concep- 

 tions of property, contract, and 

 inheritance. 



With the Physiocrats the tran- 

 sition from the point of view of an 



art to that of a science had taken 

 place before it happened to Smith ; 

 and for this reason, and because 

 they marked out the lines on which 

 the structure of political economy 

 was subsequently erected, the 

 Physiocrats are entitled to be re- 

 garded as the true creators of 19th 

 century economics. Smith has ob- 

 scured them because he dropped 

 the particular doctrine, and its 

 corollary, the proposal of a single 

 tax, which had laid them open to 

 ridicule, and commended their 

 general doctrine to Europe in a 

 more effective form, with a wider 

 range of historical knowledge, and 

 in external association at any rate 

 with a doctrine of Value. 



" Scientific " Socialism 



The impulse from France em- 

 boldened Smith to plan his treatise 

 on a more ambitious scale and 

 added to the material for its con- 

 struction : it did not enable him 

 to fuse the three constituents into 

 a correlated whole. To make of 

 political economy the neat bundle 

 of half a dozen interdependent 

 " laws " which it afterwards 

 became, and to apply these laws 

 rigorously to the problems of 

 taxation, was the work of Ricardo, 

 in his Principles of Political 

 Economy and Taxation, 1817, and 

 of his popularisers, especially 

 James Mill. It was effected by 

 dropping Smith's historical dis- 

 quisitions, which were, indeed, 

 often what his biographer Dugald 

 Stewart called " conjectural his- 

 tory " ; for Smith's was a deduc- 

 tive mind, and used history to 

 corroborate and not to ascertain. 

 It was effected, further, by push- 

 ing deductions from the motive of 

 interest to their logical conclusions. 

 It was effected, finally, by taking 

 over from Malthus as a second 

 dominating force in economic life 

 by the side of competition " the 

 principle of population," which 

 suggested a very depressing outlook 

 for the human race. * 



So-called " scientific " socialism, 

 whether in its earlier form, based 

 by Lassalle on an " iron-law of 

 wages," or in its later and more 

 prevalent form, based by Marx on 

 the doctrine of " surplus -value," 

 is historically simply a chapter in 

 19th century political economy. 

 It is this, inasmuch as Lassalle 

 built on Ricardo's own teaching 

 as to wages, itself an echo of the 

 Physiocrats ; while Marx built on 

 Ricardo's teaching as to value, 

 which was taken from Adam Smith. 

 " Scientific " socialism has shared 

 the economists' habit of looking 

 for a simple and single solution of 

 all economic problems, as well as 

 their reliance on abstract and de- 

 ductive methods of reasoning. 



