The Wealth of Nations E-Book

Adam Smith

• Herausgeber: Adam Smith
• Kategorie: Gesellschafts- und Liebesromane
• Sprache: Englisch
• Veröffentlichungsjahr: 2016

Beschreibung

The Wealth of Nations by Adam Smith, a moral philosopher and a pioneer.An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith. First published in 1776, the book offers one of the world's first collected descriptions of what builds nations' wealth and is today a fundamental work in classical economics. Through reflection over the economics at the beginning of the Industrial Revolution the book touches upon broad topics as the division of labour, productivity and free markets.The first edition of the book sold out in six months.Includes 5 Books: Book I: Of the Causes of Improvement in the productive Powers of Labour; Book II: Of the Nature, Accumulation, and Employment of Stock; Book III: Of the different Progress of Opulence in different Nations; Book IV: Of Systems of political Economy; Book V: Of the Revenue of the Sovereign or Commonwealth.

Leseprobe

The Wealth of Nations

By Adam Smith

1902

P. F. COLLIER & SON

NEW YORK 

ADAM SMITH

Adam Smith, the greatest of political economists, was born in 1723 at Kirkcaldy in Fifeshire, Scotland. He was sent in 1787 to the University of Glasgow, and three years later to BalliolCollege, Oxford, where he remained seven years. In 1748 he gave lectures at Edinburgh on rhetoric and belles-lettres, and the intimate friendship which he here formed with David Hume must have powerfully influenced the formation of his opinions. In 1751 he was elected Professor of Logic in Glasgow, and in the following year was transferred to the Chair of Moral Philosophy in the same University, a position which he occupied for nearly twelve years. In 1759 he brought out his "Theory of Moral Sentiments." Subsequently he made a prolonged sojourn in France, where he lived in the society of Quesnay, Turgot, D'Alembert and Helvetius. There is reason to believe that he began at Toulouse the "Inquiry into the Nature and Causes of the Wealth of Nations," a work upon which he was employed for many years. This remarkable book appeared in 1776, and must still be regarded as the greatest existing essay in the field of political economy, the only attempt to replace it, that of John Stuart Mill, having, on the whole, miscarried, notwithstanding its partial usefulness. Buckle pronounced it "the most important book ever written."

PREFACE

In this new edition of an often-republished work no attempt has been made, as lias generally had been done, to bring it up to date by a vast accumulation of footnotes.

The book has been regarded exclusively from the historical side, in the belief that in that form it will be most useful to the student. Footnotes are given only when they have seemed absolutely necessary as correctives of the text; and the short introductory sketch of the history of political economy gives an outline of the development of the science, both before and after the epoch which was marked by the publication of this work. E. B. B.

INTRODUCTORY SKETCH OF THE HISTORY OF POLITICAL ECONOMY

Political Economy is essentially a modern departmentof learning. It may be defined as the science which treatsof the production, distribution and exchange of commodities. In the ancient world we have only fitful adumbrations of the conception of such a science. In the MiddleAges proper, as might naturally be expected, no advanceis made. Indeed, the idea itself is even lost. Productionwas almost exclusively for use, and trade or exchange wereso little developed that the economic aspect of things neverpresented itself distinctively. At the end of the fourteenthcentury, however, when the medieval order was graduallybreaking up and the germination of the modern industrialsystem was beginning to be apparent, a French bishop inthe service of Charles. Y. of France, and a translator ofAristotle, revived the teaching of the great master ofancient speculation, but with no immediate results. Earlyin the sixteenth century, the famous astronomer and mathematician, Copernicus, wrote a treatise on the coining ofmoney, again based on the principles of Aristotle; andtoward the end of the century modern economic sciencebegan to take shape in the great mercantile theory whichheld sway more or less almost until the days of AdamSmith. Before his time there were, however, isolated writers who attacked with more or less perspicuity the fallaciesof this theory, and had glimpses, in some cases not inconsiderable, the more scientific doctrines developed in latertimes. The leading developments of political economysince Adam Smith's time have been (1) the classical economy expounded by Ricardo, Malthus, J. B. Say, JamesMill,' etc., which for a long time held almost undisputedpossession of the field; (2) as a later development, whatis known as the "vulgar economy," consisting of the attempts made by writers such as Wagner, Laveleye, Jevons,and Sidgwick, to modify the classical economy in such away as to justify legislative interference with the unrestrained freedom of modern capitalist production; and (3)the socialistic economy of Karl Marx and his school.

Among the Greeks, where commerce (in the ancientsense of the word, implying the direct exchange of commodities) was considerably extended, are found the firstgerms of this as of all other sciences. Economic questionscould hardly escape the notice of philosophers, least of allof those in the first rank. Accordingly we find Plato andAristotle alluding to the more important matters connectedwith the exchange of wealth in a manner which shows considerable insight into the question. Its production, however, entered but slightly into their calculations. Theinstitution of slavery, upon which ancient industry wasbased, could not fail to obscure the importance of thisaspect of the subject. Plato, indeed, perceives that labouris the source of all wealth; but the conditions of his timeprevented him from seeing in their true light the consequences of this doctrine. In the "Republic, he says:

“That which gives rise to society is our inability tosatisfy our own desires, and the need we have for a largenumber of things. Thus necessity having compelled mento combine with one another, society is established forthe sake of mutual assistance. . . . One gives to anotherwhat he has in return for what he has not, only becausehe believes it will be to his advantage. “And then he goeson to show the beneficial results of the division of labour.

A much less important figure, Xenophon, has also someinteresting observations on the subject. His "Oikonomikos, " or " The Economist,” though primarily dealing withthe domestic economy of the Greeks and the practice ofagriculture, is interspersed with passages concerned withsocial economy in its wider sense. He quaintly speaks ofwealth as whatever is useful to a man. "A man's wealthis only what benefits him. Suppose a man used his moneyto buy a mistress by whose influence his body, his soul,and his household would be all made worse, how couldwe then say that his money was of any advantage tohim?

We may then exclude money also from being counted as wealth, if it is in the hands of one whodoes not know how to use it." But he believes thatmoney differs essentially from other kinds of wealth.

"There is this difference," he writes, "between silver getting and other professions, that whereas other men —braziers and blacksmiths, for instance — when their tradesare overstocked, are injured. because the price of theircommodities is necessarily lowered by the multitude ofsellers, similarly a good harvest and a plentiful vintagedoes harm to the farmers, and forces them to leave their occupations, and to turn merchants or bankers; with silverit is otherwise; the more ore is found, and the more minesare worked, the more people seek to possess it, and themore men are employed. ... If there are any who havemore than they require, they hoard it up with as muchpleasure as if they actually made use of it. . . . And inwar what resources have we left but silver to purchasenecessaries for our support, and to hire allies for our defence?" ‘We find here the germs of the mercantile theory,although Xenophon, in common with most of his contemporaries, regarded agriculture as the only industrial occupation not altogether contemptible for the free man. Hisview of the relative advantages to the human constitutionof the agricultural and the handicraft life displays a considerable amount of enlightenment, on one side of thequestion at least. "Not only are the mechanical arts despised, but States also have a bad opinion of them — andjustly. For they injure the health of the workmen andoverseers, by compelling them to sit indoors, and oftenall day before a fire, and when the body is weakened themind also is made weaker and weaker." But in this depreciation of the artisan's craft we see the beginning of thephysiocratic fallacy that agriculture is the only originalsource of wealth. The following extract from the "Oikonomikos" will illustrate the view of slavery common tothe ancients, and which appears, as will be seen, no lessin Aristotle and later writers. He takes it for granted thatthe citizen will have slaves to work for him. "Men donot live as animals do, under the open vault of heaven,but evidently require shelter. To have anything to bring within that shelter, they must also have men to performthe works of the field, such as tilling and sowing, plantingtrees, tending the flocks, from which are obtained the necessaries of life. And, further, when these necessaries arebrought within, they must have others to look after them,as well as a wife to superintend the business of the house.”

Before leaving Xenophon we will give one more extractwhich may be taken as the anticipation in the ancientworld of the modern economic objection to war as held bythe Cobden-Bright school. "If any man," he writes, "canhave so wild a notion as to imagine that war will contribute more to the increase of riches than peace, I know nobetter way to decide the controversy than by appealing tothe experience of former ages, and producing precedentsto the contrary out of our own story. ... It is an absurdsupposition to imagine that peace will weaken our strength,and ruin our authority and reputation abroad, for of allgovernments those are happiest who have continued longest without war.”

The views of Aristotle on the subject of economy arecontained partly in his "Ethics" and partly in his "Politics." The chapters of the fifth book of the "Ethics,” relating to the subject, are too familiar to need quotation.

The "Politics" contains the following statement on thesubject of money, in which, as will be seen, an approximation is made to a correct view of the function of money.

Plato also appears to have had reasonable views upon thissubject. Speaking of early societies, Aristotle writes:"There were different things which they had to give inexchange for what they wanted, a kind of barter which is still practiced among barbarous nations who exchange withone another the necessaries of life: giving and receivingwine, for example, in exchange for coin and the like. . . .

But the various necessaries of life are not easily carriedabout, and hence men agreed to employ in their dealingswith each other something which was intrinsically useful,and easily applicable to the purposes of life — for example,iron, silver, and the like. Of this the value was at firstmeasured by size and weight; but in process of time astamp was put upon it to save the trouble of weighing,and to mark the value. . . . Wealth is assumed by manyto be only a quantity of coin. . . . Others maintain thatcoined money is a sham, a thing not natural, but conventional only, which would have no value or use for any ofthe purposes of daily life if another commodity were substituted by the users. Indeed, he who is rich in coin mayoften be in want of necessary food. And how can that bewealth of which a man may have a great abundance, andyet perish with hunger, like Midas in the fable, whose insatiable prayer turned everything that was set before him into gold."

In the same connection Aristotle considers the variousways of money-making, and incidentally refers to the abhorrence of the trade of money-lending, which was universal throughout the ancient world. "The most hatedsort," he writes, "of money-making, and with reason, is usury.”

Another passage, also from the "Politics," shows thatthe ancients looked upon slavery as no less a natural andpermanent institution, than the modern middle-class economists regard the system of wage labour at the present time.

Aristotle would have considered quite as Utopian the ideaof a condition of society in which the relation of masterand slave no longer existed, as the late Professor Jevons,for example, might have looked upon the conception ofa society in which the antithesis of capitalist and labourerdid not obtain. The passage in question is as follows: "Itis nature herself who has created slavery. . . . There arein the human race individuals as inferior to others as thebody is to the soul, or as the beast is to man; these arebeings suitable for the labours of the body alone, and incapable of doing anything more perfect. These individualsare destined by nature to slavery because there is nothingbetter for them to do than to obey. . . . Let us concludefrom these principles that nature creates some men forliberty and others for slavery; that it is useful and justthat the slave should obey." ' The reader will perceivehow exactly this passage is paralleled by the statementsof middle-class economists, that incapacity, laziness, andshiftlessness will inevitably condemn a large portion ofthe population always to labour for a mere subsistencewage.

Such ideas as the Romans had upon economy were, asmight be expected, essentially similar to those of theGreeks. The trade of the Roman Empire was so intimately bound up with the fiscal system that it consistedof little more than the gathering of taxes, either in theform of agricultural products or the precious metals.

Hence there was even less likelihood than among theGreek peoples of the foundation of an economical science properly so called. The only question which seems tohave interested the Roman mind in this connection wasthat as to the nature of money. Pliny advocates the prevention of the exportation of money on mercantilist grounds,and in common with other Roman writers condemns usuryin most unqualified terms. In the second century, the greatjurisconsult, Paullus, expounds clearly enough the trueorigin and function of money:“The origin of buying andselling is in exchange. Formerly there were no coins,and merchandise was in no way distinguished from money.

Every man, according to the necessity of the time and ofthings, exchanged what was useless to him for what wasuseful, and it was generally the case that what one hadabundance of, another was deficient in. But as it didnot always easily happen that when one person had whatanother desired, that other had also what the first desired:a substance was chosen whose general and durable valueobviated the difficulties of exchange by being a commonmeasure. This substance, having received a public stamp,has use and value less as a material than as a quantity, andis no longer called merchandise, but money.

Henceforward, as already intimated, there is a great gapin the history of economic science. Agriculture had beenthroughout the entire ancient world the dominating branchof production. During the Empire the system of latifundiumor agriculture on a large scale, increasingly tended to sweepaway the petite culture. The latifundium was a large estatewhich was cultivated by a large number of slaves, under thecommand of a villous or overseer, who was also a slave,though his power was practically absolute over his subordinates. A similar system was adopted in tile case of pasture lands. But as the owners became impoverished andthe towns decayed, the latifundia were divided up intosmall portions, which were distributed among the cultivators. These received for their labour only a sixth or evena ninth part of the year's produce. Then many of thesewere united together into colonies, and paid a total fixedsum every year to the owners. They were not slaves, noryet were they free, and were the direct forerunners of thevillains or serfs of the Middle Ages.

Trade and industry were never the special characteristicsof the conquering Romans; it was in usury and tax-gathering that their talents chiefly lay so far as concerns matterseconomic. What had already been acquired from traderapidly broke up under the pressure of taxation; what remained existed chiefly in the eastern part of the Empire.

"Universal impoverishment, retrogression in the matter ofcommunication, of manufactures, of art, decline of population, decay of towns, the degeneration of agriculture intomore primitive forms — such was the final result of the Roman world-empire."  The feudal system, which arose onthe ruins of the Roman world, was, in many respects, a return to the early forms of tribal and gentile life in whichso-called primitive or natural communism prevailed, andwhich had been the stage of social evolution obtainingamong the Germanic peoples previous to their migrations.

From all this it will be seen that the conditions of life inthe Middle Ages were such as to render economic science impossibility, even had the intellectual development of thetime permitted it. Nicole Oresme, bishop of Lisieux, was the first to break the long silence. In Aristotle, the fountof medieval philosophy, he naturally looked for light onthe economic question now with the growth of towns againbeginning to present itself. In his treatise on the origin,etc., of money, following and expanding Aristotle, he speaksof it as "an artificial instrument invented for the easier exchange of wealth. “He does not fall into the common errorof supposing that money is the only form of wealth, butwrites: "All moneys are artificial wealth, and not otherwise, for it may happen that a man has abundance ofthem, and yet may die of hunger"; and he quotes thestory of Midas, previously cited by Aristotle in his "Politics,” to prove this. He goes on to show what make goldand silver the most suitable substances to use as money,and the evils which result from debasing the coinage.

After Oresme, who died in 1382, there is again silenceuntil the small treatise by Copernicus, previously mentioned, which appeared in 1526. Both were directly inspired by the necessities of taxation, the one by those ofFrance, and the other of Poland.

Toward the close of the sixteenth century, when theconditions of medieval, were rapidly giving place to thoseof modern, life, attention begins to be directed, in variousquarters, toward economic problems. Almost simultaneously in Italy, France, and England we find the firstmodern economical treatises published. Unconsciouslyin the minds of men a theory of commerce had grownup, based upon the simplest and most superficial observation of economic phenomena, to wit, that the preciousmetals were the concentrated form of all wealth, and this in spite of tlie clear insight of Aristotle and his followersto the contrary. Enthusiasm for commerce had arisen withthe recent expansion of the world- market, and men, seeingtrade continually produce large fortunes, instinctively cameto the conclusion that in trade — that is, exchange — is to befound the source of wealth, and that its symbol and agent,money, was its sole repository. This was the celebratedmercantile system; the great corollary from it being thedoctrine of the balance of trade, so called, which declaredit necessary to the prosperity of a country that the exportsshould always exceed the imports, inasmuch as by thismeans bullion flowed into the country, while otherwisethere was a loss. The rise in prices, due to the influxof gold and silver from the newly discovered America, haddislocated the commercial relations of the time, and set menthinking on the nature of economic processes, while the attempts of government, arising out of the mercantile theory,to debase the coinage in the hope of there increasing theirwealth, gave a practical turn to the various controversies.

Jean Bodin, a French writer, was author of "Les sixlivres de la Republique, " and also of a book on witchcraft,in which he was a firm believer. The latter work, "LeDemonomanie des Sorciers, " advocates the enactment of ferocious penalties against sorcery. In the person of Bodinit will thus be seen that the medieval and the modemcuriously blend themselves. His most important economical treatise is a little tract against a Sieur Malestroict, whohad denied that there had been a general rise of prices during the preceding three centuries. In this little book Bodinshowed very conclusively that prices had risen, and also thecause of their rise: "The abundance of gold and silver, whichis the wealth of a country, ought in part to explain the rise in prices: for if there was a scarcity of them as in the pasttimes, it is very certain that everything would be as muchcheaper as the gold and silver were dearer.”

A book with practically the same purpose was publishedin England shortly after Bodin's by W. S. (William Stafford), in which the rise in prices is again discussed, andshown to be due to the influx of gold and silver fromAmerica. “ About the same time two Italian writers, CountGasparo Scaruffi and Bernardo Davanzati, both publishedworks' dealing with the money question. Both attack thedebasement of the coinage, and the former propounds ascheme for the adoption of universal money. A littlelater Antonio Serra published his "Brief Tract on theCauses which produce abundance of gold and silver." The first writer who employed the term "political economy" in its modern sense was a Frenchman named M.

Chretien de Watte ville. In his "Treatise on PoliticalEconomy," he gives a formal exposition of the mercantile system. This system also found in Thomas Mun, alarge English merchant, a zealous and able defender. Munwrote two works, one published at the beginning of the century on the East India trade, and the second in 1664, withthe title, "England's Treasure by Foreign Trade." Thelatter work contains the following statements, which embody the teaching of the mercantile school: "The ordinary means to increase our wealth and treasure is by ForeignTrade wherein we must ever observe this rule ; to sell moreto strangers yearly than we consume of theirs in value" (p.11); and, "we have no other means to get treasure but byforeign trade" (p. 85). He pleads for sumptuary laws, "sothat men would soberly refrain from excessive consumption )of foreign wares in their diet and raiment, with such oftenchange of fashions as is used so much the more to increase the waste and charge ; which vices are more notorious amongstus than in former ages" (p. 16). In this way, he thinks, importations would be diminished, and the amount of wealth,the treasure, annually received, be increased. He is, however, obliged to slightly modify his system, so far as toallow money to be occasionally carried out of the country,but only in order that it might return with other moneythat it had gathered as it rolled.

The importance, indeed, of the mercantile error lay notso much in the belief that money was synonymous withwealth as in the corollary from it, that wealth was only tobe obtained by means of trade; and the later English writers were all more or less conscious of this. Glimmerings ofthe truth begin to appear among them. Sir William Temple, in his "Observations upon the United Provinces of the 'Netherlands" (1672), writes: "The time of labouring or industrious men is the greatest native commodity of anycountry"; and Charles Davenant writes in 1696 ("Works," «i. 382): "Industry and skill to improve the advantages ofsoil and situation are more truly riches to a people thaneven the possession of gold and silver mines." In Germany the mercantile theory had a great hold. Schrodergives one of the most thoroughgoing statements of themercantilist position: "A country grows rich in proportion as it draws gold or money from the earth or from othercountries, poor in proportion as money leaves it. Thewealth of a country must be estimated by the quantity of gold and silver in it.” Schroder's book provoked a passionate attack from aFrench writer, Pierre Boisguillebert, in his "Dissertationon the Nature of Wealth" (1697), while in England themercantilist advocates found in Sir William Petty a powerful opponent. Petty is by far the most important figurein political economy which the seventeenth century produced, although he wrote no large treatise especially concerned with economical matters. To him was first duethe conception of labor as the ground or basis of value.

"Labour," he wrote, "is the father and active principle ofwealth; lands are the mother."  And, again, in anotherplace: "If a man can bring to London an ounce of silverout of the earth in Peru, in the same time that he can produce a bushel of corn, then one is the natural price of theother; now if by reason of new and more easie mines a mancan get two ounces of silver as easily as formerly he didone, then Corn will be as cheap at ten shillings the bushelas it was before at five shillings, ceteris paribus.''  He alsoanticipates, as the following passage will show, the theoryof economic rent, its full conception only escaping him justas it escaped Adam Smith nearly a century later. "Suppose a man could with his own hands plant a certain scopeof land with corn, could dig or plow, harrow, weed, reap,carry home, thresh and winnow so much of the husbandryas this land requires; and had withal seed wherewith to sow the same, I say that when this man hath sub ducted hisseed out of the process of his harvest, and also what himself hath both eaten and given to others in exchange forclothes and other natural necessaries, that the remainderof corn is the natural and true rent for that year." Among seventeenth century economists. Sir DudleyNorth ranks next to Petty in reputation and influenceupon after- thought. In his "Discourses upon Trade” (1691) he shows very clearly that commerce is the exchange of commodities, and that it is not money peoplewant when trade is bad, but other commodities for whichto exchange their products. "Commerce and Trade, as hathbeen said, first springs from the Labour of Man, but as theStock increases it dilates more and more. If you supposea Country to have nothing in it but the Land itself and theInhabitants; it is plain that at first the People have onlythe Fruits of the Earth and the Metals raised from theBowels of it, to Trade withal, either by carrying out intoForeign parts, or by selling to such as will come to buyof them, whereby they may be supplied with the Groods ofother Countries wanted there. In this course of Trade Goldand Silver are in no sort different from other commodities,but are taken from them who have plenty and carried tothem who want, or desire them, with as good profit as otherMerchandises. So that an active, prudent Nation growthrich and th5 sluggish Drones grow poor; and there cannotbe any other Policy than this, which being introduced andpracticed shall avail to increase Trade and Kiches. But thisProposition, as single and plain as it is, is seldom so wellunderstood, as to pass with the generality of mankind; but the J think by force of Laws to retain in their Country allthe Gold and Silver which Trade brings in; and therebyexpect to grow rich immediately: All which is a profoundFallacy" (p. 11, et seq.).

And on page 11: " What do these people want who cryout for more money ? . . . Money is not their want buta Price for their Corn k Cattle, which they would sell butcannot." Summing up the whole of his principles in hispostscript, he exclaims: ''We may labor to hedge in theCuckoo but in vain: for no People ever yet grew rich byPolicies; but it is Peace, Industry and Freedom that bringsTrade and Wealth, and nothing else." John Bellers wrotehis "Proposals for raising a College of Industry" in 1696,in which he attacks the mercantilist system, and at thesame time anticipates many doctrines of the classicaleconomists.

Of all the opponents of the mercantile system none seemto have had so much sympathy with the toiling and suffering classes as Le Prestre de Yauban, Marshal of France.

Yauban was probably a survival of the benevolent feudalbaron who hated the progress of trade and the tradingclass, and, above all, the policy of the representative ofthat class, Colbert, the great financial minister of LouisXIY. He proposed that a tax, le dixme Royale shouldbe levied impartially on all incomes, to be paid in kindby the agriculturists, and in money by manufacturers andtraders, all other taxes being abolished. It was probablyonly by his death, which occurred shortly after the publication of his book, "Le Dixme Koyale," in 1707, that heescaped the vengeance of the powerful trading faction. Hisprincipal opinions may be gleaned from the following extracts: "... The real wealth of a people consists in an abundance of those things the use of which is so necessaryto sustain the life of man, that they cannot at all be dispensed with" (p. 26). “It is the lower class of the peoplethat by its labour and its commerce, and by that which itpays to the king, enriches both him and his entire kingdom. ... It is they who make all the commerce andthe manufactures of the kingdom; who furnish all thelabourers, vine-dressers, and tillers of the fields; who tendthe cattle; who sow the corn and harvest it; who tendthe vine, and make the wine; in short, it is they who doall things great and small in the country and in the towns.

Such is this portion of the nation, so useful and so despised,who have suffered, and who still suffer so much" (p. 21).

By the middle of the eighteenth century, the extrememercantile theory had well nigh succumbed to the variousattacks made upon it. The last English exponent of Mercantilism, pure and simple, was John Gee, who wrote“Trade and Navigation of Great Britain Considered," thesecond edition of which was published in 1730. In thishe laments that: “So mistaken are many people, that theycannot see the difference between having a vast treasure ofSilver and Gold in the Kingdom, and the Mint employedin coining Money, the only true token of Treasure andEiches, and having it carried away; but they say Moneyis a Commodity like other things, and think themselvesnever the poorer for what the nation daily exports" (p. 8).

Although, however, the mercantile theory was practically destroyed, the policy which had been based upon itcontinued to subsist even after the time of Adam Smith.

This policy was the endeavour, by legislation or other arbitrary means, to secure a balance of trade in favor of a particular nation — its classical heroes being the great statesmen Colbert in France, and Walpole in England. Protectionwas one of the great cornerstones of the system, since byprotection the imports of a country were diminished, evenif the exports were not increased. The aim of middle-classstatesmanship up to this time had been to secure monopolies. This notion of monoply to be acquired by high imposts and other means was a relic of medieval methods,albeit applied for the advantage of a class, which as a classembodied the new principle opposed to that of the MiddleAges. It is needless to say, that with the more completedevelopment of that principle and of its correlative class, itsoon became apparent that while subserving the immediateends of the individuals then representing the latter, it wasreally an obstacle to its complete success as a class. Theunconsciousness of this fact is perceptible even in AdamSmith, who at times attacks protection, etc., apparently inthe belief that he is attacking the special interests of thetrading classes as such, whereas he is of course reallyplacing those interests on a solid theoretic foundation.”

The reaction against the fundamental principle of themercantile system, that money was the sole repository ofwealth, with its corollary that trade was the only meansof attaining it, appeared in France in the guise of the“physiocratic" system, which maintained that land wasthe sole repository of wealth, with its corollary that agriculture was the sole means of realizing it. The ideasof this school first originated with a merchant namedCantillon,” but did not attract attention until definitelyformulated in detail by Frangois Quesnay and Jean de Gournay, who were the chiefs of “The Economists,” as they were called at the time, or “The Physiocrats," asthey were afterward named. In Cantillon's "Essai," however, the root idea of the system is to be found. “Theearth," he wrote, “is the source or the matter whence isdrawn all wealth; the labor of man is the instrument whichproduces it." This was the idea that was worked out withgreat elaboration of detail in Quesnay's "Tableau Economique" (1755), and in his "Maximes generales de Grouvernement Economique d'un Eoyaume Agricole" (1758). Inthe latter work, which consists of a number of maxims forthe guidance of rulers and peoples, the following passagesoccur:

"Maxim iii. Let the Ruler and the Nation never forgetthat the earth is the sole source of wealth, and that it isagriculture which augments it. For the increase of wealthassures that of the population; men and wealth make agriculture prosper, extend commerce, animate industry, addto and perpetuate wealth. On this abundant source depends the success of every part of the government of thenation?”

"Maxim xxv. Let absolute freedom of commerce bemaintained; for the surest guardian of internal and external commerce, the most exact and the most profitable tothe Nation and the State, lies in the unlimited freedomof competition.”

The "Tableau Economique" bears as its motto thephrase, Pauvres paysans pauvre royaume ; pauvre royaumepauvre roi. To Gournay is due the phrase since becomeproverbial, Laissez faire laissez aller. The most distinguished disciples of the physiocratic school were the elderMirabeau and the celebrated finance minister, Turgot. Mirabeau wrote several works explaining the system, from oneof which, "La Philosophie Kurale" (1763), we take thefollowing: "The artisans who weave stuffs, the merchantswho trade in them, the carriers who transport them, thetailors who make them into clothes, the lawyer who pleadsa cause, the servant who attends him, all these people canconsume only because of the recompense which is paid tothem by those who employ them, or who buy their products.

For their labor and their goods produce for them nothingbeyond this recompense, which is itself an expense forthose who pay. If this payment be traced to its source. . . it will be found to come solely from the earth,which alone produces all the commodities we use".

It is Turgot who gives perhaps the most complete andsystematic exposition of the system of the economists orphysiocrats. In his "Eeflexions sur la formation et la Distribution des Richesses" (1766), he supplies a brief butfairly complete survey of the whole of the science of political economy, and begins, like Adam Smith, by showingthe advantage and necessity of the division of labor andhow from it results a systematic exchange of commodities.

"Every one attaching himself to a particular species oflabour, succeeds much better therein. The husbandmandraws from his field the greatest quantity it is able toproduce, and procures for himself, with greater facility,all the other objects of his wants, by an exchange of hissuperior than he could have done by his own labour. Theshoemaker by making shoes for the husbandman securesto himself a portion of the harvest of the latter. Everyworkman labours for the wants of the workmen of everyother trade who, on their side, toil also for him" (§ 4).

He then goes on to show that the labor of the husbandman upon the land is the original source of all wealth, sincefood is the first necessity of man, but then erroneously argues, as a physiocrat, that only the land produces wealth.

"The husbandman is the only one whose industry producesmore than the wages of his labour. He, therefore, is the onlysource of all wealth" (§ 7).

He shows clearly how wages are reduced to the limit ofsubsistence by competition, and, like Petty and Smith, onlyjust misses arriving at the conception of economic rent.

Turgot writes (§ 12): "Every piece of ground is notequally fertile; two men with the same extent of land mayreap a very difEerent harvest; this is the second source ofinequality.”

He has a correct conception of exchange value. "Commerce gives to all merchandise a current value with respectto any other merchandise; from which it follows that allmerchandise is the equivalent for a certain quantity of anyother merchandise, and may be looked on as a pledge torepresent it. Every merchandise therefore may serve as ascale or common measure, by which to compare the valueof any other." Then he goes on to show that all money ismerchandise and why it is that the most precious metals aremost fitted to serve as money. He also has sound notionsof the sources and function of capital. The work is veryclear and succinct, and had, no doubt, a powerful influence,as one of its immediate precursors, on the "Wealth ofNations.”

In England, Tucker, Hume, and Stewart may all be regarded as leading up to Adam Smith. Sir James Stewart,indeed, in his comprehensive but confused "Inquiry intothe Principles of Political Economy" (1767), sees dimlymany of the truths which Smith clearly expressed only ten years later. The Josiah Tucker wrote his "Important Questions on Commerce" in 1755, and in it arguesagainst the mercantilists, and in favor of free-trade, whileHume, in his "Political Discourses" (1752), enunciates somedetached economic truths, as when he says: "In the nationalstock of labour consists all real power and riches.”

In 1776 the first edition of the "Wealth of Nations" waspublished, and with it scientific political economy first cameinto existence. Of the work and of its author it is not necessary to say much. The former largely speaks for itself,and the preceding historical review has shown the conditionof economic science in its day. This historical review is, indeed, not so much intended to be a complete account of allthat had been previously accomplished in the department ofeconomic science, as a prefatory sketch which should contribute to a better understanding of the import of AdamSmith's great departure. The notes which have been appended to the text call attention to the more special features of the work. It remains for us to consider the furtheradvances which have been made since Adam Smith's timein the elucidation and solution of economic problems.

First, perhaps, attention should be called to the thirdbook, which is the earliest attempt to treat economic problems, and, indeed, it may be said, one of the earliest totreat any social problem from the historical point of view.

This alone would constitute the "Wealth of Nations" anepoch-making work.

Adam Smith's book, as will be readily seen, was basedupon the manufacture-industry which had as yet not beensupplanted by the great machine-industry of modern times.

It is important to bear this in mind in considering many ofthe views advanced in the work. Those who followed in his footsteps had necessarily to take into account the greatindustrial revolution which supervened but a few years afterhis death. The more immediate result of his teaching andthe one which has maintained itself until the present daywas the complete overthrow, in this country at least, of thedoctrine of protection, and the establishment of free- tradeas the basis of orthodox middle-class economics on theirpractical side.

Thomas Robert Malthus (1756-1834), originally led tospeculate on economic questions by the Eousseauite theories of his father, supplied to the classical middle-classeconomy in his theory of population a new buttress — a buttress which was required against the socialistic aspirationsthe new conditions were calling forth, more than againstthe humanitarian sentimentalism of the eighteenth centurywhich was the original occasion of it. The rapid extension of machinery and the consequent displacement ofhand labour was driving thousands into the direst povertyand misery, and it behoved economists to find some explanation of this. Malthus thought he had discovered itin his theory that the growth of population always tendsto outstrip the food supply and that hence the cure ofpoverty lies in the limitation of the numbers of the humanrace. Since his time this has been accepted as axiomaticby almost all the writers of the classical school of economy, and is generally admitted in one shape or anothereven by their successors, the "vulgar" economists of today. The "Essay on the Principle of Population," inwhich his theory was elaborated, was first published la1798 and expanded into a larger volume in 1803.

David Ricardo (1772-1823) was the first important successor to Adam Smith in the strictly economic field. He published his "Principles of Political Economy” in theyear 1817. Ricardo's great service consisted in pointingout that wealth, whether in the form of capital or otherwise, is merely the accumulated product of labour, and inenforcing Adam Smith's position that labour is the solebasis of value, with its corollary that the “natural price” of a commodity expresses the total amount of embodiedsocial labour it contains. We should also mention that hewas the first to definitely formulate the theory of "economic rent,” by which is meant the surplus yield or produce from any land over and above that of the worst landin cultivation.

Adam Smith, Malthus, and Ricardo constitute the trinity of the classical economy. The doctrines laid down bythem were expanded, illustrated and popularized by a seriesof writers whom the Germans have named epigoni and whoconsisted of James Mill, McCulloch, Senior, and others.

Before saying a few words on what is called the "vulgar" economy, we must not forget to mention John StuartMill (1806-1873), who, although in no sense an originalthinker, is one of the most popular writers on politicaleconomy. His "Principles of Political Economy," published in 1848, though in substance little more than amanual of the classical system, is distinguished by breadthof sympathy, and by the consciousness that the so-calledeconomic laws, that is, the deductions of political economybased on the present conditions of society, have not the absolute character other exponents of the science were apt toassign to them. At the same time it must be rememberedthat J. S. Mill was totally deficient in what has been sometimes called the "historical sense" and had little conceptionof the historical method. His heart rebelled against the hard and fast conclusions and pretended laws of the orthodox economy, but his intellect saw no effectual means ofescaping them. In consequence, his book is an alternation of clear statements of the current views and confusedattempts to evade their consequences.

The recent developments of Socialist economy, combinedwith general economic conditions, have resulted in the formation of a school of economists called in Germany the“Katheder-Sozialisten," or the "Socialists of the Professorial Chair," which, while criticising the classical economy,both as to premises and conclusions, recognizes its fundamental principles, and seeks to harmonize them with rejection of laissez-faire and a systematized State regulation ofindustrial relations. Among its representatives the namesof Held, Eosler, and Wagner are the most prominent.

Schaffle may also be noticed in this connection, though,in some respects, leaning more to the Socialist side. Similar tendencies have not been wanting on other parts of thecontinent or in this country. Prominent among non-german exponents of this school, though differing in the degree of their alienation from the orthodox system, as wellas in the nature of their results, are the Belgian writer Laveleye and the English economists Jevons and Sidgwick.

Emile de Laveleye would apparently refuse to recognizethe existence of any determinate lines of economic development, and hence of economics at all as a science. Hewould thus reduce the solution of the whole question tothe goodwill of individuals, a position which necessarilycuts at the root of the historical method, though the onlyconsistent one for the Christian or Sentimental Socialistto adopt.

A very different writer, Professor Henry Sidgwick, is one of the most prominent exponents in the directionabove referred to. His avowed aim is to amend thelaissez-faire economy so as to leave room under certaincircumstances for industrial action by government. Hiswork on political economy, published in 1883, is so wellknown that it is unnecessary to say more about it here.

The late Professor Jevons may be roughly classed asbelonging to this school. Value he expresses in terms ofwhat he calls the "final utility" of a commodity that is thedegree of need for it, at the moment, on the part of the consumer. This degree of utility is determined by the supply,and the supply in turn is dependent on the cost of production or the labor expended on it. This, it will be seen,does not absolutely differ from the labor theory of AdamSmith, and still less from Ricardo's; but the mathematicallanguage in which this writer exhibits much of his reasoning is pedantic, and often meaningless. Some of his equations are perhaps useful as a concise mode of expression:others appear to illustrate the impossibility of dealing withabstract ideas by mathematical processes. He is, consequently, often credited with the obviously absurd theorythat the ultimate criterion of value is the current estimation of a commodity, or, to use the ill-chosen Jevonian expression, "the final degree of utility." Such a theory, likemany others of a similar kind, would confound the essenceor the substance of a thing with its mere phenomenal expression or manifestation. No one denies, or ever has denied, that supply and demand enter into the temporaryvalue or the price of anything, but this is very differentfrom confounding the mere expression of value in any particular instance with that value which constitutes the substance of every economic object, and without which that object could not be. It has never been denied that “supply and demand" is the ratio existent the empirical cause,of the value of a commodity; but this does not touch thefact that the ground of its essential being (its ratio essendi)is "labor." This economic value is the point round whichthe temporary differences of price due to the fluctuations ofthe market, that is, the inequalities between supply anddemand, circulate. Whenever supply and demand balance each other this essential or substantive value is realized, and in all the fluctuations of the market, howevergreat, it tends toward realization. The above mixed systems, viz., those of the "Katheder-Sozialisten" of Grermany, and of the non-orthodox political economists ofother countries whose views tend in the same direction,are, as already stated, sometimes collectively known asthe "vulgar economy.”

The Socialist school, of which the late Karl Marx is theforemost exponent, while accepting the Smith-Kicardiandoctrine of value, draws from it conclusions very divergentfrom those of the classical economy. When Adam Smithwrote things were very different from what they are now.

He stood in no fear of consequences, and therefore followedout the natural results of his own thought. Nowadays,every non-socialist economist has the dread of Socialismbefore his eyes, and, consequently, feels bound to cautionin the statement of conclusions. For instance, the doctrinethat labor is the basis of value seems to the ordinary economist to remove any theoretic justification in the natureof things for the independent function of the capitalist.

In consequence, we have the various attempts of the"vulgar economy" to "nibble" at this and other orthodoxdefinitions which seem to have dangerous implications.

Marx draws from the Ricardian theory of value thefollowing conclusions:

1. That the value of a commodity is the labor powerembodied in that commodity.

2. That the primal form of exchange is an exchange ofequivalent values embodied in commodities.

3. That money is a commodity whose value is also thelabor power embodied in it.

4. That in the exchange of commodities for money andof money for commodities — i.e., buying and selling — theprimal form would still be the same — an exchange ofequal values.

5. That in the inverted, or "commercial" form of exchange this is not so; but money is exchanged for commodities and commodities back into money, in order thatmoney may be increased, the increase being called surplusvalue.

6. That it is this power of money of increasing by exchange which converts it into capital.

But next arises the question, whence comes this surplusvalue? How it is that money can increase itself in a wayin which no other commodity can? "The common-sensemind explains it at once, by seeing in the whole affairmerely a swindling transaction, in which the capitalist getsmore commodities than he pays for, and is paid for morecommodities than he sells. But," says Marx, "the totalityof the capitalist class in a country cannot outwit itself.” "The change of value that occurs in the case of moneyintended to be converted into capital cannot take place inthe money itself. ... In order to be able to extract valuefrom the consumption of a commodity, our friend Moneybags must be so lucky as to find within the sphere of circulation, in the market, a commodity whose use-valuepossesses the peculiar property of being a source of value;whose actual consumption, therefore, is itself an embodiment of labor, and, consequently, a creator of value. Thepossessor of money does find on the market such a specialcommodity in capacity for labor or labor power." “Fromthis, therefore, comes the surplus value. In other words,the surplus value is unpaid labor. This idea Marx develops with great detail, embodying much trenchant criticism of previous economists. In Part IV. of the firstvolume of “Das Kapital," Marx shows the developmentof the modern capitalist system historically, beginning atthe break-up of the Middle Ages, during which simpleindividual or family labor obtained; leading up to simpleco-operation, this rapidly developing into the manufacturesystem prevalent during the so-called periode manufacturilr which dates, roughly speaking, from the middle ofthe sixteenth to the end of the eighteenth century; andthis mode of production again, toward the close of thelast century and the beginning of the present, passing intothe "great industry" of modern times, in which all butthe simplest forms of direct human labor are supersededby machinery.

The above cannot, of course, give more than a hint onone or two points dealt with, in what is, in its bearingon human life generally, perhaps the most important workof the century. We may here again remind the reader thatthe preceding introduction does not profess in any way tobe a complete history of the science. Such a history is at present a desideratum. What has been attempted has beento outline the course of the development of economic theory, so that the “Wealth of Nations" may be better understood, both in its relation to the past, and its bearing onthe present and future.

An Inquiry into the Nature andCauses of the Wealth of Nations

Adam Smith

INTRODUCTION AND PLAN OF THE WORK

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.

   According therefore as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniences for which it has occasion.

   But this proportion must in every nation be regulated by two different circumstances; first, by the skill, dexterity, and judgment with which its labour is generally applied; and, secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed. Whatever be the soil, climate, or extent of territory of any particular nation, the abundance or scantiness of its annual supply must, in that particular situation, depend upon those two circumstances.

   The abundance or scantiness of this supply, too, seems to depend more upon the former of those two circumstances than upon the latter. Among the savage nations of hunters and fishers, every individual who is able to work, is more or less employed in useful labour, and endeavours to provide, as well as he can, the necessaries and conveniences of life, for himself, or such of his family or tribe as are either too old, or too young, or too infirm to go a hunting and fishing. Such nations, however, are so miserably poor that, from mere want, they are frequently reduced, or, at least, think themselves reduced, to the necessity sometimes of directly destroying, and sometimes of abandoning their infants, their old people, and those afflicted with lingering diseases, to perish with hunger, or to be devoured by wild beasts. Among civilised and thriving nations, on the contrary, though a great number of people do not labour at all, many of whom consume the produce of ten times, frequently of a hundred times more labour than the greater part of those who work; yet the produce of the whole labour of the society is so great that all are often abundantly supplied, and a workman, even of the lowest and poorest order, if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniences of life than it is possible for any savage to acquire.

   The causes of this improvement, in the productive powers of labour, and the order, according to which its produce is naturally distributed among the different ranks and conditions of men in the society, make the subject of the first book of this Inquiry.

   Whatever be the actual state of the skill, dexterity, and judgment with which labour is applied in any nation, the abundance or scantiness of its annual supply must depend, during the continuance of that state, upon the proportion between the number of those who are annually employed in useful labour, and that of those who are not so employed. The number of useful and productive labourers, it will hereafter appear, is everywhere in proportion to the quantity of capital stock which is employed in setting them to work, and to the particular way in which it is so employed. The second book, therefore, treats of the nature of capital stock, of the manner in which it is gradually accumulated, and of the different quantities of labour which it puts into motion, according to the different ways in which it is employed.

   Nations tolerably well advanced as to skill, dexterity, and judgment, in the application of labour, have followed very different plans in the general conduct or direction of it; those plans have not all been equally favourable to the greatness of its produce. The policy of some nations has given extraordinary encouragement to the industry of the country; that of others to the industry of towns. Scarce any nation has dealt equally and impartially with every sort of industry. Since the downfall of the Roman empire, the policy of Europe has been more favourable to arts, manufactures, and commerce, the industry of towns, than to agriculture, the industry of the country. The circumstances which seem to have introduced and established this policy are explained in the third book.

   Though those different plans were, perhaps, first introduced by the private interests and prejudices of particular orders of men, without any regard to, or foresight of, their consequences upon the general welfare of the society; yet they have given occasion to very different theories of political economy; of which some magnify the importance of that industry which is carried on in towns, others of that which is carried on in the country. Those theories have had a considerable influence, not only upon the opinions of men of learning, but upon the public conduct of princes and sovereign states. I have endeavoured, in the fourth book, to explain, as fully and distinctly as I can, those different theories, and the principal effects which they have produced in different ages and nations.