reading

The Project Gutenberg EBook of Principles Of Political Economy by John Stuart Mill

This eBook is for the use of anyone anywhere at no cost and with almost no restrictions whatsoever. You may copy it, give it away or re-use it under the terms of the Project Gutenberg License included with this eBook or online at http://www.gutenberg.org/license

§ 3. Distinction Between Labor for the Supply of Productive Consumption and Labor for the Supply of Unproductive Consumption. ……… 75

§ 2. More Capital Devoted to Production than Actually Employed in it. ……… 80

§ 2. Increase of Capital gives Increased Employment to Labor, Without Assignable Bounds. ……… 86

§ 3. Capital is the result of Saving, and all Capital is Consumed. ……… 89

§ 4. Capital is kept up by Perpetual Reproduction, as shown by the Recovery of Countries from Devastation. ……… 91

§ 2. Increase of Fixed Capital, when, at the Expense of Circulating, might be Detrimental to the Laborers. ……… 102

§ 1. The Law of the Increase of Production Depends on those of Three Elements—Labor. Capital, and Land. ……… 118

§ 3. By what Checks the Increase of Population is Practically Limited. ……… 119

§ 1. The Law of Production from the Soil, a Law of Diminishing Return in Proportion to the Increased Application of Labor and Capital. ……… 134

§ 2. Antagonist Principle to the Law of Diminishing Return; the Progress of Improvements in Production. ……… 137

§ 2. Even where the Desire to Accumulate is Strong, Population must be Kept within the Limits of Population from Land. ……… 146

§ 3. Necessity of Restraining Population not superseded by Free Trade in Food. ……… 150

§ 5. The Socialist objections to the present order of Society examined. ……… 165

§ 4. Certain rare Circumstances excepted, High Wages imply Restraints on Population. ……… 183

§ 5. Due Restriction of Population the only Safeguard of a Laboring-Class. ……… 185

§ 1. A Legal or Customary Minimum of Wages, with a Guarantee of Employment. ……… 188

§ 2. —Would Require as a Condition Legal Measures for Repression of Population. ……… 191

§ 4. Grounds for Expecting Improvement in Public Opinion on the Subject of Population. ……… 195

§ 5. Twofold means of Elevating the Habits of the Laboring-People; by Education, and by Foreign and Home Colonization. ……… 196

§ 1. Differences of Wages Arising from Different Degrees of Attractiveness in Different Employments. ……… 199

§ 3. Effect on Wages of the Competition of Persons having other Means of Support. ……… 203

§ 5. Differences of Wages Arising from Laws, Combinations, or Customs. ……… 207

§ 1. Profits include Interest and Risk; but, correctly speaking, do not include Wages of Superintendence. ……… 208

§ 2. The Minimum of Profits; what produces Variations in the Amount of Profits. ……… 210

§ 4. The Cause of the Existence of any Profit; the Advances of Capitalists consist of Wages of Labor. ……… 214

§ 2. No Land can pay Rent except Land of such Quality or Situation as exists in less Quantity than the Demand. ……… 223

§ 3. The Rent of Land is the Excess of its Return above the Return to the worst Land in Cultivation. ……… 224

§ 4. —Or to the Capital employed in the least advantageous Circumstances. ……… 226

§ 6. Rent does not enter into the Cost of Production of Agricultural Produce. ……… 232

§ 2. Conditions of Value: Utility, Difficulty of Attainment, and Transferableness. ……… 236

§ 3. Commodities limited in Quantity by the law of Demand and Supply: General working of this Law. ……… 238

§ 5. Commodities which are Susceptible of Indefinite Multiplication without Increase of Cost. Law of their Value Cost of Production. ……… 242

§ 6. The Value of these Commodities confirm, in the long run, to their Cost of Production through the operation of Demand and Supply. ……… 244

§ 2. Wages affect Values, only if different in different employments; “non-competing groups.”. ……… 248

§ 4. Cost of Production properly represented by sacrifice, or cost, to the Laborer as well as to the Capitalist; the relation of this conception to the Cost of Labor. ……… 249

§ 5. When profits vary from Employment to Employment, or are spread over unequal lengths of Time, they affect Values accordingly. ……… 254

§ 6. Occasional Elements in Cost of Production; taxes and ground-rent. ……… 256

§ 1. Commodities which are susceptible of indefinite Multiplication, but not without increase of Cost. Law of their Value, Cost of Production in the most unfavorable existing circumstances. ……… 258

§ 2. Such commodities, when Produced in circumstances more favorable, yield a Rent equal to the difference of Cost. ……… 260

§ 3. Rent of Mines and Fisheries and ground-rent of Buildings, and cases of gain analogous to Rent. ……… 262

§ 4. Résumé of the laws of value of each of the three classes of commodities. ……… 265

§ 1. The three functions of Money—a Common Denominator of Value, a Medium of Exchange, a “Standard of Value”. ……… 266

§ 3. Money a mere contrivance for facilitating exchanges, which does not affect the laws of value. ……… 272

Chapter V. Of The Value Of Money, As Dependent On Demand And Supply. ……… 274

Chapter VI. Of The Value Of Money, As Dependent On Cost Of Production. ……… 281

§ 1. The value of Money, in a state of Freedom, conforms to the value of the Bullion contained in it. ……… 281

§ 3. This law, how related to the principle laid down in the preceding chapter. ……… 286

§ 2. The use of the two metals as money, and the management of Subsidiary Coins. ……… 291

§ 3. The experience of the United States with a double standard from 1792 to 1883. ……… 292

§ 1. Credit not a creation but a Transfer of the means of Production. ……… 300

§ 3. Great extensions and contractions of Credit Phenomena of a commercial crisis analyzed. ……… 311

§ 1. What determines the value of an inconvertible paper money? . ……… 317

§ 2. If regulated by the price of Bullion, as inconvertible Currency might be safe, but not Expedient. ……… 322

§ 3. Examination of the doctrine that an inconvertible Current is safe, if representing actual Property. ……… 324

§ 5. Examination of the gain arising from the increase and issue of paper Currency. ……… 331

§ 2. The supply of commodities in general can not exceed the power of Purchase. ……… 335

§ 3. There can never be a lack of Demand arising from lack of Desire to Consume. ……… 337

§ 4. Origin and Explanation of the notion of general Over-Supply. ……… 339

§ 1. Values of commodities which have a joint cost of production. ……… 341

§ 1. Cost of Production not a regulator of international values. Extension of the word “international.”. ……… 346

§ 2. Interchange of commodities between distance places determined by differences not in their absolute, but in the comparative, costs of production. ……… 348

§ 3. The direct benefits of commerce consist in increased Efficiency of the productive powers of the World. ……… 352

§ 5. Indirect benefits of Commerce, Economical and Moral; still greater than the Direct. ……… 356

§ 1. The values of imported commodities depend on the Terms of international interchange. ……… 358

§ 2. The values of foreign commodities depend, not upon Cost of Production, but upon Reciprocal Demand and Supply. ……… 358

§ 3.—As illustrated by trade in cloth and linen between England and Germany. ……… 362

§ 4. The conclusion states in the Equation of International Demand. ……… 364

§ 5. The cost to a country of its imports depends not only on the ratio of exchange, but on the efficiency of its labor. ……… 366

§ 1. Money imported on two modes; as a Commodity, and as a medium of Exchange. ……… 368

§ 2. As a commodity, it obeys the same laws of Value as other imported Commodities. ……… 368

§ 1. Money passes from country to country as a Medium of Exchange, through the Exchanges. ……… 373

§ 2. Distinction between Variations in the Exchanges which are self-adjusting and those which can only be rectified through Prices. ……… 377

Chapter XVII. Of The Distribution Of The Precious Metals Through The Commercial World. ……… 380

§ 1. The substitution of money for barter makes no difference in exports and imports, nor in the Law of international Values. ……… 380

§ 3. The precious metals, as money, are of the same Value, and distribute themselves according to the same Law, with the precious metals as a Commodity. ……… 385

§ 4. International payments entering into the “financial account.” . ……… 386

Chapter XVIII. Influence Of The Currency On The Exchanges And On Foreign Trade. ……… 391

§ 1. Variations in the exchange, which originate in the Currency. ……… 391

§ 2. Effect of a sudden increase of a metallic Currency, or of the sudden creation of Bank-Notes or other substitutes for Money. ……… 391

§ 3. Effect of the increase of an inconvertible paper Currency. Real and nominal exchange. ……… 395

§ 1. The Rate of Interest depends on the Demand and Supply of Loans. ……… 399

§ 2. Circumstances which Determine the Permanent Demand and Supply of Loans. ……… 400

§ 4. The Rate of Interest not really Connected with the value of Money, but often confounded with it. ……… 405

§ 5. The Rate of Interest determines the price of land and of Securities. ……… 406

Chapter XX. Of The Competition Of Different Countries In The Same Market. ……… 408

§ 2. High wages do not prevent one Country from underselling another. ……… 410

§ 3. Low wages enable a Country to undersell another, when Peculiar to certain branches of Industry. ……… 415

Book IV. Influence Of The Progress Of Society On Production And Distribution. ……… 426

Chapter I. Influence Of The Progress Of Industry And Population On Values And Prices. ……… 426

§ 1. Tendency of the progress of society toward increased Command over the powers of Nature; increased Security, and increased Capacity of Co-Operation. ……… 426

§ 2. Tendency to a Decline of the Value and Cost of Production of all Commodities. ……… 427

§ 3. —except the products of Agriculture and Mining, which have a tendency to Rise. ……… 430

§ 4.—that tendency from time to time Counteracted by Improvements in Production. ……… 434

§ 5. Effect of the Progress of Society in moderating fluctuations of Value. ……… 435

Chapter II. Influence Of The Progress Of Industry And Population On Rents, Profits, And Wages. ……… 439

§ 2. First two cases, Population and Capital increasing, the arts of production stationary. ……… 439

§ 3. The arts of production advancing, capital and population stationary. ……… 441

§ 3. In old and opulent countries, profits habitually near to the minimum. ……… 449

Chapter IV. Consequences Of The Tendency Of Profits To A Minimum, And The Stationary State.. ……… 458

§ 2. In opulent countries, the extension of machinery not detrimental but beneficial to Laborers. ……… 459

§ 3. Stationary state of wealth and population dreaded by some writers, but not in itself undesirable. ……… 461

§ 1. The possibility of improvement while Laborers remain merely receivers of Wages. ……… 465

§ 2.—through small holdings, by which the landlord's gain is shared. ……… 468

§ 3. —through co-operation, by which the manager's wages are shared. ……… 469

§ 3. Should the same percentage be levied on all amounts of Income?. ……… 485

§ 4. Should the same percentage be levied on Perpetual and on Terminable Incomes?. ……… 489

§ 5. The increase of the rent of land from natural causes a fit subject of peculiar Taxation. ……… 491

§ 6. Effects produced on international Exchange by Duties on Exports and on Imports. ……… 512

§ 1. Is it desirable to defray extraordinary public expenses by loans? . ……… 530

§ 2. Not desirable to redeem a national Debt by a general Contribution. ……… 533

§ 3. In what cases desirable to maintain a surplus revenue for the redemption of Debt. ……… 534

Chapter VI. Of An Interference Of Government Grounded On Erroneous Theories. ……… 537

§ 3. —supported by pleas of national subsistence and national defense. ……… 540

§ 4. —on the ground of encouraging young industries; colonial policy. ……… 543

An experience of five years with Mr. Mill's treatise in the class-room not only convinced me of the great usefulness of what still remains one of the most lucid and systematic books yet published which cover the whole range of the study, but I have also been convinced of the need of such additions as should give the results of later thinking, without militating against the general tenor of Mr. Mill's system; of such illustrations as should fit it better for American students, by turning their attention to the application of principles in the facts around us; of a bibliography which should make it easier to get at the writers of other schools who offer opposing views on controverted questions; and of some attempts to lighten those parts of his work in which Mr. Mill frightened away the reader by an appearance of too great abstractness, and to render them, if possible, more easy of comprehension to the student who first approaches Political Economy through this author. Believing, also, that the omission of much that should properly be classed under the head of Sociology, or Social Philosophy, would narrow the field to Political Economy alone, and aid, perhaps, in clearer ideas, I was led to reduce the two volumes into one, with, of course, the additional hope that the smaller book would tempt some readers who might hesitate to attack his larger work. In consonance with the above plan, I have abridged Mr. Mill's treatise, yet have always retained his own words; although it should be said that they are not always his consecutive words. Everything in the larger type on the page is taken literally from Mr. Mill, and, whenever it has been necessary to use a word to complete the sense, it has been always inserted in square brackets. All additional matter introduced by me has been printed in a smaller but distinctive type. The reader can see at a glance which part of the page is Mr. Mill's and which my own.

It has seemed necessary to make the most additions to the original treatise under the subjects of the Wages Question; of Wages of Superintendence; of Socialism; of Cost of Production; of Bimetallism; of the Paper Money experiments in this country; of International Values; of the Future of the Laboring-Classes (in which the chapter was entirely rewritten); and of Protection. The treatment of Land Tenures has not been entirely omitted, but it does not appear as a separate subject, because it has at present less value as an elementary study for American students. The chapters on Land Tenures, the English currency discussion, and much of Book V, on the Influence of Government, have been simply omitted. In one case I have changed the order of the chapters, by inserting Chap. XV of Book III, treating of a standard of value, under the chapter treating of money and its functions. In other respects, the same order has been followed as in the original work.

Wherever it has seemed possible, American illustrations have been inserted instead of English or Continental ones.

To interest the reader in home problems, twenty-four charts have been scattered throughout the volume, which bear upon our own conditions, with the expectation, also, that the different methods of graphic representation here presented would lead students to apply them to other questions. They are mainly such as I have employed in my class-room. The use and preparation of such charts ought to be encouraged. The earlier pages of the volume have been given up to a “Sketch of the History of Political Economy,” which aims to give the story of how we have arrived at our present knowledge of economic laws. The student who has completed Mill will then have a very considerable bibliography of the various schools and writers from which to select further reading, and to select this reading so that it may not fall wholly within the range of one class of writers. But, for the time that Mill is being first studied, I have added a list of the most important books for consultation. I have also collected, in Appendix I, some brief bibliographies on the Tariff, on Bimetallism, and on American Shipping, which may be of use to those who may not have the means of inquiring for authorities, and in Appendix II a number of questions and problems for the teacher's use.

In some cases I have omitted Mr. Mill's statement entirely, and put in its stead a simpler form of the same exposition which I believed would be more easily grasped by a student. Of such cases, the argument to show that Demand for Commodities is not Demand for Labor, the Doctrine of International Values, and the Effect of the Progress of Society on wages, profits, and rent, are examples. Whether I have succeeded or not, must be left for the experience of the teacher to determine. Many small figures and diagrams have been used throughout the text, in order to suggest the concrete means of getting a clear grasp of a principle.

In conclusion, I wish to acknowledge my indebtedness to several friends for assistance in the preparation of this volume, among whom are Professor Charles F. Dunbar, Dr. F. W. Taussig, Dr. A. B. Hart, and Mr. Edward Atkinson.

GENERAL BIBLIOGRAPHY.—There is no satisfactory general history of political economy in English. Blanqui's “Histoire de l'économie politique en Europe” (Paris, 1837) is disproportioned and superficial, and he labors under the disadvantage of not understanding the English school of economists. He studies to give the history of economic facts, rather than of economic laws. The book has been translated into English (New York, 1880).

Villeneuve-Bargemont, in his “Histoire de l'économie politique” (Paris, 1841), aims to oppose a “Christian political economy” to the “English” political economy, and indulges in religious discussions.

Travers Twiss, “View of the Progress of Political Economy in Europe since the Sixteenth Century” (London, 1847), marked an advance by treating the subject in the last four centuries, and by separating the history of principles from the history of facts. It is brief, and only a sketch. Julius Kautz has published in German the best existing history, “Die geschichtliche Entwickelung der National-Oekonomie und ihrer Literatur” (Vienna, 1860). (See Cossa, “Guide to the Study of Political Economy,” page 80.) Cossa in his book has furnished a vast amount of information about writers, classified by epochs and countries, and a valuable discussion of the divisions of political economy by various writers, and its relation to other sciences. It is a very desirable little hand-book. McCulloch, in his “Introduction to the Wealth of Nations,” gives a brief sketch of the growth of economic doctrine. The editor begs to acknowledge his great indebtedness for information to his colleague, Professor Charles F. Dunbar, of Harvard University.

Systematic study for an understanding of the laws of political economy is to be found no farther back than the sixteenth century. The history of political economy is not the history of economic institutions, any more than the history of mathematics is the history of every object possessing length, breadth, and thickness. Economic history is the story of the gradual evolution in the thought of men of an understanding of the laws which to-day constitute the science we are studying. It is essentially modern.¹

Aristotle² and Xenophon had some comprehension of the theory of money, and Plato³ had defined its functions with some accuracy. The economic laws of the Romans were all summed up in the idea of enriching the metropolis at the expense of the dependencies. During the middle ages no systematic study was undertaken, and the nature of economic laws was not even suspected.

It is worth notice that the first glimmerings of political economy came to be seen through the discussions on money, and the extraordinary movements of gold and silver. About the time of Charles V, the young study was born, accompanied by the revival of learning, the Reformation, the discovery of America, and the great fall in the value of gold and silver. Modern society was just beginning, and had already brought manufactures into existence—woolens in England, silks in France, Genoa, and Florence; Venice had become the great commercial city of the world; the Hanseatic League was carrying goods from the Mediterranean to the Baltic; and the Jews of Lombardy had by that time brought into use the bill of exchange. While the supply of the precious metals had been tolerably constant hitherto, the steady increase of business brought about a fall of prices. From the middle of the fourteenth to the end of the fifteenth century the purchasing power of money increased in the ratio of four to ten. Then into this situation came the great influx of gold and silver from the New World. Prices rose unequally; the trading and manufacturing classes were flourishing, while others were depressed. In the sixteenth century the price of wheat tripled, but wages only doubled; the laboring-classes of England deteriorated, while others were enriched, producing profound social changes and the well-known flood of pauperism, together with the rise of the mercantile classes. Then new channels of trade were opened to the East and West. Of course, men saw but dimly the operation of these economic causes; although the books now began to hint at the right understanding of the movements and the true laws of money.

Even before this time, however, Nicole Orêsme, Bishop of Lisieux (died 1382), had written intelligently on money;⁴ but, about 1526, the astronomer Copernicus gave a very good exposition of some of the functions of money. But he, as well as Latimer,⁵ while noticing the economic changes, gave no correct explanation. The Seigneur de Malestroit, a councilor of the King of France, however, by his errors drew out Jean Bodin⁶ to say that the rise of prices was due to the abundance of money brought from America. But he was in advance of his time, as well as William Stafford,⁷ the author of the first English treatise on money, which showed a perfect insight into the subject. Stafford distinctly grasped the idea that the high prices brought no loss to merchants, great gain to those who held long leases, and loss to those who did not buy and sell; that, in reality, commodities were exchanged when money was passed from hand to hand.

Such was the situation⁸ which prefaced the first general system destined to be based on supposed economic considerations, wrongly understood, to be sure, but vigorously carried out. I refer to the well-known mercantile system which over-spread Europe.⁹ Spain, as the first receiver of American gold and silver, attributed to it abnormal power, and by heavy duties and prohibitions tried to keep the precious metals to herself. This led to a general belief in the tenets of the mercantile system, and its adoption by all Europe. 1. It was maintained that, where gold and silver abounded, there would be found no lack of the necessaries of life; 2. Therefore governments should do all in their power to secure an abundance of money. Noting that commerce and political power seemed to be in the hands of the states having the greatest quantity of money, men wished mainly to create such a relation of exports and imports of goods as would bring about an importation of money. The natural sequence of this was, the policy of creating a favorable “balance of trade” by increasing exports and diminishing imports, thus implying that the gain in international trade was not a mutual one. The error consisted in supposing that a nation could sell without buying, and in overlooking the instrumental character of money. The errors even went so far as to create prohibitory legislation, in the hope of shutting out imported goods and keeping the precious metals at home. The system spread over Europe, so that France (1544) and England (1552) forbade the export of specie. But, with the more peaceful conditions at the end of the sixteenth century, the expansion of commerce, the value of money became steadier, and prices advanced more slowly.

Italian writers were among the first to discuss the laws of money intelligently,¹⁰ but a number of acute Englishmen enriched the literature of the subject,¹¹ and it may be said that any modern study of political economy received its first definite impulse from England and France.

The prohibition of the export of coin was embarrassing to the East India Company and to merchants; and Mun tried to show that freedom of exportation would increase the amount of gold and silver in a country, since the profits in foreign trade would bring back more than went out. It probably was not clear to them, however, that the export of bullion to the East was advantageous, because the commodities brought back in return were more valuable in England than the precious metals. The purpose of the mercantilists was to increase the amount of gold and silver in the country. Mun, with some penetration, had even pointed out that too much money was an evil; but in 1663 the English Parliament removed the restriction on the exportation of coin. The balance-of-trade heresy, that exports should always exceed imports (as if merchants would send out goods which, when paid for in commodities, should be returned in a form of less value than those sent out!), was the outcome of the mercantile system, and it has continued in the minds of many men to this day. The policy which aimed at securing a favorable balance of trade, and the plan of protecting home industries, had the same origin. If all consumable goods were produced at home, and none imported, that would increase exports, and bring more gold and silver into the country. As all the countries of Europe had adopted the mercantile theory after 1664, retaliatory and prohibitory tariffs were set up against each other by England, France, Holland, and Germany. Then, because it was seen that large sums were paid for carrying goods, in order that no coin should be required to pay foreigners in any branch of industry, navigation laws were enacted, which required goods to be imported only in ships belonging to the importing nation. These remnants of the mercantile system continue to this day in the shipping laws of this and other countries.¹²

A natural consequence of the navigation acts, and of the mercantile system, was the so-called colonial policy, by which the colonies were excluded from all trade except with the mother-country. A plantation like New England, which produced commodities in competition with England, was looked upon with disfavor for her enterprise; and all this because of the fallacy, at the foundation of the mercantile system, that the gain in international trade is not mutual, but that what one country gains another must lose.¹³

An exposition of mercantilism would not be complete without a statement of the form it assumed in France under the guidance of Colbert,¹⁴ the great minister of Louis XIV, from 1661 to 1683. In order to create a favorable balance of trade, he devoted himself to fostering home productions, by attempts to abolish vexatious tolls and customs within the country, and by an extraordinary system of supervision in manufacturing establishments (which has been the stimulus to paternal government from which France has never since been able to free herself). Processes were borrowed from England, Germany, and Sweden, and new establishments for making tapestries and silk goods sprang up; even the sizes of fabrics were regulated by Colbert, and looms unsuitable for these sizes destroyed. In 1671 wool-dyers were given a code of detailed instructions as to the processes and materials that might be used. Long after, French industry felt the difficulty of struggling with stereotyped processes. His system, however, naturally resulted in a series of tariff measures (in 1664 and 1667). Moderate duties on the exportation of raw materials were first laid on, followed by heavy customs imposed on the importation of foreign goods. The shipment of coin was forbidden; but Colbert's criterion of prosperity was the favorable balance of trade. French agriculture was overlooked. The tariff of 1667 was based on the theory that foreigners must of necessity buy French wines, lace, and wheat; that the French could sell, but not buy; but the act of 1667 cut off the demand for French goods, and Portuguese wines came into the market. England and Holland retaliated and shut off the foreign markets from France. The wine and wheat growers of the latter country were ruined, and the rural population came to the verge of starvation. Colbert's last years were full of misfortune and disappointment; and a new illustration was given of the fallacy that the gain from international trade was not mutual.

From this time, economic principles began to be better apprehended. It is to be noted that the first just observations arose from discussions upon money, and thence upon international trade. So far England has furnished the most acute writers: now France became the scene of a new movement. Marshal Vauban,¹⁵ the great soldier, and Boisguillebert¹⁶ both began to emphasize the truth that wealth really consists, not in money alone, but in an abundance of commodities; that countries which have plenty of gold and silver are not wealthier than others, and that money is only a medium of exchange. It was not, however, until 1750 that evidences of any real advance began to appear; for Law's famous scheme (1716-1720) only served as a drag upon the growth of economic truth. But in the middle of the eighteenth century an intellectual revival set in: the “Encyclopædia” was published, Montesquieu wrote his “l'Ésprit des Lois,” Rousseau was beginning to write, and Voltaire was at the height of his power. In this movement political economy had an important share, and there resulted the first school of Economists, termed the Physiocrats.

The founder and leader of this new body of economic thinkers was François Quesnay,¹⁷ a physician and favorite at the court of Louis XV. Passing by his ethical basis of a natural order of society, and natural rights of man, his main doctrine, in brief, was that the cultivation of the soil was the only source of wealth; that labor in other industries was sterile; and that freedom of trade was a necessary condition of healthy distribution. While known as the “Economists,” they were also called the “Physiocrats,”¹⁸ or the “Agricultural School.” Quesnay and his followers distinguished between the creation of wealth (which could only come from the soil) and the union of these materials, once created, by labor in other occupations. In the latter case the laborer did not, in their theory, produce wealth. A natural consequence of this view appeared in a rule of taxation, by which all the burdens of state expenditure were laid upon the landed proprietors alone, since they alone received a surplus of wealth (the famous net produit) above their sustenance and expenses of production. This position, of course, did not recognize the old mercantile theory that foreign commerce enriched a nation solely by increasing the quantity of money. To a physiocrat the wealth of a community was increased not by money, but by an abundant produce from its own soil. In fact, Quesnay argued that the right of property included the right to dispose of it freely at home or abroad, unrestricted by the state. This doctrine was formulated in the familiar expression, “Laissez faire, laissez passer.”¹⁹ Condorcet and Condillac favored the new ideas. The “Economists” became the fashion in France; and even included in their number Joseph II of Austria, the Kings of Spain, Poland, Sweden, Naples, Catharine of Russia, and the Margrave of Baden.²⁰ Agriculture, therefore, received a great stimulus.

Quesnay had many vigorous supporters, of whom the most conspicuous was the Marquis de Mirabeau²¹ (father of him of the Revolution), and the culmination of their popularity was reached about 1764. A feeling that the true increase of wealth was not in a mere increase of money, but in the products of the soil, led them naturally into a reaction against mercantilism, but also made them dogmatic and overbearing in their one-sided system, which did not recognize that labor in all industries created wealth. As the mercantile system found a great minister in Colbert to carry those opinions into effect on a national scale, so the Physiocrats found in Turgot²² a minister, under Louis XVI, who gave them a national field in which to try the doctrines of the new school. Benevolently devoted to bettering the condition of the people while Intendant of Limoges (1751), he was made comptroller-general of the finances by Louis XVI in 1774. Turgot had the ability to separate political economy from politics, law, and ethics. His system of freeing industry from governmental interference resulted in abolishing many abuses, securing a freer movement of grain, and in lightening the taxation. But the rigidity of national prejudices was too strong to allow him success. He had little tact, and raised many difficulties in his way. The proposal to abolish the corvées (compulsory repair of roads by the peasants), and substitute a tax on land, brought his king into a costly struggle (1776), and attempts to undermine Turgot's power were successful. With his downfall ended the influence of the Economists. The last of them was Dupont de Nemours,²³ who saw a temporary popularity of the Physiocrats in the early years of the French Revolution, when the Constituent Assembly threw the burden of taxes on land. But the fire blazed up fitfully for a moment, only to die away entirely.

All this, however, was the slow preparation for a newer and greater movement in political economy than had yet been known, and which laid the foundation of the modern study as it exists to-day. The previous discussions on money and the prominence given to agriculture and economic considerations by the Economists made possible the great achievements of Adam Smith and the English school. A reaction in England against the mercantile system produced a complete revolution in political economy. Vigorous protests against mercantilism had appeared long before,²⁴ and the true functions of money had come to be rightly understood.²⁵ More than that, many of the most important doctrines had been either discussed, or been given to the public in print. It is at least certain that hints of much that made so astonishing an effect in Adam Smith's “Wealth of Nations” (1776) had been given to the world before the latter was written. To what sources, among the minor writers, he was most indebted, it is hard to say. Two, at least, deserve considerable attention, David Hume and Richard Cantillon. The former published his “Economic Essays” in 1752, which contained what even now would be considered enlightened views on money, interest, balance of trade, commerce, and taxation; and a personal friendship existed between Hume and Adam Smith dating back as far as 1748, when the latter was lecturing in Edinburgh on rhetoric. The extent of Cantillon's acquirements and Adam Smith's possible indebtedness to him have been but lately recognized. In a recent study²⁶ on Cantillon, the late Professor Jevons has pointed out that the former anticipated many of the doctrines later ascribed to Adam Smith, Malthus, and Ricardo. Certain it is that the author of the “Wealth of Nations” took the truth wherever he found it, received substantial suggestions from various sources, but, after having devoted himself in a peculiarly successful way to collecting facts, he wrought out of all he had gathered the first rounded system of political economy the world had yet known; which pointed out that labor was at the basis of production, not merely in agriculture, as the French school would have it, but in all industries; and which battered down all the defenses of the mediæval mercantile system. In a marked degree Adam Smith²⁷ combined a logical precision and a power of generalizing results out of confused data with a practical and intuitive regard for facts which are absolutely necessary for great achievements in the science of political economy. At Glasgow (1751-1764) Adam Smith gave lectures on natural theology, ethical philosophy, jurisprudence, and political economy, believing that these subjects were complementary to each other.

A connected and comprehensive grasp of principles was the great achievement of Adam Smith;²⁸ for, although the “Wealth of Nations” was naturally not without faults, it has been the basis of all subsequent discussion and advance in political economy. In Books I and II his own system is elucidated, while Book IV contains his discussion of the Agricultural School and the attacks on the mercantile system. Seeing distinctly that labor was the basis of all production (not merely in agriculture), he shows (Books I and II²⁹