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Dr. Gordon Watkins
HISTORY OF ECONOMIC THOUGHT
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HISTORY
OF
A CRITICAL ACCOUNT OF THE ORIGIN AND
DEVELOPMENT OF THE ECONOMIC THEORIES
OF THE LEADING THINKERS IN THE
LEADING NATIONS
BY tvV^
LEWIS H^HANEY, PH.D.
ASSOCIATE PROFESSOR AND CHAIRMAN OF THE SCHOOL OF
ECONOMICS OF THE UNIVERSITY OF TEXAS AUTHOR OF " A CONGRESSIONAL HISTORY OF RAILWAYS"
THE MACMILLAN COMPANY
1913
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COPYRIGHT, 1911, BY THE MACMILLAN COMPANY.
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PREFACE
IT is the aim of this book to present a critical account of the whole development of economic thought in the leading nations of the Occidental world ; and, while keeping the purely eco- nomic viewpoint, to indicate some of the most important rela- tions of economic thought with philosophy and environmental conditions. As it is designed to serve as a text-book for the growing number of advanced students who study the history of Economics, every effort has been made to give a fair and well-rounded account of the thought of the leading writers, avoiding the emphasis of some newly discovered point or inter- esting but obscure writer which would characterize a mono- graph.
Doubtless there will be some difference of opinion over the relative space here devoted to the different economists, and some cases of omission or bare mention will be criticized. It should therefore be stated that a twofold test has been the basis of selection in this regard : first, what has been the writer's effect upon the stream of economic thought ? next, what impor- tant point in theory has he originated or developed? If his contribution has been both discovery in theory and a profound effect on his contemporaries, then he deserves considerable discussion. These two phases of importance do not necessarily go together, as the experience of Lloyd, Gossen, and others bears witness.
In covering so vast a field it has seemed desirable to stand- ardize the method of treatment to some extent. Accordingly, the general plan of procedure in dealing with an individual economist has been first to indicate briefly the pertinent cir- cumstances of his environment, both objective and subjective ; then to discuss his economic thought under the heads of value theory, and the shares in distribution ; concluding with a state-
vi PREFACE
ment of his logical method and philosophy. But this procedure has not been rigidly adhered to, omissions being made in the case of the less important writers and additional points devel- oped in other cases. Any noteworthy point which is associated with an economist's name has generally received attention. In a word, value and distribution have been emphasized, but are far from being the only topics treated.
Some may be inclined to criticize the relative space given to Socialism. It has been common for French writers to devote a much larger share of their attention to this subject, while our most available English work, Ingram's History of Political Economy, leaves it virtually undiscussed. The writer has taken a middle ground, merely presenting a short sketch of the chief socialistic criticisms of the classical English economic thought. More comprehensive accounts of the development of Socialism are readily available in English.
Finally, it will be observed that after Adam Smith the chrono- logical development of the subject has been sacrificed to some extent for the sake of a more topical arrangement. It is believed that the analysis followed will lend far more to the interest and intelligibility of the history than would be required to offset this sacrifice.
It is perfectly obvious that no writer of a book of this kind can have read carefully and completely all the works he men- tions. Life is too short. Moreover, so to read would be a waste of time, even if life were longer. It would take years to read all the works of all the minor French and German authors referred to in the period 1800-1850, and would be folly at the same time. Works of this kind can sometimes be " sampled." Traditional views, too, may often be tested in the same way. The writer has endeavored to form independent judgments in every case, and where traditional views are pre- sented it is because they are believed to be correct. He has been far from opposing a view simply because others have held it. In the case of the major writers, what is essential has been read, and some of the important books have been gone over again and again. The essential part of the views here pre- sented is based upon independent study. Where mistakes are
PREFACE vii
discovered they will be corrected in future editions, and the author will appreciate the kindness of readers who will call his attention to errors. He realizes that, especially in the treat- ment of recent thought, the range is so close that accuracy and just perspective are very difficult of attainment.
In making recognition of the aid which he has received, the writer wishes first of all to make clear the extent of his obligation to the editor, Professor Richard T. Ely. The present work falls but little short of being a joint product. Indeed, it is only the magnanimity of Dr. Ely which has altered the original intention to publish it as such. Some twenty-five years ago, when teaching at Johns Hopkins University, Professor Ely prepared a history of economic thought for publication ; but he withheld it for further work, and since that time has made numerous additions. Five years ago, while the writer was an instructor in the State University of Iowa, Professor Ely pro- posed to him that he take this old and incomplete manuscript and so revise it that it might be published under their joint authorship. Meanwhile the writer had been lecturing on the same subject, so that his lecture notes were combined with parts of Dr. Ely's manuscript to make the present work, the composition being conducted independently by him. The various chapters were submitted to Professor Ely from time to time, and he made suggestions concerning style and matter. Furthermore, during the summer of 1910, Professor Ely went over the work in conference with the writer, and the discussions of that time resulted in additions and improvements. Both directly and indirectly, therefore, Professor Ely's part has been an important one. The chapters on Carey, Bastiat, and List are largely his, also parts of the one on Mill, and his first-hand familiarity with the German Historical School has enabled him to make valuable suggestions on that subject. At a few points, no doubt, even traces of his language may remain. Yet upon Dr. Ely's suggestion and advice, in view of the predominance of independent work by the writer in matter, composition, and arrangement, it has been decided to publish the book under the latter's single name. Accordingly, the writer wishes to express here his deep indebtedness to his former teacher and
Viii PREFACE
present friend: in the first place, for stimulating the produc- tion of this work as he has so many others ; secondly, for many direct suggestions as to style and emphasis ; and, finally, for a host of indirectly acquired ideas and stimuli without which the book would lack many of such merits as it may now possess. He assumes full responsibility for the weaknesses and errors, while he feels that an unusually large degree of credit is due the editor.
The writer also wishes to gratefully acknowledge the receipt of valuable criticisms from the following economists : F. M. Taylor, of the University of Michigan ; F. W. Taussig and T. N. Carver, of Harvard ; I. A. Loos, of the University of Iowa; C. C. Williamson, of Bryn Mawr ; L. M. Keasby, of the Uni- versity of Texas ; J. H. Hollander, of Johns Hopkins ; and David Friday, of the University of Michigan. He is indebted to these friendly critics in the order named, his thanks being especially due to Professor F. M. Taylor, who read several of the chapters in the manuscript. Professor A. H. Lloyd, of the University of Michigan, was consulted on points in Philosophy, and made several valuable suggestions. Without the efficient assistance given by his wife in reading and correcting manu- script and proof, the publication of the book at this time would
have been impossible.
LEWIS H. HANEY.
AUSTIN, TEXAS, December, 1910.
OUTLINE OF TABLE OF CONTENTS
PAGE
A. GENERAL INTRODUCTION I
I. NATURE AND IMPORTANCE OF THE HISTORY OF ECONOMIC
THOUGHT 3
II. ORIGIN AND TARDY DEVELOPMENT OF ECONOMIC THOUGHT 15
B. ECONOMIC THOUGHT BEFORE THE SCIENCE OF ECO-
NOMICS 21
I. ECONOMIC THOUGHT OF THE ANCIENTS .... 22
II. MEDIAEVAL ECONOMIC THOUGHT 67
III. THE DAWN OF MODERN ECONOMIC THOUGHT: MERCAN- TILISM AND KAMERALISM 85
C. THE EVOLUTION OF ECONOMICS AS A SCIENCE . 131
I. THE FOUNDERS 132
II. THE EARLIER FOLLOWERS 190
1. Pessimistic Tendencies 190
2. Optimistic Tendencies ....... 237
3. Other Expositors 262
III. OPPONENTS AND LEADING CRITICS 291
i. The Philosophical and Ethical System . . . 292
IV. THE RESTATEMENT: MILL 344
V. OPPONENTS AND LEADING CRITICS {Resumed} . . . 375
1. The Philosophical and Ethical System (Resumed) . 377
2. The Method 394
3. The Logic 422
VI. ATTEMPTS AT RECONSTRUCTION 446
1. Earlier Developments of the Marginal-utility Concept . 448
2. The Austrian School 461
D. GENERAL ACCOUNT OF RECENT LEADING SCHOOLS
OF ECONOMIC THOUGHT 477
I. GERMANY AND ITALY 479
II. ENGLAND AND FRANCE ' . 494
III. THE UNITED STATES 511
ix
TABLE OF CONTENTS
A. GENERAL INTRODUCTION
PACK
PREFACE ........... v— viii
CHAPTER I. NATURE AND IMPORTANCE OF THE HISTORY OF ECO- NOMIC THOUGHT 3-14
Scope of the Subject — Relation to Industrial History — Reasons for Studying it — Underlying Philosophies, Materialism, Idealism — Method, Inductive, Deductive, Statistical — Absolutism in Thought — Comte's Stages.
CHAPTER II. THE ORIGIN AND TARDY DEVELOPMENT OF ECONOMIC
THOUGHT 15-20
Origin in Moral Codes — Reasons for Tardy Development ; Sub- jective, Objective.
B. ECONOMIC THOUGHT BEFORE THE SCIENCE OF ECONOMICS
I. ECONOMIC THOUGHT OF THE ANCIENTS
CHAPTER III. ECONOMIC THOUGHT OF THE HEBREWS AND HINDUS 23-38
Generalizations concerning Orientals Limited — Reasons for the Chapter — Economic Thought found in Rules of Conduct, Laws, etc. — Usury — Commercial Regulations and Just Price — Labor and Caste — Agriculture Favored — Seventh and Jubilee Years — Summary Generalizations : Simple Social Philosophy, Religion or Morals Dominant, Minute Regulation, Conflict with Economic Stimuli, Fixity and Conservatism, Concept of Society.
CHAPTER IV. ECONOMIC THOUGHT OF THE ATHENIAN PHILOSO- PHERS . 39-53
Origin of the State; First Economic Interpretation of History — Division of Labor — The Social Viewpoint Taken — Inheritance — Population — Communism — Scope and Classification of Aristotle's Economic Thought, Oikonomik, Chrematistik, Natural Uses —
xi
xii TABLE OF CONTENTS
FACE
Value — Money and Interest — Industry and the Various Occupa- tions — Attitude toward Riches — Ethics Dominant — Contrast with Hebrews and Hindus.
CHAPTER V. ROMAN ECONOMIC THOUGHT 54-66
General Characterization — Economic Thought of the Jurists; Natural Law, Private Property and Contract, Money and Interest — The Philosophers; Ethics, Interest — Agriculture the only Honor- able Industry — Quietism — Writers on Agriculture, Lati furufia, Slavery — Roman Ideas on Value — Regulation of Industry and Commerce — Influence of Roman Thought — Division of Labor — Appendix : Quotations from Writers on Agriculture.
II. MEDIEVAL ECONOMIC THOUGHT
CHAPTER VI. ECONOMIC THOUGHT OF THE MIDDLE AGES . 69-83
The Period Defined — Germanic Contributions — Christianity and the Church — Scholasticism and Canon Law — Value and Just Price — Usury — Economic Functions of the State — Monasteries — Economic Thought of Medieval Townsmen — General Signifi- cance of the Period.
III. THE DAWN OF MODERN ECONOMIC THOUGHT
CHAPTER VII. MERCANTILISM 87-112
Preliminary Definition of Period and Doctrine — Economic Con- ditions— Policies and Theories : Importance of "Treasure," Foreign Trade, Balance of Trade Idea — Means of Insuring a Favorable Balance — Practical Applications of Policies — Economic Theories : Value, Interest, Population, Wages, Rent, Factors of Production, Productivity of Occupations, Taxation — James Steuart, the Last of the Mercantilists — Critical Estimate and Summary.
CHAPTER VIII. KAMERALISM 113-130
Resume of Nature, Scope, and Development — Some Typical Kameralists: Bechers, Hornig, Danes, Justi — Significance of Re- galian Rights — Kameralism and Mercantilism ; Summary.
C. THE EVOLUTION OF ECONOMICS AS A SCIENCE
I. THE FOUNDERS
CHAPTER IX. THE PHYSIOCRATS AND THE REVOLUTION IN SOCIAL
PHILOSOPHY I33~I57
TABLE OF CONTENTS xiii
PAGE
The Forerunners of the Physiocrats : Boisguillebert, Vauban, Fene- Ion, Cantillon — Forces which gave Rise to Physiocracy — General Outline of the Physiocratic Doctrine : Nature Philosophy, Produit Net and Surplus, Wages and Interest, Single Tax, Value, Scheme of Distribution, the Tableau Economique — Chief Physiocrats and their Writings — English Followers — Opponents — Practical Influ- ence — Critical Estimate and Summary.
CHAPTER X. ADAM SMITH, HIS IMMEDIATE PREDECESSORS, AND THE
REVOLUTION IN INDUSTRY 158-189
Immediate Predecessors : Locke, Berkeley, Mandeville, Hutche- son, Hume, Tucker, Ferguson, Harris — Life and Relations with the Physiocrats — The Wealth of Nations — Labor and Division of Labor — Value — Classes of Society and their Interests — Wages
— Profits and Interest — Rent — Public Finance — Government Interference; Laisser Faire — Philosophy and Method — Practical Influence — The " Manchester School " — Critical Estimate of Wealth of Nations.
II. THE EARLIER FOLLOWERS
1. PESSIMISTIC TENDENCIES
CHAPTER XI. MALTHUS AND THE THEORY OF POPULATION . 191-211
Life and Circumstances — His Forerunners — The Essay on Popu- lation : its Origin and First Edition — Malthusian Principle as De- veloped in Later Editions : (i) Tendencies of Population and Subsistence; (2) Diminishing Returns; (3) Checks to Population
— Social Results : the Malthusian Cycle — Other Economic Views
— Critical Estimate of the Malthusian Doctrine — Biographical Note on Early Controversies.
CHAPTER XII. RICARDO AND THE THEORY OF DISTRIBUTION, ESPE- CIALLY THE RENT DOCTRINE 212-236
Life and Circumstances; Chief Writings — The Principles of Political Economy : Value, Distribution, Rent, Wages, Profits and Interest, Ideas on Surplus — Philosophy and Method — Ricardo's Followers.
2. OPTIMISTIC TENDENCIES
CHAPTER XIII. CAREY AND THE "AMERICAN SCHOOL" . . 238-250
Hamilton — Raymond — Carey's Life and Writings — His Theory of Value — Rent — Theory of Population — Method — Inconsist- ency — Followers of the American School.
xiv TABLE OF CONTENTS
PACK
CHAPTER XIV. BASTIAT AND THE FRENCH OPTIMISTS . . 251-261
Life and Writings — Economic Harmonies: Value, Interests of Labor and Capital, Land Values, Population, Government Interven- tion — Bastiat and Carey — Criticism — Economic Optimism.
3. OTHER EXPOSITORS OF THE ENGLISH CLASSICAL POLITICAL ECONOMY
a. In England CHAPTER XV. SENIOR AND THE ABSTINENCE THEORY . . 263-269
An Outline of Political Economy — The Scope of Political Economy — Abstinence and Capital Formation — Cost vs. Expense; Past vs. Present Labor — Utility and Demand — Monopoly Theory — Theory of Wages — Increasing Returns — Emphasis of the Sub- jective — Critical Estimate.
b. Expositors outside of England :
CHAPTER XVI. SAY, RAU, AND OTHER CHIEF EXPOSITORS IN GER-
MANY AND FRANCE ......... 270-278
Nebenius, Thunen, Rau, and Others of the German Group — The Services of this Group — Say : Arrangement of the Science, Theory of Markets, Value — Cournot — Dunoyer.
CHAPTER XVII. THUNEN AND THE "ISOLATED STATE" . . 279-293
Method and Plan of Work — Rent — Price and Value — Wages and Interest, Marginal Productivity Theory — Tariff; and Miscel- laneous.
III. OPPONENTS AND LEADING CRITICS
i. THE PHILOSOPHICAL AND ETHICAL SYSTEM
a. Individualistic Critics
CHAPTER XVIII. LAUDERDALE AND RAE: THE DEFINITION OF
WEALTH .' •' ^.' .' .' ...... 295-301
Lauderdale — Definitions — Public Wealth vs. Private Riches — His Influence — Rae — Individual vs. Social Capital — Invention — Government Interference — Criticism of Smith's Method — Summary.
CHAPTER XIX. SISMONDI: THE EMPHASIS OF INCOME AND CON-
SUMPTION . . .""•''• ..... 302-312
Life and Works — Economic Thought : Scope of Economics and Criteria of Progress, Scheme of Distribution, Overproduction and Machinery, Population, Reforms Advocated, Exploitation of Labor and Socialism — Method — Influence.
TABLE OF CONTENTS XV
b. Nationalist Criticism
PACK
CHAPTER XX. MULLER, LIST, AND CAREY: THE EARLY NATIONAL- ISTS 3*3-329
Miiller; His Views on Protection, the State, Value, Capital, Criticism of Smith — List; His Life, the National System, Criti- cism of the School, Historical Views, Division of Labor, Immaterial Capital, His own Absolutism — Carey ; His Argument for Protec- tion — Summary.
c. Socialistic Criticism
CHAPTER XXI. EARLY NINETEENTH-CENTURY SOCIALISM . . 330-343
The Utopian or Bourgeois Socialists : Saint-Simon and the Saint- Simonists, The Associationists, Owen, Fourier, and Thompson
— The Transition to a More Realistic and Proletarian Socialism in France, 1840-1848: Louis Blanc, Proudhon — Summary.
IV. THE RESTATEMENT
CHAPTER XXII. JOHN STUART MILL 345-374
Life and Works — The Principles of Political Economy — Value
— The Shares in Distribution, Rent, Wages, Profits — Consumption and Production — International Trade — Influence of Progress on Distribution — The "Social Question" — Unearned Increment — Government Interference — Philosophy and Method.
V. OPPONENTS AND LEADING CRITICS (Resumed} i. THE PHILOSOPHICAL AND ETHICAL SYSTEM (Resumed)
CHAPTER XXIII. THE FOUNDERS OF "SCIENTIFIC" SOCIALISM IN
GERMANY 377-393
State Socialism: Rodbertus; Labor Productivity, Decreasing Wage Share, Rent, Distributive Justice, Theory of Crises, Remedies Proposed, Criticism of Ricardo's Rent Theory — Lassalle ; Scheme of Reform, Capitalism, Conjuncture — International Revolutionary Socialism : Marx; Materialistic Interpretation of History, Capital and Exploitation, Surplus Value — Criticism — Opportunist or Re- visionist Socialism — Influence of the Socialists; Primary, Sec- ondary.
a. THE METHOD
CHAPTER XXIV. CONCRETE-HISTORICAL CRITICISM IN ENGLAND 395-407
Richard Jones : Abstract Assumptions Criticized, Ricardian Rent Theory, Method — Walter Bagehot: Scope and Method of Eco- nomics, Criticism of the Classical Economics — Leslie : Opposition
XVI TABLE OF CONTENTS
to Abstract, a priori Methods, Realism, Class Interests, Anti- utilitarianism, Negative Character of his Work — Ingram — Toyn- bee: Relativity of the Classical Theory, Optimism — Rogers — Summary.
CHAPTER XXV. THE GERMAN HISTORICAL SCHOOL . . . 408-421
Environmental Forces and Forerunners — The Older or More Negative Group: Roscher, Hildebrand, and Knies — Roscher's Program — Hegelianism — Hildebrand's Criticism — Knies on Ab- solutism in Theory, Criticism of Roscher, On the Nature of Economic Laws — The Younger or More Positive Group: Schmoller — The Vereinfur Sozial Politik — BOcher — Schaffle — Summary of Tend- encies — General Summary and Critical Estimate.
3. THE LOGIC
CHAPTER XXVI. LAUDERDALE AND HERMANN : EARLY CRITICISM ON
THE THEORY OF CAPITAL, PROFITS, AND VALUE . . . 424-437
Lauderdale's Criticism of the Theory of Capital and Profits, and his Doctrines of Consumption and Value — The Theories of Her- mann and Other German Economists on Capital and Undertakers' Gains — Hermann's Criticism of the Current Economics — Capital
— Rent and Wages — Undertakers' Gains — German Industrial Conditions — Hufeland, Rau, Hermann, Mangoldt — Consumption
— Value — Conclusion.
CHAPTER XXVII. THE DOWNFALL OF THE WAGES-FUND THEORY 438-445
Richard Jones, Longe, Writer in North British Review, Clifie Leslie, Thornton, Mill's Recantation, Walker, Taussig.
VI. ATTEMPTS AT RECONSTRUCTION
CHAPTER XXVIII. EARLIER DEVELOPMENTS OK THE MARGINAL
UTILITY CONCEPT: LLOYD, GOSSEN, JEVONS, AND WALRAS . 448-460
First Developments : Condillac, Bentham, Craig, Longfield, Lloyd, Thomas, Dupuit, Senior — Gossen — Jevons : Value Theory, Other Economic Theory — Walras — Summary.
CHAPTER XXIX. THE AUSTRIAN SCHOOL, AND ESPECIALLY THE
DEVELOPMENT OF SUBJECTIVE VALUE THEORIES . . . 461-475
The Austrians and their Value Theory: Menger; Economic Causation, Utility, Classes of Goods, Price Limits — Wieser; Source of Value, Imputation Theory, the Place of Cost — Bohm-Bawerk; Subjective Value, Subjective Exchange Value, Objective Value, the Determination of Value, Costs — Interest Theories — The Later Austrians — Critical Estimate and Summary.
TABLE OF CONTENTS xvii
D. GENERAL ACCOUNT OF RECENT LEADING SCHOOLS
PAGE
CHAPTER XXX. RECENT ECONOMIC THOUGHT IN GERMANY AND
ITALY 479-493
GERMANY AND AUSTRIA : Scope and Subdivision of Economics, Method, Schools of Thought, Value Theory, General Characteristics — ITALY: Industrial Backwardness, Early Leaders, German Influ- ence, The Younger Group, Recent Schools and Chief Writers.
CHAPTER XXXI. RECENT ECONOMIC THOUGHT IN ENGLAND AND
FRANCE 494-510
ENGLAND : Decline of the " Classical " Economics, Cairnes and Fawcett, Revival of Academic Economics, Recent Schools and Chief Writers — FRANCE AND BELGIUM : Dominance of " Classical " Economics and Optimism, German Influence, Historical School, Monopoly of the Academy Broken, Socialism, Solidarite — Recent Schools and Writers.
CHAPTER XXXII. RECENT ECONOMIC THOUGHT IN THE UNITED
STATES AND ITS BACKGROUND 511-527
The Background for Characteristic American Doctrines — His- tory: to 1860, Protection and Optimism; 1860-85, "Classical" Economics, Dogmatism; 1885, New Problems, German Influence, Marginal Utility, American Economic Association — Present Condi- tions and Economists.
CHAPTER XXXIII. CONCLUSION 528-550
General Resume — Continuity and Environment — Some Main Points of Difference in Economic Thought : Ethical Dissent, Op- timism and Pessimism, Various Theories of Surplus, Cost vs. Utility, Subjective and Objective Viewpoints — The Present and the Future: Philosophy and Method, Theory.
BIBLIOGRAPHICAL NOTE 55 1-556
Chief Bibliographical Sources : Leading Works on the History of Economic Thought
A. GENERAL INTRODUCTION
CHAPTER I
THE NATURE AND IMPORTANCE OF THE HISTORY OF ECONOMIC THOUGHT
THERE are at least three different branches of study whose names contain the words History and Economics. There is, on the one hand, Economic History, or Industrial History, as it is frequently called; and on the other, there are the closely related subjects, History of Economics and History of Economic Thought. The first concerns itself with the history of commerce, manufactures, and other economic phenomena, dealing objectively with the ways in which men get their living ; the second and third treat primarily of subjective matters, dealing for the most part with the ideas men have concerning economic facts and forces.
Now these last two have been confused, and their logical relationship is commonly overlooked. The history of econom- ics deals with a science — with a body of classified knowledge ; it is limited to times in which economic ideas have become dis- tinct, unified, and organized; it is a history of systems of eco- nomic thought. But the Babylonians had ideas concerning interest and mortgages; the Phoenicians thought about com- merce and bills of exchange; the Greeks wrote on the subject of division of labor. Does the history of economics, then, date to such remote times? By no means. But the history of economic thought does, and from its point of view the un- related primitive ideas of the earliest times are full of meaning. Indeed, to understand fully the origin and growth of the science, the underlying ideas are important. The history of economic
3
4 ECONOMIC THOUGHT
thought is broader than the history of the science, and may properly be divided into two parts, one taking up the origin and development of economic ideas prior to the existence of any distinct and separate science; the other beginning with the rise of Political Economy, or the science of Economics. The point of view taken in the following pages is to be the broader one. The subject, the History of Economic Thought, may be defined as a critical account of the development of economic ideas, searching into their origins, interrelations, and, in some cases, their results.
The close relationship between economic history and the his- tory of economic thought is at once to be emphasized. That men's thoughts depend largely upon their surroundings, no one doubts. And so it is that economic ideas, to say nothing of systems of economics, are colored and limited — determined, sometimes — by industrial environment. Thus the agricul- tural South believes in free trade; as manufactures develop, that belief weakens. But this interaction is reciprocal; for opinions and theories once formed are tenaciously adhered to, and may become a determining element in their turn. The individualism of the laisser-faire economists and statesmen was to a great extent the result of industrial evolution; but in its turn it became a condition reacting upon industry.1 The his- tory of economic thought, then, is an essential part of general history, both explaining it and being explained by it.
To-day it is not so necessary to defend the study of the His- tory of Economic Thought as it once was. Even now, however, there are those who deny the usefulness of studying earlier economic thought. And in any case it will be of value to state clearly the advantages to be expected from such a study as the present ; for the statement may make one's reading more purposeful and suggest new points of view.
1 Through William Pitt and Robert Peel, for example, and the economists of the dominant French school. The former were active in applying the laisser-* faire doctrine to the corn laws ; the latter did much during the nineteenth century, both as government officials and writers, to bring into practice their optimistic, let-alone theories.
THE HISTORY OF ECONOMIC THOUGHT 5
First of all, a certain unity in economic thought is to be emphasized, a unity which connects us with ancient times. Continuity in evolution has been denied,1 but such continuity can be demonstrated. Much of the difficulty comes about through an exaggeration of the negative aspect of the Middle Ages. But so to regard it is to misinterpret the period, for the medieval aloofness or quietism implied a positive philosophy which has counted in the history of thought in a positive way. Nor was this period a complete break; in it were nourished Greek ideas concerning money and interest, communism, and other economic matters, — not to mention " nature philoso- phy," — which were handed down to modern thinkers. The doctrines of the first economists concerning the importance of land and the beneficent law of nature were drawn through a continuous line of thinkers from Plato and Aristotle. As will appear further on, moreover, not only do Oriental ideas in- herited from a still more remote past come down to us through Greece, but through Christianity they have exerted a con- tinuous though changing effect upon the economic thoughts of men. It is logical, then, to begin a history like the present with some account of ancient thought.
Again, there is great value in understanding the origin of a science, especially one like economics, whose scope and nature have been under dispute. For one thing, it gives a truer concept of the relationship among sciences, an important matter for the thinker looking toward the proper application of economic prin- ciples. Through a study of the History of Economic Thought may be gained a clear realization of the position of Economics as a distinct member of a group of social sciences: Ethics, Jurisprudence, Philosophy, Sociology, etc. While it is properly concerned with man's efforts to get a living in association with his fellows, as a social science it is related to other sciences which deal with human wants or affect the way men get their living. To illustrate one such relationship, it may be observed that to the extent that what is uneconomical becomes, on that account, "wrong," Economics is directly related to Ethics. 1 E.g., A. Oncken, Geschichte der National Okonomie, pp. 15 f.
6 ECONOMIC THOUGHT
Economists, as practical men, must realize that the economic sanction cooperates or conflicts with the sanctions of other social sciences, a fact which limits its application. There is, therefore, no better way for a student grounded in economics to find him- self in the wider field of social science than to study the history of economic thought. For in the beginning social sciences were one. Purely economic ideas may be apparent to us, but in earlier times, the men who had them did not differentiate. Such having been the broad beginning, one may wonder if some cycle may not be completed when a scientific synthesis will again bring together feelings, desires, property, family, state, justice, law, happiness, and other concepts on a rationally unified basis of valuation.
Then, there is the value of a broad basis for comparison which such a study brings. Standing at the highest point yet reached, after centuries of economic thought, and looking back over the path of truth, strewn with fallacies and truisms though it be, the student feels his judgment broadened, and a well-balanced and reasonable conservatism may fill his mind. He is not so apt to be swept off his feet by fads, nor to be made confused and hopeless when controversies rage around him ; for he knows that fads and controversies have come and gone, while a substantial body of economic truth has been so established that progress must come, not through revolution, but through evolution.
The concept of relativity, the point of view according to which ideas are not judged with dogmatic absolutism, but are critically examined in the light of the times and places in which they were formed, becomes very real. Before we can call medieval thinkers blockheads on the ground that they condemned interest-taking, we must examine their premises and the circumstances of those premises. Men being in part creatures of their environment, their thought is often guided and limited by the changing phe- nomena with which they are confronted.
Back of the different systems of economic thought, there lie more fundamental factors which condition them and determine their nature and form. The more immediate of these factors are (I) the underlying philosophy and (II) the method of the thinker, through both of which the economic life works. The
THE mSTORY OF ECONOMIC THOUGHT 7
philosophy and the method form part of a premise of the syllo- gism, as it were. One economist reaches one conclusion, another a different one. We say their points of view were different. But each point of view is made up of a certain basal philosophy of life and a closely allied tendency to a certain methodology in thought. Not the least service of a history of economic thought is the light it throws upon this question of viewpoint, and it is desirable here to sketch the historical outlines of philosophy and method as a background for the more detailed history of strictly economic thought which is to follow.
I. Philosophy. — Since the fifth century before Christ, two great philosophies have ever opposed and reacted upon one an- other: Idealism and Materialism.1 Idealists generally have regarded man not as a mere creature of natural environment, but as a more or less independent force, capable of molding na- ture. These men have upheld social activity and institutions (societism) against individualistic tendencies, opposing society and the state to egoism. They are the conservatives. In their ranks may be placed Plato and the Stoics of antiquity ; the Neo- Platonists, St. Augustine, Thomas Aquinas, and Hugo Grotius, in the Middle Ages ; and the German philosophers, Leibnitz, Kant, Schelling, Hegel, and the Frenchman, Comte, of modern tunes. Such thinkers have emphasized morality and duty, opposing the good to the " natural." Spiritual and abstract considerations . have been uppermost with them. In a word, idealism stands for the human element and the institution.
Materialists, on the other hand, have tended to regard man as dominated by his natural environment. They have believed that man qannot presume to dictate terms to nature, therefore laissez faire, — let things alone, that natural forces may rule. Pleasure, or utility, gained largely through material means, has been the center of their philosophy ; though latterly their con- cepts have been broadened by making happiness their criterion. The materialist has thought most of the immediate material
1 These terms will not be used in their strict metaphysical significance, but in the more popular sense as indicating a general non-technical view- point towards life and history.
8 ECONOMIC THOUGHT
result or utility ; but little of the spiritual or ideai. The great- est material good for the greatest number has been his ultimate test and goal. The leaders in this philosophy have been such men as the Sophists and Epicureans in antiquity ; Hobbes and Locke in early modern times; and the French Encylopedists, Jeremy Bentham, and, in his earlier thought, John Stuart Mill, more recently.
This philosophy has generally, as a matter of fact, tended toward individualism.1 That is its logical outcome. Under its sway, individualism grew up in political and economic thought toward the end of the Middle Ages. The thought of its ad- herents has been the ferment that has led to the dissolution of inherited religious and moral systems, and the casting off of outlived cultures.2
These philosophies represent two sides of human social life, and they constantly react upon one another. They have ever been interrelated. They are indicative of what is perhaps the most fundamental contrast in economic theory, that between man and " nature," labor and " land." Idealism is related to the institution, and is conservative. Reasonable idealists, how- ever, do not uphold the letter, but the spirit of the institution ; and thus, under changing conditions, material factors enter through the door of realism, or the institution loses its efficiency. The outside is let in. It must be let in to preserve the institution. On the other hand, materialism, in opposing institutions and denying man's power to dictate terms to nature, must not be thought of as merely negative and unrelated. The negative is always related to the positive. Individualism does not necessa- rily mean non-organization. In their relation to one another, the two philosophies are analogous to man and " nature," heredity and environment ; and each reacts upon the other in a similar fashion.
In criticism of the two philosophies, taken separately, it may
1 Cf. Bonar, Philosophy and Political Economy, chapters on Epicureans, Hobbes, Locke, etc. But, on the other hand, many phases of socialism are based upon a similar philosophy, — though perhaps illogically so.
J Schmoller, Grundriss der allgemcinen Volkswirthschaftslehre, p. 71.
THE HISTORY OF ECONOMIC THOUGHT 9
be said that materialists overvalue reason and understanding, while idealism rests on ideal postulates; that the one takes a one-sided view of moral forces, while the other neglects material facts ; one, by undervaluing the concept of society, unduly re- stricts the field for social action, while the other, by frequently conceiving of the individual as existing for society, goes to the other extreme.
Every thinker, economist or not, must at some time or other put the question to himself, is your viewpoint that of a material- ist or an idealist ? Or, if the attempt is made to attain the truest viewpoint of all by harmonizing the two, the question always remains, where shall the line be drawn?
II. Method. — Broadly speaking, the history of science in general reveals two distinct methods, two processes by which truth is sought. These are commonly called inductive and de- ductive. There is a method which is neither inductive nor de- ductive in the technical sense of the terms, and which may be called the statistical method.1 This last, however, is, in the final analysis, a combination of the first two. Moreover, one can scarcely follow either method to the absolute exclusion of the other; but rather they are complementary. Yet with some economists, deduction so predominates that their method is
1 Schonberg, Handbuch d. Pol. Ok., 3 Band 2, p. 206, art. by Riimelin. Also, Oncken, Geschichte der National Okonomie,p. 9, distinguishes (i) "die exacte oder philosophische, (2) die historische oder besser historisch-sta- tistische, und endlich (3) die historisch-philosophische, ' welche einen synthet- ischen Character besitzt.' " Quesnay, Ricardo, Von Thiinen, Jevons, etc., pursued the first ; the Mercantilists, Miiller, List, Hildebrand, etc., followed the second ; Aristotle, Smith, Marx, and Kant illustrate the last. Rumelin in the able discussion of this point just referred to properly distinguishes between the inductive and the statistical methods, on the ground that the former deals with classes or kinds of which one thing or case can be taken as typical and made the basis for induction, whereas in statistics as a method pluralities are dealt with which have some distinguishing character in com- mon, but may differ more or less as to other features. This makes analysis necessary. Thus we may oppose the statistical method to the inductive or to the deductive method taken alone. It seems, however, that the dif- ference lies in the fact that the statistical method combines both, only thus making a peculiar method.
10 ECONOMIC THOUGHT
called deductive, and vice versa. In all times, each method appeals to its own type of mind.
As will appear further on, there has been much debate, es- pecially in Germany, over the relative merits of the two methods, though few, if any, now deny that each has its place. In fact, the dispute generally sprang from different ideas as to the scope and completeness of economics. Thus those writers who make economics deal chiefly with such subjects as the theory of value and money, especially if inclined to emphasize the completeness of the science, make large use of deduction. And properly so. In dealing with such a question as the incidence of taxation, for example, observation and induction would, until very recent times, at least, have thrown relatively little light. When, how- ever, the tendency is to broaden economics by bringing in political and ethical considerations or making it an " applied " science, there is a natural inclination to ask for more facts and to use a more historical and inductive method.
The deductive or " isolating " method is that which works from the general to the particular or special. It leads a thinker to look within for his premises, turning over in bis mind his own concepts, familiar facts, and definitions. In a word, it relies much upon introspection. Sometimes it is maintained by such thinkers that sufficient premises can be drawn from common experience ; then abstract, unverified " natural " impulses are apt to be depended upon. Thus Richard Whately, Archbishop of Dublin, argued that political economy needed no collection of facts.1 When, a number of years ago, an attempt was made to organize a society for the study of economic phenomena in Min- neapolis, the organizer was constrained to write, " The opinion prevails far too widely that political economists must be mere doctrinaires, and must contend for some set of opinions and some course of policy. Critical study of phenomena is as unpopular as free-thinking in religion." 2
It is this extreme type of deductive method that gives rise to what the German economist Knies has called absolutism of
1 Political Economy, IX, pp. 148-150.
1 Prof. Folwell, Johns Hopkins University Studies, Vol. VI, p. 7.
THE HISTORY OF ECONOMIC THOUGHT n
theory. God is unchangeable, and so is the mind, sometimes runs the argument, hence deductions drawn from the nature of God and the mind are of the same absolute character. They are good for all times (perpetualism) and for all places (cosmopoli- tanism). " Political economy," said an English economist of a former generation,1 " belongs to no nation ; it is of no country ; it is founded on the attributes of the human mind, and no power can change it." And it was such a spirit which led another Eng- lish economist (Torrens) to state that the period of doubt and controversy was passing away, so that within a generation all men would believe alike in economic theory.2
There have been many revolts against this method of thought, — a method which, it will have been observed, goes easily with the philosophy of idealism. Socrates3 and Bacon led such re- volts in their days, and about the middle of the last century the Historical School arose in Germany. This stood for the in- ductive method, that is, the method which leads a thinker to look without to the external world for facts to serve as the basis for the conclusions which are to be his premises.
The Historical School, as will be seen more in detail, denied that economic doctrines, especially in their practical application as policies, are good for all times and places. Human nature itself is not unchangeable. Told that selfishness is the guiding principle of man in his economic actions, they refused to adopt this idea as a premise before they had investigated the phe- nomena of actual life and searched into the manifestations of human motives.
1 Lowe (Robert), " Recent Attacks on Political Economy," Nineteenth Century, November, 1878.
1 Essay on Production of Wealth, 1821.
3 True, Socrates told man to study himself. But in his day that was a step in the direction of the concrete and inductive. The apparatus and method for the study of nature were not developed, and the abstract specu- lation of his time was concerned with the actual physical universe, etc. It was in Bacon's spirit, then, that Socrates urged observation in study of man. Induction works out from the observation of special individual cases to the general rule or "law" which explains and which may serve as a basis for deductions. Socrates himself was both deductive and inductive. He objected merely to the exclusive and abstract use of deduction.
12 ECONOMIC THOUGHT
As one looks back over the course of economic thought and examines its changing methods, one is reminded of attempts that have been made to distinguish certain stages in the evolution of human thought in general, notably the three stages of Comte. These stages were called by Comte * the theological, the meta- physical, and the positive. In the first stage men seek a " cause " for phenomena, and find it to lie in the immediate action of supernatural beings. In the second, one great entity, " nature," is substituted as the cause, and phenomena are said to be due to abstract "essences "or forces within the objects, but separate from them : sleep is caused by a " soporific principle " ; water rises in the tube because " nature abhors a vacuum." In the positive stage, men classify phenomena and establish sequences in the na- ture of cause and effect ; they discover quantitative relations and seek to represent all phenomena as aspects of a single general fact. During the theological and metaphysical stages, the de- ductive method is predominant. Early investigators may be regarded as overwhelmed by a multiplicity of facts, to gather to- gether and classify which req uired time. Meanwhile it was neces- sary to regard them simply as more or less isolated facts, — which left the mind's desire for unity unsatisfied, — or seek an explana- tion from within the thinker's own consciousness. The result was the dogma that it is God's will, or some metaphysical law of " nature." Those who thus traced all phenomena to a few easily grasped " causes " bore everything before them.2
The triumph of such abstract deductive methods was only temporary. Becoming weary of empty speculations, as their slight foundations were perceived, men turned to follow those who confined their attention to the knowable and attempted to explain that by more rational and concrete methods. Thus there came about a condition similar to Comte's positive stage.
It is, however, improper to speak of these methods as stages in the sense of their following one another in chronological order ; for they overlap, and cases may be found of the contemporaneous
1 Positive Philosophy, Chap. I ; Martineau's translation, p. 26.
2 Cf . Hobhouse on " Comte's Three Stages " in the Sociological Review for July, 1908.
THE HISTORY OF ECONOMIC THOUGHT 13
existence of all the stages, even in the field of a single science. There are " theological " economists to-day, perhaps, and cer- tainly there are economists whose mode of thought places them in the metaphysical stage. An extreme illustration will serve to make the meaning clear. The American economist, Henry C. Carey, in speaking of the Malthusian theory of population, asks how a good God could allow such things as it teaches. He de- clares the doctrine incompatible with God's character ; therefore it is untrue. Of course he does not stop here in his argumenta- tion, but the point is that he introduces this reasoning as an essential support for his ideas. Political economists of the metaphysical type, a type preeminently English, tend to deduce all economic phenomena from so-called fundamental principles of human nature, axioms, and definitions. Their earmark is a certain use of the word " natural." Glib explanations that this or that is according to a law of nature or that human nature is thus and so, are the danger signals. The legal thought of the past generation is a notable lingering place of this taint ; and those economists who argue about " natural rates " (for wa.ges, railway charges, etc.), maintaining that competition is natural, for instance, show a similar tendency. As already stated, the method of thought of such men is necessarily deduc- tive.
It remains to be observed that cycles in method seem to have existed. The deductive or philosophical-abstract method pre- vailed in all early economic thought of a formal character that is recorded. Then the Mercantilists and Kameralists of the six- teenth and seventeenth centuries showed some tendency toward an inductive, though rather empirical, method. But the early French economists and Adam Smith were primarily deductive, and the " Epigones " who followed degenerated into dogmatism. The early historical economists then arose as an inductive school, perhaps even going to extremes ; and, after a generation given to the collection and comparison of facts, the need for deduction became effective. The Austrian school of economists and Pro- fessor Marshall in England then came to the front; but their method is not that of the older deductionists, being based upon
14 ECONOMIC THOUGHT
the preceding era of induction and largely free from theological or metaphysical tendency. The cycle has not been a circle, but a spiral, rising to higher planes. At the present time economists are largely engaged in concrete investigations, historical and statistical; but numerous treatises are appearing, indicating the concomitant and scientific use of both methods. Induction and deduction, the concrete and the abstract, must go hand in hand.
THE ORIGIN AND TARDY DEVELOPMENT OF ECONOMIC
THOUGHT
THE origin of economic thought is lost in the past. In its simplest form it must have always existed wherever thinking beings sought to gain a living. Economic ideas of any definite- ness find their earliest expression, however, in rules of conduct or moral codes formulated by priests or lawgivers. These moral codes, like the Mosaic law, for example, in dealing with man's place in the world, with life and death, and the ends of existence,1 necessarily touch upon economic ideas. If it be said that custom ruled the early civilizations and that these codes are the expression of custom, the same conclusion holds. The philosophy underlying is broad and simple, and economic concepts are presented with ethics and religion as one whole. Not until group life begins to move in the new and complicated ways of money economy do economic ideas begin to become sharply differentiated. It is when problems of colonies, inter- national trade, money, taxation, etc., arise, that the Greeks begin to discuss economic questions.
The reasons for the tardy development of important eco- nomic ideas among the ancients are significant, for they throw light upon the origin of the science and the factors essential to its growth. These reasons, being partly subjective, partly objec- tive, fall into two great classes, — though the close interrela- tion between them is noteworthy.
Among the subjective or psychological causes, perhaps the first to be noted is the tendency of the ancient thinkers to look down upon physical wants. Material pleasures and the gratifi- cation of bodily desires were frequently frowned upon. Soc- rates thought that to have few wants was godlike, and that
1 Schmoller, Grundriss der dlgemeinen Volkswirthschaftslehre, S. 69 ff.
IS
16 ECONOMIC THOUGHT
was the spirit of the Hindu people. Where such an attitude prevails, the development of a science which deals with the satisfaction of wants is difficult.
This disregard for material considerations is a concomitant of the dominance of ethical ideas. The good life, leading to the happy life, was the object, and so closely was this end kept in mind that the material basis for it was little regarded. To-day we will find it impossible to think as the men living in, say, 400 B.C. thought, so inseparable were their ideas about right and wrong on the one hand and economic advantage and disad- vantage on the other. But the ethical sanction dominated this simple, undifferentiated social philosophy of theirs.
Part and parcel of this subjective attitude is the fact that some of the interests most conducive to economic study were especially deprecated. One of the most fruitful sources of economic speculation has been the earnest desire to better the condition of the laboring classes. But, in general, pagan phi- losophy teaches that industry, except, perhaps, in agriculture, is degrading to body and intellect. Artisans belonged to the lowest caste, and during the greater part of their history the Greeks and Romans despised the laboring and trading classes. Aristotle argues that in the best government, where the citizens are all virtuous and happy, " none of them should be permitted to exercise any low mechanical employment or traffic, as being ignoble and destructive to virtue ; " 1 and Plato, in treating of the ideal state, deems it not worth while to concern himself with the trading and artisan classes. The above quotation from Aristotle goes on to say that those destined for public office should not even be husbandmen, for leisure is necessary to improve in virtue and fulfill one's duty to the state. This suggests that his disapproval of labor arises in part from other grounds than its inherent baseness, namely, from his belief in the expediency of leisure. This side of the philosophers' atti- tude toward labor has often been overlooked. When it is remembered to what an extent the development of political economy has gone hand in hand with a recognition of the im- 1 Politics, VII, iv.
DEVELOPMENT OF ECONOMIC THOUGHT 17
portance of labor, the significance of the preceding ideas ap- pears. Adam Smith ascribes to labor so much, that the social- ists profess to have learned from the Wealth of Nations to attribute all value to labor, and to demand for labor the entire product of industry.
The same general point concerning indifference or aversion to economic phenomena might be made with regard to financial matters, though with some exceptions.
The omnipotence of the state in antiquity and the ascend- ency of purely political interests are other factors retarding the development of economic thought. Where political specula- tion, as such, absorbs the attention of thinkers, economics re- mains in a subordinate place. While the mere fact of the domi- nance of the state and absence of individualism does not seem necessarily to preclude economics, but rather to limit the field for economic speculation * to matters of public interest, it does result in a one-sided viewpoint. Certainly Economics did not come into existence as a science until the importance of the individual had been realized in a different way than ever it was in antiquity.
So far as it was the idea of the ancients to gam wealth by conquest and forced labor, another subjective force working against the evolution of economic thought may be distin- guished. This idea — and it played no small part in ancient civilizations — is not in harmony with the aim of political economy, which seeks the laws that increase wealth by the encouragement of domestic production and by the peaceful ex- change of domestic products for foreign goods.
Finally, among subjective reasons, must be mentioned that tendency in men which leads them first to busy themselves with the remote. That " familiarity breeds contempt," while " distance lends enchantment," is true in the evolution of science. As Sir Henry Sumner Maine remarks, in discussing
1 The distinction between those factors which prevented or retarded and those which merely modified or determined is to be observed. The same factor may have both kinds of effect. The modifying, directive aspects of these and other factors will be discussed below, c
1 8 ECONOMIC THOUGHT
family types in certain countries, " natural families have not been as carefully examined as could be wished ; they have not the strangeness of the house community in the eyes of the ob- servers." * Wonder and surprise are effective causes for interest and study.2 Remote and mysterious things arouse our curi- osity, leading to hazardous mountain climbing and quests for the north pole. So astronomy was the first of the natural sciences, and to this day many men by their gifts for astronomical research illustrate the same attitude. Economic phenomena, especially in the days of relatively static and simple economic life, were slow in arousing interest. Because of their nearness and the general superficial familiarity with them, they were not singled out for special study.
From the objective point of view, economic thought was ham- pered in two general ways : the phenomena were lacking, and attention was called from such economic phenomena as there were to other fields. To put it in another way, economic phenomena were deficient in number and hi weight, that is, absolutely and relatively.
The subject matter of Economics, as a social science, is human relations. So far as the production and distribution of wealth are directly involved, it deals with relations between individuals, between households, between states, and the recip- rocal relations which in turn arise among these various units. Now this great complex of relations did not exist in the past to anything like the same extent that it now does. Especially simple were the relations between states, and those between individual and state.
More concretely, division of labor was not carried very far. An independent domestic economy means a large degree of economic isolation, and this characterizes the states of antiquity. Only with the growth of division of labor and exchange could economic relations grow in number and significance.
1 Early Law and Custom, VIII, p. 243.
2 Adam Smith discusses this general idea in his essay on "The Principles which lead and direct Philosophical Enquiries, Illustrated by the History of Astronomy." (Works, V, pp. 55, 88.)
DEVELOPMENT OF ECONOMIC THOUGHT 19
Still more concretely, the problems of public finance were relatively unimportant. The revenues and expenditures of the ancient Grecian states, for example, were comparatively insig- nificant. When the Peloponnesian War began, the entire revenue of Athens amounted to about 1000 talents, or a little over $i, 000,000. x This would be but a bagatelle in the budget of a modern state. The French budget for 1909 estimated the revenue of the state at 3,973,265,048 francs, say $790,000,000, and the expenditure at 3,973,035,678 francs. The total esti- mated ordinary receipts of the United States were about the same. The financial operations of Rome were, of course, much larger than those of the Grecian states, but they were far less complicated than ours. War was in general self-supporting, and even yielded a revenue in the shape of booty and tribute. Public debts like those of the modern nation were undreamed of, and such taxes as existed were "farmed" out to be collected by private contractors. When one recalls the important part public finance has played in economic thought, as seen hi the careers of Sully and Colbert, for instance, and in the United States after the Civil War, one realizes that a great stimulus was lacking. Or take foreign trade. International commerce gives rise to many interesting questions of political economy, but it was not encouraged by ancient states, whose ideal was national exclusion. Sparta was such a state ; and Plato's ideal states, even the second best, limited intercourse with foreigners, the barbaroi.
The objective factors, which, by attracting men's attention and energies, threw into the background the consideration of such economic phenomena as existed, also embraced certain social institutions and customs, i.e. subjective factors that had become crystallized. Practical politics, war, religious activities, filled a large part of men's lives. The relative lack of security both for life and property which characterizes ancient times was also an important factor in retarding exchange and saving, and economic activities in general.
1 Blanqui, History of Political Economy, p. 13. Taken from Grote, VI, p. 10.
20 ECONOMIC THOUGHT
Thus, the phenomena being largely lacking, and the spirit or mental attitude indifferent or hostile, it is little wonder that the peoples of antiquity not only did not evolve a body of economic doctrine, but even showed a paucity of economic ideas.
In what has gone before, reference has been made to the ancients alone. Much that has been said, however, is appli- cable to peoples of other times. Although it was formally quite different, during the period of the Middle Ages, as will appear in the chapter dealing with that time, the situation was not dissimilar, whether regarded subjectively or objectively. On the one hand, the teachings of the Church were hostile to trade ; on the other, division of labor and exchange were undeveloped, and man's energies were occupied in reconstructing the political and intellectual fabric of civilization.
Then came the era of Reformation and Renaissance. The attitude of men toward the world and material things was changed, while economic relations were multiplied by discoveries and inventions and the extended use of money. More and more men thought economic thoughts, and erelong the science of Political Economy was born.
B. ECONOMIC THOUGHT BEFORE THE SCIENCE OF ECONOMICS
I. ECONOMIC THOUGHT OF THE ANCIENTS
IN the chapters which follow next, it is not intended to con- vey the idea that a science of Economics existed prior to the eighteenth century. Quite the reverse. These chapters are to deal with fragmentary economic thoughts, or with economic thoughts which are found imbedded in ethical and religious systems. Yet these thoughts are the stuff of which the later economic theories were partly made; and, although from the viewpoint of economics they hail from a pre-scientific period, their importance as a factor in determining the course of the science may not safely be overlooked. Accordingly, the reader is asked to direct his attention to the following sketch and brief analysis of the economic ideas which obtained in the ancient and medieval worlds.
22
CHAPTER III
ORIENTAL ECONOMIC THOUGHT, ESPECIALLY THE CONCEPTS OF THE HEBREW AND HINDUS1
SOME general points of contrast may doubtless be found in comparing the economic thought of the Orient with that of the Occident. For example, nearly all Oriental peoples will be found to have had ideals of a closer brotherhood within national bounds than have obtained in western countries. Eastern peoples, too, have generally tended to a less materialistic view of life, not striving eagerly for industrial progress : moral or religious codes have usually played a greater part in shaping their thought.
Much of the contrast that has been drawn, however, would not have held for the remote past when the civilization of the west was young, and both Orient and Occident were in some- thing like Comte's theological stage; while so diverse are the numerous peoples which come under the head of Orientals that truly general contrasts are very few, and are for the most part so broad as to lack force and precision. Believing, then, that it is quite impossible to generalize with any great significance concerning Oriental economic ideas as a whole, it is the purpose simply to state what is known about such ideas as they were held by the Semitic and Aryan peoples of the west and south of Asia. To lump Chinese, Medes and Persians, Jews, Japanese, Arabs, Hindus, Egyptians, even, together in one topic, as
1 Cf. Cooke, " Old Testament Economics," in Economic Review, XIX, no. 4 ; Marigny, Histoire de I' Economic Politique des Anciens Peuples ; Michaelis, Commentaries on the Laws of Moses (Eng. trans., London, 1814) ; Jewish Encyclopedia, articles on agriculture, usury, etc. ; and the following footnote references.
23
24 ECONOMIC THOUGHT
is sometimes done,1 is misleading, to say the least; but those concepts of the Hebrews and of the Hindus which have clear economic significance may be briefly stated. Then, if there be any common ground, some precise generalization may follow.
It may be observed in advance that the subject matter fur- nished by the ideas of these two peoples has this much in com- mon : it is the economic thought of two Asiatic peoples, both of ancient civilization, and based upon an agricultural economy ; and practically all is drawn from the writings of priestly law- givers.
It follows from this latter fact that any idealistic tendencies will be emphasized, perhaps to such an extent that doubt may be felt as to how truly the common thought is expressed. But when one reflects that the lives of these people were largely determined by these writings, this doubt loses some importance. And, above all, it is just these writings which have come down to us, exerting a powerful influence all through the Middle Ages and even to our own time ; so that, from the standpoint oj the history of economic thought, their significance is not slight.
Several more or less practical reasons make this particular inquiry worth while. For one thing, there is its value as a study of origins. These peoples were, in a sense, in the child- hood of civilization; and, just as psychologists are interested in child psychology, economists may learn lessons from child economics. Or, if it be true, as many believe, that there is a large degree of connectedness in the development of the eco- nomic thought of the world, — a degree not generally realized to the full, — the study of early sources gains importance ; and, if it is found that at the sources religious or moral sanctions dominate, then the study of the economic aspects of religious or moral concepts and codes becomes closely involved. While there is no logical necessity for treating Oriental ideas as a whole, as do some writers,2 it is essential to analyze the thought of the Hebrews in this respect. No one will deny that many
1 E.g. Cossa, Introduction to the Study of Political Economy; Ingram, History of Political Economy.
2 E.g. Kautz, Geschichttiche Entwkkelung d. National Oekonomie.
ORIENTAL ECONOMIC THOUGHT 25
of our religious and moral beliefs are traceable directly to Hebrew thought, and that these beliefs have in the past had, and will in the future have, considerable influence over economic ideas. A large part of these have come down to us through Chris- tianity, which in its origin is an essentially Oriental religion.
This study, too, will illustrate and emphasize the importance of the relationship between economic thought and morals and ethics, a relationship which, without being confused, needs to be borne in mind by the economist.
And of some practical significance is the fact that light may be thrown upon economic concepts which to some extent obtain in the Orient even to this day, possibly suggesting a better understanding of the peoples across the Pacific.
Economic Thought expressed in Rules of Conduct, Laws, etc. — As has been said more than once, the central idea of Hebrew government and education was the fulfillment of the law, the commands of Moses or the prophets forming the standard in all thought and action,1 and the situation was quite similar among the Hindus. Now such a situation meant a minute regulation of everyday life,2 its economic aspects included, and it follows that the material for this study is mostly drawn from rules of conduct or laws. A study of those regulations of the Hebrews and Hindus which are significant as indicating the character of their economic thought shows that the following subjects were the most important: occupations, agriculture, interest and usury, labor and wages, property rights, taxation, inheritance, weights and measures, adulteration, monopoly, and the poor. All of these topics cannot be treated here, but only those about which the regulation was considerable and of clear intent.
Usury. — The Mosaic law forbade lending " upon usury," that is, at interest ; it prohibited " usury of money, usury of victuals, usury of anything that is lent upon usury." 3 This
1 Conder, Judas Maccabaus, p. 24.
1 Among the Jews the prophets, however, were generally opposed to such a regulatory spirit, tending to ignore the regulations. See, e.g., Amos vii, 10 ff. ; Hosea vi, 6; Isaiah i, 10-17. 3 Deut. xxiii, 19, 20.
26 ECONOMIC THOUGHT
applied only to fellow Hebrews, however, loans on usury to strangers being allowable. Mercy in case of loans to the poor l was enjoined. Some evidence of development in the law of usury exists, for, in the first pronouncement, interest-taking was forbidden in the case of loans to the poor alone (Ex. xxii, 25) ; l but later — perhaps because of fraud — the prohibition was extended to all Israelites. The exception of strangers must have made loans at interest possible by using such persons as intermediaries. When, in post-exilic days, trade increased and with it loans of capital, the Rabbis made further modifications.3
Two kinds of loans were distinguished by Mosaic law : " Thou shalt not give him (i) thy money upon usury, nor lend him (2) thy victuals for increase"4 (Lev. xxv, 37). Neither is to be thought of as connoting all that the term " interest" does, as used in economics, for they involve no concept of capital, and but an imperfect one of value. The Mosaic " usurer " was merely one who lent things for considerable periods of time, receiving three shekels where he had given two, or three bushels for two.
In fact, the law seems to have desired that lending should be regarded as a form of charity, ordaining that the poor be given loans even though the seventh year, when debts should lapse, were at hand, or though no security were given (Deut. xv, 7-9; xxiv, 13). It must be remembered that such regulation went hand in hand with legislation whose aim was to prevent the alienation of property, and that the seventh and jubilee years, if enforced, would have put lending on a very different basis than is usual.
But the Mosaic law was not maintained in force without modification. The jubilee year was not enforced, and commer-
1 Deut. xxiv, 10-14.
1 Cf. Driver, Introduction to the Literature of the Old Testament, pp. 35 f.
1 Jewish Encyclopedia, article on "Usury."
No essential difference in treatment appears in the law ; but the word "increase," indicating that which was forbidden in the second kind of loan, is different from the one translated as "usury," and this might indicate a different attitude toward the former, as being more liable to fluctuations in value and bulk.
ORIENTAL ECONOMIC THOUGHT 27
cial dealings grew. Solomon appears to have been engaged in much trading, and after the return from Babylon, where com- mercial transactions of many kinds were highly developed, in- cluding lending at interest, the Hebrews parted more from the spirit of the old laws. The word meaning " per cent " does not seem to have been used until after the captivity, the idea of interest as a rate being found in Nehemiah for the first time; here the prophet exhorted the usurers to restore " the hundredth part of the money, and of the corn, the wine, and the oil, that ye exact of them " (v, n). An attempt was made to keep the letter of the law, however, and its importance to an under- standing of medieval doctrines is well known.
The security for loans, above referred to, was in the nature of a " pledge," and there was some regulation concerning such pledges. One rule might be formulated thus: Thou shalt not demand as a pledge any of thy brother's necessities. For a man's upper garment must be returned before nightfall, and " no man shall take the nether or the upper millstone to pledge : for he taketh a man's life to pledge " (Deut. xxiv, 6). An- other rule was that one must not go into the borrower's house and take his pledge, but must let him bring it out ; and if the borrower were a poor man his pledge should be returned before the night (Deut. xxiv, 10-13). I*1 the book of Job men are upbraided for taking pledges of the poor and causing them to go naked, for taking the widow's ox as a pledge, and for taking pledges when no corresponding loans had been made (chaps, xxii, xxiv).
Among the most striking regulations of the Brahmanic law were those concerning interest and usury. Money-lending by the higher castes was closely restricted. Brahmanas and Kshatriyas could not lend anything at interest, acting like usurers, except to exceedingly wicked persons who neglected their sacred duties.1 " Now they quote also (the following verses) : ' He who acquiring property cheap, gives it for a high price, is called a usurer and blamed among those who recite the Veda.' " l In case of loans made without security the 1 Vasishtha, II, 40 ff.
28 ECONOMIC THOUGHT
following terms were legal : for gold, double value (i.e. 100 per cent) ; for grain, treble the original price ; anything sold by weight might be lent at eight times the original value.1 On security, the following law obtained : " ' Hear the interest for a money lender declared .by the words of Vasishtha, 5 mashas for twenty (Karsha-panas may be taken every month) : thus the law is not violated.' " This meant about 15 per cent per annum. By another provision 2, 3, 4, and 5 per cent might be taken from the four castes respectively. There was differ- ence of opinion as to a limit for aggregate interest payments, some holding that, in some cases at least, interest should only be paid for one year, others that interest should cease after the principal had been doubled. In any case, " the King's death shall stop the interest on money (lent) ; and after the coronation of (a new) King the capital grows again," — illus- trating the dominance of political considerations.
Various kinds of interest payment were distinguished : there might be compound, periodical, stipulated, corporal, daily, and use of pledge,2 — corporal interest being that paid in labor, use of pledge referring to cases in which the lender made use of some security, like a beast of burden, for example.
Thus the fact is apparent that among the ancient Hindus interest was closely connected with some concept of a just price; that the rate varied with the caste, and that a wicked man might be bled where another might not be ; that the rate varied with the thing lent, loans of money and staple com- modities like grain bearing a lower rate than others ; and that there was some maximum limit for aggregate interest payment.
One striking similarity between the ideas of Hebrew and Hindu on the foregoing subject must have been noticed, namely, the notion that there should be some maximum for interest payment. At the death of the king or the jubilee year or the doubling of the principal, interest should cease. Both peoples dreamed of a tabula rasa or jumping-off place, where, to a greater
1 Vasishtha, II, 47.
1 Sacred Books of the East, Max Miiller, editor, Vol. II, p. 239 ; Gautama, XII, 3^35-
ORIENTAL ECONOMIC THOUGHT 2Q
or lesser extent, debtor and creditor should be equalized. It will be observed, too, that both peoples drew distinctions between borrowers : here to the " stranger," there to the " exceedingly wicked person " or to the lower caste, money or other things might be lent at usury.
Commercial Regulations and Just Price. — That some progress was made in reasoning about commercial matters is evidenced by a set of measures directed toward securing justice in buying and selling. Both Hebrews and Hindus had careful regulations against false weights and measures,1 and against adulteration. Provisions against speculation, monopoly, and the like were even more significant. Raising market prices by speculative means was disapproved of by Rabbinical law, being classed with usury and false weights, and middlemen were not tolerated. The export of necessary articles of food was forbidden, and in time of famine no storing was allowable — all must be put upon the market. Hand in hand with these ideas went a limitation of retail storekeepers' profits to i6f per cent.2
The Brahmanic law exhibits similar conceptions. It laid a penalty upon any company of merchants who prevented the sale of a commodity by selling it under its price, and a like one upon those members of such a company who sold an article belonging to the whole company for more than it was " worth," to their own profit. Suggestive of modern commercial usage is the following provision : He who buys unawares in open market the property of another man from one not authorized to sell it is not to blame ; but the owner shall recover his property. If, however, he has bought it in secret and under its price, the purchaser and the vendor shall be punished as thieves.
These regulations all point toward an underlying conception of a just price. The things forbidden are false weights, " false " money values (usury), "false" commodity values (monopoly,
1 See Vishnu, V, 122-127; Amos viii, 4-6 ; Deut. xxv, 13-15; Jewish Encyclopedia, article on " Police Laws."
2 Jewish Encyclopedia, before cited. Such regulations were, of course, post-exilic.
30 ECONOMIC THOUGHT
underselling, enhancing, etc.), " false " profits, and the like. This, indeed, seems to be the normal point of view of a people whose goods and services are not evaluated in markets in the economic sense, and it will be found down through the Middle Ages, with a recrudescence with regard to monopolized com- modities to-day. Competitive markets being practically im- possible in old Oriental industry, — to this day there is no one price in the Oriental shop, — the consumer was very likely to be exploited,1 and hence these regulations.
The position of the state with regard to mines and other economic agencies is significant. According to the Institutes of Vishnu, the king was to keep the whole produce of mines : 2 and let the king, so runs the pronouncement, appoint able officials for the working of his mines, for the levying of taxes and of fares to be paid at ferries, and for his elephants and forests.3
Labor and Caste. — With such a social and industrial organi- zation as was possessed by the old Oriental civilizations there could have been no labor problem in the modern sense. There were wage workers, however, and in regulating the relations between employer and employee some rudiments of labor law were provided. By Brahmanic law, a hired workman who abandoned his work before the term had expired was to pay the whole amount of stipulated wages to his employer and a fine to the king.4 What had been destroyed through his negligence must be made good to his employer. On the other hand, if an employer dismissed a workman whom he had hired before the expiration of the term agreed upon, he must pay the full amount of wages stipulated and a fine to the king, unless the workman were to blame. From the Mosaic laws little can be gathered. As wages are mentioned, there were wage earners, but their payment was probably largely in kind. The chief regulations concerned mercy and justice to the laborer, commanding the daily payment of wages 6 and warning those who oppressed the hireling.6
1 Charged "unreasonable rates," we would say.
* III, 56. • III, 16. « Vishnu, V, 153.
' Deut. xxiv, 15 ; Lev. xix, 13. ' Mai. iii, 5.
ORIENTAL ECONOMIC THOUGHT 31
Labor was regarded as honorable by the Hebrews; but no especial encouragement appears to have been given to it, except in agriculture. It was not until trade was later developed that attention was paid to the artisan wage worker, the Mo- saic law showing almost no regulation of trade.
Perhaps here is the place to mention briefly the economic significance of the caste system as found among the Hindus. It was, as Cossa says, division of labor gone to seed. It stood for rigidity of society and for permanent inequality among social classes, an attitude which means a point of view in economic thought. The four castes, beginning at the top, were : Brahmanas, Kshatriyas, Vaisyas, and Sudras. The functions which the dominant elements conceived to belong to these castes were as follows : x Brahmanas existed to study and teach the Veda, to make sacrifices for others, and to give and accept alms ; Kshatriyas were constantly to practice arms and protect the world, receiving due reward in taxes; Vaisyas were the husbandmen, tending cattle and tillage being their chief functions, with traffic and money-lending allow- able ; finally, the Sudra was the artist and artisan, having as his general duty the service of the superior castes. One of the great duties of the king was to keep the four castes in the practice of their several duties.
That some elasticity was possible in this system appears from the fact that in time of distress each caste might follow the occupation of the one below it. In general, however, the most severe separateness was to be maintained, and any man having connection with a woman of one of the lower castes was to be put to death.2
Agriculture Favored. — " Although trading gives greater profits, these may all be lost in a moment; therefore, never hesitate to buy land," runs an old Rabbinical maxim ; 3 and the sage author of the book of Proverbs, in a like vein, says, " He that tilleth the soil shall have plenty of bread." 4 In fact,
1 Sacred Books of the East, Vols. II and XIV, translations edited by Max Miiller: Vishnu, III, 26-27, 56-62; Vasishtha, II, 13-20.
* Vishnu, V, 43. s Yeb. 63 a. 4 Prov. xii, n (Revised Version).
32 ECONOMIC THOUGHT
although an earlier condition in which the shepherd was favored over the tiller of the soil may be indicated by the story of Abel and Cain, it has been well said that agriculture was the basis of the national life of the Israelites, state and church being both founded upon it.1 The dominant place given to agricul- ture may be accounted for in part on the ground that the codes, hymns, and maxims of these Oriental civilizations were largely drawn from a time when pastoral peoples were just settling down to an agricultural life, and it seems likely that a more or less conscious purpose of the lawgivers was to fix their people in such a life.2
On the other hand, there was a tendency to regard trade and the crafts with disfavor. The Vaisya husbandman stood above and aloof from the Sudra artisan. The Jew came to regard the trader with a considerable degree of contempt, call- ing him " Canaanite." 3 To what extent it was cause, or to what extent effect, may be impossible to say, but coupled with this attitude of the Hebrews is the fact that they did not enter into commerce or manufactures to any considerable extent. In the Books of Maccabees husbandry is mentioned, but trade is not. Josephus states that even in his time the Jews were not addicted to trade. There seems to be no evidence that free- born Israelites were artisans prior to the exile, and the crafts were accounted ignoble and left to slaves.4 It is true that Solomon carried on commerce, but even in this case it was done through the Phoenicians, and by the government rather than the people.
This relatively high esteem for agriculture is, perhaps, not so significant as it would be in a people which had progressed further industrially, but still it remains a noteworthy charac- teristic of many Orientals in their attitude toward industry. And this affected their regulations both positively and nega-
1 Jewish Encyclopedia, art. "Agriculture."
1 Cf. Kautz, Geschichtliche Entwickelung der National Oekonomie, p. 97.
3 E.g. Hosea xii, 7, 8.
4 Michaelis, Laws of Moses, Vol. I, art. xxxviii. But for cases of domes- tic manufacture see i Chron. iv, 21, 23; Prov. xxi, 19-23.
ORIENTAL ECONOMIC THOUGHT 33
tively; it meant that much regulation of later times, with the ideas corresponding, was uncalled for; while their laws were hostile to the growth of manufactures and commerce.
Seventh and Jubilee Years. — Quite peculiar to the Hebrew law was the institution of- the seventh and jubilee years. This institution was based upon the concept of God as a king own- ing all the land of Israel : " The land shall not be sold for ever : for the land is mine" (Lev. xxv, 23). Thus to a lawgiver who desired to prevent inequality in wealth, to preserve family and tribal property, and to keep his people attached to their country, it was easy to prohibit the permanent alienation of lands from the original possessor. This Moses did by enacting that every fiftieth year the Hebrews should " return every man unto his possession " (Lev. xxv, 13). It follows that a sale of land really amounted to no more than a lease, and the price necessarily varied with the remoteness of the jubilee year. This was clearly foreseen : " According to the number of years after the jubilee thou shalt buy of thy neighbor . . . for according to the number of the fruits doth he sell unto thee" (Lev. xxv, 15, 16).
Every seventh year was to be one in which the land lay fallow : "But in the seventh year shall be a sabbath of rest unto the land." The Rabbis emphasized the religious intent of the meas- ure ; but it seems not improbable that the economic desirability of resting the land was recognized. This provision, which at first referred to land alone, soon was given a broader significance; for, to the end that there should be no poor, creditors were com- manded to release their debtors on the seventh year (Deut. xv, 4). Perhaps the most logical interpretation to put upon this command would be that during the seventh year interest was to be suspended, — " he shall not exact it," — and then it might be connected with the fact that a general fallow would take away the means of interest payment.1 The Talmud, however, in- terpreted the seventh-year provision as ordaining that debts should cease, thus making a virtual statute of limitations. When industry and trade increased, it became necessary to get around
1 See Michaelis, Laws of Moses, Vol. II, arts. 157, 158.
D
34 ECONOMIC THOUGHT
such a hampering measure by numerous subterfuges or legal fictions: thus wages, loans on pledges, notes guaranteed by mortgage, and notes waiving the right for the one particular case, came to run through one or more " seventh years."
There seems to be no good evidence that the jubilee year, as such, was ever literally kept; the seventh year apparently was.1
Summary Generalizations. — Largely, though not entirely, upon the basis of the preceding facts, some broad generalizations may now be made about the economic ideas of these peoples and the underlying philosophy of life upon which their economic concepts rested.
1. Among the most salient characteristics of their social philosophy may be mentioned its simplicity. Being in the child- hood of civilization, it is not strange that they conceived of life as a whole. Their social life was in a sense undeveloped, or, better, undifferentiated, and the social sciences were in a like condition. Religion, ethics, law, economics, philosophy, were inextricably bound together.
2. In this aggregate of social concepts the dominant member was religious or moral. In fact, it is roughly true that these Oriental civilizations were in the theological stage, passing in some cases to metaphysical. There was a dominant priestly class, and it was this class which preserved, formulated, and handed down the traditions that both expressed and limited eco- nomic thought. The rules of the Brahmanic or Mosaic codes which bore upon economic matters had a religious significance : by following them one gained primarily, not economic well-being, but a right life, a clear conscience, or spiritual perfection. Wit- ness the prohibition of certain foods, and occupations. And the same idea is manifest in the rules of caste. Even when charity was ordained it was in like spirit, leading to an emphasis of the spiritual excellence of the giver above the benefit received by the poor. Or, when the Brahmans thought about poverty and un- equal distribution of wealth, they simply attributed such evils
1 Neb. x, 32 ; Josephus, Antiquities of the Jews, Bk. XIII, Chap, viii, § i ; XIV, x, 6, :6; III, rii, 3-
ORIENTAL ECONOMIC THOUGHT 35
to the sins of a previous existence and recommended that they be borne in patience. The idea of fatalism was applied to wealth. No doubt, however, a strong tendency appears among the Jews, at least, to put the secondary consideration of long life and pros- perity in the foreground.
3. A characteristic of the situation was the minute regulation of everyday life. The sacred laws of the Brahmanic civilization regulated everything, from the cleaning of one's teeth to one's funeral oblations ; and the Mosaic code with its express direc- tions concerning the sowing of vineyards, eating, and trimming hair and beard shows the same tendency. As has appeared above, many institutions which were primarily economic were thus regulated.
4. One of the most striking characteristics of both Hebrew and Hindu economic thought, as it was expressed by philosophers and lawgivers at least, was the conflict it shows between eco- nomic stimuli and ethico-religious ideas. Those factors, sub- jective and objective, which tended to develop economic prog- ress were not in harmony with these peoples' philosophy of life. Among other things, that philosophy was characterized by such a lack of individualism and of materialism, such a disapproba- tion of industry other than agriculture and relative indifference toward wealth,1 such a degree of passivity and fatalism, that its dominance made any great industrial civilization impossible.
(a) Being extremely idealistic, there was an exaltation of the institution and a subordination of the individual, plainly seen in the political system. The state or the church came first, and was everything. " Above all," says Kautz, " as a control- ling fundamental of the entire social and economic theory of India can be placed the esthetic self-denial and renunciation, the unreserved recognition and glorification of absolute political des- potism, the denial of the personal worth of man " which it pos- sessed.2 Now a certain degree of individualism seems to have been necessary to the development of economic thought. With-
1 This was far less true of the Hebrews than of the Hindus, the former often indicating a keen appreciation of the good things of the earth.
2 Gesch. Entwickelung d. Nat. Oek., p. 87.
36 ECONOMIC THOUGHT
out it industry was limited by lack of motive, economic relations were simple, and economic thought largely restricted to promul- gating the interests of the ruling body.
Closely related to this condition was the lack of a certain hard- headed materialism which has led the Occident to glorify the material basis for civilization, wealth. Instead of first deifying and then extolling discontent, — " divine discontent," — and continually striving to raise their standards of living, Orientals tended to limit and crystallize their standards, abolishing dis- content. Their philosophy did not lead them to analyze happi- ness into different grades or planes of satisfaction; happiness with them was generally regarded as attained by decreasing wants. This general attitude is one which is not in harmony with the dominant note of our civilization, and it is probable that few Americans really believe that it is easier for a camel to pass through the eye of a needle than for a rich man to enter the king- dom of heaven, unless they be the poor. Between these ideals, as they find expression in Christianity, and Occidental civiliza- tion there has always been conflict, and they have become in- creasingly ignored in our practice.
(b) According to the Vedas, seeking after wealth leads to sin. Even large-scale commerce was frowned upon, and sometimes agriculture itself. The Hebrews, while sometimes decrying, sometimes also praise wealth, and on the whole by no means show the ascetic spirit of the Hindus ; but as a generality the statement holds that compared with the Occident wealth and non-agricultural industry were regarded with relative disfavor or indifference. They saw that riches was not the end ; but went further and overlooked its utility as a means.
(c) The element of passivity, or economic indifference, already referred to, is not in itself peculiar to Oriental thought. It is, however, unusually strong there, and its connection with a rather rigid body of philosophy — crystallized, as it were — is, if not unique, peculiar. There it found expression in written codes ; there it was part of an effective, long-continued religious system; there it was actually applied to economic thought and practice. To what extent this is to be attributed to climate and
ORIENTAL ECONOMIC THOUGHT 37
tropical environment need not be said. There was the tendency to accept wealth or poverty without a struggle: it was God's will, or the reward for the acts of a previous life, etc. This might be termed economic fatalism.
5. Two further characteristics of Oriental thought, which were largely the result of points already touched upon, may be noted next. In the first place, there is its fixity and conserva- tism. The general aim of social regulation was to maintain the social equilibrium, and here, as elsewhere among ancient peoples, static ideals dominated. This finds expression in the caste sys- tem, and in the isolated national life. It is seen in the long- stationary condition of their civilization.1
6. To say that the concept of society and social welfare was prominent may seem strange, yet the statement appears true. This concept, however, was but little like our own, for it went hand in hand with a lack of individual rights which sharply differ- entiates it from present-day ideas. Nor is this point made with the idea of drawing a distinction between Oriental thought and all Occidental thought. The Hindus' laws concerning weights and measures, adulteration, exchange, sanitary practice, and other matters show this concept. Among the Hebrews there were laws providing that broken glass should be buried, that water should not be thrown in the streets during the summer, and that there should be no chickens or dunghills within the city (Jerusalem).2 Streets were not to be blocked by debris or pro- jecting houses. For encouraging free intercourse, the width of roads was prescribed, the width being greater in the case of high- ways between commercial centers. And there were regulations concerning weights and measures similar in spirit to those of the Hindus. Thus one may conclude that, though the point of view
1 Japan not long since, China even to-day, has just awakened from this point of view. These peoples, from Byzantium to Japan, have lived an isolated national life and shown a large measure of national conceit, tracing their origin to the sun, etc.
1 See Jewish Encyclopedia, article on "Police Laws." The strong family sense of the modern Jew and his remarkably persistent race sociality are noteworthy, though superficially he often seems a rather selfish individualist. The effect of centuries of abuse must be remembered.
38 ECONOMIC THOUGHT
was quite different, there was a sense of social solidarity express- ing itself in regulatory measures which resemble in a way the legislation of recent times.
This fact may be regarded as a concomitant of their idealistic philosophy.
One writer on the history of the Hebrews has much empha- sized what he calls the first appearance of Socialism.1 Socialism, however, is not the word to use. What we find in the Bible is, first, a careful provision for the poor, protecting them from ex- ploitation, from permanent debt, and enjoining free loans and charity ; and then numerous attacks by the prophets upon the injustice and oppression of the rich. It may be agreed that the aim of all this was a national solidarity which almost ignored the individual, and it seems that Moses had the prevention of in- equality of wealth in mind in making his laws ; but that does not make Socialism, and is certainly very far from social de- mocracy. Had the Mosaic law been carried out, the result would rather have been, perhaps, like a sort of periodically enforced communism.
It remained for Christianity to put the Old Testament ideals on a broader and more democratic basis. Moses, by limiting blood revenge and legislating mercy and charity, took a step in advance ; but he only prepared the way for the Golden Rule. Similarly the Old-Testament steps toward equality of property lay back of the more humane and democratic ideals of community held up by Christ and his disciples.
Enough has been said to give some more positive and compre- hensive idea of the economic thought of the Hebrews and Hindus than is generally had ; and in any case Cossa's dictum that Ori- ental economic thought "can all be reduced to a few moral pre- cepts about the virtue of industry, temperance, and economy, and^about the duty of only desiring wealth for the purpose of worship and charity," is clearly too narrow. It can only be so reduced at the expense of truth.
1 Renan, History of the People of Israel, Chap. XVI.
CHAPTER IV
THE ECONOMIC THOUGHT OF THE ATHENIAN PHILOSOPHERS l
IT is natural to pass from the Orient to Greece. Both by geog- raphy and by the character of her people, Greece has been closely related to Asiatic civilization. However much scholars differ as to the extent of the contributions made by Asia and Africa to Greek culture, it may safely be said that such contributions were considerable. But, while certain similarities exist, there are im- portant differences ; and so directly essential has been the part played by Greek ideas in the development of modern thought that they demand no small share of attention.
Origin of the State ; First Economic Interpretation of History. — One of the striking facts about the philosophy of certain Greek thinkers is that it rests upon what may be truly called an eco- nomic interpretation of history. To be sure, the Athenian phi- losopher's conception of history was imperfect, and by an eco- nomic interpretation is not meant a materialistic one ; but with these modifications, the statement is broadly true. Witness the following from Plato : "A State, . . . arises, as I conceive, out of the needs of mankind ; no one is self -sufficing, but all of us have many wants. . . . Then, as we have many wants, and many persons are needed to supply them, one takes a helper for
1 Some of the most useful special references are : Boeckh, A., The Pub- lic Economy of the Athenians; Loos, I. A., Studies in the Politics of Aristotle and the Republic of Plato (Bui. of the University of Iowa, 1899) > Ashley, " Aristotle's Doctrine of Barter," Quarterly Journal of Economics, Novem- ber, 1895 ; Simey, " Economic Theory among the Greeks and Romans," Econ. Rev., 1900; Oncken, Die Staatslehre des Aristoteles, 1870-1875; Marigny, Histoire de V Economic Politique des Anciens Pen pies; Dubois, Prttis de I' Histoire des Doct. Econ., Chap. I, and bibliography there pre- sented. The chief sources are the Politics and Ethics of Aristotle, and Plato's Republic and Laws; and these works are available in the excel- lent translations by Jowett and by Welldon.
39"
40 ECONOMIC THOUGHT
one purpose and another for another ; and when these partners and helpers are gathered together in one habitation the body of inhabitants is termed a State . . . And they exchange with one another, and one gives, and another receives, under the idea that the exchange will be for their good." l The origin of the state, then, is traced to the lack of individual self-sufficiency in the satisfaction of wants, and to the advantage of specialization and exchange. Such reasoning indicates an important step toward the development of economic analysis.
On this point, Aristotle's doctrine is less purely rational. He assumes that an impulse to political association is innate in all men : " Man is naturally a political animal." The genesis of the state is found in the household, which, in its turn, rests upon the inability of male and female to exist independently, and upon the inequality among men which leads to slavery. The house- hold is " the association naturally formed for the supply of everyday wants." 2 Then came the village, and finally the state : " Lastly, the association composed of several villages in its complete form is the State, in which the goal of full independence may be said to be first attained." The state is formed to make life possible.
Division of Labor. — Plato's discussion of specialization and exchange clearly suggests the idea of " division of labor." In- deed, the Greek philosophers' concept of division of labor, while crude, is the ultimate father of the later discussions of Hutcheson, Hume, and Adam Smith. When, however, Plato says : ". . . we must infer that all things are produced more plentifully and easily and of a better quality when one man does one thing which is natural to him and does it at the right time, and leaves other things,"3 he does not have in mind the complex modern questions connected with division of labor. The Greek philosophers refer rather to a simple separation of employments, and their treat- ment lacks the significance that comes from the connection of the subject with a system of economics.
1 Republic, Bk. II, pp. 369 ff. Ed. Steph. ; Laws, Bk. Ill, pp. 678 ff. * Politics, Bk. I, Chap. II (Welldon, p. 3). 8 Republic, Bk. II, p. 370.
GREEK ECONOMIC THOUGHT 41
Their ideas concerning division of labor rested ultimately upon an analysis of human wants. The three primary wants of man, said they, are for food, clothing, and shelter. Therefore, there are at least husbandmen, weavers and shoemakers, and house builders; while smiths and carpenters come into existence to relieve the husbandmen. Exchange among these makes a mer- chant class necessary. Few places, moreover, are self-sufficient, hence foreign traders and sailors find employment. Meanwhile, another group, consisting of hirelings and slaves, arises. The function of the retail trades is validated on the ground that without them the seller might be compelled to wait or to depart with his goods undisposed of.
The Social Viewpoint Taken. — In emphasizing the ad- vantage of division of labor, society or the state was thought of primarily rather than the individual, and the conclusion may be drawn that, in general, Athenian thinkers stressed the solidarity of society. They by no means overlooked the interests of the individual, but always the individual was primarily the citizen, a citizen who, on the one hand, depended upon the state for his highest development, and who, on the other hand, by his develop- ment promoted the highest good of the whole. They exalted the state above the man ; civilized man, they reasoned, is not to be thought of outside the state ; without the state one is either more or less than a man. Aristotle's reasoning is in point: " Thus the state is by nature clearly prior to the family and to the individual, since the whole is of necessity prior to the part ; for example, if the whole body be destroyed, there will be no foot or hand, except in an equivocal sense, as we might speak of a stone hand. . . . The proof that the state is a creation of nature and prior to the individual is that the individual, when isolated, is not self-sufficing ; and therefore he is like a part in relation to the whole." l
Plato, in accord with his highly idealistic and communistic beliefs, puts the case more forcefully : You are to regard yourself and possessions " not as belonging to yourselves, but as belong- ing to your whole family, both past and future, and yet more do I 1 Politics, Bk. I, ch. ii.
42 ECONOMIC THOUGHT
regard both family and possessions as belonging to the state; wherefore ... I will legislate with a view to the whole, consider- ing what is best both for the state and for the family, esteeming as I ought the feelings of an individual at a lower rate. . . ." 1
Indeed, regulations similar to those found among more eastern peoples were not lacking in Athens. For example, there were inspectors of weights and measures, inspectors of goods placed on sale, harbor overseers, etc. The price of salt was regulated ; the exportation of wheat was forbidden ; and the slaughter of sheep and goats during lambing time was not allowed. The state also pensioned those crippled in war, and in some cases gave alms to the destitute.
Inheritance. — As further evidence of this conception of so- ciety, and as an indication of the static character of the ideal, Plato's plan for regulating inheritance2 and population3 is of in- terest. In his ideal state each was to have an inalienable allot- ment of land. Each was to choose a single heir, adopting a son if he had no children, or choosing a husband for his daughter, if male issue were lacking. Other property might be distributed among his remaining children.4 Clearly one object was to keep the family intact and to preserve its property to it ; and these measures remind one of those adopted by the Hebrew lawgivers.
Plato charges ancient legislators with being too good-natured in allowing a man to dispose of his property by will : " . . . they were afraid of the testator's reproaches, and so they passed a law to the effect that a man should be allowed to dispose of his prop- erty in all respects as he liked ; but you and I, if I am not mis- taken, will have something better to say to our departing citi- zens," 8 and he goes on to express his belief that the interest of the state should predominate.
All this is surely suggestive as to present-day questions of regulating inheritances.
1 Jowett's Plato, Vol. V, p. 310.
2 Laws, Bk. V, p. 740; Bk. XI, pp. 923, 924. (Ed. Steph.) > 8 Republic, Bk. V, pp. 460, 461. (Ed. Steph.)
4 This was in Plato's second-best state, where communism of wives and children did not obtain. 5 Jowett's Plato, Vol. V, pp. 310, 311.
GREEK ECONOMIC THOUGHT 43
Population. — But the question arises, what was to become of children other than those who were heirs to the father's lot ? In answer, Plato provided for a careful regulation of popula- tion. This was necessary to preserve the social equilibrium. His state was to consist of a limited number of citizens (5040). If the number began to decrease, prizes might be offered to en- courage a growth of population ; if there were an excess, colonies would be established. In this way that precise regulation of life contemplated by the philosopher might be rendered possible.
Thus the thought of the leading Athenian philosophers was hardly individualistic, though they went further than the Orien- tals in analyzing the state (society) into its component parts; for, like their government, the spirit of their philosophy was some- what more democratic, and they saw that the welfare of the state depended upon that of the individual.
Communism. — Probably the most discussed phase of that part of Greek philosophy which has distinct economic bearing is communism. As this subject has a close relationship to the ques- tion of social solidarity and individualism, it is naturally men- tioned in this connection.
Plato and Aristotle differed greatly in their ideas as to the scope to be given communism. Plato desires a complete com- munism, embracing not only property, but also wives and children. He does not give the details of his scheme for communism in prop- erty. He makes it clear, however, that his object was to pro- mote harmony by removing the ground for civil suits and uniting all citizens by common interests. His ideal state is charac- terized by a community of wives and children, partly with the aim of diminishing discord and jealousy, partly with the idea of eugenics and control of population. " The children of the in- ferior, or of the better when they chance to be deformed, will be put away in some mysterious, unknown place, as they should be. ... This must be done if the breed of guardians is to be kept pure."
f Aristotle was entirely opposed to Plato's communism of wives, and did not go any great way with him as to property. His arguments against communism are classics.
44 ECONOMIC THOUGHT
"Next let us consider what should be our arrangements about property : should the citizens of the perfect state have their possessions in common or not? This question may be discussed separately from the enactments about women and children. Even supposing that the women and children belong to individuals, according to the custom which is at present universal, may there not be an advantage in having and using possessions in common? Three cases are pos- sible: (i) The soil maybe appropriated, but the produce may be thrown for consumption into the common stock ; and this is the practice of some nations. Or (2) the soil may be common, and may be culti- vated in common, but the produce divided among individuals for their private use ; this is a form of common property which is said to exist among certain barbarians. Or (3) the soil and the produce may be alike common.
" When the husbandmen are not the owners, the case will be different and easier to deal with; but when they till the ground themselves the question of ownership will give a world of trouble. If they do not share equally in enjoyments and toils, those who labour much and get little will necessarily complain of those who labour little and receive or consume much. There is always a difficulty in men living together and having things in common, but especially in their having common property. The partnerships of fellow-travellers are an example to the point ; for they generally fall out by the way and quarrel about any trifle which turns up. So with servants: we are most liable to take offence at those with whom we most frequently come into contact in daily life.
"These are only some of the disadvantages which attend the com- munity of property; the present arrangement, if improved, as it might be by good customs and laws, would be far better, and would have the advantages of both systems. Property should be in a certain sense common, but, as a general rule, private; for, when every one has a distinct interest, men will not complain of one another, and they will make more progress, because every one will be attending to his own business ; and yet among the good, and in respect of use, ' Friends,' as the proverb says, 'will have all things common.' Even now there are traces of such a principle, showing that it is not impracticable, but, in well-ordered states, exists already to a certain extent and may be carried further. For, although every man has his own property, some things he will place at the disposal of his friends, while of others he shares the use with them. The Lacedaemonians, for example, use
GREEK ECONOMIC THOUGHT 45
one another's slaves, and horses, and dogs, as if they were their own ; and when they happen to be in the country, they appropriate in the fields whatever provisions they want. It is clearly better that prop- erty should be private, but the use of it common; and the special business of the legislator is to create in men this benevolent disposition. Again, how immeasurably greater is the pleasure, when a man feels a thing to be his own ; for the love of self is a feeling implanted by nature and not given in vain, although selfishness is rightly censured ; this, however, is not the mere love of self, but the love of self in excess, like the miser's love of money ; for all, or almost all, men love money, and other such objects in a measure. And further, there is the greatest pleasure in doing a kindness or service to friends or guests or com- panions, which can only be rendered when a man has private property. The advantage is lost by the excessive unification of the state. Two virtues are annihilated in such a state ; first, temperance towards women (for it is an honourable action to abstain from another's wife for temperance' sake) ; secondly, liberality in the matter of property." *
Aristotle, it will be observed, although opposing Plato's ideas, did not rush to the opposite extremes. Some things are to be private; some to be held in common. He desired that more things should be common than there then were, and protested against the excessive individualism of the Greeks. He advo- cated common meals, and especially noteworthy is his wish for a certain community in the use of property along with its private ownership.
It must not for a moment be fancied that these ancient phi- losophers thought of communism as implying any general democ- racy. Quite the reverse. There were three classes of men fash- ioned in the bowels of the earth, one of gold, another of silver, the third of iron or copper. These were, respectively, the philoso- phers or guardians, the warriors or auxiliaries, and the artisans and tradesmen. Communism was to be applied to the first two alone. It was an aristocratic communism.
Scope and Classification of Aristotle's Economic Thought. —
The nearest approach made by Greek philosophy to developing
a distinct theory of economics came in discussing the elements of
household management. Here a distinction was drawn between
1 Politics, Bk. II, chap. V.
ECONOMIC THOUGHT
economics (oikonomik) and chrematistics (chrematistik) ; the former embraces chiefly wealth consumption in the satisfaction of wants, and the provision of those necessary and useful com- modities which can be stored to meet those wants; the latter deals with wealth-getting, including money-making and exchange. Concerning the latter, Aristotle says, " And there is another ele- ment of a household, the so-called art of money-making (or finance) which, according to some, is identical with household management, according to others, a principal part of it." l
There are two kinds of chrematistics : the natu- ral and the unnatural. Thus the first simple bar- ter by which things are given in exchange for what one wants " is not contrary to nature, but is needed for the satisfaction of men's natural wants " ; 2 but " retail trade is not a natural part of the art of money-making." 2 Or, again, husbandry and stock-raising make the " true or proper art of money-making," while the
other consists in exchange.3
, „ It is the natural or
"proper" branch of
chrematistics alone which should be included in economics or household management (Wirtschaft).4 Thus Aristotle's clas- sification might be represented by the above diagram.
Closely connected with the preceding analysis is the dis- tinction between the natural or proper and the unnatural or improper uses of a thing. " Of everything which we possess
(NATURAL) ECONOMICS
(Household Management)
(Wealth-Getting}
CHREMATISTICS
(ARTIFICIAL)
1 Aristotle, Politics, Bk. I, chap. 3. * Ibid., Politics, Bk. I, chap. 9.
* Ibid., Bk. I, chap. n.
* Ibid., Bk. I, chap. 8.
GREEK ECONOMIC THOUGHT 47
there are two uses : both belong to the thing as such, but not in the same manner, for one is the proper, the other the im- proper or secondary use of it. For example, a shoe is used for wear, and is used for exchange ; both are uses of the shoe." 1 This distinction rests upon Aristotle's notion of exchange, which, in its turn, is founded on the idea that there is a certain con- sumption which is sufficient for a proper life ; for, when he says that retail trade is not a " natural " part of money-making, he adds that " had it been so, men would have ceased to exchange when they had enough." In other words, natural chrematistics concerns the satisfaction of natural or proper wants by " natu- ral " or " proper " or " primary" uses. This idea clearly suggests later distinctions between value in use and value in exchange. Its consciously ethical content, however, is absent from much of the later usage. In the same idea, a trace of the notion held by some later economists (the Physiocrats) may be distinguished, namely, the notion that extractive industries are the only ones which are productive. One could easily get the idea from Aristotle that the growing, or digging up, or catching of things which satisfy the more elemental wants in the simplest way, is more productive than the elaboration of these things by artisans or their exchange by merchants, — that the latter occupations do not add to the real wealth of the state.
Value. — The idea of value received little attention, and that little was from the viewpoint of ethics or justice. Plato says that according to law a man " should not attempt to raise the price, but simply ask the value," 2 implying that value is an absolute quality inherent in the thing. This, however, is but a rudi- mentary discussion of the subject. Aristotle goes further. His notion of value is clearly subjective, and is based upon the usefulness of the commodity concerned.3 All things which are exchanged must be comparable through some standard of measure, and this standard he finds in man's wants : "In the truest and most real sense, this standard lies hi wants, which is the basis of all association among men." An
1 Ibid., Bk. I, chap. 9. » Laws, Bk. XI, p. 921 (Ed. Steph.).
s See Politics, Bk. I, chap. 9 ; Ethics, V, 8.
48 ECONOMIC THOUGHT
exchange is just when each gets exactly as much as he gives the other ; yet this equality does not mean equal costs, but equal wants. If men want the cobbler's product more than the husbandman's, more grain must be given for shoes. Money is the medium which makes wants commensurable.
Money and Interest. — As regards that particular form of wealth known as money, the teaching of the Greeks has been of signal importance in the history of economic thought. In gen- eral, they saw and explained the necessity for money, and recognized a part of its economic function. Aristotle is especially explicit. He remarks that " as the benefits of com- merce were more widely extended . . ., the use of a currency was an indispensable device. As the necessaries of nature were not all easily portable, people agreed for purposes of barter mutually to give and receive some article, which, while it was itself a commodity, was practically easy to handle in the business of life, some such article as iron or silver, which was at first defined simply by size and weight ; although finally they went further and set a stamp upon every coin to relieve them from the trouble of weighing it. . . ."* And he goes on to dis- tinguish between money and wealth, referring to the fable of King Midas. Xenophon is equally clear in distinguishing between money and wealth.2
Plato would have had no gold nor silver for the private man, but only domestic coins to be used in payment of hirelings and the like ; 3 but he thought that the state should have a common Hellenic currency for the use of embassies, expeditions, and journeys.
With all this, however, the thought of these men was tainted with error. They virtually regarded money as nothing but a medium of exchange, and, as such, they denied the productivity of loans of it. A piece of money cannot beget another piece, was the doctrine of Aristotle, and no economic idea of his had more lasting effects. The obvious conclusion was that interest is
1 Politics, Bk. I, chap. 9 (Welldon).
1 Revenues of Athens.
1 Laws, Bk. V, p. 742 (jowett, The Dialogues of Plato, Vol. V, p. 124).
GREEK ECONOMIC THOUGHT 49
unjust.1 Plato, too, seems to have thought that no interest should be given nor even the principal of a debt be repaid.2
It must not be supposed, however, that this view of interest which seems so strange to us owed its existence entirely to the inferior insight of the ancients. It is to be explained largely by economic conditions. In Athens the circulation of capital was inconsiderable, and money was not lent for productive purposes as often as for the purpose of relieving distress. If to-day loans were chiefly made to embarrassed friends or neighbors to be used in alleviating distress in matters of consumption, we too would undoubtedly regard interest in a different light. The modern theory of interest is based upon loans for productive investment.3
Another erroneous monetary idea which was held by Xeno- phon, at least, was that the value of silver is absolutely fixed regardless of supply. Aristotle, however, recognized that money is subject to the same law as other things and that its value is liable to change, although it tends to be more constant.4
Industry and the Various Occupations. — Like the Oriental lawgivers, Athenian philosophers favored some branches of in- dustry and regarded others with disapprobation. Agriculture was considered most highly. " But strictly speaking," writes Aris- totle, ". . . . the means of life must be provided beforehand by nature ; for the business of nature is to furnish food to that which is born, and the food of the offspring always remains over in the parent. Wherefore, the art of making money out of fruits and animals is always natural." Husbandry and stock-raising were the natural or proper arts. Exchange, including commerce, usury, and services for hire, were not natural. Mining and lum- bering lay midway between.8
Plato thought that the precious metals ought not to be allowed
1 Politics, Bk. I, chap. 10.
2 Laws, Bk. V, p. 742. This may be compared with the Hebrew idea of a loan — see above, pp. 25 f.
3 Cf. Schonberg's Handbuch der politischen Oekonomie (Tubingen, 1882), Bd. I, S. 60.
4 Ethics, Bk. V, chap. 8.
5 Aristotle, Politics, Bk. I, chaps. 10 and n.
50 ECONOMIC THOUGHT
in his state, " nor much of the vulgar sort of trade which is car. ried on by lending money, or rearing the meaner kinds of live- stock ; but only the produce of agriculture, and only so much of this as will not compel us in pursuing it to neglect that for the sake of which riches exist, — I mean, soul and body." l
Riches. — In their attitude toward riches these Greek think- ers are notable for their poise. Great stores of wealth were de- cried by them ; as was also poverty. Clearly recognizing the use- fulness of an abundance of material things as a means, they yet sought the happy medium. Riches in excess were disfavored on two grounds. As a matter of economy, it was argued that they decreased efficiency in production. In a celebrated bit of dia- logue Plato develops the idea thus : —
" There seem to be two causes of the deterioration of the arts.
" What are they?
" Wealth, I said, and poverty.
" How do they act?
" The process is as follows : When a potter becomes rich, will he, think you, any longer take the same pains with his art ?
" Certainly not.
" He will grow more and more indolent and careless ?
" Very true.
" And the result will be that he becomes a worse potter?
" Yes ; he greatly deteriorates.
" But, on the other hand, if he has no money, and cannot pro- vide himself with tools or instruments, he will not work equally well himself, nor will he teach his sons or apprentices to work equally well." 2
A second reason for opposing extreme riches was ethical. Plato argues that great riches and happiness are incompatible ; for a rich man cannot be a perfectly good man, as part of his wealth must necessarily be acquired and expended unjustly.3 The reasoning is of much interest in connection with present-day ethics of wealth, and must be quoted to be appreciated.
1 Pkto, taws, Bk. V, 743 (Jowett, The Dialogues of Plato, Vol. V, p. 126).
2 Republic, Bk. IV, p. 421 (Jowett's Plato, Vol. Ill, pp. 109-110, 119-121). * Ibid., Bk. V, 742-744 (Jowett, Vol. V, pp. 125, 126).
GREEK ECONOMIC THOUGHT 51
"The citizen must indeed be happy and good, and the legislator will seek to make him so ; but very rich and very good at the same time he cannot be, not, at least, in the sense in which the many speak of riches. For they mean by 'the rich' the few who have the most valuable possessions, although the owner of them may quite well be a rogue. And if this is true, I can never assent to the doctrine that the rich man will be happy — he must be good as well as rich. And good in a high degree, and rich in a high degree at the same time, he cannot be. Some one will ask, why not ? And we shall answer — Because acquisitions which come from sources which are just and unjust indifferently are more than double those which come from just sources only ; and the sums which are expended neither honourably nor dis- gracefully, are only half as great as those which are expended honour- ably and on honourable purposes. Thus, if the one acquires double and spends half, the other who is in the opposite case and is a good man cannot possibly be wealthier than he. The first — I am speaking of the saver and not of the spender — is not always bad ; he may indeed in some cases be utterly bad, but, as I was saying, a good man he never is. For he who receives money unjustly as well as justly, and spends neither justly nor unjustly, will be a rich man if he be also thrifty. On the other hand, the utterly bad is in general profligate, and there- fore, very poor ; while he who spends on noble objects, and acquires wealth by just means only, can hardly be remarkable for riches, any more than he can be very poor. Our statement, then, is true, that the very rich are not good, and, if they are not good, they are not happy."
Aristotle also opposed extremes, though, quite consistently with his views as to communism, he was not opposed to reason- able inequalities. He dreaded more the encroachments of the rich than those of the people. " Many . . . make a mistake," he says, " not only in giving too much power to the rich, but in attempting to overreach the people. There comes a time when out of a false good there arises a true evil, since the encroach- ments of the rich are more destructive to the State than those of the people." l On the other hand he remarks, " Poverty is the parent of revolution and crime." 2
1 Jowett, The Politics of Aristotle, p. 131 (Politics, Bk. IV, 12, 6). See also ibid., p. 45 (II, 7, 13). « Ibid., p. 40 (II, 6, 13).
52 ECONOMIC THOUGHT
Ethics Dominant. — It is to be emphasized that the ideal of the Greek thinkers was highly ethical. To be happy one must be good, was a dominant note, and the interests of the soul were placed foremost. " For there are in all three things," Plato says,1 " about which every man has an interest ; and the interest about money, when rightly regarded, is the third and lowest of them : midway comes the interest of the body ; and, first of all, that of the soul ; and the state which we are describing will have been rightly constituted if it ordains honours according to this scale." And Aristotle's dictum is : " But a state exists for the sake of a good life and not for the sake of life only." 2
If one could conceive of Plato making a definition of eco- nomics, one might imagine it would run somewhat as follows : " Economics is the science which deals with the satisfaction of human wants through exchange, seeking so to regulate the indus- tries of the state as to make its citizens good and happy and so promote the highest well-being of the whole." That would make it an applied science, in which ethical aims would play a great part.
Contrast with Hebrews and Hindus. — As already observed, there are important differences between the economic ideas of the Hebrews, Hindus, and other Oriental peoples, and those of the Athenian philosophers. They were similar in emphasizing the state, and the ethical viewpoint. Neither differentiated economics from politics or morals. Both were conservative and undemocratic. Moreover, with both, agriculture was the only industry in very good repute. But the Greeks were more concerned with the individual, going further in the analysis of the state into its citizens. They were, too, possessed of some small degree of historic method, though it was quite abstract. They analyzed economic wants, and based the oikonomik and chrematistik of their philosophy upon this analysis. The Athenian philosophers were more appreciative of material wealth as an agency in furthering human happiness than were the sacred writers of the Hindus, at least. The well-known
1 Laws, Bk. V, 743 (Jowett, The Dialogues of Plato, Vol. V, p. 126). 1 Politics, Bk. Ill, chap. 9.
GREEK ECONOMIC THOUGHT 53
care for the body by the Greeks had its economic signifi- cance.
Most important of all, the Greeks were more rational. In- stead of forbidding interest in pursuance of some divine edict, they argued about it and reached the conclusion that it was un- just. Thus the writings of Plato and Aristotle mark a great step in advance in economic method, as well as in scope and depth of analysis.
CHAPTER V THE ECONOMIC THOUGHT OF THE ROMANS
FROM Greece the scepter passed to Italy, and the glory of Greek thought became merged in the grandeur that was Rome's. No pause need be made to retail the very scanty information we have about early Roman thought, before the stimulus of Greek ideas had been received. Suffice it to say that aside from juris- prudence, the chief writings of the Romans were produced under the influence of Greek thought, and, as in the case of their art, a notable lack of freshness and originality is apparent.
The Athenians were thinkers, keen and analytic. The Ro- mans were men of action, warriors and statesmen. The former left a philosophy which profoundly affected the ethics and eco- nomics of later thinkers ; the latter built institutions which as profoundly affected law and politics. The heritage of the former has been a direct and subjective force ; the other, chiefly indirect and objective, conditioning the thought of the individual. As will appear in a moment, however, Roman thought has had more direct influence than its intrinsic depth would account for.
Of especial interest is the fact that the decay of Rome was well under way when her chief writers were engaged on their works. This fact colors their writings and conditions their economic ideas. The state of decay is at least half perceived by them, and remedies are pointed out for the evils discerned. The causes and remedies as they presented themselves — say in the time of Caesar — were only in part economic ; but the economic ideas of the Roman philosophers were largely palliatives for a declin- ing state.
Roman economic ideas may be gathered from two main sources : (i) the jurists and writers on legal matters; (2) the philoso-
54
THE ECONOMIC THOUGHT OF THE ROMANS 55
phers.1 Of less importance are (3) a few writers on agriculture (de re rustica) ; their ideas were either purely technical or fall under the philosophical group.
Economic Thought of the Jurists. — Among the jurists are found the most original Roman thinkers, and the laws express the best Roman thought. No system of economics is expressed or implied, and ethical or sociological considerations outweigh those economic; but the following brief generalizations are of economic significance.
1. Natural Law. — The Roman jurists made a distinction between human law and natural law which had much influence upon medieval and later thought. Thus their jus civile was a national law applicable to Roman citizens. On the other hand, a body of law known SLSJUS gentium was developed for foreigners of whatever nationality. The latter was broader and less guided by arbitrary local customs. It was more rational. Yet, at the same time, being so founded on general principles, it contained within itself the capacity for abstract absolutism in thought. Later it was united with the Greek concept of the natural, and as a jus naturale colored succeeding thought.2
2. Private Property and Contract. — In their ideas about two legal institutions, the jurists have had great effect in an objective way upon the development of economic thought ; these are the institutions of property and of contract. Theirs was a somewhat narrowly individualistic idea of property. Under the stimulus of Stoic philosophy and the ideal of a jus naturale, the jurists moved away from the clan or family as a social unit, and clearly- defined individual rights replaced whatever community of prop- erty there had been.3 And a corollary of this movement was the development of freedom of contract, including the right of the individual to dispose of his property. The importance of these
1 Others, as religious or theological writers, no doubt influenced economic thought and institutions indirectly.
2 Cf. Maine, Ancient Law, pp. 56, 88; Carlyle (R. W., and A. J.), A His- tory of Medieval Political Theory.
1 The nature and scope of property rights changed at the same time, oi course.
56 ECONOMIC THOUGHT
institutions as a basis for all economic processes, and their lia- bility to abuse, are apparent. As a great English economist has said, " to Roman . . . influence we may trace indirectly much of the good and evil of our present economic system ; on the one ^hand much of the untrammelled vigour of the individual in managing his own affairs, and on the other not a little harsh wrong done under the cover of rights, established by a system of law which has held its ground because its main principles are wise and just." l
An important characteristic of Roman thought is the separa- tion between the personal and the non-personal that it contains. On the one hand political and juristic doctrines generally ex- cluded personal considerations; while, on the other, religion, Stoicism, etc., emphasized them. This separation was instru- mental in making the scientific development of Roman law pos- sible. But as a result Roman juristic philosophy seems one- sided to us in that, while it was individualistic, in its earlier days, at least, it tended to overlook the personality of man. As a sub- jective element having moral rights, man was hardly considered. This is illustrated by the fact that the individualism of the Ro- mans could be and was limited to certain classes, as was freeddm of contract. With such a basis, humanitarian considerations could only with difficulty be appreciated as a distinct force.
3. Money and Interest. — Worthy of mention is the fact that Roman jurists had a good appreciation of money.2 Besides
1 Marshall, Principles of Economics, p. 23, 4th ed.
J The following statement of the origin and use of money by the jurist Paulus has become famous : " Purchase and sale arose from exchanges ; for formerly there was not money as now, nor was one thing called ware and another price, but each according to his necessities used to exchange things lacking utility for those which had it, since it often happens that what one has an abundance of another lacks. But because it does not always nor readily happen that when you have what I desire, I in turn have what you are willing to receive, a material is chosen whose valuation being permanent and fixed by the state (publica ac perpetua aestimatio) should remedy the diffi- culties of exchanges by equality of value in given quantities ; and this ma- terial being struck with a public form (i.e. coined) represents usefulness and effectiveness not so much from intrinsic value as from (value in a given)
THE ECONOMIC THOUGHT OF THE ROMANS 57
having a clear idea of its advantages for exchange purposes, they saw that it was, in a sense, merely a commodity of a more or less changeable value, — a value which is essential to its function and which cannot be established by law.
In the earlier periods of Roman history, the law appears on the whole to have opposed interest-taking. The Laws of the Twelve Tables fixed the interest rate, but condemned usury, thus recog- nizing a distinction between the two. In 357 B.C. the rate was changed to ten per cent ; in 347 it was cut to five per cent ; and five years later interest was forbidden entirely by the Genucian Laws. But with conquest and the growth of wealth things changed. Borrowing and lending were great in amount and widespread, large gains being made by borrowing at from four to eight per cent in Rome and lending in the provinces at such enormous rates as, for example, forty-eight per cent. Finally, the Institutes of Justinian fixed rates of from four to eight per cent, according to the character of the loan. Such legislation, however, seems to have been practically a dead letter, the actual rate varying with market conditions.
Economic Thought of the Philosophers. — While the jurist said, thou shalt, the philosopher was saying, thou shouldst. Though the genius of the Romans was certainly far less ethical than that of the more speculative Athenians, yet Roman philos- ophers generally let ethical notions take the place of scientific principles; as, for example, Cicero said that the universal opinion ought to be " brought over to the hope that men may learn to expect the attainment of what they desire by right purposes and honest deeds, not by fraud and roguery," l and again, " Let it be settled then, that what is wrong is never expedient." 2
The chief writers of this class were Cicero, Seneca, and Pliny
quantity. Both being called wares no longer, but the one called price." Cf. Aristotle's words, above, p. 48.
Dig. de contrah. empt. xviii, i ; quoted by Kautz, Geschich. Entwicke- lung d. Nat. Oek., p. 173. See Moyle, Contract of Sale in Civil Law, pp. 3, 221. Kautz's citation seems faulty in grammar and punctuation.
1 De Officiis, Bk. II, chap. 3. * Ibid., Bk. Ill, chap, if
58 ECONOMIC THOUGHT
the Elder ; and the younger Pliny, Marcus Aurelius, and Epicte- tus may be mentioned. Of all, it can be said that they decried the luxury and vices of their time, contemning the thirst for riches — especially money — and preaching moderation. Look- ing back at the good old days, they praised a simpler agricultural economy. 0 temporal O mores! Such was Rome's state that her philosophers dreamed of the simple life and called, " back to nature!"
While there is more insistence on a competency of worldly goods than among the idealistic Greeks and the religious He- brews, there is not one of these philosophers but would have echoed the words, " The love of money is the root of evil." The Greek philosophers' view of interest also prevailed, Cicero with all the others opposing it. Cicero tells us that Cato thought usury, i.e. interest, as bad as murder, saying, " Would you take interest? would you kill a man? " Seneca condemned interest- taking on the same ground as Aristotle.1 Indeed it must be said of these writers, as of the Greeks, that they did not fully appre- ciate the nature and functions of money, not to mention capital as a whole.
Agriculture the only Honorable Industry. — A limitation upon Roman economic thought, one common to Romans and Greeks, was the prevailing idea that the only honorable industry was agriculture. Cicero may be regarded as typical in this respect, and he wrote : " Now as to the trades and modes of getting gain that are to be regarded as respectable, and those that are to be deemed mean and vulgar, the general opinion is as follows: In the first place, those callings are held in disesteem that come into collision with the ill will of men, as that of taxgatherers, as that of usurers. The callings of hired laborers, and of all who are paid for their mere work and not for skill, are ungenteel and vul- gar ; for their wages are given for menial service. Those who buy to sell again as soon as they can are to be accounted as vulgar ; for they can make no profit except by a certain amount of false- hood, and nothing is meaner than falsehood. All mechanics are engaged in vulgar business ; for a workshop can have nothing
1 De Beneficiis, VII, 10 (Kautz, p. 156).
THE ECONOMIC THOUGHT OF THE ROMANS 59
respectable about it. Least of all can we speak well of the trades that minister to sensual pleasures, —
' Fishmongers, butchers, cooks, poulterers, and fishermen,'
as Terence says. Add, if you please, to this list perfumers, ballet-dancers, and the whole tribe of dice-players. The pro- fessions which require greater skill and are of no small benefit to the community, such as medicine, architecture, and the in- struction of youth in liberal studies, are respectable for those whose rank they suit. Commerce, if on a small scale, is to be regarded as vulgar ; but if large and rich, importing much from all quarters, and making extensive sales without fraud, it is not so very discreditable. . . . But of all means of acquiring gain, nothing is better than agriculture, nothing more produc- tive, nothing more pleasant, nothing more worthy of a man of liberal mind." l
Quietism. — The philosophy of the Stoics was tinged with a quietism which induced in many a sort of economic fatalism resembling that noted in the Orient.2 For example, Marcus Aurelius meditated in such a strain as the following : "Be satisfied with your business, and learn to love what you were bred to; and as to the remainder of your life, be entirely re- signed, and let the gods do their pleasure with your body and soul." 3 Now Stoicism was widespread among philosophers and jurists,4 and the attitude indicated was unfavorable to economic interest and investigation. It would tend to remove the sense of ethical responsibility and to beget a sort of inertia. Here, then, was another limitation to Roman economic thought.
Though there was this feeling among the upper classes, at least, toward the crafts and small-scale commerce, and the quietism in thought just noted, still the Romans were notably careful in business relations and matters of account. Many
1 De Officiis, Bk. I, § 42 (translated by O. P. Peabody).
2 Above, p. 37.
3 Meditations of Marcus Aurelius, IV, 31.
4 Even Cicero, though an adherent of the New Academy, with its Peri- patetic tendencies, wrote his ethical works with a dominant Stoic strain.
60 ECONOMIC THOUGHT
instances might be cited of their accurate and cautious manner of recording both public and private transactions.1 Moreover, there is evidence that credit institutions similar to the check and promissory note were known and used, while Cicero re- quested Curius to honor Tiro's draft for any amount and asked Atticus to ascertain if he could get exchange in Athens.2
While of little direct significance as to economic thought, these facts would indicate that, although lacking in theoretical analysis, the Romans must have had many concrete ideas about economic relationships, of which but little can be said here.
Writers on Agriculture. — Chief among the scriptores de re rustica, or writers on agriculture, were Cato, Varro, and Colu- mella. These writers produced semi-technical treatises on rural economy, dealing with the production of wine, oil, etc., the raising of different grain crops, and grazing. Then, in the introduction or some concluding book, general principles of private economy were added. They agree in decrying the lati- fundia, or large estates, absenteeism, and the spread of slavery, and in praising small-scale fanning. This pretty general con- demnation of slavery on economic grounds is especially note- worthy.
Varro's statement is typical : " To this whole class of free men [who till fields] the statement is applicable that it pays to use hired help rather than slave labor at all times in disease- laden districts, and even in the healthful regions as well for the more difficult tasks of husbandry like the harvesting of the vintage and the crops." 3
Originally, the Romans were a stern and warlike folk, of simple tastes. As a people, they always dreaded the sea, and were slow to engage in foreign trade.4 It was only after mili- tary conquest had enriched them with booty, therefore, that
1 See, e.g., Oliver, Roman Economic Conditions to the Close of the Re- public (University of Toronto, 1907), pp. 130-131.
1 Ep. ad Fam., XVI, iv, 2 ; XI, i, 2 ; XII, xxiv, i.
1 De Re Rustica, I, xvii, 2 ; cited by Oliver, Roman Economic Conditions, p. 127.
4 But see Oliver, Roman Economic Conditions (University of Toronto, 1907), pp. 21 ff.
THE ECONOMIC THOUGHT OF THE ROMANS 6 1
they acquired luxuries and luxurious tastes which necessitated commerce. At the same time the use of slaves increased to great proportions, while there was a concomitant destruction of the independent yeoman class. Land was cultivated in the form of great estates, latifundia, for absentee landlords, while an increasing mass of free but impoverished citizens was main- tained in the cities at the public expense. This meant a grow- ing separation of classes. It is little wonder then that the writers of the degenerate period turned longing eyes upon the simple rural life of bygone days.
The similarity between Rome's later days and the condition of France in the eighteenth century has been noticed by some historians,1 and it is an interesting reflection that in both cases a declining state caused men to long for a simpler and more "natural" life.
Roman Ideas on Value. — In accord with the practical, non- speculative genius of the Romans was their thought concerning value. Passing from a regime of customary price, they had, as early as 450 B.C., when the laws of the Twelve Tables were formulated, left the determination of price to the fluctuations of the market. The buyer was given no recourse against the seller except in case of misrepresentation, and Paulus quotes Pedius to the effect that " the prices of things are to be determined neither with reference to affection nor to their utility to single individuals, but prices have a common validity." 2 It was the doctrine of the jurists that each might seek to overreach the other in the matter of price. But as for any analysis of the forces which determined what overreaching was, or any exact definition of it, there was none.
As time went on and exchange grew, the concept of a just or real price, verunt pretium, arose. Thus one of the Emperor Diocletian's rescripts allowed the seller a right of recovery in case of a sale for under half the true price (verum pretium).3
1 E.g. Kautz, above cited, p. 161.
J Ad legem aquillam, Dig., Bk. IX, tit. ii, § 33 ; Sewall, Theory of Value before Adam Smith, p. 6.
1 See Ashley, English Economic History, Vol. I, p. 208, note 19.
62 ECONOMIC THOUGHT
In an edict De pretiis rerum venalium (A.D. 301) the same em- peror attempted to fix a just price on the basis of customary cost of production.1 Though these rules could not be enforced, they certainly show some tendency toward introducing ethical considerations,2 and toward a limitation of the freedom of con- tract during Rome's later years.
It is to be observed that the importance of wants and utility did not escape recognition, though not as a chief factor. Thus Cicero says, " The only limit to the valuation of such things (bronze statues) is the desire which any one has for them, for it is difficult to set bounds to the price unless you first set bounds to the wish " ; 3 and Seneca remarks that some things are of greater value than the price which we pay for them. Such a recognition could scarcely have failed to obtain where there was a knowledge of Greek philosophy. It seems too much, however, to say that, after the development of commerce and credit, utility became the basis for exchange value, the judgment of utility depending on the wants of the average normal man.4
Industrial and Commercial Regulations. — It is not to be inferred that, because the Roman law stood for private property and freedom of contract, the Roman state did not interfere in economic matters. In times of financial crisis the state estab- lished a public bank to supplement the activities of the pro- fessional bankers of the Forum,5 and not a few measures for the protection of debtors were passed. Cicero induced certain Greeks and Romans, who had cornered the food supply in Cilicia, to promise stores to the people; and fines were levied on grain merchants who by hoarding had raised prices. An aedile inspected goods placed on sale in Roman markets, con- fiscating those in which fraud was found ; and at various times
1 Mommsen, Der Maximaltarif des Diokletian (Berlin, 1893).
2 Cf. Endemann, W.,Studien in der Romanisch-Kanonistischen Wirtschafts- u. Rechtslehre, II, 30.
3 De Beneficiis, Book IV, Chap. XXV (Sewall, above cited).
4 Rost, Die Wert- und Preistheorie (Leipzig, 1908), takes this view, p. 26, note i.
5 Livy, VII, xxi, 8; XXII, Ix, 4; XXIII, xxi, 6.
/ THE ECONOMIC THOUGHT OF THE ROMANS 63
the government took measures to prevent foreign competition with Italian producers, to regulate prices of oil, and to prevent the exportation of precious metals. An interesting case, too, is the regulation of traffic in Rome, loaded wagons being forbidden the use of the streets, except during the evening or night, and only those engaged in public building operations could be used between sunrise and the tenth hour.1 All this was before the close of the Republic, and indicates the recognition in a practical way of the necessity for state participation in indus- trial matters.
Influence of Roman Thought. — While it must be admitted that, their legal contributions excepted, the Romans added little to the stream of economic thought, their importance as a medium for such thought is great. The mystery of antiquity, the sonorous tongue, the prestige of military and political pre- eminence all combined to spread the writings of Roman orators, essayists, and philosophers ; and with them were disseminated the Stoic philosophy and the ideas of the Greeks. With them, too, went the practical maxims of the people, and incidentally the advice of the father or the meditation of the statesman conveyed ideas of economic significance.
These writings were read, nay, studied, by men of a later day, in Germany, France, and England, whose veneration for them gave them a weight which we can hardly realize. More- over, the relative development in economic thought of the early moderns was not great, and their economics and ethics were not untangled. Thus it is that this seeming commonplace of Cicero's or that of Seneca's had much greater influence than was warranted by its intrinsic economic worth, and greater than it could have with ourselves. Though the Romans did not directly develop economic theory, a knowledge of their writings is essential to an understanding of the continuity of the history of economic thought.
Division of Labor. — To take but a single example, consider the subject of division of labor. Adam Smith first fully de-
1 "Lex Julia Municipalis," Corpus Inscriptiorum Lalinarum, Vol. I, 206; II, 56-61, 66-67; cited by Oliver, Roman Economic Conditions, p. 133.
64 ECONOMIC THOUGHT
veloped its economic aspect; but he rested upon Hume and Hutcheson. But Hume's footnotes are full of allusion to Roman writers, and Hutcheson expressly acknowledges his debt to Cicero on this very subject.1 From this it is not to be in- ferred that but for Cicero and his Greek predecessors there would have been no division-of-labor doctrine, nor that Cicero understood the full significance of such a doctrine. When, however, an idea becomes part of a system of thought, it gains a significance and richness of content that makes a case like the preceding of some interest.
In brief summary, it may be remarked that the great service of the Romans to economic thought was the development of jurisprudence as a science, a jurisprudence whose practical spirit supported a great degree of individualism through its doctrines concerning property, contract, interest, and the like.
As Ingram says, " Their historic mission was military and political, and the national energies were mainly devoted to the public service at home and in the field. ... As might be
1 System of Moral Philosophy, Vol. I, p. 290. Cicero's words are as follows : —
" Indeed, the very things that I have called inanimate are produced for the most part by the labor of men, nor could we have them unless handi- craft and skill had given their aid, nor could we utilize them except under the management of men. Nor without the labor of man could there be any care of health, or cultivation of the soil, or harvesting and preservation of grain and other products of the ground. Nor could there be the exporta- tion of our superfluous commodities, nor the importation of those in which we are lacking, unless men performed these offices . . . whence, indeed, could houses . . . have been furnished . . . unless society had learned to seek aid in these things from men? . . . Why should I enumerate the multitude of arts without which life could not have been at all ? How could the sick be cured, what would be the enjoyment of the healthy, what would be our food or our mode of living, did not so many arts give us their minis- tries ? It is by these things that the civilized life of men is so far removed from the subsistence and mode of living of the beasts. Cities, too, could not have been built. . . . These things have been followed by mildness of disposition and by modesty, and the consequence is that human life is better furnished with what it needs, and that by giving, receiving, and interchang- ing commodities and conveniences we may have all our wants supplied." (De Officiis, II, 3-5.)
THE ECONOMIC THOUGHT OF THE ROMANS 65
expected from the want of speculative originality among the Romans, there is little evidence of serious theoretic inquiry on economic subjects." *
It is essential to emphasize their influence in an objective way through institutions juristic or political, and further to point out that their prestige as classics gives them an adventi- tious importance.
APPENDIX TO CHAPTER V
QUOTATIONS FROM WRITERS ON AGRICULTURE
"After the paterfamilias has come to the villa and performed his devotions to his domestic deity, he ought that same day, if possible, to make a tour of his farm ; if not that day, at least the next. When he has considered how his fields should be cultivated, what tasks should be completed, what not, then on the next day he ought to summon the vilicus, and inquire what work has been accomplished, what still remains; whether the work is far enough advanced for the season, whether what still remains can be completed, what has been done about the wine, corn, and other products. When he has ascertained this, he ought to inspect the account of the various workmen, and of the working days. . . . When there have been storms, consider the work that could have been performed while it rained; jars ought to have been washed and pitched, the villa cleaned, corn carried away, dung removed, dunghills made, seed cleaned, old ropes repaired, new ones made, and the slaves ought to have patched together their rag- garments and caps for themselves. On holy days old trenches could have been cleaned, the highways paved, the brambles cut, the garden dug, the meadow cleared, twigs bound, thorns rooted up, the spelt pounded, everything put in order. When the slaves have been sick, the ordinary supply of provisions ought not to have been given to them. When he is quite satisfied with his examination, he should give orders for the completion of the work that remains. He should then inspect the accounts of the vilicus, money-account and provision- account, the supply of food prepared, the wine-account, the oil-ac- count, what has been sold, what used, what remains, what of this is for sale. Let there be good security for what is owing. As to what
1 A History of Political Economy (New York, 1907 ed.), p. 19.
66 ECONOMIC THOUGHT
remains, he should see that it tallies. He should buy what is wanting for the year, have the surpluses sold, let out the necessary contracts. He should give orders concerning the works he would have completed, and the things he is inclined to let, and leave his order in writing. He should carefully inspect his flocks, make his sales, sell the superfluous oil, wine, and corn, if they are giving a good price, sell the old oxen, the refuse of the cattle and sheep, wool, hides, the old carts, old iron tools, and old and diseased slaves. Whatever is superfluous he ought to sell : 'A farmer should sell, not buy.' " (CATO, De Re Rustica, II.)
Of the vtticus Cato says: "He should maintain good discipline, attend to the observance of holy days, keep his hands off the property of others, faithfully protect his own, preside over disputes among the slaves, punish with discretion those guilty of a delinquency, provide against ill befalling the household, against sickness, against hunger. If he keeps the slaves busy with work it will be easier for him to keep them out of mischief and out of other people's affairs. ... He must extend loans to none without his master's orders, and must exact pay- ment from his master's debtors. He must lend no one seed for sowing or provisions or spelt or wine or oil. Let him have two or three households from which he may borrow, or to whom he may lend articles — let this be the limit. He must often reckon his accounts with his master. He must not use the same labourer, hired servant, or cultivator longer than a day. He must not desire to sell anything without his master's knowledge, or to conceal anything from his master." (CATO, De Re Rustica, V, 1-5.)
"As for those articles which can be raised on the farm or manu- factured by the servants none of these should be bought. Of such a nature are nearly all those utensils in the manufacture of which you use osiers and other materials at hand in the country ; for example, baskets, broom-baskets, threshing-sledges, winnowing-vanes, hoes; so too those in the making of which are employed hemp, linen, rushes, palms, bulrushes, as ropes, cords, coverings. But in the case of things which you cannot produce on the farm make your purchases with a view to their usefulness rather than ornament, and then their cost will not eat up their profit. This will be especially the case if you get them where they can be obtained good in quality, close at hand, and cheap in price." (VARRO/Zte Re Rustica, I, XXII, i, 2.)
II. MEDIEVAL ECONOMIC THOUGHT
CHAPTER VI
THE MIDDLE AGES
\,
The Period Defined. — There is a certain rather ill-defined period in the world's history which is commonly known as the Middle Ages. Most writers agree in placing the beginning of this period at the fall of the Roman Empire in 476, but its ending is not so clear. Dr. Ingram l and others would bring it to a close with the year 1300, and it may be agreed that the Middle Ages reached a climax at about that time. But it by no means follows that the years of decline and break-up of medieval institutions which ensued, constituted the beginning of things modern. Ingram himself says that the movements of his first modern phase (1300-1500) " can scarcely be said to find an echo in any contemporary economic litera- ture." It seems more nearly true to regard the years about 1500 as marking the end of medieval times. By 1300 the tran- sition was not complete. Not till toward the close of the fifteenth century did Humanism mark the rise of new tendencies in thought. At the same time the religious world was on the eve of its great Reformation ; while in the mixed field of politics and economics the beginning of modern nation-building may be discerned. More objectively, there were such geographical discoveries as that of America and the water route to India (1498) ; and the extended use of such agents of civilization as the mariners' compass and gunpowder began during the same period. The significance of the influx of silver which followed the discovery of America has often been noted and its impor- tance in bringing about the exchange economy of modern" times commented upon ; but American mines were not opened until the sixteenth century.
1 Following Comte. 69
yo ECONOMIC THOUGHT
In a word, the Middle-Age period does not close with Nicolas Oresme, but with Gabriel Biel, his disciple, who is sometimes called " the last of the schoolmen."
If further proof were needed, it might be observed that Feu- dalism, a preeminently medieval institution, did not generally begin to lose i^s power until after 1500, the period during which it really represented the political organization of French society, for example, being that lying between the years numbered 1300 and I5OO.1 It was in the early sixteenth century, too, that the English government gave the death blow to craft gilds, an- other medieval institution.
On large lines, and from the viewpoint of systems of thought rather than systems of industry, the Middle Ages may with profit be divided into two periods. From 400 down to 1 200, or shortly thereafter, constitutes the first. During these years Christian theology opposed Roman institutions, and Germanic customs were superposed, until, through action and reaction, all were blended. This was the reconstruction ; it was the " stormy struggle " to found a new ecclesiastical and civil system. From 1200 on to 1500 the world of thought settled to its level. Feudalism and scholasticism, the cornerstones of medievalism, emerged and were dominant. The latter, springing from the fusion of Aris- totle's philosophy with Christian theology, was formulated by Thomas Aquinas, who may be said to mark the turning point between the sub-periods.2
Germanic Contributions to Economic Thought. — Relatively little is to be said about the economic ideas of the early Ger- manic tribes. Their contribution was rather a new point of view, given expression in particular customs. This is not the place to discuss the mark, the three-field system, and all the interesting phenomena of their industrial life. It will suffice to
1 Esmein, Cours El&mentaire d'histoire du droit fran$ais.
* The periods suggested correspond rather closely to those in industrial history. Some time during the twelfth or thirteenth centuries in England, and to a less extent in France and Germany, a town economy with division of occupations, inter-municipal trade, and money, largely replaced an inde- pendent domestic economy in which those characteristics were more or less lacking, and land was the chief basis of social and economic life.
THE MIDDLE AGES 71
recall the fact that originally the social and economic unit was the village community (Genossenschafi) , a virtually self-suffi- cient group of households, democratic and similar in wealth. The community came before the individual, and within it the idea of brotherhood was strong. It followed that exchange for gain was hardly tolerated within the community, but a com- mon value was placed upon such things as were exchanged, and even exchanges with other groups were regulated. There was no money economy.
The ideas and customs of the Germanic tribes sharply dif- ferentiate them from the Romans. The latter based their law upon individual rights ; the former emphasized the community, — though a large degree of democracy gave room for a broad individualism. Accordingly, with the Romans there was a sharp distinction between private and public rights, whereas these rights were mutually determining and faded into one another in the case of the Teutons. More specifically, Roman law made property rights rather absolute and rigid, while by Germanic custom these rights were relative and changing. For example, the Genossenschaften had several different kinds of landed property, perhaps these four : dwelling places, gardens, arable lands, waste lands. In the first two, a large degree of private property was recognized; but the fields, with their changing strips, were subject to the plans of the community, and the waste land, or " commons," as its name implies, was the property of no individual. Thus property rights had a different extent according to the nature of the object involved.
A noteworthy characteristic was the emphasis put by these peoples upon personal rights. Their laws seem to indicate that they were more concerned about such than about property rights. On the other hand, arid almost paradoxically, personal rights depended largely upon landed property, land being the basis of things in their industrial stage.
The Influence of Christianity and the Church. — If the Roman factor be taken for granted, Christianity and the Church may be considered next as perhaps the chief factors in deter- mining medieval thought. It is necessary to 'keep these two
72 ECONOMIC THOUGHT
ideas separate, for few will deny that Christianity as a religion is quite distinct from the various institutions or churches which profess it. Those principles of Christian doctrine which have any direct economic significance follow.
1. The Church, in accordance with the spirit of Christianity, taught the natural equality of men. The ancients, as already seen, believed that men were different by nature : slavery, like castes, Levites, and "guardians," was natural, and corresponded to some inherent baseness. Christianity taught a brotherhood which extended beyond community or nation, embracing all classes and races.1
2. Accordingly, slavery was condemned, wholly or in part, the least radical teaching being that the slaves of the laity should be freed when Christianized.
3. And closely connected with the doctrine of equality was the idea of a natural community of property.2 Originally, and according to the law of nature, men owned all goods in common.
4. One of Christianity's teachings, which was notably at odds with the ideas of antiquity, was that concerning the dig- nity of labor. This it upheld, though not without some ecclesi- astical adulteration, and the ideal became a force working for a greater recognition of those who ate their bread in the sweat of their faces.3 The various biblical maxims concerning the merit of industry were of no small weight to the men of this credulous time.
5. Charity and almsgiving, too, were among the cardinal virtues. Not only the writings of the Old Testament, but the words and spirit of Christianity, taught the duty of giving aid to the poor. St. Louis advises his son thus : " Dear son, have a tender and pitiful heart for the poor, and for all those whom you believe to be in misery of heart or body, and according to your ability comfort and aid them with some alms." This
1 "And if a poor man have a quarrel with a rich man, sustain the poor rather than the rich, until the truth is made clear, and when you know the truth, do justice to them." (Advice of St. Louis to his son.)
1 See article by H. H. Swain in Bibliotheca Sacra, October, 1897, on this point. 3 Gen. iii, 19.
THE MIDDLE AGES 73
quotation, however, suggests two limitations upon the charity of medieval churchmen : their alms were in theory to be given only to those recognized as being in real need, and then were to be in proportion to the donor's means.
6. Finally, Christianity was a force for purifying and per- petuating the family and family life.
Thus the Christian religion tended to introduce elements which were deficient in the philosophy of Roman jurisprudence. The personality of man was emphasized. With the increased recognition of human worth came the introduction of moral and humanitarian ideas which added new limitations upon in- dividualism while increasing the rights of many individuals. In fact, one cannot but be impressed with the idea that, on the whole, Christianity and Germanic customs worked hand in hand. Their fidelity, their relative freedom, their greater equality, their emphasis of the personal element, all made the Teutonic folks a ready medium for the leaven of the new religion.
As already suggested, the foregoing principles of Christianity were considerably modified or given a special meaning in their practical application by the Church. To mention but an in- stance or two : the " natural law " of equality was admitted to be modified on grounds of expediency so as to permit inequality both in property and in status. Again, charity was too com- monly regarded as an end, as a pious thing, rather than as a means for benefiting society or the poor. So, too, with manual labor: it was regarded rather as a form of discipline for the attainment of salvation than as a means for producing wealth. Pride was not to be taken in the craft, and the main interest was not to be in the product. The general economic develop- ment was not favorable to the complete advancement from slavery, and the Church made room for it on grounds of expe- diency. Serfdom can scarcely have disappeared in towns by the year 1000, while agricultural serfdom lingered on into the nineteenth century. Still there was the tendency toward free- dom. Prior to the thirteenth century the church fathers concerned
74 ECONOMIC THOUGHT
themselves but little about economic matters.1 For one thing a very simple independent domestic economy prevailed; and, on the other hand, purely religious ideas were in control. Con- sequently, one finds little but moral dissertation concerning the evils of luxury, and the like. Among the most noteworthy economic ideas were those concerning the desirability of wealth, value, and the relative merits of different forms of industry. In these there is little new. Agriculture was praised; manu- facture did not displease God ; but trade could not be pleasing to the Deity. Material wealth was dangerous to spiritual wel- fare, though it was permissible to the laity if used for the good of their fellow men. As to value, the recognition of labor was preparing the way for a cost theory based on the labor element. The general notion appears to have been that value is absolute and objective and independent of price. Accordingly, exchanges were looked upon as just or unjust in proportion to the equality of the absolute values ; and usury was forbidden to churchmen on the ground that in the taking of interest a greater value would be exacted than that given, which would result in in- justice to the borrower.
But as early as the eleventh century progress began. With the growth of monasteries, towns, handicraft, and commerce, and the increasing use of money, new phenomena were pre- sented ; while in the twelfth century the first Latin translation of Aristotle's Politics found its way into western Europe. The latter fact marks an epoch in medieval thought.
Scholasticism and Canon Law. — Neither Christianity nor the Church, but part of each, with an admixture of the philosophy of Aristotle, was scholasticism. It was the system of thought which came to dominate ecclesiastics during medieval times; it was the scholarship of the Middle Ages. In it the theological element was dominant, and no advance in knowledge was con- sidered established until the new idea was fitted into its niche in the structure whose foundation was religious. It cannot be called a science, for it did not seek to explain phenomena so much as to apply certain absolute rules of conduct to existing 1 Cf . above, p. 20.
THE MIDDLE AGES 75
conditions. The last word was said after a citation from the Bible, one from the church fathers, and now and then one from profane history.
It is not improbable that the progress made by medieval scholars in economic thought has often been underestimated, largely, no doubt, because their methods and conclusions were so different from those now dominant. It was Roscher's opinion that the scholastics, and above all Scotus, made more progress than is commonly believed, though only in certain special forms. Most valuable is that part of their work devoted to the sacrament, especially the sacrament of confession. Here were investigated the conditions which must precede the abso- lution of the penitent sinner and how far he must make good his wrong; and that led, in the case of sins which involved economy, to an inquiry into the nature of economic institutions. The conclusions reached will be discussed in a moment. The difficulty was that economics was not made a distinct line of thought. The monks knew little outside of Aristotle's writings, and Aristotle wrote no books on political economy.1
Thomas Aquinas has been called the prince of scholastics. He it was who with infinite pains and ingenuity strove to weld the teachings of the Bible and of Aristotle into a harmonious body of thought. And, in the uncritical judgment of his con- temporaries, he succeeded. One result of his attempt was the celebrated classification of laws into eternal, natural, human, and divine. The first is the controlling plan of the universe as conceived by God; that part of it which can be grasped by man and which enables him to distinguish good and evil is natural law; while human or customary law consists of the enactments of earthly powers. Divine law is that part of the eternal law revealed in the holy writings. Human law should be based upon natural law. It fell into two parts: civil law
1 This explanation is given by Gasser, Introduction to the Economic, Political and Kameralistic Sciences (Halle, 1729), as a reason why economic subjects had not been taught in the German universities. A work under that title is sometimes attributed to Aristotle, but even if he wrote it, it does not deal with economics proper in any distinct way.
76 ECONOMIC THOUGHT
(Roman) and canon law (church). Canon law, or the Corpus Juris Canonici, was coordinated and given a systematic form about the middle of the twelfth century by the monk Gratian of Bologna. It was drawn from a mass of ecclesiastical legis- lation and decisions, thus containing elements of Christian doc- trine, Aristotelian philosophy, and Roman law. It expressed the judgment of orthodox churchmen concerning human rela- tions, and so contained economic ideas.
Value and Just Price. — Passing over ideas concerning wealth and industry, which were substantially those mentioned above, one reaches the heart of their economic thought in the doctrine of justum pretium. This doctrine rested upon their notion of value. Briefly stated, it was that every commodity had some one true value which was objective and absolute, and was to be determined in the last analysis by the common estimation of the cost of production. The words " was to be determined " are used deliberately, for the doctrines of the scholastics are only to be understood when considered as ethical, — as laying down what should be, rather than scientific conclusions as to what is.
As formulated by Albertus Magnus (1193-1280) and Thomas Aquinas (1227 or 1225-1274)1^16 theory was that value should equal the expenditure of labor and other costs. * Thus, according to Aquinas, one might lawfully charge more than one had paid " either because he has improved the article in some respect, or because the price of the article has been changed on account of difference of place or time, or on account of the danger to which he exposes himself in transferring the article from place to place, or in causing it to be transferred." 1 This generaliza- tion, however, was qualified to the extent that only those costs which were incurred in producing things which satisfied normal or natural wants were determining, and the labor element was weighted according to the social rank of the laborer.2 This value was not necessarily expressed in price, and was independent
1 Quaestio Ixxvii, art. iv, Opera, XIX, p. 181. Quoted by Sewall, Theory of Value before Adam Smith, p. 18. * Cf. Aristotle's teaching, above, p. 48.
THE MIDDLE AGES 77
of the estimate of buyer or seller. It was a question of justice,1 and it was the duty of the law to step in and fix the price accord- ing to the above principles. It was quite in harmony with this conception that Charlemagne, at an earlier time, ordained " that no man, whether ecclesiastic or layman, shall, either in time of abundance, or in time of scarcity, sell provisions higher than the price recently fixed per bushel." 2
With the rise of towns and money economy, this notion of value began to be modified, though it dominated the whole period and beyond. Aquinas gave some consideration to utility and to the amount offered for sale, or supply. Buridan (1300- 1358) went farther and stated that the measufe of value is to be found in the satisfaction of wants: the greater the need, the higher the value. And Biel (died 1495), while standing for a necessary equality in value of goods exchanged, bases it upon their utility for human ends.3 But when all has been said, the conclusion is that it is broadly true that an objective cost con- ception of value prevailed during the Middle Ages.
Value of Money ; Usury. — How did such an idea of value work when applied to money ? The answer to this question brings up ,the well-known doctrine of usury. The term was used to cover what we designate as interest, and, in a broader sense, to include any price in excess of the justum pretium : qui plus quant dederit accipit, usuras expetit. At first (325 A.D.) usury was forbidden the clergy only, but before the close of the twelfth century the prohibition was extended to the laity. As late as 1311 it was declared absolutely illegal. The broad simple ground for this action was the belief that to take interest for a loan of money was, like charging more than the just price, unjust. A scholastic brief against usury might be drawn as follows: —
i. The holy writ forbids it: The Mosaic law prohibits usury-
1 "... if either the price exceeds the value, or, conversely, the value exceeds the price of the thing, the balance of justice is destroyed," wrote Thomas Aquinas.
2 Blanqui, History of Political Economy, p. 112.
3 Contzen, Geschichte der volkswirthschaftlichen Literatur im Mitielalter.
78 ECONOMIC THOUGHT
taking from a brother; Christ said, " Lend, hoping for nothing again." (Luke vi, 35.)
2. Aristotle says money is barren and cannot breed money, therefore, to demand usury for its use is unjust.
3. It follows from the above point that to pay for money is to pay for time; but time is common property and belongs to God.
4. Money is a Res Fungibilis, or " consumptible " according to the civil law. As such it has no use distinct from itself ; its use cannot be separated from the ownership of it. Therefore, to lend money is to give up ownership of it, and to ask a pay- ment for the use of that which is sold is unjust.1
As in the case of the general concept of value, the develop- ment of industry and exchange wrought a gradual modification of the doctrine of usury or value of money. Aquinas and his brother scholastics recognized exceptions: for example, where a loss was incurred by a loan (damnum emergens) or a profit was missed (lucrum cessans) a corresponding sum might be demanded of the borrower. Then other openings were made. A buyer on credit was not prohibited from paying more than
1 The reasoning of Aquinas on this point appears in the following quo- tation : "To take usury for a loan of money is in itself unjust ; for it is to sell what does not exist, which is an inequality, and, therefore, an injustice. To understand this it must be known that there are some things whose use consists in the consuming of them, as when we consume wine. ... In ar- ticles of this kind [consumptibles], therefore, the use of the thing must not be reckoned separately from the thing itself ; he who is given the use is thereby given the thing. And accordingly in lending a thing of this kind, all the rights of ownership are handed over. If therefore a man wanted to sell wine and the use of the wine apart from one another, he would be either selling the same thing twice (meaning that the use is the wine), or would be selling what did not exist. Wherefore he would be manifestly committing injustice and sinning. For the same reason, he would commit injustice who lent wine or corn, seeking for himself two rewards, the restitution of an equal amount of the article, and also a payment for its use, called usury."
" But money, as Aristotle says, . . . has been devised for the making of exchanges. So the first and chief use of money is its consumption or spend- ing. Wherefore it is in itself wrong to receive (besides the return of the money itself) a price for the use of the money." (Quoted by Ashley, Intro- duction to English Economic History and Theory, Vol. I, p. 153.)
THE MIDDLE AGES 79
the cash price; discounts were allowed on bills of exchange; money combined with labor, as in partnerships, was called pro- ductive; Jews and Lombards, being damned anyhow, were permitted to receive usury; and, in the fifteenth century, the mantes pietatis were allowed to receive interest.1
Economic Functions of the State. — Another group of ideas held by the scholastics concerned the economic functions of the state. In general the independent domestic economy idea was applied to a large group, or, in other words, the state was re- garded as a sort of great private or domainal economy. The position of taxation illustrates the situation. In the twelfth and thirteenth centuries, at least, the office of the ruler seems to have been regarded as private property. His revenues came from his estates and certain prerogatives,2 and there was no system of taxation in the modern sense, for that represents more modern economic thought.
The particular functions proper to government were the maintenance of population and provision for the poor; the establishment of safe and free roads — a Roman conception backed by citations from the Bible; a system of weights and measures, and a special coinage. The argument for the main- tenance of weights and measures was that it would decrease quarrels and litigation, and that the Bible says, " God has ordered all things by number, weight and measure." 3
The duty of the medieval ruler to provide an exact and un- changing coinage was constantly emphasized. Virtually with- out exception this right was possessed by him, and laws were passed to prevent counterfeiting and clipping. The exporta- tion of coin, as also the circulation of foreign coins, was fre-
1 Gabriel Biel, Professor of Theology at Tubingen, 1485, held that in deeds of partnership any rate of interest was allowable according to the gains of the capital as invested by the debtor, only the creditor must share any loss. Also, if one partner put in money and another contributed labor, the labor might be evaluated in terms of money, and the profits of the busi- ness be shared pro rata. See Contzen, Geschich. d. volkswirths. Lit. im Mit- telalter, index under Gabriel Biel ; and Roscher, Geschichte der Nat. Oek. in Deutschland , pp. 22 S.
2 See below, p. 126. * Book of Wisdom, ix.
8o ECONOMIC THOUGHT
quently forbidden. This regulation of money was a logical concomitant of the doctrine of just price : the supply of money being small, relatively slight changes in its quantity would affect prices, and the difficulties of transportation made read- justments slow.1 One reason advanced by Aquinas why a prince should provide money was that he could thus get food for his subjects in time of war.
Monasteries. — Monasteries might be made a distinct factor in the life and thought of the medieval period. They were Christian industrial colonies influencing men in many ways, both by precept and example.2 Objectively, the manual activi- ties of the monks improved agriculture, disseminated industrial arts, and stimulated commerce. When a surplus was produced or a new supply of raw material was needed, exchange arose, and the principles which should govern the " negotiator ec- fdesi& " in economic relations with the outside world were care- fully formulated. Their chief service was to " diffuse a better appreciation of the duty and dignity of labor," though after the tenth century this service waned.
The Economic Thought of Medieval Townsmen.3 — Taking it for granted that the reader is familiar with the picturesque phenomena of medieval towns, with their gilds and market places, it remains to point out the bearing of various town and gild regulations upon economic thought. There was always a large element of monopoly present and competition as we know it was unthought of. Foreigners were admitted to the trade of the town, but only under controlling restrictions. Thus they were subjected to tolls, were under surveillance, could not sell at retail save under great restriction, and could not deal with other foreigners unless at fairs or on certain days. In these regulations, also, appears the common hostility to strangers.
But this monopoly was a public one and in the interest of the community ; trade was regarded as a public opportunity. The idea of equality and of public benefit appears in such common
1 See Ashley, Eng. Econ. Hist., Vol. I, p. 173.
1 See Cunningham, Western Civilization in its Economic Aspects, pp. 35-40. » Especially in England.
THE MIDDLE AGES 8l
regulations as that sales were not to begin before a certain hour, that unsold goods could not be withdrawn until a certain time, and that raw materials — as tallow, for example — must not be sold to outsiders.
The universal prohibition of forestalling, regrating, and en- grossing illustrate the above point, and are also connected with the idea of a just price. Indeed the price of the town's manu- factures was regulated; and that of the trader's merchandise was fixed within certain limits, though it came to be allowed a maximum and minimum within which it might play.
And this suggests the minute regulation of trade and industry, largely through the agency of gilds, a regulation which char- acterized the whole economy, and which, again, was commonly in the interest of the consumer, being notably so in the case of foodstuffs.
An interesting feature of town economy was its communal property and undertakings. Thus a common town pasture was frequent; many towns got control of the seignioral mill (and the burghers were required to patronize such mills, the pro- ceeds often going to decrease taxes). Bakeries, ovens, market places, and stalls might be added to the list. Then, too, in times of scarcity it was considered the duty of the town govern- ment to furnish grain. It sometimes made common bargains with foreign merchants for the materials needed by its artisans. Public works were carried on by the compulsory labor of the community.
The gilds, which were more or less closely associated with town government, serve to emphasize much the same line of thought. They were associations of merchants or craftsmen for the mutual benefit of their members, having as their ends protection, monopoly of the trade or craft, good workmanship, and fraternal and religious benefits. These associations served to train men in business ethics, to develop personal relation- ships, and to harmonize the interests of producer and consumer. And the craft gilds developed skill, protected the artisan, and increased the dignity and worth of labor. The ideas of just price, of regulation of quality and quantity of output, and of
82 ECONOMIC THOUGHT
wages and conditions of employment characterize their dealings.
In view of the exaggeration in the old idea concerning the freedom and equality in towns, it remains to be said that this idea is only relatively true. Depending upon the origin of the town,1 almost from the beginning there were three or four distinct classes which successively dominated. A considerable number of inhabitants did not have the franchise, and the craft gilds, even, were in part monopolies of the masters (aldermen, war- dens, commonalty) against the serving men.
As compared with rural life, however, there was a nearer approach to freedom which was quite marked in the earlier times in England.
General Significance of the Period. — The general signifi- cance of the Middle Ages as a period in the evolution of eco- nomic thought is rather difficult to state by reason of its com- plexity. In a sense, its negative aspect is large. While the chasm left by the downfall of Rome may have been exaggerated, yet civilization, as it had been, was in ruins. As to its positive characteristics, the Middle Ages constitute, first, a period of adjustment and fusing; secondly, one of transitions. During its centuries, Roman institutions, standing for a narrow indi- vidualism and, on the whole, for a materialistic philosophy; Christian religion, teaching the brotherhood of man and ideal- ism; Germanic customs, showing a broad and democratic individualism and leaning toward idealism ; Aristotle's philos- ophy, emphasizing the common good and arguing for some de- gree of common use of property, with a correspondingly limited individualism,2 — all these were to be combined and fused. This was more or less consciously the work of the scholastics. Thus Thomas Aquinas labored to adapt Aristotle while he assailed Rome ; and one Nicholas von Cusa, while deeply versed in the contemporary learning of the Occident, turned his atten-
1 In towns which grew up under the protection of some clerical noble, for example, all the aids, etc., exacted on a manor might be rendered by the townsmen.
2 See above, pp. 43 f. Aristotle's argument against communism in the ownership of property is deservedly a classic, as has already been stated.
THE MIDDLE AGES 83
tion to the East: he sought to reunite the Greek and Latin churches, and studied the holy book of the Mohammedans.1
As a transitional period it was during the Middle Ages that, objectively, national economy replaced independent domestic economy; that commerce and manufactures encroached upon the sole rule of agriculture; and that slavery was gradually abandoned for serfdom and free labor. But it is the world of thought which is of interest here. In it one finds a transition from the materialism of later paganism to the modified idealism of Christianity. At the same time the individualism of the Romans was succeeded by the idea, of a society broader even than the city state of the Greeks, though not so broad as the dream world-empire of the Church. We pass from systems of thought which postulate a natural inequality among men, and slavery, to ideals of brotherhood and freedom. The Church, too, became more dissociated, formally at least, first from politics, then from industry, thus making for the separation of morals from economics achieved in modern times. An economy in which land was regarded as the basis began the great tran- sition to one in which personal relations dominated. In one, industry in manufactures and trading was despised; in the other, it was fostered ; in the one, money was imperfectly under- stood and men generally condemned its accumulation; in the other, it was better understood, and probably came to be over- appreciated. Between these rather opposite views lay the Middle Ages.
During this great transition it was well that the idea of pro- tection was strong. It appears in the Church and Christianity, in the towns and gilds ; custom, regulation, monopoly, are met everywhere. The whole economic philosophy of the Middle Ages might be summed up in the doctrine of just price. In a period of turmoil among such great opposing systems of thought, and classes and races of men, before the rise of nations, it was well that the idea of protection was strong.
But for further ideas let the reader, if interested, compare the chapter which precedes this with the two which follow next.
1 Stumpf, The Political Ideas of N. v. Cusa (1865), quoted by Contzen, Geschich. d. volkswirths. Lit. im Mittelalter, p. 65.
III. THE DAWN OF MODERN ECONOMIC
THOUGHT: MERCANTILISM AND
KAMERALISM
CHAPTER VII MERCANTILISM
THAT period which may be called the Middle Ages was suc- ceeded by two or three centuries that looked toward modern systems of industry and thought. The old garments of " natural " economy, feudalism, and scholasticism were not en- tirely cast off ; but great changes were being worked out. The thought of the period now to be considered stands in a different relation to us than the theories of the ancient world and of the Middle Ages, inasmuch as it was the immediate predecessor of a real school of political economy, the Physiocratic system. Through Adam Smith and his immediate predecessors, for ex- ample, it has exercised some influence upon the economic specu- lation and policy of English-speaking peoples down to the present day.
Preliminary Definitions of Period and Doctrines. — The economic ideas, and the corresponding policies, characteristic of men of this first post-medieval period, have been variously styled Mercantile System, Colbertism, Restrictive System, Commercial System, and Mercantilism. As they do not properly form a system and do not belong to any one man or fall under one central economic idea, Mercantilism is prefer- able. Perhaps the nearest approach to a definition which might be safely attempted here, would be to say that Mercan- tilism comprises the economic views which prevailed among European statesmen from the sixteenth to the latter part of the eighteenth century. As will appear, such views largely concerned commerce and involved much restriction ; but these aspects tell only part of the story.
" Political Arithmetic " was a phrase much used by the Mer- cantilists with reference to their attempts at the more exact
87
88 ECONOMIC THOUGHT
solution of the economic problems with which they dealt. This kind of arithmetic they denned as " the art of reasoning by figures, upon things relating to the government." l Thus the political aspect is to be given great weight. ^And, on the other hand, the work of these men as statisticians is to be remembered.]
It is difficult to tell just when Mercantilism came to be the guiding principle of state policy, or when its sway ended. The truth is that the ideas which are most characteristic of the Mercantilists have always existed to a greater or less extent. Travers Twiss, however, dates the practice of Mercantilism from the accession of Charles V to the throne of Spain in 1516 ; for that monarch at once initiated retaliatory measures against the commercial monopoly of Venice. Be that as it may, the date corresponds well enough with the growth of money economy and the rise of nations, — the two phenomena which formed the basis of Mercantilism. v
Mercantilism, as a doctrine, was first systematically developed in 1613 by an Italian writer, Serra. In that year his book, A Brief Treatise on the Causes which make Gold and Silver abound in Kingdoms where there are no Mines, was published. It may be said truly that the seventeenth century is the one in which the most numerous and characteristic Mercantilist writings are found.
Then, with the Industrial Revolution and the growth of political freedom, governments began to abandon Mercantilist principles in the second half of the eighteenth century.
So much for a preliminary definition of Mercantilism and the Mercantilist period. What, then, were the phenomena and the problems that gave rise to them ? What ends did the Mer- cantilists have in view?
Beside the more remote causes which led to investigation in the field of political economy, such as the religious and intel- lectual awakening of the times, the more immediate were the break-up of the feudal system, and the development of centrali- zation in the state. These factors were, of course, closely re- 1 Davenant, Use of Political Arithmetic.
MERCANTILISM 89
lated. Also related, and working both directly and indirectly, was the importation of gold and silver from America, leading as it did to change in economy and prices and to much economic speculation.
Furthermore, royal estates and prerogatives no longer sufficed for increased government expenses, so that taxation became necessary ; l and taxation was made possible by an increase in saving, or capital formation, through greater security and the development of commerce and banking. And with taxa- tion there came a new interest in the economic well-being of the people.
In the introductory discussion, the financial difficulties of governments and the dissatisfaction of laboring classes with their condition appeared as two of the most fruitful causes of economic speculation. It is the first of these factors which chiefly stimulated Mercantilistic thought. In the formation of nations and states two great relationships and two sets of prob- lems arose, one external and one internal. Without, there was the struggle with other growing states ; a struggle between the economies of the local units and the central government was taking place within.2 Though no inconsiderable misunder- standing of Mercantilism has resulted from overlooking its domestic significance, still it is true that foreign relations fur- nished the immediate topic for the most typical Mercantilist doctrines. While it must not be forgotten that the interests of the nation and state constituted the ultimate end, it was in inter- national relations that " those governments which understood how to put the might of their fleets and admiralties, the appa- ratus of customs laws and navigation laws, with rapidity, boldness, and clear purpose, at the service of the economic interests of the nation and state," 3 gained their supremacy. From the economic point of view, the essence of Mercantilism, which is state-making, can be appreciated best through the
1 See below, pp. 89, 126 f.
2 In what follows Schmoller's Mercantile System has been most suggestive. s Schmoller, The Mercantile System (Ashley's Economic Classics series),
p. 72.
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chief theories and policies which sprang from it and which make up Mercantilism proper.
The increased wants of the new states were occasioned chiefly by the growth of standing armies, coupled with rising prices. By the seventeenth century, warfare was vastly changed. For- merly there had been an hasty expedition, a pitched battle, and the issue was settled by courage ; but at the time of which we write, as an eminent Mercantilist states, the whole art of war seemed, in a manner, reduced to money, and that prince who could best find money to feed, clothe, and pay his army, not he who had the most valiant troops, was surest of success and conquest.1
Thus, " since war is grown so expensive, and trade is become so extended ; and since luxury has so much obtained in the world, no nation can subsist of itself without helps and aid from other places; so that the wealth of a country now is the balance, which arises from the exchange with other places, of its natural or artificial product." 2
To Sir Josiah Child, the most useful and necessary inquiry was, What is to be done to improve the nation's trade " to such a degree as to equalize or overbalance our neighbors in our national profit by our foreign trade? " 3
These things are mentioned, not for the sake of bringing out the balance of trade idea, as such, but to show the importance attached to international relations. The hostility of the Eng- lish toward the Dutch between 1660 and 1675 might also have been mentioned. Robert Clavell published a pamphlet (1665) which was one of several attacking the Hollanders and claiming England's ownership of adjacent seas. After the Dutch were crushed, hostile activity was centered on the French, imports being restricted in 1678, and a contemporary pamphlet pro- claimed that " The French grow too fatt." 4
The Policies and Theories of the Mercantilists. — Though it is rather difficult to generalize concerning the theories and policies of Mercantilism, this much may safely be said: one
1 Davenant, An Essay upon Ways and Means (1695), P- J6-
1 Ibid., p. 13. 3 Discourse of Trade, p. 156.
4 See Hertz, English Public Opinion after the Reformation, pp. 89, 97.
MERCANTILISM 91
great purpose dominated it, namely, the desire to make the state strong; the economic basis for strength, wealth, was given great weight; the most important form of wealth was considered to be the precious metals or " treasure " ; foreign trade was generally preferred above other forms of industry, as best furnishing a supply of the desired kind of wealth ; and, in measuring the success of this policy and of foreign trade, great importance was attached to the so-called "balance of trade. " The dominance of a political teleology has been made sufficiently plain in what has gone before, and the emphasis of wealth will need no special comment. It remains, then, to discuss the last three generalizations.
i. The Importance of "Treasure" — It is no longer held that the Mercantilists believed the precious metals and wealth to be identical, or that they thought money the only form of wealth. There can be no doubt, however, that the typical Mercantilist sometimes confused the two things ; and certainly he considered money the most desirable form of wealth,1 draw- ing a distinction that we do not make between treasure and other forms of wealth. One or two utterances from Mercantilist writers may serve to let the reader form his own opinion on this point. . In his Essays in Political Arithmetick (1655) Sir William Petty makes the following statement : " The great and ultimate effect of trade is not wealth at large, but particularly abundance of silver, gold, and jewels, which are not perishable, nor so mutable as other commodities, but are wealth at all times, and all places; ... so as the raising of such, and the following of such trade, which does store the country with gold, silver, jewels, etc., is profitable before others." : With a similar idea Mun wrote : " All nations who have no mines of their own, are enriched with gold and silver by one and the same means " : by exporting goods to the value of twenty-
! * E.g. "The genera! measures of the trade of Europe, at present are gold and silver, which, though they are sometimes commodities, yet are the ulti- mate objects of trade ; and the more or less of those metals a nation retains it is denominated rich or poor." William Richardson, Essay on the Causes of the Decline of the Foreign Trade, 1744. 2 p. 113.
92 ECONOMIC THOUGHT
two thousand pounds and importing twenty thousand pounds' worth, " we may rest assured that the kingdom shall be en- riched yearly two hundred thousand pounds, which must be brought to us in so much treasure." l Child thought it a general and well-grounded opinion that gold and silver were to be taken " for the measure and standard of riches," and urged that by trade England was able to export goods which brought back " six times the treasure in specie."
This emphasis of money as the most desirable form of wealth was a natural and not unreasonable result of conditions. Though Mercantilism is not to be attributed directly to the rise of a money economy, still, the growth of commerce, the changes in methods of warfare, and the introduction of the wages sys- tem gave money a new importance. The reader must remem- ber, too, that it may be that some modern economists have tended to overlook the unique characteristics of money as a form of wealth, its relatively stable value and ready exchange- ability differentiating it to some extent from other valuable goods.
Again, there was not the opportunity for investment open to men that exists to-day. Industrial stocks and bonds were vir- tually unknown, and money took their place. So, too, with vari- ous credit agencies. To-day they abound and make an important part of our medium for exchanges as well as form a means of investment. In a word, the relative importance of the precious metals was normally greater then than now.
It has been suggested that the character of the foreign trade of those days tended to increase the Mercantilists' emphasis of bullion. When spices, silks, wines, and the like played so im- portant a part in exchanges, it was not so strange that writers " imagined that the chief use of foreign trade to England was to introduce gold and silver rather than nutmeg." 2
1 England's Treasure by F arraign Trade (London), 1669, p. n. But it would be easy to misunderstand Mun by making "treasure" equivalent to our idea of the word "wealth."
1 Cannan, Production and Distribution, p. 3. The force of this observa- tion, however, is weakened by the fact that foreign trade was praised and urged as a means for obtaining these things.
MERCANTILISM 93
2. Foreign Trade. — As to the means to be adopted for securing the desired treasure, that prince of Mercantilists, Thomas Mun, wrote: —
"The ordinary means ... to encrease our wealth and treasure is by Forraign Trade. . . . This ought to be encouraged, for upon it hangs the great revenue of the king, the honor of the kingdom, the noble profession of the merchant, the school of our arts, the supply of our poor, the improvement of our lands, the nursery of our mariners, the walls of the kingdom, the means of our treasure, the sinews of our wars, the terror of our enemies."
And Mun believed that only the treasure so gained — " by the ballance of our forraign Trade " — remained in the kingdom.1
William Petty in a similar strain gave it as his opinion that, " There is much more to be gained by Manufactures, than Husbandry, and by Merchandise than Manufactures." 2 And Sir Josiah Child held that those trades deserve most encourage- ment which employ most shipping ; " for besides the gain accruing by the goods, the freight, which is in such trades often more than the value of the goods, is all profit to the nation." 3
In a similar vein it was argued that the sailor was at once an artisan, a soldier, and a potential merchant; that fleets were valuable for defense; and that only through foreign com- merce could countries having no mines obtain the coveted treasure in gold and silver.
Of course, since a nation could not export without producing, commerce necessitated manufactures. Articles of high specific value alone could bear the expense of transportation, therefore manufactures were favored next to trade and above agriculture.
That even this cardinal Mercantilist idea did not pass un- challenged, however, appears from the fact that in his Dis- courses upon Trade, Sir Dudley North argued that foreign trade could not subsist without home trade.4
1 England's Treasure by Forraign Trade (published 1669), p. 49; Eco- nomic Classics Series, pp. 28-29. First edition 1664.
2 Essays in Political Arithmetick (1691), p. 100.
3 Discourse of Trade, Preface (1690).
4 North, Discourses upon Trade (1^-91), p. 16.
94 ECONOMIC THOUGHT
3. The Balance of Trade Idea. — But howsoever great a nation's foreign trade might be, it was not sufficient unless there was a proportionate excess in value of exports over im- ports. This was the balance of trade notion. Child states the doctrine as follows : —
"It is the most general received opinion, and that not ill grounded, that this balance is to be taken by a strict scrutiny of what proportion the value of the commodities exported out of this kingdom bear to those imported ; and if the exports exceed the imports, it is concluded the nation gets by the general course of its trade, it being supposed that the overplus is imported in bullion, and so adds to the treasure of the kingdom ; gold and silver being taken for the measure and standard of riches."1
Child himself considers the balance of trade to be simply the national gain or loss by foreign commerce, and thinks the best way of ascertaining it to be by observing the general state of trade and shipping. He also mentions the rate of exchange. Like Mun and Davenant, he enlarges on the difficulties of ascer- taining the balance with any degree of accuracy.
But without further illustration it may be observed that at least four somewhat different attitudes toward the balance of trade may be found among Mercantilist writers, (i) It was the original or vulgar idea that a favorable balance was a means or instrument by which the stock of precious metals in a given nation might be increased. This notion was apt to be asso- ciated with an over-emphasis of treasure. Furthermore, it tended to confuse the means., with the end : the balance of trade must ultimately depend upon industrial efficiency, and is thus the result rather than the means of securing treasure. (2) Or, a relative conception being added, it might be regarded as an agency for outstripping other nations, thus involving the fallacious notion that what one nation gained another lost. i (3) Some looked upon the balance as being the general " net profit " of the nation on its annual trading, embracing
1 Discourse of Trade, p. 153.
MERCANTILISM 95
specie, credit, and commodities.1 (4) While still others saw in it simply an index to the state of the nation's trade, to be used like the rate of exchange, the amount of shipping, etc.2 Of these views the third, with its specie or treasure element made by far the most prominent, was the most widely prevalent.
Such writers as Barbon (Discourse of Trade, 1690), who attacked the balance of trade idea, can hardly be classed as Mercantilists.
To put into execution the foregoing theories and policies involved many contributory or supporting policies, and brought about a host of government regulations, duties, and bounties. An interesting attempt at classifying the various measures calculated to enable a nation to overbalance its neighbors in profits by foreign trade, was presented by one of the writers already mentioned. The classification embraces four general heads : 3 —
I. Increase the number of hands. This might be accomplished through naturalization laws, religious toleration, freedom to hire as many servants, looms, etc., as desired, poor relief, and education.
II. Increase the amount of stock. In addition to some of the above measures, a law for the transference of bills of debt, the enforcement of the navigation acts, various protective measures, and fewer holidays were advocated.
III. Make trade easy and necessary. This desirable consum- mation was to be attained by the preceding agencies and by the establishment of a court merchant, abatement of interest, adequate convoys at sea, etc.
IV. Make it the interest of other nations to trade with us. By
1 Davenant, who took this view, uses the phrase, "quick stock" (of the people of a nation) as equivalent to the balance of trade. Essay on Ways and Means, p. 13.
2 These different uses of the phrase, " balance of trade," are not coordi- nate except in the broad way of having a bearing directly or indirectly upon the gain of the state by foreign trade. The fourth use of the phrase might be subdivided, it being regarded (a) as an index to trade in general, (b) as an index to trade with some particular nation.
3 Compare Mun, England's Treasure, Chap. Ill ; and Child, Discourse, Chap. I.
96 ECONOMIC THOUGHT
gaining their respect through a strong navy and army; by underselling, honest dealing, wise treaties, and restricting im- ports of manufactures, this end might be attained.
A scrutiny of the writings of the chief English Mercantilists shows that the government policies advocated, — and these make the chief feature of Mercantilism, — may all be summed up as concerning population, its size and character ; the develop- ment of natural resources; and various commercial devices.1 Under the first group of policies would come the advocacy of toleration and freedom of conscience, largely to attract indus- trious foreigners; careful provision for the poor and remedies for unemployment made a prominent point in various programs. Others stressed education, especially in arithmetic and accounts ; while all agreed that " parsimonious " and thrifty living was imperative, as this would reduce the importation of foreign wares and, as in the case of clothes, leave a larger surplus for export. Mercantilists were all convinced that every man oweth to work, to use the language of an old statute, and compellable industry was a common idea.
As to natural resources, it was pointed out that by a better utilization of waste lands things then imported might be pro- duced at home; and the development of the fisheries was an important policy. By " corn laws " Mercantilists strove to stimulate and protect agriculture to the end that the nation might be self-sufficient and support an abundant population.
There is space to mention but a few of the many plans for facilitating and increasing commerce. For example, there was the public registry of mortgages and sales, the establishment of banks, the greater use of bills of exchange to allow more rapid settlements and turnovers, free importation of raw materials, exportation in British vessels, etc. Opinion was divided as to the efficacy of lowering the interest rate by law ; but not a few deemed such a measure of the utmost importance.
1 These policies were largely drawn from Holland, for whose commercial methods and institutions the seventeenth century Englishman had great respect. For Holland's thought see Laspeyres, Geschichte der volkswirtsch. Anschauungen der Niederlander.
MERCANTILISM 97
Perhaps this is the place to refer to the colonial policy com- mon to Mercantilists. Recent discovery and conquest had made colonies of great moment; and, in accordance with the foregoing ideas, the accepted treatment of them was to confine their industry as largely as possible to the production of raw materials, with the idea that the mother country should work these up and sell the finished product to the colonists. The net profit of the nation would thus be increased.
The Mercantilist ideas concerning money easily led up to the various land-bank schemes which marked the close of the seventeenth century. Men who believed that an increase in the quantity of the circulating medium would correspondingly increase manufactures and trade, especially if, as was often the case, they also believed that " mony is a value made by a law," readily fell in with propositions to swell the monetary supply. Such men appear to have been Chamberlen, Briscoe, Barbon, and Asgill, in England, and Law, in France. John Law (1671-1729), a Scotchman by birth, about 1716 succeeded in establishing a great land bank in France, but after a pyro- technical career was financially ruined in 1720. His pam- phlet, Money and Trade considered, with a proposal for supplying the nation with money (1705), had a considerable influence. In it, he argued that " wealth depends upon commerce, and commerce depends upon circulation ; " and he advocated a paper currency based upon land. This whole movement, however, is best considered as a by-product or side-issue of Mercantilism : it is not characteristic of the more typical period or representatives of Mercantilism. It will also be observed that its emphasis upon land is not so easily explainable in terms of Mercantilism as are its purely monetary aspects.
The Practical Application of Mercantilist Policies. — In accordance with such ideas, we find many acts for the encour- agement of tillage, corn laws, navigation laws, and laws creating and regulating the staple, sumptuary laws, assizes of bread and ale. Probably it was in France under Colbert that the re- strictive policy was carried farthest. We are told that " the state exercised over manufacturing industry the most unlimited
98 ECONOMIC THOUGHT
and arbitrary jurisdiction. It disposed without scruple of the resources of manufacturers ; it decided who should be allowed to work, what things they should be permitted to make, what materials should be employed, what processes followed. . . . Not the taste of the consumers, but the commands of the law must be attended to. ... Machines were broken, products were burned, when not conformable to the rules. . . . An artisan could neither choose the place in which to establish him- self nor work at all seasons, nor work for all customers. There exists a decree of March 30, 1700, which limits to eighteen towns the number of places where stockings might be woven. A decree of June 1 8, 1723, enjoins the manufacturers at Rouen to suspend their works from the ist of July to the i5th of September, in order to facilitate the harvest. Louis XIV, when he intended to construct the colonnade of the Louvre, forbade all private persons to employ workmen without his permission, under penalty of 10,000 livres, and forbade workmen to work for private persons, on pain for the first offense of imprisonment and for the second of the galleys." 1
In Prussia many measures were adopted to foster industry. These were partly negative, as the abolition of certain gild restrictions; and partly positive, as encouragements to immi- grate and to marry, the establishment of mills and manufac- tories, the maintenance of lists of business opportunities, etc. There were also the usual limitations on exportation and im- portation. The policies seem to have been very wisely applied.2
Particular Economic Theories. — i. Value. — Clear evidence of the development which was going on during the sixteenth and seventeenth centuries in industry and philosophy appears in that part of economic thought which was devoted to value. A money and exchange economy of increasing complication, making the application of the relatively simple idea of just price imprac- ticable and unsatisfactory, was joined with a decreased domina- tion of moral and juristic principles. Material things were more
1 Dunoyer, De la LiberM du Travail, quoted by Mill, Political Economy, V, xi, 7.
1 See appendix to this chapter.
MERCANTILISM 99
regarded ; and a long step was taken toward the development of economic science by a growing separation of ethical concepts. For to an increasing extent men gave their minds to a concrete study of political or economic evils and the remedies for them. Sig- nificant of the time was the rise of a group of traders and states- men whose empirical writings show this tendency, It should be borne in mind that much of their writing was that of the pamphleteer and lacks the breadth and balance of scientific treatises, just as the fugitive pamphlets of to-day are apt to do.
The fruits of a better appreciation of human personality and its worth appear in the works of a group of publicists and juristic philosophers who emphasized human reason, faculties, and desires, basing their law of " nature " upon the so-called nature of man. Thus subjective factors came into new promi- nence : if buyer and seller were satisfied, the price was just.
It must be noted, however, that the juristic philosophers were inclined to imply ethical principles, while the traders and states- men generally overlooked the subjective.
Passing over a group of Italian writers who sapped the medi- eval idea of just price,1 the historian must mention the Dutch publicist, Grotius,2 and Pufendorf.3 Both make wants and desires an important element in value, implying a distinction between value in exchange and utility, and giving a considerable degree of validity to competitive prices. Pufendorf stresses the " moral estimation " idea, and says, " The foundation of the price or value of any action or thing is, fitness to procure either mediately or immediately, the necessaries, or conveniences, or pleasures of human life." And the effects of scarcity and plenty are given some weight by him.
But in the thought of both writers the notion of a basal value resting on cost of production appears. For illustration, Grotius said that " account is commonly taken of the labor and ex- pense of the sellers ; " and Pufendorf held that in regulating
1 E.g. Buoninsegni (1591), Scaccia (1618).
1 Dejure belli et pacis (1623), Bk. II, Chap. XII. See Laspeyres, E., Gesch. d. volksw. Anschauungen der Niederlander, p. 3. * DC jure naturae et gentium, (1672), Bk. V, Chap. I.
100 ECONOMIC THOUGHT
" natural price," " regard is to be had to the labor and expense of the merchant " and his risk.
The significance of these men in this connection is that they kept alive the importance of the subjective element, and sub- stituted for the just price conception an idea of " natural value " in which the play of competitive forces was recognized.
But what of the traders and statesmen, the empiricists? Here one finds the objective notion of value dominant, — the idea of value inherent in the object and arising from its char- acteristics. Two representatives of this group will suffice, namely, Petty and Locke. Sir William Petty makes value rest on expenses of production, reducing them to labor and land. " Labour is the father and active principle of Wealth, as Lands are the mother." But he seeks to reduce these two ex- penses to a single unit, " so as to express the value of anything by either alone." 1 Market or " extrinsic " values rose or fell ac- cording to supply and demand. According to Locke, labor is the almost exclusive source of value, for he says, " it is labour indeed that puts the difference of value on everything." 2 " Nay, if we will rightly estimate things as they come to our use, and cast up the several expenses about them, what in them is purely owing to nature, and what to labour, we shall find, that in most of them ninety-nine parts out of a hundred are wholly to be put on the account of labor."
These two writers, then, are to be taken as forerunners of the later labor theories of value. They represent the majority of English Mercantilists proper.
It remains to touch upon a few notable exceptions. The Italians, Davanatzi,3 and Montonari,4 and the Englishman, Nicholas Barbon,5 will suffice. These men laid the greater emphasis upon utility and held subjective theories of value. Thus Barbon wrote : " The value of all wares arise from their
1 Petty's Economic Writings (Cambridge, 1899), Vol. I, p. 181. See Rost, Wert- u. Preis-Theorie, p. 29 ff. ; Sewall, Theory of Value before A. Smith, p. 70 ff. 2 Essay on Civil Government (1690), London, 1772, p. 210.
3 Lezione della Moneta, 1588. 4 Delia Moneta, 1680 circa.
6 A Discourse of Trade, 1690, Chap. III.
MERCANTILISM IOI
use ; things of no use, have no value, as the English phrase is, they are good for nothing" And again, " for the value of things depending on the use of them, the over-pluss .... become worth nothing ; so that plenty, in respect of the occasion, makes things cheap ; and scarcity, dear."
2. Interest. — No unanimity exists among Mercantilist writers on the subject of usury or interest. Thomas Mun, about the middle of the seventeenth century, argued in favor of interest taking on the ground that money-lending enabled poor young merchants to rise and made possible the advanta- geous employment in trade of the funds of widows, orphans, and gentlemen. As to the nature of interest, his conclusion was " contrary to those who affirm that trade decreaseth as money increaseth, for they rise and fall together," 1 — that is, he considered the interest rate as a result rather than a cause of industrial conditions.
About 1668, a controversy over usury laws sprang up. In conflict with Mun's views, Sir Thomas Culpepper had written two tracts in favor of establishing lower interest rates ; 2 and his son published a " Discourse " attacking usury. But per- haps the most eminent sponsor for this notion was Sir Josiah Child. He maintained that a low interest rate was the natural mother of frugality and industry, that it would attract traders by making capital cheap, and compel frugality by making smaller " profits " necessary ! A high rate of interest made money scarce because every man as soon as he had saved a little, sent it to the goldsmith. The whole burden of such arguments was, " We shall never stand on even ground with the Dutch in trade till interest be the same with us as with them." 3 Likewise, Davenant took a fling at those who received interest :
1 England's Treasure by Forraign Trade, p. 127 ; Economic Classics Series PP 77-8i.
1 A Tract against the high rate of Usurie, 1621 ; ibid., 1640. In the first he favored reduction from 10 to 8 per cent ; in the latter — this reduction having been made — he desired a 6 per cent legal rate.
3 Discourse of Trade, pp. 27, 29, 167, and Preface; for the situation in Holland see Laspeyres, Anschauungen der Niederla'nder, p. 256.
r: pi1,!
102 ECONOMIC THOUGHT
" The usurers, who are the true drones of a commonwealth, living upon the honey without the labor," should be taxed.1
Most of these men thought that a law reducing the interest rate would be effective and make money cheap. Evidently they got the cart before the horse and made the effect the cause, all of which indicates a lack of understanding of the functions of capital and money.2
On the other hand, there were some who took Mun's side in the usury controversy. One, Thomas Manly, explained that " as it is the scarcity of money (and many borrowers) that maketh the high rates of interest, ... so the plenty of money and few borrowers will make the rates low." John Locke, too, while not understanding the causes of the value of money, argued that low interest rates were the result of a plentiful supply of money. And Sir Dudley North upheld this end of the controversy, explaining that an abundant " stock " and security made rates low in Holland.
Of the preceding writers, excepting North, it may be said that if they had any conception of the relation between the productivity of capital and interest it was but a faint one. Their notion of " profits " was naive and unanalyzed ; " usury " was simple payment for the use of money.
Nicolas Barbon, however, while arguing for a decreased rate of interest, saw this relation ; for he wrote : " Interest is commonly reckoned for mony ; . . . but this is a mistake ; for the interest is paid for stock. . . . No man takes up mony at interest, to lay it by him, and lose the interest of it." 3 And North in his Discourses upon Trade (1691) is perhaps another exception.4
1 Essay on Ways and Means.
1 Cossa, in his Introduction to the Study of Political Economy, certainly speaks too strongly in calling Child remarkable for his sound understand- ing of money without noting this limitation. By Child's time money was largely invested in profitable ways. * Discourse of Trade, pp. 31, 32.
4 " But as the Landed Man letts his land, so these still lett their stock ; this latter is call'd Interest, but is only Rent for Stock, as the other is for land." "... if there be more Lenders than Borrowers, Interest will also fall; wherefore it is not low Interest makes Trade, but Trade increasing, the Stock of the Nation makes Interest low." (p. 4.)
MERCANTILISM 103
3. Population; Wages; Rent. — It would be wrong to make the desire for a dense population, as such, one of the cardinal features of Mercantilism; but, partly for purpose of war and partly for increase in production, Mercantilists desired a numerous people. By employing many people the king's revenue would be increased. Cheap and abundant labor was necessary to enable home products to compete successfully with those of foreign countries ; hence the laws and regulations encouraging matrimony and parenthood. Samuel Fortrey announces that " People and plenty are commonly the begetters the one of the other, if rightly ordered " ; * Davenant says, " People are the real strength of a country";2 and Child, that "it is in multitudes of People, and good Laws, such as cause an Encrease of People, which principally Enrich any Country." 3
The Mercantilists appear to have had no theory of wages or rent. As already suggested, they were more or less unsystematic pamphleteers ; and their ends concerned production rather than distribution. It is true that Petty saw that the value of labor is derived from its product, that Child stated that wage regu- lation is unwise, etc. ; and the latter writer observed that rent had fallen in England as the result of improvement in Ireland and high land taxes.4 But these ideas were not developed.
4. Factors of Production. — Of more significance are their utterances concerning the factors of production : these have interest in connection with their probable influence upon both Physiocrats and Adam Smith. For example, Petty's fa- mous dictum " Labour is the father and active principle of Wealth, as Lands are the mother," is most significant in both relations. Child refers to " the inseparable affinity that is in all nations and at all times between land and trade, which are twins, and ever will wax and wane together." Davenant keeps the foreign trade idea to the front, remarking that " the price of land, value
1 England's Interest and Improvement (1663), p. 4.
J Essay on Ways and Means. A dense population makes invention, frugal- ity and industry necessary, which bring a nation riches.
3 Discourse of Trade, Preface. (See also Petty, Political Arilhmetick, pp. 107, 123; Barbon, Discourse of Trade, p. 39.) 4 Ibid., p. n.
104 ECONOMIC THOUGHT
of rents . . . rise and fall, as it goes well or ill with " commerce ; but delivers himself of the following generalization: "The wealth of all nations arises from the labour and industry of the people," 1 a statement which reminds one of Adam Smith.
Barbon, who was hardly a Mercantilist, said that " land is the fund that must support and preserve the government," and was himself interested in a land bank.
5. Productivity of Different Occupations. — In general, as al- ready remarked, Mercantilists believed that the merchant was "the best and most profitable member of the commonwealth," and that after him came the artisan. One of their number makes a summary statement which covers the whole matter of produc- tive and unproductive labor. He writes : " It is (I think) agreed on by all that Merchants, Artificers, Farmers of Land 2 and such as depend on them . . . are the three sorts of people which by their study and labour do principally, if not only, bring in wealth to a nation from abroad ; other kinds of people, viz. Nobility, Gentry, Lawyers, Physicians, scholars of all sorts, and shop- keepers, do only hand it from one to another at home." 3
These ideas are of significance in the history of economic thought in two ways: they indicate a great change from the times, medieval and ancient, in which agriculture was placed first ; and they are to be associated with the notions of Adam Smith and the Physiocrats concerning the non-productivity of certain classes. It is of no little interest, and importance, too, to observe how economists have denied productivity now to this class, now to the other.
The belief that certain occupations are not so productive as others, all things considered, has been a long-continued one. The intermingling of ethical ideas makes it difficult to compare these beliefs; but it may be said that they are determined largely by the dominant class. Thus, in the Middle Ages, agri- cultural interests dominated ; by the seventeenth century, com- merce was in the ascendency ; in the middle of the eighteenth
1 " Of the Use of Political Arithmetic," Works, Vol. I, p. 139. (Lon- don, 1771.)
1 Note the order. * Child, Discourse of Trade, p. 25.
MERCANTILISM 105
century, as will appear later, there was a renewal of interest in agriculture ; while the Industrial Revolution put manufacturing interests to the front. Accordingly, the Mercantilists thought that as gentry, professional men, and retailers had little connec- tion with bringing in treasure, they were in that sense non-pro- ductive; while in 1776 Adam Smith considered that similar classes were not productive in the sense that they did not put vendible goods on the market.
6. Taxation. — Worthy of notice, also, is the thought of the Mercantilists on taxation. In general their idea was that men should be taxed according to the benefits received from the state.1 This idea was in accord wjtk-the prevalent notion of a "social contract." According toiHpbbe^, the test for benefit should be expenditure. The man who saves should not be penal- ized ; " when the impositions are laid upon those things which men consume, every man payeth equally for what he useth, nor is the commonwealth defrauded by the luxurious waste of pri- vate men."2 Grotius and Pufendorf held that burdens must correspond to benefits received in the shape of protection.
Sir Wm. Petty has been called the first English scientific writer on taxation. His words are : " It is generally allowed by all that men should contribute to the Publick charge, but according to the share and interest they have in the Public Place ; that is accord- ing to their Estate and Riches." 3 He favored the expense index, that is, taxation in proportion to expenditure.
Other Mercantilist empiricists dealt with this important sub- ject at some length, and formulated several practical doctrines. In general, low customs and an increased use of excise taxes were favored. Equality in taxation was urged, and to this end a tax on money at interest, — while the impracticability of taxes on easily concealed wealth was seen.4
James Steuart : the last of the " Mercantilists." — Sir James
1 See Seligman, Progressive Taxation in Theory and Practice, pp. 158, 162. (Publications of the American Economic Association, 1908.)
2 Leviathan, p. 271. (Reprint of 1881.)
3 A Treatise of Taxes and Contributions (1677), p. 68.
4 See Davenant's Essay on Ways and Means.
106 ECONOMIC THOUGHT
Steuart l (1712-1780) was the chief English Mercantilist writer of the eighteenth century. Indeed he has been called the last of the Mercantilists. Following the Stuarts into exile in 1745, he lived in France, Germany, Holland, and Italy; and his book (1767) is largely a collection of observations made during this time. Its title is An Inquiryinto the Principles of Political Econ- omy, being an essay on the Science of Domestic Policy in Free Nations, in -which are particularly considered Population, Agri- culture, Trade, Industry, Money, Coin, Interest, Circulation, Banks, Exchange, Public Credit and Taxes. This seems to be the first use of the term Political Economy in an English book. His idea of the science has Mercantilistic earmarks : " (Economy in general is the art of providing for all the wants of a family with prudency and frugality. What ceconomy is in a family, political oeconomy is in a state. . . . The principal object of this science is to secure a certain fund of subsistence for all the inhabitants " and to render it secure, etc. Economics is an art. Mercantilist ideas concerning population also appear.
Money and banking are treated at considerable length. Steuart justifies interest, but has no clear understanding of capi- tal— as was commonly the case before the Industrial Revolution. Also, like Child, he feels that a low rate of interest would be bene- ficial, only governmental measures to secure it should be gradual.
He has some sound ideas on price, regarding it as determined by demand and supply, and distinguishing "effectual " demand ; and Adam Smith has been criticized not unjustly for not refer- ring to Steuart on this point, as Steuart's work was well known to him.
It is interesting to observe the influence of French thought upon Steuart. In France the Physiocratic doctrines, to be described shortly, were taking shape. Accordingly we find stress laid upon the agricultural surplus as conditioning the growth of population and industry, and his model state was pervaded with a characteristic unity and harmony.
1 Feilbogen, " James Steuart u. A. Smith," in Zeitschr. f. d. ges. Staats- wissenschaft (1889); Hasbach, Untersuchungen iiber A. Smith, pp. 81 ff. (1891).
MERCANTILISM 107
The book is diffuse and woefully lacking in clear definition and accurate statement. This fact, together with the changes wrought by the Industrial Revolution and the appearance of Smith's Wealth of Nations, deprived Steuart's work of any con- siderable recognition or effect, though it appears to have had some influence in Germany.
Critical Estimate and Summary. — It must not be thought for a moment that the preceding statements will apply to all writ- ers who may properly be called Mercantilists, nor that they will apply in their entirety to any one of them. In some cases they are generalizations or analyses, which the men of the seventeenth century do not appear to have made expressly. In other cases there were exceptions, some of which have been pointed out. But it is believed that a congress of Mercantilists would have agreed by a large majority vote to any of the above propositions which have been made in a general way.
The conclusions to be drawn from the foregoing discussion seem to be that the Mercantilists were inclined to lay too much weight on the advantage of gold and silver as compared with that of other commodities ; that they overestimated the value of commerce, or, perhaps it would be better to say, underestimated the relative importance of agriculture and other branches of human industry ; and that they erred in supposing that a favor- able balance of trade necessitated a benefit in the long run. They were in error, too, in being too much inclined to regard what one nation gained as necessarily the loss of another. A harmony of interests, it is true, does not always obtain as between differ- ent countries. A good part of what England gained by the Navi- gation Act, Holland lost ; American competition is to-day injuring very sensibly the interests of important classes in England and on the Continent. Nevertheless a more scientific examination into the theory and practice of international trade was ere long to show economists that both parties generally gain.
Industrial developments led the Mercantilists to abandon the doctrine of just price, though traces of the idea may be found, and they were forced to give more consideration than their pred- ecessors to subjective elements in " extrinsic " or market values.
108 ECONOMIC THOUGHT
A cost theory of value with the labor element emphasized was held or implied by some of the most prominent writers. On the whole, interest was defended and a few had some inkling of the reasons for it. Many, however, thought it was something to be determined by the state, and thus showed imperfect ideas about capital.
Criticism of the Mercantilists' ideas has been carried too far in not a few cases. They contained errors unquestionably, and the germs of an unhealthy development ; but they are far from a mass of absurdities when considered, as they must be, with re- gard to time, place, and, above all, to the spirit of the people. It is nonsense to think of exports exceeding imports in all countries. But the Mercantilists never claimed this belief. They did not generalize. They were laying down the principles of a national political economy, not a cosmopolitan one. War was the normal thing, and a large degree of self-sufficiency a practical necessity.
Some explanation of their ideas concerning treasure has already been given. Now let it be forgotten for the moment that gold and silver are money, and let them be considered merely as other commodities. Then let the question be put : how is a people which has not the commodity, gold, or the commodity, sil- ver, but has other commodities, to obtain the former peacefully ? The reply is simple : by exchanging commodities. One can con- ceive of no other way. Now that is one thing which the Mer- cantilists of England, France, and Germany wished to do. They wished to trade off some of their wares for gold and silver, and they actually accomplished their purpose. Spain lost gold and silver, and they obtained it. As a temporary expedient under existing conditions, the balance of trade theory was justifiable. The Mercantilists erred chiefly in so far as they regarded it as a proper permanent national policy. But is the error not natural ? Most men hold the same notion to this day, and that without the reasons which existed over two hundred years ago !
To apply a practical test, it may be said that Mercantilism was for a time fairly successful. The French free trader, Blan- qui, acknowledged freely the benefits France derived at one time from a governmental supervision of trade and commerce.
MERCANTILISM 109
Even Adam Smith admits that Cromwell's famous Navigation Acts, which prohibited foreigners from bringing into England any goods that were not the product of their own country, was of advantage to England, and approves of them. As to German Mer- cantilism, Mirabeau wrote of Silicia, a region which received particular attention from Frederick the Great, "There reigns there a population, a culture, and an industry truly immense." And other contemporaries confirm this, explaining the want of prosperity in other German states by a lack of proper initiative on the part of the governments. Under the conditions of the time there was a lack of energy and go-ahead on the part of private individuals, so that when the government did not lead, stagnation in industry was the rule.
Coupled with this idea is the fact that Mercantilistic philoso- phy was based upon a belief that private and social interests are not necessarily in harmony. The reader of the Mercantilist pamphlet was to distinguish warily between the profit of the merchant and the gain of the kingdom, for " frequently they run counter one to the other." 1 This concept by no means had the content of the similarly worded one common to-day, nor did it lead to all the conclusions now drawn ; but then, as now, regu- lation of industry by the state was the logical outcome.
The essence of Mercantilism proper was the application of the independent-domestic-economy idea of self-sufficiency to na- tions, — an old system of thought to a new group of phenomena. One sees it in the attitude of the state toward trade and industry ; it appears in the balance of trade idea ; it lies back of the over- estimation of precious metals. This was more or less conscious with the Mercantilists. Mun wrote concerning the balance of trade : "... it cometh to pass in the stock of a kingdom, as in the estate of a private man." Child puts it as follows : there is " a great similitude between the affairs of a private person, and of a nation, the former being but a little family, and the latter a great family." 2
It is, then, simply the idea that has always dominated the trader and which is prevalent among merchants to this day:
1 Child, Discourse of Trade, preface. * Discourse of Trade, p. 164.
HO ECONOMIC THOUGHT
patronize home industry; so conduct your business that the profit and loss account of the year's trading shows a balance in your favor ; etc. " Whatever nation," says Davenant, " is at a greater expense than this balance admits of, will as surely be ruined in time, as a private person must be, who every year spends more than the income of his estate."
Thus we arrive at a body of government regulation of com- merce and industry directed toward securing a large net profit for the state as a trader, in the shape of treasure. This is Mercan- tilism proper.
APPENDIX TO CHAPTER VTI
Through Professor Gustav Schmoller's admirable little work on German Trades in the Nineteenth Century l we can trace in detail the operations of Mercantilism in Germany. From 1650 to 1800 Prussian industry was directly under the guidance of the state authori- ties. It is true that in some respects the monarchs of Prussia exer- cised their power to increase industrial liberty ; but only in so far as it seemed good to them, and they never let the reins slip out of their hands.
The Great Elector, Frederick William, issued edicts in 1667, 1669, and 1683 to encourage the cultivation of places that had been laid waste by the Thirty Years' War. One measure attempted to draw people to the cities by removing the tax (den Schoss-scot) resting on houses and substituting an excise (Accise) in the cities, with the expectation that this would cheapen houses and reduce the cost of living. This was not a financial but a political measure, it must be noted, and was an act of state interference. It had the desired effect. A large demand for houses manifested itself in the Prussian cities, and many merchants and tradesmen immigrated. Edicts were issued in 1686 and 1688 to improve the whole organization of the trades. Many restrictions which the gilds had kept in force, limiting the number of masters, journeymen, and apprentices, were removed. All immigrants received free of charge the rights of a master tradesman and those of a citizen. The linen industry in Ravensberg in West- phalia was assisted by an institution of state for measuring the length and breadth and determining the quality of linen and stamping it
1 Die Deutschen Kleingewerbe im ipten Jahrhundert (Halle, 1870).
MERCANTILISM III
accordingly. The effect of this was to give purchasers confidence in the products of the manufacturers.
Frederick I, who reigned as king from 1701 to 1713, continued the policy of the Great Elector. Immigration was artificially encouraged. Magdeburg was rebuilt by settlers out of the Palatinate. Up to 1690, forty- three new kinds of trades had been established in the Mark, the province in which Berlin is situated, by the French and the Wal- loons.
Frederick William I ("der sparsame kluge hausvaterliche Tyrann"), who reigned from 1713 to 1740, went still farther in the direction in which his predecessors had gone. He forbade the exportation of raw material, especially of wool. The importation of foreign manufac- tured articles was either entirely forbidden or rendered difficult by the imposition of heavy duties. The government established fullers' mills, dyeing establishments, presses, and wool magazines. To en- courage certain classes of foreign artisans to marry, privileges were granted them for three years after marriage, — among others, full exemp- tion from taxes or exceptionally low taxes and freedom from military service. Several times, as in 1718 and 1721, lists of tradesmen and artisans who had failed in different cities or had quit business were published, so that the vacancies might attract attention and call in others to take their places.
Frederick the Great (1740-1786) continued his father's policy. He granted religious and intellectual toleration, and administered justice with impartiality, not merely for the sake of these good things themselves, but also to increase population by making Prussia the goal of emigrants fleeing from persecution. His efforts brought at least 30,000 immigrants into Silesia alone.
Important industrial activity was the result of this application of the principles of the Mercantilists. Schmoller enumerates the follow- ing industries which owe their origin to the policy of Frederick the Great : the mines in Silesia ; an iron manufactory in Eberswalde (Neustadt-Eberswalde until 1876) ; the Berlin iron foundry, in which the entire Berlin industry in manufacturing machines had its origin ; the manufactory of silk in Crefold ; the weaving industry in Elberfeld and Barmen ; and the linen industry in Billefeld. Dutch bleaching establishments were founded.
A court was established which exercised jurisdiction over matters of commerce and bleaching ; and to crown the whole, state diplomacy was used to assist the manufacturers in selling their products. Spin-
112 ECONOMIC THOUGHT
ning and weaving were controlled by minute regulations. It was forbidden to export yarn. Spinning was encouraged in every way ; the soldiers were ordered to spin; the spinners of cotton were paid annual premiums, and received privileges such as exemption from taxation. Edicts were issued and regulations framed for the purpose of assisting artificially the small tradesmen to obtain credit and the means of procuring raw material.
CHAPTER VIII EARLIER GERMAN MERCANTILISTS AND KAMERALISTS *
Teutschland hat zu seinem schaden,
O der grossen raserey ! Fremde kauf-leut eingeladen,
Das es ja bald geldarm sey. Fremde waaren, welche leyder ! Bringen nichts als fremde kleider,
Machen unser teutsche welt
Reich an hoffart, arm an geld.
VON HORNIG.
1. Resume of the Nature, Scope, and Development of Kameralism. — For some three hundred years or more the economic thought of the German states and Austria was largely embedded in that body of learning known as Kameralism or Kameralwissenschaft, This was the German Mercantilism, a Mercantilism which deserves separate study because of its peculiar problems, its relatively full and consistent formulation, and its close relation to more recent German Economics.
In the Middle Ages the word Camera (German Rammer) de- signated the place in which the royal income was stored. By the Prankish kings the royal treasure chamber was called Kammer, and the term soon came to apply to the royal property. Thus Kameral affairs concerned the economy of the prince,
1 For a more complete statement of Kameralism, see Small, The Camer- alists; Chicago, 1909. The present chapter was prepared some months before the appearance of Professor Small's book, and, its conclusions having thus been independent, the substantial unanimity of the two is of interest. The writer has had access to a copy of Hornig's Oesterreich iiber alles, which important work Dr. Small unfortunately could not obtain. The writer would, perhaps, lay more emphasis on the economic element in Kameralism than does Professor Small, — while he realizes the large proportion of politics and technics embraced.
I 113
ECONOMIC THOUGHT
and Kameralism was the art which maintained, increased, and administered the royal income. After the erection of the Hofkammer by the Emperor Maximilian, — at Innsbruck and at Vienna (1493 and 1501), — a knowledge of the principles and duties involved in its administration became necessary, and chairs for instruction in such knowledge were later founded in various universities.
At the outset, Kameralism was a combination of ideas, politi- cal, juristic, technical, and economic ; but toward the close of the Middle Ages it became largely separated from jurisprudence, while it was extended to include, besides the original idea of do- mainal and regalian administration,1 broader matters of economic policy. Then, during the eighteenth century, technical subjects were more and more dealt with, until in the early nineteenth cen- tury there was a reaction, and economics was severed from tech- nics. This was, no doubt, partly effected by the evolution of political economy in France and England. Schmalz, writing in 1819 (Encyclopedia of Kameralistic Sciences), made Kameralism include all matters pertaining to the property and income of the people, their acquirement and increase, and taxation. Two distinct branches were technology and political economy. And Rau ( Ueber die Kameralwissenschaft, 1825) distinguished private and technical economy from the public and political.
Throughout its entire development Finance figured promi- nently in Kameralistic thought.
To understand this thought one must remember that the great stimulus to the thinking of the early Kameralists lay in the rela- tively backward industrial condition of the German states. From the reign of Charles V to the close of the Thirty Years' War, Germany was split up into a political chaos of struggling princely and burgher economies. In vain (1522-1523) was the project of a national tariff wall raised ; and Copernicus proposed a uniform currency to no avail. The political struggle concern- ing coinage (" Der Miinzpolitische Streit ") of 1530 was typical.
1 Domains included royal estates, crown lands, etc., regarded as sources of revenue for the rulers. Regalia included many rights and prerogatives, for which see below, p. 126.
KAMERALISM 115
During the continuous warfare prior to the peace of West- phalia (1648) cities and country districts were depopulated, while heavy loads of debt were accumulated by sovereigns. Torn by internal dissension, overrun by Turk and Frenchman, outstripped in trade by the vigorous activity of Holland, France, and Eng- land, there was need of action. The need of remedies was especially felt after the Thirty Years' War.
Kameralism became a study or discipline for training officials, largely for the work of remedying the economic evils which afflicted the German states in the sixteenth and seventeenth centuries.
In this situation, coupled with an undeveloped system of tax- ation, lay the roots of the German Mercantilism.
Beginning about the middle of the sixteenth century the rise of ideas characteristic of German Mercantilism or Kameralism may be traced in the thought of Luther and of Ossa (1506-1556). But George Obrecht, who was made professor of law at Strass- burg in 1575, appears to be the first real Kameralist, with Besold — also a law professor — following. Bornitz and Klock (1583- 1655) came shortly after, and are more important. These writers generally emphasized the importance of money and a dense population, and placed great confidence in government regulation; while differing on such points as the advisability of depending on domainal revenue to support the government, the nature and scope of regalian rights, and a reduction of the legal interest rate. Chapters on such technological sub- jects as fishing, agriculture, the silk industry, etc., were often presented.
Better known and more influential than any of the preceding was Seckendorf (1626-1692), the author of Der Teutsche Fiir- stenstaat (1655). He may almost be called the father of Kamer- alism. Like his fellows, he favored a dense population and re- striction of exports; but he opposed gild monopolies and was more moderate in his views on government restriction. His tendency to separate economic considerations from those of a political or merely fiscal and administrative character is note- worthy.
Il6 ECONOMIC THOUGHT
To be associated with Seckendorf are Bechers (1635-1682), Hornig (or Hornigk), and Schroeder (1640-1688) ; while with Gasser, Danes, Dithmar, Zincke (1692-1768) and Justi (d. 1771), Kameralism became a university study and was more systematically developed.
2. The Economic Thought of Some Typical Kameralists. — (a) Beckers1 ''Political Discourse": 1667, — In the fore part of his Political Discourse l (1667) Dr. Johann Joachim Bechers gives us a statement of the rules which should regulate the various orders of society in Mainz, — the upper classes as well as merchants, artificers, the poor, Jews, and beggars. The quality and price of goods were to be regulated, forestalling pro- hibited, and, in general, the late-medieval market and handicraft regulations enforced. The authority of the gilds, however, must be decreased, and if a workman were skillful, he might work at his craft whether fulfilling gild requirements or not (pp. 71-83). He recommends that the three productive classes, merchants, handicraftsmen, and peasants, should be guided by one head official to the end that they might cooperate, and so cause the community to grow by advancing its business. " But, because . . . this consists in negotiation and sale, it is easily to be understood that of everything which hinders it or the business and population which arise from it, and on that account weakens the community and its business and all the utilities which result, nothing is so obstructive as to burden mer- chandise and merchants with high tolls and imposts ; for thereby will the tradesman be impelled to furnish his wares dearly in order to cover such imposts " (p. 99). As a result, either foreigners would get the trade, or the consumption would be decreased and trade weakened. So with handicrafts : heavy taxes on the means of subsistence make artisans charge more for their work, and purchases are made abroad, while these results cause the agriculturist to lose his market.
1 Polilischer Discurs, von den eigentlichen Ursachen des Auf- und Abnehmens der Stadt, Lander, und Republicken, in Specie, wie ein Land volkreich und nahrhaft zu machen. 3d ed., Frankfurt, 1688; ist ed., 1667; 6th ed., 1 759-
KAMERALISM 117
Consumption or sale 1 is most necessary to hold the three groups together and bring prosperity. When the market is good the merchant sells, the manufacturer works day and night mak- ing things for the merchant to dispose of, and the agricultural worker produces raw materials. But the merchant is the key- stone. Upon him and his sales rest the nourishment and increase of the people.
" Those are proper traders who through their stock bring it to pass that raw stuffs remain in the land and are worked up by the subjects thereof, . . . that instead of foreign manufactures coming into the land and money going out to pay for them, not only does such money remain in the land, but the exports draw in trade (or wealth) : These, say I, are useful members of the community" (103).
Markets are of two kinds : domestic and foreign. The former is a privatum privilegium, is certain, and to be kept for home traders. The foreign market, if the foreigners are clever, is not to be hoped for as a privilegium, and one can draw away the foreigners' money only by the cheapness and goodness of one's wares. To this end, cheap living through low import duties on food, etc., is desirable ; also, encouragement to good artificers, and good masters and materials.
Bechers makes much of three great evils: monopolium,poly- polium, and propolium. These tend to destroy the state. The first, or monopoly, destroys population by restricting access to trade, as do the gilds with their many requirements. On the other hand, Holland, by abolishing all restrictions, has brought on a " polypoly " which exists when there are more peasants than land, more handicraftsmen than work, more merchants than market. This destroys subsistence. The idea of a " propoly " seems less distinct, Bechers himself stating that it tends to mo- nopoly. The East India Company was a " propoly." To fore- stall or to take advantage of a cheap year to buy up for the pur- pose of selling dear at a later time also fell under this head and tended to destroy the community.
1 Consumption, debit, oder Verschleiss.
Il8 ECONOMIC THOUGHT
To Bechers the institutions of greatest advantage to a state were a well-established currency, a free market house (Kauf- haus), a well-manned workhouse (Werkhaus), and a rich bank (267). The first three would maintain the supply of money; the last would bring in more from abroad.
He seems to have had some understanding of the principle now called Gresham's Law, and discusses the measures tried by Sweden, Holland, and England for retaining their good coin.
As no ware is dearer or more necessary to a country, he lays it down as a general rule that by every means money should be kept at home, and to this end advocates a five per cent impost on specie exports. Coins should be of pure metal, but might be advantageously decreased in weight. By the establishment of exchange banks on the borders of the country, the flow of prec- ious metals in and out of the country might be controlled, — only domestic coins to pass current within.
Bechers wrote much concerning foreign commerce, and fa- vored developing it through the agency of regulated companies.
On the whole, though he did not overlook the importance of agriculture, nor desire an overdense population, he was de- cidedly a Mercantilist.1
(b) Hornig; Rules for making a nation self-sufficient: 1684. — Oesterreich iiber alles, wann es nur will * is the title of von Hor- nig's (or Hornigk) book. It was one of the best known of the Kameralistic writings, though now quite rare. The title strikes its keynote, — Austria above all if only she will. By systemati- cally exploiting her resources, developing thrift, excluding cer- tain foreign manufactures, etc., she might surpass her neighbors in power and wealth.
Hornig makes " the might and excellence of the land consist in its overplus of gold and silver and all other things requisite or convenient for its subsistence, and indeed all such as, in so far as is possible, come from its own resources, — and at the same time their proper (rechtmassig) care, use, and application " (p. 33).
1 Bechers seems to have given up some of his Mercantilist doctrines and to have displayed communistic leanings. 1 Ed. of 1707 quoted; ist ed. in 1684.
KAMERALISM 119
This passage brings out the chief point in Hornig's thought : self-sufficiency. He accordingly proceeds to examine Austria's balance (bilancia), considering first her deficit, so to say, in gold, silver, and other things, and then her surplus ; conclud- ing that her great natural resources in salt, bread, fish, wine, etc., made it possible for her to increase production and secure a favor- able balance (chaps, xi, xii, xiii).
His idea of wealth and of favorable balance is not a narrow one. A land having only gold and silver is indeed rich (reich), but is far from the goal of self-sufficiency; for its people can neither eat nor wear those metals (27-28). On the other hand, one having all but gold and silver, while it could stand alone longer, is also dependent ; for, we are told, gold and silver seem indispensable to most men, and such a land would depend upon the foreigner's goodwill for the exchange of its goods for gold and silver.
In making a common comparison between the bases for the industrial success of Holland and England, Hornig uses a strik- ing figure : Holland's gold magnet is stronger in attracting, Eng- land's in retaining, the precious metals (30).
Thus the question with Hornig is always one of foreign com- parison. He specifically states that power and wealth have become relative terms, depending not on the absolute quantities of power and wealth possessed, but on their relations to those of neighboring lands. "
The analysis of economic categories is interesting. All mat- ters useful for human subsistence are of two sorts : first there is the thing itself ; and secondly there is the proper (or legal ?) care and application, especially suitable arrangements for domestic and foreign industry and trade (27, 31). The former depends upon nature alone ; the latter partly on nature, partly on human wishes. In the last analysis all the things themselves fall into two classes: (i) gold and silver, (2) all other things for nourish- ment, clothes, shelter, etc. Gold and silver are equal to all other things in value and use (Werth und Nutzen), and are of quite an- other sort on account of their " civil use."
But to return to Hornig's thesis. He lays down nine " fun-
120 ECONOMIC THOUGHT
damental rules for a general national-economics." These rules were quoted by other writers, and exerted much influence. They are fairly typical of the dominant mixture of Kameralism proper and Mercantilism.
I. The earth and all on and in it should be examined most ac- curately to learn how everything may be made most useful to the nation ; and in all things which concern gold and silver no pains or costs should be spared.
II. " All the goods which occur in a country and which are not used in their raw state should be worked up in that country as far as possible."
III. For the execution of these rules people should produce raw materials as well as work them up. Thus it is important to regard population, and to keep men from foolish occupations ; and by all devices to instruct and encourage artisans and handi- craftsmen, taking instructors from abroad if necessary.
IV. Gold and silver once in the country should if possible be kept there ; but they must not be stored up, but kept in con- stant circulation. Nor must they be invested in unprofitable works.
V. The inhabitants of a state should seek, in so far as is possible, to satisfy themselves with domestic goods and forego foreign products.
VI. " Should the importation of foreign goods be necessary, they should not be paid for with gold or silver, but with exchange of domestic goods."
VII. " Such foreign goods must be imported in the raw state and be worked up in the country."
VIII. In all industry it must be considered how surplus goods can be exported in finished form for gold and silver, and with this object try to drive trade even to the ends of the earth.
DC It is not as a rule permissible that goods of which the state has a surplus be imported, even if possible to buy the foreign goods for less than the domestic.
Horm'g thought the exclusion of imports easy and simple (125). By this means a market would be guaranteed to the domestic producer : " When money no longer goes to foreigners
KAMERALISM 121
at least ten millions annually will remain in the land and turn to business capital (Verlagscapitalien) ; and the assurance of the market, with the accompanying certainty of profits, will encourage capitalists to loose their cash. The foreign artificers will be compelled through lack of work and bread to come to the father-land to seek both."
The restrictions of the gilds received considerable criticism, but he does justice to the good order enforced by them.
Von Hornig's contemporary, von Schroeder, entered public service in Austria in 1673 to conduct a factory (Manufakturhaus) according to Bechers' plans, and was later court financial coun- cilor in Hungary. He is notable for his attack upon gild monopoly, and his advocacy of tolls, public loans, and the balance-of- trade idea.1
(c) Daries' First Principles: 1756. — Passing over the several writers mentioned above, the work of Joachim Georg Daries must be considered. His First Principles of Kameral Sciences, published in Jena, 1756, about ninety years later than Bechers' book. Shortly before this time Frederick William I had be- come interested in this subject, and in 1727 had founded chairs of Economic and Kameralistic Sciences at Halle and Frankfurt- on-the-Oder.2 This had given an impulse to further study, in which it is noteworthy that technology was emphasized.
In his preface Daries expresses indebtedness to Schroeder and Seckendorf, and refers to Dithmar, the latter being the incum- bent of the chair established by Frederick William in Frank- furt. He proceeds to recite the objections then being made to the study of Kameralism : it was said to concern things which
1 Notwendigcr Unlerricht vom Goldmachen (1648) ; De M inistrissimo (1663) ; Fiirstliche Sch&z- u. Rentkammer (1686) ; Disquisitio politico, vom absoluten Fursten (1713). Schroeder spent considerable time in England, and was much influenced by English thought. On Schroeder see Erbik, Wilhelm von Schroder. (A " Separate " from the reports of the Royal Academy of Sciences in Vienna. Vienna, 1910.)
2 These are often said to be the first professorships of political economy, but if they are so to be called the term " political economy " must not be given the full meaning it now possesses. Gasser was the incumbent of the chair at Halle.
122 ECONOMIC THOUGHT
experience alone could teach, its subject matter was too complex for generalization, and some thought that only burghers or peasants should busy themselves about such matters.
After disposing of these prejudices, he proceeds to consider the sources of annual income, which are of two sorts : one fixed and calculable, the other the result of chance (p. n). The former alone can be dealt with scientifically. It consists of (i) aptness in application of human powers, (2) acquired goods which can be of annual use. These goods form what he calls a Fund (Fond) or Capital ( !). They make a surer source of income than skill.
His definition of the term " Capital " is suggestive : " We take it in the common sense to designate that earned property which we accept as enduring so that it proves effective annually for our uses " (p. 15).
Now, a prince may be regarded either as a man, or as a royal personage or sovereign receiving a royal income. From the latter viewpoint, " the capital or fund of the princely income is the wealth of the State and the subjects." But to obtain this income, the capital of the subjects must not be encroached upon. It is constantly stated that the well-being of sovereign and subject are inseparable.
Daries' division of Kameralism is, interesting. First comes Agricultural or Rural Economy, dealing with the forces of nature and their adaptation. Here tillage and cattle-raising are the chief subjects. Next he places Urban Economy, study- ing the ways in which art aids nature in workshops and factories. Then comes Police Science or Polity (Policei). Here such matters as population, education, care of the poor, and stimu- lation of industry are treated, — in short, all arrangements of the state for increasing the annual income of the citizens. Fi- nally there is Royal Economy, which concerns the income of the prince and is Kameralism proper.
Polity or police power (Policei} is clearly distinguished from religion and law. It deals with wealth. In so far as justice and religion aim at preventing poverty or increasing wealth, they belong with polity. The laws of polity must not contradict
KAMERALISM 123
moral laws ; they must only determine how morally-permissible things can be directed to increase the wealth of the state. By nature, men are free to do anything in accord with reason; but polity may restrict and limit this liberty.
" A regular polity makes good, and consequently rich, subjects, good and rich subjects make rich and powerful Princes" (394).
In his chapter on town economy Daries makes an analysis of costs which is most interesting. The producer should investigate these carefully and see that allowance is made for (i) raw materials, (2) interest on the value of such materials till the finished good is sold, (3) the price of tools, and (4) their interest and depreciation, (5) labor, (6) interest on wages, (7) interest on buildings used, and (8) expenses of marketing, accounting, etc. When these items are established as a capital and the price received for the product replaces this capital with interest, the business is carried on with profit (233).
On the whole, he subscribes to the doctrines of Hornig, but is much more liberal. He does not believe that gold and silver should never be exported, his rule being the following : " The export of gold and silver is only to be obstructed to the extent that it does not work to the good of the state. It is, on the contrary, an evidence of political shrewdness to give foreigners gold and silver if it is possible by this to further the well-being of the State" (531). And he opposes restriction of trade; for it would be better to seek how to direct the production of the nation into the most profitable industries. As to the desirability of always exchanging goods for precious metals, he remarks that circumstances exist under which the mere exchange of goods for goods is more advantageous. One country has especial advantage for one industry, another for a different one. By exchange of their respective products both profit (536).
On the point of population he was an orthodox Mercantilist. " All industries which provide means for nourishing more subjects in a country are useful to it." A dense population is all but made the source of the wealth of the state. It is not to be feared. // order prevails, the food supply and trade and the income of the prince are increased ; and it is important for defense.
124 ECONOMIC THOUGHT
The foregoing is all drawn from Danes' chapters on Agricul- tural, Town, and Police Economics, the greater part of which is given to semi-technological topics, such as beer-brewing, linen manufactures, tillage, and cattle-raising.
He concludes with a book on the real or proper Kameral affairs, in which he discusses the income and expenditures of the prince, laying down rules for administering them. Chapters on Domains and Regalia, or regal rights, are included.
3. Justi's Political Economy. — The work of Justi, entitled Political Economy, or A Systematic Treatise on all Economic and Kameral Sciences1 (1755), maybe regarded as the climax of pure Kameralism. In it the great mass of Kameralistic doctrines was summed up and organized. There is little that is new, however, save the analysis and classifications.
In the first place some further idea may be gained from Justi concerning the classification of the subject matter. Economic science, he states, deals with the maintenance and increase of thi means of private persons; Kameral science does the same for governments. But Kameralism proper is administrative in nature; for the business of the ruler is twofold, embracing besides polity and economy — which maintain or increase the means of the state — Kameralism, which seeks to administer these means so as to promote the general well being. The latter, in a word, deals with the prince's revenue, its disburse- ment, and the organization and administration of his political business. One great branch of study is Oekonomie, which might be interpreted as administrative economics. Under it fall (i) Management (or private economics), (2) Police, dealing with the conduct and sustenance of the people, and (3) Kameralism and finance, which take up the methods and materials of com- merce, and measures for promoting it.
The three great essentials to a flourishing state are freedom, safety of property rights, and a prosperous industry. For in- creasing the wealth of a state, these means exist: increasing population, foreign trade, and mining. Justi says that with
1 Staatswirthschaft, oder systematische Abhandlung oiler Oekonomischen und Cameral-Wissenschaften, die zur Regierung eines Landes erfordert warden.
KAMERALISM 125
good government and prosperous industry no limit should be placed to the increase of population, a statement which, in its assumption, begs the question as later raised by Malthus. Though he lays great emphasis upon commerce and his balance of trade idea is pretty narrowly Mercantilistic, he does not overlook the importance of agriculture.1 This was, in part, however, with the idea of procuring cheap food and low wages for laborers.
Justi is extremely inconsistent in dealing with the nature and increase of wealth, some juster ideas being mingled with the old errors.2 Thus, at one point, he says that a land might be rich even if it had no gold and silver, and defines wealth as the supply of the comforts and necessaries of life. But again we are told that gold and silver are necessary for exchange, and so a land is not rich without them. And, finally, he steps over into state- ments that wealth equals the supply of money.
It is clearly pointed out that the interests of the merchant are to be distinguished from those of the government, their gain not always coinciding with the public welfare, though it may do so.
One of the most notable points in Justi's book is his body of rules for levying taxes. Briefly they are as follows : 3 —
(1) Taxes should be so levied that they will be paid willingly.
(2) They must not restrict industry and commerce by inter- fering with freedom of conduct, credit, etc.
(3) They must be levied with relative equality.
(4) They should be sure and true, falling upon such objects as enable a certain and honest collection.
(5) They should be levied on such objects as will permit the least number of collectors' offices, and officials.
(6) They should be so levied as to amount and time of pay- ment as to be most convenient for the subject.
Justi, in the third rule, considers both the benefit received
1 It is interesting to note that he refers to Vauban in another connection Vauban, a French writer, thought agricultural labor most important. See below, p. 136.
* Staatswirthschaft, I, pp. 152-155 (2d ed.). * Ibid., II, 309 ff.
126 ECONOMIC THOUGHT
from the government and the ability of the subject to pay. In this classification he anticipates to no small degree the famous canons of taxation laid down by Adam Smith.1
4. Regalian Rights. — In order to understand the foregoing references to regalian and domainal rights, and, indeed, a con- siderable part of Kameralistic writing, it is essential to grasp the significance of regalian or regal rights in connection with the evolution of economic thought. To the Kameralists such rights meant no legal theory, nor a merely political struggle between sovereign and pope or vassal, but the source of revenue. The regalian question, which reached its height in Germany in the seventeenth century, owed its significance largely to the backwardness of taxation and the taxation idea at a time when states needed more revenue. Dependence on the income from royal domains was no longer possible. Some middle source of revenue must be found. Hence there was a tendency to expand fiscal policies by extending the number and scope of royal privileges.
Roscher distinguishes four groups.2 First, the various feudal aids and duties were exploited. Thus knight service might be escaped by a payment ; large amounts were demanded when land was sold; and when traveling the king lived upon his people through rights of purveyance and preemption. Secondly, there was a group analogous to domainal rights. For example, all property without an owner might revert to the king ; buried treasure and the property of deceased aliens were his; etc. Then another source of revenue lay in the political activity of the sovereign : he shared in war booty, sold offices and protec- tion, and received fines and confiscated property. Lastly, the state conducted directly or indirectly certain industrial enter- prises, especially new trades, and industries in new lands. So it was with the post, lotteries, mining of precious metals, and certain branches of foreign trade. In this last case, and in the
1 Below, p. 178.
1 Geschickte der National-Oekonomik in DeutscUand, p. 159. These are not of fundamental importance, but are useful as giving a summary idea of the scope of regalian rights.
KAMERALISM 127
third, too, political objects may also have been in mind. Al- together as many as four hundred regalian rights were some- times distinguished.1
Now this mass of sovereign rights was rather chaotic and ill- defined. In keeping with the Kameralist's confusion of politi- cal, financial, and general economic matters, regalian rights appear to have been regarded as sort of middle ground between domainal revenue on the one hand, and taxation proper on the other, and came to include an unanalyzed mass of tolls, duties, aids, and taxes which did not seem to them to fall under either of the other heads.
It has been suggested that this is a normal stage between what from a fiscal viewpoint may be called domainal and tax econo- mies.2 On the political side this stage corresponds to a transi- tion period between feudalism and absolutism, its later phases being characterized by an extension of the prerogatives of the crown and the decay of the old nobility, while systems of taxa- tion authorized by class or mass had not yet been established.
It remains to be noted that some of the later Kameralists took steps toward an analysis and delimitation of regalian rights. Justi classified them under four heads, as concerning highways, water, forests, and sub-surface wealth; while Sonnenfels went further and cut down the extent of these rights considered as fiscal devices by placing mine, salt, and tobacco regalia under taxation, and classing others as aids to Polizei or police power. Rau, however, clung to the old classification.
This tendency, though the source of considerable contention
1 In England Blackstone divided regalian rights into two groups : majora regalia, which embrace the prerogatives that concern the political character, the dignity, and regal power of the sovereign ; and minora regalia, which concern the regal revenue. He tells us that the English kings had been shorn of much of their revenues, having granted them away to subjects; yet he distinguishes eighteen varieties, such as the revenue from bishoprics, rights of purveyance, rights of royal fish (whale and sturgeon), forfeiture and escheat, etc. These are the "proper patrimony of the crown," though English kings were largely dependent upon extraordinary revenue. (Black- stone's Commentaries, Bk. I, Chaps. 7 and 8.)
2 Roscher, Gcsch. d. Nat. Oek., p. 158.
128 ECONOMIC THOUGHT
in its details, is in general logically necessary. The regalian rights lost their significance with the limitation of royal pre- rogatives and the growth of taxation. All that was left fell logically either under taxation, or under tolls and duties imposed for the control of consumption and the like.
5. Kameralism and Mercantilism ; Summary. — Kameral- ism might be defined as German Mercantilism.1 Like Mercantil- ism, it is difficult to define comprehensively as a body of thought. This much must be stressed : it was more than English Mer- cantilism. The representatives of both groups made much of government regulation, placing a naive confidence in the effi- cacy of laws. Tariffs and taxes figured prominently. Both regarded the precious metals as the most desirable form of wealth, emphasizing their distinctness. Both were animated by inter- national rivalry, and both preached dense population, frugality, and self-sufficiency. But there the main points of similarity begin to cease.
A notable difference in the form and scope of the writings which contain the views of the two groups strikes one at a glance. The English Mercantilists were pamphleteers, writers of short tracts, not very comprehensive. The German writers set forth their doctrines in bulky volumes, dealing with all phases of their topic as they conceived it, and with much show of logical sub- division and arrangement. They were professors of law, finance councillors, and the like.
The German works, too, form part of a more connected body of thought. With their roots in medieval treatises and Roman jurisprudence,2 the fruit of more modern German economics is in part theirs; for Kameralism, unlike Mercantilism, existed as such into the nineteenth century.
The Kameralists, with a few exceptions, were relatively less concerned with foreign relations, commerce, and the balance of
1 Remembering that Mercantilism must not be too narrowly confined to certain ideas concerning balance of trade and estimation of money.
2 Bornitz, for example, constantly cites the Corpus Juris. Seckendorff 's Der teutsche Furstenslaat appears to be the first book (1655) on political economy written in German, the other Kameralists using Latin.
KAMERALISM I2Q
trade idea than their more maritime neighbors in England and France. They made more of internal or domestic industry,1 and to this end incorporated in their writings books or chapters dealing with the technics of agriculture, grazing, mines, and forests, and the various branches of manufacture. These sub- jects received little attention from the English Mercantilists.
This last difference is to a considerable extent the expression of different origins and objects. Kameralism began with the desire for efficient administration of the domains and regalian rights of the sovereign ; and it retained the stamp of its beginning to the end. Kameralism embraced many things, but its proper part was ever the maintenance, increase, and expenditure of the prince's income, by which was meant the revenue of the state. As in the case of English Mercantilism, the interests of state and individual were not assumed to be in harmony. The German state, however, was somewhat different from the English state in the absolute nature of its prince's rule, so that politi- cally Kameralism is more like Colbertism than English Mercan- tilism.
Moreover, the wasting and depopulation of town and country caused an unusual emphasis to be placed upon population ; while the exhaustion of treasuries meant an equal attention to fiscal devices.
There is some difference of opinion as to the merits of the Kameralistic ideas about population. While the needs of their country were such as to make a problem different from that which later confronted Malthus, and while their qualification that order and good government must prevail should be remembered, yet it must be concluded that they often stated the benefits to be expected from an increase in population too absolutely. At points there seems to be a kind of optimism in their thinking. They were prone to assume that the other factors would develop in proportion. Sometimes, too, population was thought of al- most as an end, — no\v for military purposes, row ?s an economic benefit. The chief criticism, after all, is that they did not go
1 Even of Hornig, Oncken says, " One sees that this German Mercan- tilism has its climax not in foreign trade but in domestic." K
130 ECONOMIC THOUGHT
far enough in their thought, the result being a short-time policy rather than a general theory. Here, as elsewhere, we may judge leniently, but remembering that this is done not so much because these early thinkers had the truth as because they were early thinkers, and so our standard itself may be modified.1
The importance of a knowledge of Kameralism to an under- standing of German economics remains to be observed. With- out its peculiar background of Kameralwissenschaft German theory would probably have been other than it is. One of the most obvious effects of Kameralism appears in the division of the science into general and special economics, and finance; and in the emphasis on the technical and financial aspects. Again, the early prevalence of a distinction between public and private interests, and the general recognition of the im- portance of legal advantages, special privileges, business arrange- ments, etc., and also of credit, may be traced to Kameralism. One cannot but be struck, too, with the similarity between the ideas of the Kameralist Daries and the economist Hermann concerning capital. In these and other ways German economics was affected by its peculiar heritage.
1 I would agree with Professor Small when he says that the Kameralistic ideas have been misrepresented. Also in his statement that " they did not qualify their statements about population quite as carefully as men must who have in mind the Malthusian chapter in economic theory." But it does not seem to me correct to say as he does that "the came rali sis knew as well as modern economists do that there was a limit beyond which more mouths could not be fed. . . . Substantially . . . they held tenable views of the subject as far as they went." The Cameralists, p. 15.
C. THE EVOLUTION OF ECONOMICS AS A SCIENCE
I. THE FOUNDERS
To one who turns from reading a modern treatise on eco- nomics, whether it be Mill's Principles of Political Economy or the works of Wagner or Marshall, and takes up the various writings which have been dealt with in the foregoing pages, a great development is evident. Heretofore, economic thoughts have been gleaned mostly from books on religion, politics, or jurisprudence. At most, they have been rather sporadic pam- phlets or essays, or treatises upon political and technical matters. Yet it would be misleading to say that these thoughts were unclassified or unsystematic. The writings of Aristotle, for illustration, were truly scientific. In the works of the Roman jurists and medieval scholastics, economic ideas were fitted into organized bodies of thought. The point is that they were not distinct. They formed no separate science, but lay inchoate within other bodies of doctrine, — ethics, jurisprudence, and the like.
To found the science of economics, then, it was necessary to sever these scattered economic ideas and bring them together in a separate system of thought. For this step the way has been somewhat prepared, especially by the Mercantilists and Kameralists who made considerable progress in giving economic ideas separate attention. It was not until the middle of the eighteenth century, however, that Economics was really founded as a science. To recount the circumstances under which this development was achieved and sketch the main features of the new science is the object of the two following chapters, which deal with The Founders.
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CHAPTER IX
ABOUT the middle of the eighteenth century a group of French thinkers evolved a system of economic thought which forms one of the important roots of the modern science. One of their number styled that system " Physiocratic," and ever since these men have been known as the Physiocrats. The Greek words <t>v<ns and /cparos signify the power of nature, the system of thought now under consideration being based upon a belief in the existence of natural laws which must be followed if men are to gain their highest well-being. This system was also known as the Agricultural System, and is so called by Adam Smith. The Physiocrats liked best to call themselves " The Economists " (Les Economistes) .
Taking the tillage of the soil as a starting point, and basing their reasoning on a concept of natural liberty, the Physiocrats constructed what may be called the first system of political economy. They endeavored to include all the social phenomena connected with the production of wealth, embracing in their economics laborers, manufacturers, merchants, farmers or agri- cultural entrepreneurs, owners of large estates, and the ruling classes. Thus the new system was very different from Mer- cantilism, which was rather inchoate, and emphasized foreign trade in a narrow fashion.
I. The Forerunners of the Physiocrats. — Mercantilism has been described as embracing the group of economic and political doctrines which prevailed among the statesmen and political writers of the sixteenth and seventeenth centuries.
133
134 ECONOMIC THOUGHT
It held sway on into the eighteenth century; but toward the end of the seventeenth protests against the extreme doctrines of that system had begun to be uttered even in its strong- hold, England.1 It is little wonder, then, that in France, a country more easily led into revolt, the abuses which attended and followed Colbert's regime soon brought on a violently negative economics. Physiocracy, though it meant much more, might almost be defined as the revolt of the French against Mercantilism. This revolt, however, did not break out in any organized way until the middle of the eighteenth century, and a word should be said about the economic thought which in- tervened, — about the forerunners of the Physiocrats.
The first economic theorist of note to be produced by France was Pierre Boisguillebert. An unsystematic writer, Boisguillebert's thought in many points seems to foreshadow the later school. He was a contemporary of Colbert's, and his work was stimu- lated by the misery which followed the financial abuses of Louis XIV's reign. Tax reform, then, was the burden of his first book,2 equality in distribution and abolition of export duties on grain being the chief demands. Two more theo- retical works were his Treatise on Grain and Dissertation upon the Nature of Wealth. They were written in the interest of the landed classes, containing arguments in favor of high prices for grain. In them he refers to Holland, Henry IV, and Sully,3 praising the latter at the expense of Colbert. Quite significant was his attack upon the overvaluation of precious metals : wealth to him consisted rather in the supply of neces- sary and convenient things which satisfy man's many different wants. Such wealth depended, not upon political policy, but upon a natural harmony of industry.
Contemporaneously with Boisguillebert another Frenchman was driven by the same unhappy industrial state of his country to
1 By Barbon, Child, Locke, and others. See above, pp. 93, 95, 102.
* Detail de la France sous le regne present, 1697; Factum de la France, 1707.
3 Sully had said, "Labourageet pastuagesont les deux mamelles de Pe'tat, " — tillage and pasturage are the breasts of the state.
THE PHYSIOCRATS 135
think similar thoughts. In 1707 Marshall Vauban published his Project for a Royal Tythe. He described the wretched con- dition of the peasants, which he, too, attributed largely to in- equality in taxation. His project concerned a single direct tax of one tenth of the product of agriculture. He would have permitted a few duties on consumption, but on the whole may be regarded as a pioneer of the single tax. Vauban considered labor as the foundation of wealth; and of all labor, that in agriculture seemed most important.
Fenelon (Telemaque, 1699) in favoring freedom of trade and emphasizing the character of the people rather than their num- bers, and Montesquieu (Esprit du lois, 1748-1749) in holding that " natural laws " obtained in the social world and arguing for liberty, are also worthy of mention in making the transition from Mercantilism.
But most noteworthy of all is Richard Cantillon. Indeed, his Essay upon the Nature of Commerce in General,1 published in 1755, may justly be called the forerunner of the science of political economy, for it is a general treatise and - inquires into principles. Wealth he defines as being nothing other than the comforts and conveniences of life. The earth is the source or material whence wealth is drawn; labor is the form which produces it. The great merit of Cantillon's essay lies in its attempt to trace the circulation of wealth to its ends. He deals with internal trade between town and country, thus taking the sole emphasis away from foreign commerce. He argues that in a country where one half the population lives in towns, one half the agricultural produce must be consumed by the urban dwellers ; and proceeds to discuss the distribution of that produce between landowners and farmers, and to analyze the expenses of the latter. Cantillon also discusses value and price, following Petty in basing them upon the amount of labor and land which contribute to produce the thing under consideration. His manuscript work was circulated in France
1 See reprint for Harvard University, G. H. Ellis, Boston, 1892. Orig- inally written in English, the essay was translated by Cantillon for the use of a French friend.
136 ECONOMIC THOUGHT
and must be accounted an important factor in shaping the thought of the Physiocrats.
Of all the preceding men it may be said that, while they were to a greater or less extent opposed to Mercantilism, they were limited by it, and they founded no opposing system of economic thought. Cantillon comes nearest; but he seems to have held Mercantilistic ideas concerning the balance of trade, and, as a banker, his point of view was rather different from that of the Physiocrats.
II. The Forces which gave Rise to Physiocracy. — The condition of France which stimulated the writings of Boisguillebert and Vauban long remained without reform, and is to be regarded as first among the factors which gave rise to Physiocracy. When one calls to mind the reigns of Louis XV and Louis XVI, during the time which immediately preceded the French Revolution, one remembers at once the main features of the situation. Louis XV was the last to exercise without restraint the royal power in France. He was the center about which everything else was made to move ; outside of him there was no state. The consequences of the royal maxim, " L'Etat c'est moi," — I am the state, — were far more injurious to France under him than under the regime of Louis XIV. Court life was degenerate and corrupt. It was taken up with pomp, extravagance, and debauchery. The women of the court in- terested the king far more than the national welfare. An ex- hausted state treasury and increasing debts were the result of a luxurious and extravagant mode of life and unnecessary wars. To replenish the treasury loans were made under unfavorable conditions. Taxes were heavy, and disproportionate rates were paid by peasants and commons. The nobles and clergy, who owned some two thirds of the land, were nearly exempt from direct taxation, while a variety of taxes was used to oppress the lower classes, — duties on goods, passing from one province to another, the salt tax, the poll tax, the tithes, etc., not to speak of the services and burdens of the feudal system. But the worst feature connected with the taxes was the manner of
THE PHYSIOCRATS 137
collecting them. As one rents a farm with the intention of cultivating it so as to draw from the soil all that it can pos- sibly yield, men, called farmers of the revenues, contracted for the taxes at a fixed price. All that they collected over and above that amount was their own, and so excellently did they understand how to exploit the people that they scarcely left them the necessary means of subsistence, while they themselves frequently retired with fortunes after a few years.
Land values were reduced, or kept from rising. The poor metayer, after paying the landowner a large share of his produce, was heavily taxed on the remainder; while the value of that remainder was reduced by duties which restricted markets at home and abroad, these restrictions being in sympathy with the Mercantilist policy of lowering wages and other expenses of manufacture so as to enable the country to export merchandise.
In short, France was like a great railway or factory which has made no allowance for depreciation or replacement; her productive power was impaired and her credit shaken.
On the other hand, the Mercantilist policy had exhausted its resources and had outlived its usefulness. The passing of its power in England was evidenced by Cantillon's Essay, with its emphasis on domestic trade and its tendency to regard the landowner as the only independent producer. But in France government supervision kept on in the same old ruts, until it came to be recognized by the thoughtful that trade and manufactures had been unduly fostered at the expense of agri- culture.
In England an agricultural revolution was being consum- mated.1 The profitableness of farming on a larger scale, with more capital and rotation of crops, was known to the Physio- crats. In fact, Quesnay, their leader, was personally interested, and applied the new methods on his own estate. These facts would further shake the prestige of Mercantilism and turn men's thoughts toward the importance of agriculture.
Finally, there were great subjective forces at work for change and progress. The evil state of affairs just described, coupled
1 See Toynbee, Industrial Revolution, Chap. III.
138 ECONOMIC THOUGHT
as it was with injustice and oppression, would ordinarily have given rise to immediate discussion and criticism. Under Louis XIV, however, this result was prevented by the wonder- ful ascendency of the king and his dazzling military policy; while his successors took the most severe measures to stamp out writings hostile to the government.1 French thought, too, was but beginning to break away from the shackles of servile credulity, first as to religion, then as to politics. Toward the middle of the eighteenth century, in spite of oppression, this emancipation was rapidly effected. Notable changes had just been made and were being made in philosophy. Political writers were beginning to speculate about more rational and simple laws which would be based upon general principles of jus- tice. The ferment preceding two epoch-making revolutions was in men's minds, a ferment tending toward the emergence of the individual as the center of philosophy and politics. It has been noted in Montesquieu. The last remnants of medieval credulity were crumbling. The natural sciences were making great strides, and there was a tendency to apply their methods to philosophy and social problems, seen, for example, in Hume and Descartes.
England and English thought were practically unknown to the France of Louis XIV.2 In the two generations which fol- lowed that monarch's death " there was hardly a Frenchman of eminence who did not either visit England or learn Eng- lish." 3 Among them were Montesquieu, Gournay, and Mira- beau. The philosophy of Newton was popularized; the writ- ings of Locke became widely accepted; and the thought of Shaftesbury and Hume worked as a subtle leaven.
III. General Outlines of the Physiocratic Political Economy. — i. Nature Philosophy. — In order to understand the political economy of the Physiocrats it is necessary to grasp clearly their underlying philosophy. And in the first place come their " natural order " and laws of nature. Although there
1 See Buckle, History of Civilization, General Introduction, Chap. XII. 2 Ibid. » Ibid.
THE PHYSIOCRATS 139
were some considerable differences among them, they followed Rousseau and the ideas of the time to the extent of believing in an ideal order of things, whose arrangements were perfect and whose laws were the will of God. This was the ordre naturelle. It stood opposed to the ordre positive, whose laws are human and whose arrangements are the imperfect ones of existing governments, in this resembling the distinction made by Thomas Aquinas and ancient philosophers before him. In their teachings they sought to expound the principles of the ordre naturelle, that nation being best governed whose laws, or ordre positive, come nearest to expressing the constitution of the natural order.
Their doctrine being thus founded in the nature of things and unchangeable, the Physiocrats may be regarded as the chief early upholders of " absolutism of theory " in political economy.1
It is, perhaps, possible to exaggerate the importance attached by the Physiocrats to the divine character of the ordre naturelle. Certainly, the significance of their philosophy in leading up to the idea of general principles or social laws should not be over- looked. They believed that men in society are subject to natural laws in the same way that the equilibrium of nature is main- tained by physical laws. These natural laws of society were the conditions upon which depended well-being. As Dupont de Nemours put it: In general, natural laws are the condi- tions essential, according to which all the phenomena of the world occur. In particular, that part of the natural law which is relative to man comprises the conditions essential to the assurance of all the advantages which the natural order can afford. These conditions " determine the use which we ought to make of our faculties in order to be able to satisfy our needs, to enjoy to the fullest extent our natural right . . .," etc. In- fluenced by contemporary developments in the natural sciences and by the philosophy of Locke, Descartes, and Malebranche, the Physiocrats first conceived that the production and distri- bution of goods are carried on according to fixed laws of nature,
1 See above, pp. 10 f.
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and then attempted to apply the exact mathematical methods of " natural science " to the problems of distribution.
The real general criticisms of this part of the Physiocrats' philosophy appear to be that they did not make clear and definite what their lois naturelles and ordre social were, while in applying their ideas they fell into an erroneous absolutism of theory. Quesnay in discussing droit naturel merely says that justice is a sovereign rule to be recognized by the light of reason, which determines what pertains to oneself and what to others ; r and Dupont vaguely adds that the laws of the social order em- brace all the relations of which men are capable, deciding by the evidence of their reciprocal interests what their conduct toward their fellows should be for their well-being.2
Following Locke, the Physiocrats emphasized the individual and his rights. Private property was justified on Locke's grounds'; it is the expression of individuality, and essential to it. Moreover, the individual should have a large measure of freedom in disposing of his property. But it must not be thought that they advocated an unlimited individualism, for that the rights of each limited the rights of the other was clearly seen.3 The freedom of the foolish man must in some instances be restricted by the state.
The Physiocrats believed that the individual knew his in- terests best or, in other words, would act more in accordance with the law of nature than would government. Hence their well-known maxim, laissez faire, lalssez passer, that is, let things alone, let them take their course. The only function of government according to this doctrine is to protect life, liberty, and property.4 Liberty and property springing from the very
1 Droit Naturd.
2 La Physiocratie, Discourse pr&iminaire. Note that the sanction is rational — not divine nor metaphysical.
3 Quesnay said a law of individual action consisted in "de faire son sort, le meilleur qui lui soit possible sans usurpation sur le droit d'autrui." Oncken, "Quesnay," in Conrad's Handworterbuch.
4 Some of the Physiocrats favored a monarchical form of government as the one which could most easily enforce their reforms, but the duties of the monarch were merely to give effect to natural law. They were advocates of what is known as "enlightened absolutism."
THE PHYSIOCRATS 141
nature of man and being necessary to his individualism, human laws should merely recognize, formulate, and maintain them.
Surely this conception of a great harmonious law of nature carried out through individual action is evidence of their ex- ceeding optimism. It will not be surprising, then, to learn that optimism has been a marked characteristic of French economics down to this very day.
With such an underlying philosophy the Physiocrats set to work to find the causes for the economic evils which afflicted France. Their predecessors, the financiers, had been content to experiment with taxation and money; they sought to get at the roots of the matter. These they found in the poverty of the people, as is indicated in their celebrated maxim, " poor peasants, poor kingdom ; poor kingdom, poor king."
2. The Produit Net; the Physiocrats' Ideas on Surplus. — But the peasants' poverty meant the poverty of agricultural classes, and this, together with their nature philosophy, the influence of such writings as Cantillon's, their hostility to Mer- cantilism, and perhaps an unconscious bias arising from their leader's ownership of land, caused them to lay great stress upon agriculture. Only agriculture, they said, including mining, fishing, and other extractive industries, is able to increase the wealth of a nation. In agriculture, nature labors along with man, by her bounty yielding not only what the agricultural laborer or farmer consumes, but also a surplus which nourishes the other classes of society. The land, or agricultural labor, — both ways of putting it are found, — produces more than enough to satisfy the needs of the laborers in agriculture, and the excess allows commerce and the professions, favoring popula- tion and animating industry. Each cultivator was assumed to produce enough for eight persons, including his own family of four, and one family belonging to the manufacturing, commer- cial, or proprietory classes.1 Thus the Physiocrats introduced the idea of a surplus due to the bounty of nature.
This unique surplus was called by them the produit net or net product. It was similar to the rent of the classical 1 (Euvres de Quesnay, Oncken ed., Tableau, p. 320.
1 42 ECONOMIC THOUGHT
economists,1 being simply the value of that part of the total produce of extractive industry which remained after deducting the wages of the labor and the interest of the capital which helped produce it.
Commerce and -manufactures were regarded as non-productive. They enhance the value of the raw materials which form the basis for the produit net, but only enough to pay for the labor and capital used in the process. Thus if a carpenter makes a chair from a piece of lumber, the whole difference between the value of the chair and that of the lumber is the compensation of the carpenter. No surplus remains for any one else. " The cost of commerce," wrote the Physiocratic leader, " although necessary, ought to be regarded as a burdensome expense levied upon the revenue of the landed proprietors ; " and the Physio- crats held that a nation which depends upon manufactures and commerce must live off its capital.
It will be observed at once that this reasoning involves a peculiar definition of the word "production." To the Physio- crats production meant surplus making; that industry is pro- ductive which increases the wealth of the nation by making more things than are consumed in the process. If this definition be borne in mind, their doctrines are more easily understood, and do not seem so absurd as when the illogical attempt is made to apply our definitions to their words.
But more than this, to them production meant stuff making, and their surplus meant primarily a material surplus. The majority of them thought, or implied, that by growing wheat a man added to the wealth of the nation more than he did by making bread out of the wheat.2 Only the growing or catching or digging up of something seemed to increase the world's stock of " real " wealth. This idea of productivity
1 See below, pp. 221 f.
1 This does not mean that their physics was wrong and that they violated the principle of conservation of matter. Some cruder utterances might imply this, but their real fault lay in denying a surplus to manufactures and commerce. This error is based on faulty psychology rather than bad physics.
THE PHYSIOCRATS 143
and the nature of wealth was in keeping with their nature philosophy, and was an expression of their reaction from Mer- cantilism. They saw that money was not the most important thing ; but they went too far in their distinction between natural and artificial wealth, and in the corresponding distinction between the net productivities of those who produced the two.
In accord with the foregoing views, the Physiocrats added to their demand for industrial freedom another for an increased application of capital to land: by devoting more to agricul- ture, and by leaving industry free to obey the laws of nature, both the suffering of the people and the deplorable condition of the public finances might be relieved. Thus the nation would cease to consume its capital unproductively.
3. Value. — With such a basis for their economics, it is not strange that the concept of value played but a little part in the Physiocratic system. Their attention, after all, was largely addressed to production : though Turgot, for example, treats wages and interest to some extent as shares in distribution, it is on the whole rather as costs to the producer that they are regarded. Taxation makes a possible exception to these state- ments. This, coupled with . their peculiar ideas about pro- ductivity, made distribution mean a circulation and division of products rather than a sharing of values. Moreover, the problem of labor vs. capital, and all the complexities of distri- bution in a freer and more advanced industrial regime, were rudimentary or absent.
Enough was written, however, to enable us to form some judgment concerning their idea of value. Quesnay and others made the distinction between value in use (usuelle), and value in exchange (venale), exchange value being a market relation and capable of exceeding costs ; and they considered that wealth de- pended upon exchange value.1 Quesnay holds that the general cause of the price of a commodity lies in its scarcity or abun- dance, as these find expression in competition between buyers and sellers.2 By Le Trosne 3 the general estimation or judg-
1 (Euvres de Quesnay, Oncken ed., p. 353.
2 See Sewall, Theory of Value before Adam Smith, p. 87.
3 De Vinierei Social (1777) ; Daire, Physiocrates, pp. 890 ff.
144 ECONOMIC THOUGHT
ment is emphasized, and prices are fixed by competition which expresses it. This general or common estimation is the result of the cooperation of several factors, among which are the utility generally attributed to a good, the average indispensable costs, demand relative to purchasing power, and available supply.
Turgot, in an incomplete essay, Valeurs et Monnaies, states that an isolated individual values goods according to their utility, but in cases of equal utility he assigns different values according to the effort required to obtain them. In society, however, the valuations of the parties to an exchange may differ. Here the price will lie between the valuations of buyer and seller ; and, with free competition, each gets a surplus.1
The logical analysis suggested by their ideas would be this: the value of a good is based upon its usefulness (utility) ; in the case of a manufactured article it consists of two parts, one the original material, the other the energy expended in trans- porting and working it up; the value of the former, being in part the gift of nature, is determined by the ratio of its supply to the demand for it, while to this must be added the subsistence of those who worked it up into the finished form and marketed it.
The Physiocrats' whole philosophy of wealth made a recog- nition of the importance of utility essential, and its essentiality was clearly stated. It is obvious that their surplus, the produit net, could not have its value determined by cost. It was the gift of nature and a surplus above cost. As productivity was confined to the yielding of raw materials, value and productivity could not be coordinated on any basis of cost of production. It might have been held that natural value was conditioned by the amount of material contained, but this would not have ex- plained the value of richesses steriles, the products of manu- facture. Utility was common to all, but one part of the nation's sum of exchange values, or wealth, was effected without cost; another, only partly through cost. Half consciously, perhaps,
1 This implies a conflict with the Physiocratic idea of a single net product and sterility of all but agriculture. See Kaulla, Entwickelung der Modernen Werththeoricn, p. 127.
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this difficulty was passed over by virtually limiting the dis- cussion to market values alone, demand and supply being left with little analysis.
Thus it does not seem possible to say that the Physiocrats regarded value as determined by cost.1 They recognized that price must cover necessary costs, but this is far from making a "cost theory" of value. They emphasized the annual pro- duction as a factor, but this was because it limited the ability to purchase and hence the demand for goods.
4. Social Classes and Scheme of Distribution ; the Tableau Economique. — The idea that extractive industries alone were " productive " led the Physiocrats to classify men into three groups : (i) the " productive " class or cultivators, who are engaged in extractive industry, chiefly agriculture; (2) the proprietors or landowners, sometimes called disponible, meaning independent or unoccupied, who were held to be partly productive; (3) the non-productive, called la classe sterile. This last group was considered to embrace merchants, artisans, and professional men. It was sometimes called the stipendiary class, for its members were regarded as being in a sense the wage-earners of the " productive " class, from which they received their revenue. The members of the pro- prietor class were looked upon as dependent upon the cultiva- tors ; and, a great part of their expenses being those of simple consumption, they were largely sterile. But by natural law they are charged with the administration and "reparation " of their patrimonies, and expenses incurred for the conservation and improvement of their properties are productive. The proprietor class, then, is not to be confounded with the purely sterile class.2
Perhaps the chief formal problem in theory to which the Physiocrats addressed themselves was the formulation of the normal distribution or circulation of the annual product of extractive industry. This was practically an elaborate analysis
1 Sevfrall, above cited; and Davenport, Value and Distribution (p. 107), to the contrary.
1 (Euvres de Quesnay, Oncken ed., Tableau, p. 318. L
146 ECONOMIC THOUGHT
of the expenditures of the farming class; for the land is the ultimate source of all wealth, and the entire product must ultimately return to the hands of the productive class. It is important to remember that their object was to ascertain the natural laws whose observance would restore France to opulence.
This problem they attacked as follows. Assuming that agri- culture yields returns of 100 per cent, and that productive and " non-productive " expenses are equal, they let the value of the year's harvest be put at some estimated amount, say $250,000,000. Two classes are immediately interested in this amount : the landowners and the cultivators. According to the normal distribution, $100,000,000, is at once withdrawn or re- tained in the immediate interest of the cultivators. This is to provide the annual expenses for circulating farm capital (avances annuelles), including seed, manure, wear and tear on machinery, wages, etc. From it, also, must ultimately be replaced to the farmer his original investment in seeds, machinery, etc. (avances primitives). The balance, or $150,000,000, is marketed, $50,000,000 going to the non-productive class for such things as tools and clothes, and the remaining $100,000,000 going to the landlord. With a deduction for interest on his investment in improvements like fences, drains, and buildings (avances fon- cieres) this is the surplus, or produit net. It is upon the circula- tion of this surplus (dispenses du revenu) that the prosperity of the nation's industry depends. It is distributed by the pro- prietors between cultivators and the artisans and merchants of class 3, each class receiving $50,000,000. That is, the landlord is assumed to divide his expenses between manufactures, pro- fessional services, etc., on the one hand, and raw materials, like foodstuffs, on the other. Then the artisans, etc., of class 3 get their raw materials from class i ; and the farmers of class i get their tools and other manufactured products from class 3 ; with the net result that class 3 retains just enough to cover costs and replace capital, while class i shows a surplus for the next year.
One diagrammatic representation of this scheme was similar to the following abridgment : —
THE PHYSIOCRATS
147
(1)
Dispenses Productive*}
Circulating capital In extractive Induitry/ivinces innuellei ind
primitives) $100,000.000
Sure* which yield
replacement and Interest for fUed capital; subsistence ind profits of tilt
husbandmen.
Total Output $250,000,000 ( 1, 2, and 3 7
(2) Dispenses du Revenue:
Revenue for -Sovereign, land
and tithe owneis,
$100000.000
(3)
Dispenses Steriles;
Circulating capital In manufacture*
and commerce,
$50.000.000
$150.000.000
$50,000.000
$50.000.000 ^+$10,000,000 (net productj $50 000 000-4-
$100,000,000 O«>1 n*t product) J100.000.000 $150000.000
Expenditures of proprietors and productive classes for manufacture* and service*.
The conclusion is that the manufacturing and trading class is dependent upon the replacement of agricultural capital ; and if increased luxury leads to a diversion of part of the normal flow to class i away from it to class 3, agricultural capital will be impaired and the succeeding produit net suffer.
5. Wages and Interest. — As to wages, the Physiocrats, like other economic thinkers of precapitalistic days, made little contribution.1 The laborer was supposed to get just enough to live on, and the question as to what constitutes enough to live on was not analyzed. Turgot argues that inasmuch as the em- ployer will pay as little as possible and has his choice among many laborers, wages are in effect limited to what is necessary for the subsistence of the laborer.2 There is no theory of popu- lation, nor any discussion of the relation of capital to wages. The assumption of a subsistence wage was in accord with the facts in France, and it was made /the " natural " wage. The
1 Cf. Picard, "fetude sur quelques Th6ories du Salaire au XVTIIe SiScle," Rev. d'Hist. des Doct. Econ., 1910, pp. 153 f.
2 Reflexions, 56.
148 ECONOMIC THOUGHT
question of ethical responsibility was thus removed, and labor's " share " formed no problem.
It will be observed that this idea of wages made the produit net a more definite and simple thing to the Physiocrats than it could have been, had a problem of wage determination existed in their minds; their surplus rested upon a subsistence basis. Furthermore, though they worked out no theory of population, one can read between the lines that they thought the produit net would raise up consumers for itself, and thus insure its own value, so to speak.1
In the matter of capital and interest, more important contribu- tions were made. The distinction between money and capital was drawn ; the origin of the latter in saving was recognized ; and the necessity for constant advances, consumption, and reproduction was stated.2 Evidences are to be found of some realization of the productivity of capital and its significance.3 In the case of agricultural capital, one writer points out that there must be a net profit or it would be otherwise employed.4 It was also held that interest is possible because land yields its produit net ; and the higher the price of grain and the greater the produit net, the higher the interest rate.5 Indeed, Quesnay, rejecting " supply and demand " and " risk " theories, argued that the rate of interest is subject to a natural law as is the revenue from land ; as the income to be gained by its purchase is the law to the buyer and seller of land, the same law ought to govern the rate of interest.6 Turgot, who was not formally a Physi- ocrat, suggested a productivity theory according to which interest is paid because the capitalist has the alternative of investing in land, but he did not develop the idea. But, after all, it must again be recalled that the Physiocrats were chiefly
1 Cf. e.g. Turgot, Septieme lettre sur le commerce des grains (1770) (ed. Guillamin), pp. 214 ff. Turgot comes near to a theory of population. . 1 E.g. Turgot, Reflexions sur la formation et la distribution des richesses,
• Ibid. 57-63.
* Merder de la RiviSre, L'ordre naturel (Daire's ed.), p. 459. 6 Onckerf, "Quesnay," in Conrad's Handworterbuch.
•Quesnay, "Observations upon L 'Interest de V argent (1776)," Oncken's (Euvres de Quesnay, p. 401.
THE PHYSIOCRATS 149
interested in production and exchange. Hence, interest was dominantly regarded not so much as a share in distribution as an expense of production — as an avarice from the revenues of agriculture. As such, competition made it just enough to cover costs ; its " natural " rate was as low as possible. The founder of the school appears to have generally regarded interest as a mere replacement fund, not as a net income.1
6. The Single Tax. — In strict consistency with their doctrine that only extractive industries produce a surplus or produit net, and in harmony with their desire to relieve the cultivator or farmer, as distinct from the landowner, the Physiocrats upheld a single tax on the.net income from land. This was their impot unique. Wages and profits being reduced to a minimum by competition, while land furnishes the only return above costs, they argued, as Locke and others before them, that all taxes must fall on land ultimately. Thus it seemed better, as a matter of economy, to collect directly from those who must pay in the end. Every time a tax is transferred, said they, it increases. If the tea in a merchant's store is taxed, he not only adds the amount of the tax to the price of his tea, but also enough more to pay interest for the money advanced in taxes, and to compen- sate for the annoyance and trouble involved. The one who buys the tea then transfers the tax to another with an addition, and so, continually increasing, it works on, down to the owners of the soil.
Though the single-tax idea was based upon an erroneous no- tion of productivity, and violates important principles of fiscal expediency, it rendered a great service.2 Under the advocacy of it, the cumbersome, wasteful mass of taxes which prevailed was criticised ; and the discussions to which it gave rise led to a better understanding of the principles of taxation.
IV. The Chief Physiocrats and their Writings. — Though they were mostly differences of emphasis, rather than anything
1 Analyse du Tableau Economique (Daire's ed.), p. 62.
* The modern single-tax idea of Henry George and agrarian socialists is, of course, quite different from the Physiocratic plan. The latter recog- nized the rights of the landowner and would have guaranteed property in land. Nor did they aim to seize an " unearned " income.
150 ECONOMIC THOUGHT
more fundamental,1 some differences of opinion existed among the Physiocrats, the theory of interest and the degree of government interference being debated points. Just a word, then, to individualize the more important of them. The chief representatives of the school were Francois Quesnay (1694- 1774), Jean Vincent de Gournay (1712-1759), and Anne Robert Jacques Turgot (1727-1781). There are others, like Mirabeau, Dupont de Nemours, Mercier de la Riviere, Baudeau, and Le Trosne, who are important ; but the three first named are the more original. Few, if any, ideas of fundamental importance were added by the others.
It may be truly said that from the viewpoint of economic theory Quesnay is the chief figure. He was the unquestioned leader of those "Economistes " who formed the school or sect. His chief writings were the following: an article on " Fermiers" (1756), oneon " Grains" (1757) — both published in Diderot and D'Alembert's Encyclopedic; the Tableau Economigue2 (1753- J75^) j " Maximes generates du gouvernement economique d'un royaume agricole," published in Mirabeau's Philosophic Rurale (J763) ; and his Droit Naturel (1768). In the first two articles the basis for his system will be found. His ideas as to the dis- tribution of wealth are stated and illustrated by tables in the famous Tableau Economique. Quesnay led in his emphasis of agriculture, demanding that it be brought to the highest per- fection. The maxim " poor peasant, poor kingdom ; poor kingdom, poor king " is generally attributed to him. He favored freedom of trade and industry to give agriculture the greatest chance to expand.
Gournay was not, like Quesnay, the son of a farm-owner. He spent fifteen years engaged in trade at Cadiz, then traveled in England, Holland, and Germany, and finally settled down in 1751 as an intendant of commerce. He translated certain works of Sir Josiah Child and of Culpepper; but wrote little himself.
1 These differences are emphasized by Oncken in his introduction to the (Euvrcs de Quesnay.
2 See above, p. 147. This work was reproduced in facsimile for the British Economic Association, London, 1894.
THE PHYSIOCRATS 151
His chief work was administrative and advisory to others. He lived in Turgot, whose Eloge upon the death of Gournay is the chief source for the latter's ideas. These were, in brief, that gov- ernment should be confined to restoring liberty to all branches of commerce and to encouraging competition, thus protecting pro- duction and lowering prices. He believed that manufacture and trade were productive. To Gournay is commonly attributed the famous saying laissez fair e, laissez passer, and, whether or not he originated the whole maxim, he seems to have made it his own.
Turgot, while keeping himself formally distinct from the sect of the Physiocrats, was in essential agreement with their main doctrines. He claimed Gournay for his master, and, while emphasizing their non-productivity, he leaned toward a greater recognition of the service of the non-" productive " classes. But he differed from both Quesnay and Gournay in some points.1 It was his fortune — first as intendant, then as finance minister to Louis XVI — to put in practice some Physiocratic principles. His best known writings are: Reflexions sur la formation et distribution des richesses (1766, published 1769) ; a memorial Sur les prets d' argent (1769) ; letters on la liberte d^l commerce des grains (1770). His letter to the Abbe Cice (1749) on the subject of paper money and coin was an early blow at Law's system, and shows a good understanding of the relation of money to price.
Turgot's Reflexions consists of a hundred paragraphs, the first seven of which attempt to prove that agriculture alone increases the wealth of the nation and that manufactures and trade depend upon it. In the last few paragraphs he concludes that land revenues are the only proper source for taxes. The re- mainder deals largely with money and capital.
There has been some difference of opinion as to the historic significance of these Reflexions. Cossa declares that the book deserves to be entered in red-letter, as the first scientific treatise on social economics.2 On the other hand, Jevons and Higgs 3
1 See Oncken, Gesch. d. National Okonomie, pp. 459 ff. 1 Introduction to Political Economy, p. 264. 3 The Physiocrats, p. 94.
152 ECONOMIC THOUGHT
would rather emphasize Cantillon's work in this connection. There can be little doubt as to the superiority of Turgot's work. But when we reflect that he had the shoulders of Cantillon, Hume, Gournay, and Quesnay to stand on, there may be some doubt as to which did the greater work, relatively. It may simply be suggested that, while Cantillon wrote a scientific essay, Turgot wrote a bigger and better one, just as, ten years later, Adam Smith surpassed Turgot. All three are now read as milestones in the history of economic thought. The question is to be decided in the light of obstacles overcome or of the amount of new truth given.
For the best concise statements of the Physiocratic doctrine one must turn to L'ordre naturel et essentid des societes politiques (Paris, 1767) by Mercier de la Riviere; Abbe N. Baudeau's Premiere introduction a la philosophic economigue (Paris, 1771) ; and Le Trosne's De I'ordre social (1777). The work of Mira- beau's called Philosophic rurale ou Economic generate et politigue de V agriculture (1763) is also to be mentioned in this connection. Dupont de Nemours also wrote a brief but comprehensive work, Physiocratie ou constitution naturelle du gouvernement le plus avantageux au genre humain (1767). It was from this title that the school received its name.
V. English Followers.1 — Contrary to the common opin- ion, the Physiocrats were not without some following in English thought, though it was a weak one. In America Benjamin Franklin was acquainted with the Physiocrats and had some notions concerning productivity similar to theirs. And in England, in 1797, " some false doctrines of Dr. Adam Smith and others " were attacked on Physio- cratic grounds by an anonymous writer. Prosperity was made by this writer to depend upon high rents, the " net product " of the Economistes. Another anonymous work, Sketches on Political Economy . . . with an Exposition of some of the leading
1 See Seligman, " Some Neglected British Economists," Econ. Jr., XIII, 336 ff. (1903) ; Higgs, The Physiocrats, p. 137. For the influence of Physiocratic thought in other countries see Cossa, Introduction to Political Economy, p. 272.
THE PHYSIOCRATS
153
Tenets of the Economists (1809), argued that capital cannot repro- duce with an increase, — that, being itself a result, it cannot cause that from which it results. This land alone could do.
The little book by Brydges on Population and Riches (1819) also reminds one of the Physiocrats, as he states that the basis of all riches is the produce of nature, that a man's labor in agri- culture can produce a surplus above his subsistence, which sur- plus is distributed, first among manufacturers, secondly among non-producers. He carries the ideas of Smith and the Physio- crats on non-productive classes to the extreme. The animus of the work appears to be a defense of the landed interests in England.1
William Spence may also be mentioned here as one who up- held Pbysiocratic theories.2 The Industrial Revolution, how- ever, had made such views as to the relative position of land and capital pretty clearly untenable in England.
VI. Opponents. — Among the opponents of the Physiocrats, Galiani and Condillac may be especially mentioned.3 The Italian, Galiani, published a book on money in 1750, and his better known Dialogues sur le commerce des bles in 1770. He was an opportunist, opposing the idea of the natural order. In his work on Le commerce et le gouvernement (1776), Condillac re- futed the idea that manufactures are sterile, and contributed to the theory of value.4
VII. The Practical Influence of Physiocracy. — The sys- tem of the Physiocrats found admirers among sovereigns of various states. Those who are known to have been believers in it to a greater or less extent are Catherine II of Russia, Joseph II of Austria, his brother Leopold, Archduke of Tus- cany, and Carl Friedrich, Margrave of Baden. Joseph II and
1 It is interesting to note that he drew largely upon Sismondi.
2 See, e.g., his Tracts on Political Economy, 1822.
8 The Italians, Beccaria and Verri ; the Germans, Moser, Busch, and Justi ; and the Frenchmen, Forbonnais, Necker, and Herrenschwand, may also be classed as opponents. For others see Reseller's Geschichte der Nat.- Oek. in Deutschland. 4 See below, p. 448.
154 ECONOMIC THOUGHT
Leopold do not appear to have been, very earnest followers of the Physiocrats. They made some attempts, however, to carry out their principles, except in so far as they related to free trade. Carl Friedrich, the Margrave of Baden, was, on the con- trary, a whole-souled believer in the Physiocratic system. He even wrote a work advocating it, entitled Abrigi des principes d'Economie politique (A Compendium of the Principles of Political Economy), published in 1775. He made an attempt to introduce the system practically in three villages in Baden ; namely Dietlingen, Theningen, and Balingen. It was impos- sible to carry out the attempt. It must necessarily have failed, even supposing the teachings of the Physiocrats substantially correct. An instantaneous change from one system of public economy to another and quite different one can hardly be ac- complished without serious harm. Again, the matter was made worse by endeavoring to maintain both systems side by side in the same land. Besides all this, the plan was badly executed. The experiment was given up in two of the villages, Theningen and Balingen, in 1776; in Dietlingen it was continued until 1792. 1
In France their chief influence was through Turgot. As intendant of Limoges (1761-1774) he was active and successful in tax reforms, the abolition of feudal restrictions, and education. During his few years' service as minister of finance, he attempted to follow the same principles of freedom and equality, but with less complete success. Trade in wine and grain between the different divisions of the state was freed from restrictions. Foreign commerce, particularly with the French colonies, was encouraged. In all Turgot removed twenty-three different burdens which oppressed people, commerce, manufactures, and agriculture. With what unjust implication, then, does Kautz say that " he was able to introduce only a few improvements
1 Further information about this experiment will be found in Roscher's Geschichte der Nat.-Oek. in DeutsMand, § no; and in an essay by A. Emminghaus, published in the Jahrbucher fur National Okonomie und Sta- tistik, Vol. XIX. (1872). The title is " The Physiocratic Experiments and Connections of Carl Friedrich of Baden."
THE PHYSIOCRATS 155
but to go no further." 1 He struggled valiantly against the inter- ested hostility of clergy and nobility, and accomplished much, but was overcome before the fruits of his reforms were realized.
VIII. Critical Estimation and Summary. — Perhaps the most notable single characteristic of the Physiocratic eco- nomics is its negativism. As already remarked, Physioc- racy might be denned, with some measure of truth, as the re- volt of the French against Mercantilism. Its weakness and its strength are alike the results of reaction. Thus wealth in the form of money was emphasized by the Mercantilists, while the Physiocrats placed marked emphasis upon "real" wealth in the shape of raw produce. A large foreign trade with a favor- able balance was the summum bonum of the Mercantilist ; the typical Physiocrat, Turgot being rather an exception, re- garded foreign trade with indifference or as a necessary evil, and assailed the balance-of-trade idea. And so the one favored imports of raw material ; the other of manufactures. Whereas the statesman of the Mercantilist school sought to secure these ends by continual regulation, freedom of trade and industry was the great desideratum of Physiocracy. In a word, the Physio- crats were in revolt against art, artificial wealth, and political artifices for wealth-getting; hence their ideas of nature and natural wealth and natural liberty.
On all these points the Physiocrats carried their reaction, to a greater or less extent, too far. Commerce and manufactures are and were important, and are equally productive, in the true sense of the word, with agriculture. Absolute freedom of indus- try and trade is as unattainable in theory as inexpedient in practice. In short, there is one fundamental error in their eco- nomics, emphasized by two more errors in their philosophy. Their economics was vitiated by the absence of a correct notion of production : they lacked the idea of production as utility creation. This led them, for example, to deny " productivity " to manufacture, although it creates form utility. Then, their individualistic philosophy, with its negative basis, overlooked
1 Die geschichtliche Enlwickelung der Nai.-Oek. (Wien, 1860), p. 357.
156 ECONOMIC THOUGHT
the necessity for social action. And finally, their nature philos- ophy made them absolutists attempting to apply their ideas regardless of time or place.
But the important contributions they rendered must not be forgotten. For one thing, they did a valuable work by destruc- tion. They exposed old fallacies and departed from the errors of their predecessors. The world makes progress through the realm of thought like a ship which tacks to the windward, swing- ing now to one side, then to the other, of the straight course, — a series of actions and reactions. The Physiocrats threw the tiller over and sailed away on a new tack, and one necessary to progress. Their more positive contributions may be summed up as follows: —
I. They put economics on a scientific basis by separating it from other sciences, notably jurisprudence, and applying scien- tific methods.
II. They made important contributions to the theory of taxation.
III. Their analysis of capital (Turgot), though rudimentary, pointed toward the true nature of that factor.
IV. Their emptiasis of the surplus or net product was notable, especially in connection with the later development of the rent concept.
V. Their emphasis of land was influential, for weal or woe, in bringing about the later threefold classification of the factors of production.
The Physiocratic system may be viewed as having a mission to perform in the development of the economic thought of the world, and, so viewed, it must be confessed that its very errors adapted it so much the better to perform its mission. The bold declaration that the only office of government is to protect life, liberty, and property, and the easily repeated formula, laissez faire, laissez passer, were destined to accomplish much. Any man could appreciate the doctrine that his private business was no concern of government. It was natural that the crisp, sweeping exaggerations of the Physiocratic system should be very effective.
THE PHYSIOCRATS 157
It was well, too, that the importance of agriculture, while it is not the sole source of wealth, should be emphasized. Nor is it so surprising as it might at first appear that the Physiocrats regarded the rent of land as the only true produit net. At the time when Quesnay wrote, it was the chief source whence additions were made to the national resources. It is only within a comparatively short time that the profits of capital have taken the most prominent position in the formation of new capital. " During the greater part of the world's history the rent of land has been the chief source of saving. A good deal is saved from rent in England now, and in the rest of the world probably more is saved from it than from profits on capital." l There is, moreover, an actual difference between an income derived from land rents and one derived from any other species of property — a difference upon which Ricardo founded his theory of rent, and Mill his doctrine of land taxation.
But reflection showed that it was quite misleading to designate those classes not in some way connected with agriculture as barren (sterile) or non-productive. It came to be perceived that there is a produit net, a surplus, wherever there is a saving, and that, if they save a part of their income, merchants and artisans add as truly to the wealth of the country as the agricultural laborer ; for they must have rendered an equivalent for their income, that is to say, have produced it. A system was needed which should include and elucidate manufacturers and commerce. The one-sidedness of the Physiocrats had to give way to make room for the broader and more catholic politi- cal economy of Adam Smith.
1 The Economics of Industry, Alfred Marshall and Mary Paley Marshall (London, 1879), P- 39-
CHAPTER X
ADAM SMITH WITH HIS IMMEDIATE PREDECESSORS AND THE REVOLUTION IN INDUSTRY
THE Scotchman, Adam Smith, born in the year 1723 at the village of Kirkcaldy, published in 1776 the book commonly known as The Wealth of Nations.1 By this book he won a fame greater than that of any other writer on political economy or allied subjects. Abundantly criticized and with its originality not unassailed, his work still stands as truly epoch-making in the evolution of economic thought, while its maker is called the Father of Political Economy.
Immediate Predecessors of Adam Smith. — Though so truly epoch-making, Adam Smith, as is generally the case, built upon the work of his predecessors. Nor can one overlook the fore- runners in a study of the master's achievement. Adam Smith was acquainted with the writings of the Mercantilists, the phi- losophers of the seventeenth and eighteenth centuries, and the Physiocrats ; and he stood upon their shoulders. The names of Petty, North, Child, and Steuart, and those of Locke, Berkeley, Mandeville, Hutcheson, Hume, Tucker, and Ferguson, must ever
1 On Adam Smith, his life and work, see: Cannan (editor), Smith's Lectures on Justice, Police, Revenue, and Arms, 1896; Feilbogen, Smith und Turgot; Hasbach, Die allgemeinen philosophischen Grundlagen der von F. Quesnay und Adam Smith begrundeten politischen Oekonomie, 1890, and Has- bach, Untersuchen iiber Adam Smith, 1891 ; Oncken, Adam Smith und Im. Kant; Rae, Life of Adam Smith; Zeyss, Adam Smith und der Eigenutz. The chapters or essays on Smith in Cannan's Theories of Production and Distribution, Leslie's Essays in Moral and Political Philosophy, Bagehot's Biographical Studies, and Bonar's Philosophy and Political Economy are valuable. ,
158
ADAM SMITH 159
be remembered in this connection. Smith also refers to Can- tillon ; and a work by Harris, a follower of Cantillon, was known to him. Dating from the eighteenth century, too, there are many books and pamphlets, often anonymous, which relate