Chapter Ix. of Book Iv. on the French Economists and Their Agricultural

system is entirely new. The system of the économistes is described in that chapter as one which, with all its imperfections, was perhaps the nearest approximation to the truth that had yet been published on the subject of political economy. We are told that its adherents, a pretty considerable sect, had done good service to their country by influencing in some measure the public administration in favour of agriculture. They all followed “implicitly and without any sensible variation the doctrine of Mr. Quesnai,” whose Economical Table they regarded with extraordinary veneration, ranking it with writing and money as one of the three great inventions made by mankind.

Quesnai’s Table showed three sorts of expenses: Productive expenses, Expenses of revenue, and Sterile expenses, with “their source, their distribution, their effects, their reproduction, their relation to each other, to population, to agriculture, to manufactures, to commerce, and to the general riches of the nation.” In the Wealth of Nations this idea is followed out and improved; for the author, having shown in his First Book how the average produce of labour is regulated by the skilled dexterity and judgment with which it is generally applied, shows in his Second that it is further regulated “by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed.” It would be absurd to call him a plagiarist; it would be equally absurd to deny that the French School had opened his eyes to the necessity for analysing the distribution of wealth no less carefully than its production. As the division of labour came from the Greek, so the distribution of the annual produce of wealth into wages, profit, and rent, came from the French philosophers. And we cannot forget that Quesnai’s death alone prevented Smith from dedicating his book to the inventor of the Economic Table.

Equally important from the standpoint of theory, and far more so from that of the legislator and statesman, are the chapters upon taxation. There the lectures, though they made a distinct advance upon Hume, were rudimentary. But modern ingenuity cannot improve upon the four practical maxims or canons of taxation:—

1. The subjects of every State should contribute in proportion to their respective abilities.

2. A tax should be certain, and not arbitrary.

3. A tax should be levied at the time and in the way most convenient to the taxpayer.

4. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury.

Axiomatic as these rules appear to us, in Adam Smith’s day they were new and startling: they had never been formulated or practised in any country. Smith was “the first that ever burst” upon the silent sea of taxation. He put into the hands of statesmen, who had hitherto been groping and blundering in the dark, a perfect touchstone by which to test projects old and new of raising revenue. The idea of considering the taxpayer was itself a novelty. It is true that the criterion of ability had been adopted in the Elizabethan poor-rate, but there was no other trace of it in the fiscal system of Great Britain, which was on the whole, even at that time, the best in Europe.

Smith treated taxation as one of the causes that impede the progress of wealth. It is characteristic of the man that he does not regard any tax, even the land-tax, as good in itself, but only praises it comparatively as a lesser evil. Burke himself was not a more consistent or persistent preacher of economy. Not that Smith was jealous of expenditure on roads and communication, public instruction, and other services which were plainly beneficial to the whole society, and could not be left to private enterprise. He has no pedantic objection to the State managing a business that it is capable of managing well. He mentions without disapproval that the republic of Hamburg makes money out of a lombard, a wine cellar, and an apothecary’s shop. But the post-office “is perhaps the only mercantile project which has been successfully managed by every sort of Government.”

Of all taxes he most dislikes taxes upon the necessaries of life. Yet he does not deny that if, after all the proper sources of taxation have been exhausted, revenue is still required, “improper” taxes must be imposed. To preserve their land from the sea, and their republic from its enemies, the Dutch had had recourse to very objectionable taxes, and he does not blame them if they could in no other way maintain that republican form of government, which he regards as “the principal support of the present grandeur of Holland.” But he makes it very plain indeed in his last, and perhaps his greatest, chapter “Of Public Debts,” that the miseries and embarrassments of Europe are due in the main to profligate expenditure of all kinds, and especially to the immense sums wasted on wars that ought to have been avoided.

Therefore a new commercial policy would not suffice. New principles of foreign and colonial policy must be introduced, and we must sweep away for ever the cobweb occasions and pretexts that had drawn us into so many futile conflicts. But he was equally anxious to promote economy in time of peace. He was alarmed at the progress of the enormous debts “which at present oppress and will in the long-run probably ruin all the great nations of Europe.” He saw that when war has once been begun, no limit can be set to expenditure. But some limit, he thought, could and should be set to debt; and therefore he pleaded for a policy of strict economy in time of peace, and pleaded so effectively that it was adopted by Pitt in the breathing-space between the American and the French wars. But for that policy, which reduced armaments to a point considered by some dangerously low, Great Britain could hardly have stood the stress and strain of her long-drawn conflict with Napoleon.

To thriftlessness in time of peace Smith attributes some of the peculiar evils that attend modern warfare. His remarks sound strangely familiar in our ears, as though they had been written by a philosopher of yesterday about the events of the day before:—

“The ordinary expense of the greater part of modern governments in time of peace being equal or nearly equal to their ordinary revenue, when war comes they are both unwilling and unable to increase their revenue in proportion to the increase of their expense. They are unwilling, for fear of offending the people, who by so great and so sudden an increase of taxes, would soon be disgusted with the war; and they are unable, from not well knowing what taxes would be sufficient to produce the revenue wanted. The facility of borrowing delivers them from the embarrassment which this fear and inability would otherwise occasion.... In great empires, the people who live in the capital, and in the provinces remote from the scene of action, feel, many of them, scarce any inconveniency from the war, but enjoy at their ease the amusement of reading in the newspapers the exploits of their own fleets and armies. To them this amusement compensates the small difference between the taxes which they pay on account of the war, and those which they had been accustomed to pay in time of peace. They are commonly dissatisfied with the return of peace, which puts an end to their amusement, and to a thousand visionary hopes of conquest and national glory.”

Indeed, he adds, the return of peace seldom relieves a nation from the greater part of the taxes imposed during the war. They are still required to pay the interest on the newly created debt.

Of all Smith’s theories, or rather opinions—for after all, the question is a mixed one of morals and expediency which cannot be answered by abstract formulas of right or rules of logic—not the least important or characteristic is his doctrine of empire and imperial expenditure. The view now cherished and practised in the great bureaucracies of Europe, and often advanced by socialists under the plausibly scientific phraseology of a theory of consumption, that national profusion is a good thing in itself, was not then propagated or defended by responsible persons. But, though thrift was on their lips, their hands were often in the public purse; and it could not be said that warnings against the outlay of national resources upon useless or mischievous objects were unneeded. Appropriately enough, the very first time, so far as we know, that the Wealth of Nations was cited in Parliament, it was cited as an authority against the policy of accumulating armaments in time of peace. In his speech on the address (November 11, 1783) Fox is reported to have said: “There was a maxim laid down in an excellent book upon the Wealth of Nations, which had been ridiculed for its simplicity, but which was indisputable as to its truth. In that book it was stated that the only way to become rich was to manage matters so as to make one’s income exceed one’s expenses. The proper line of conduct, therefore, was by a well-directed economy to retrench every current expense, and to make as large a saving during the peace as possible.”

But Smith took no narrow or penurious view of national economy. He did not prize thrift for its own sake. Such a charge might possibly be brought by an unfriendly critic against Ricardo or Joseph Hume, but assuredly not against Adam Smith. Like Burke and Cobden, he valued frugality in nations as a safeguard against wrong-doing, a prime source of security and independence, and a perpetual check upon the lust of conquest and aggrandisement that so often lurks under the respectable uniform of a missionary civilisation. As he describes the discoveries of the New World and the beginnings of modern empire, a poignant epithet or a burning phrase tells the lesson of many a romantic scramble for the fleece that was so seldom golden, of many a credulous hunt for a fugitive Eldorado.

After showing that the gold and silver mines of their colonial empires had neither augmented the capital nor promoted the industry of the two “beggarly countries” of Spain and Portugal, he carefully distinguishes between the natural advantages of a colonial trade and the artificial disadvantages caused by the policy of monopoly, that is by the endeavours of the mother country to restrict that trade to her own merchants. If the governments of Europe had been content to found colonies, and see that they were well and justly administered, the full benefit of opening up new countries, and of interchanging their products, would have been felt. But unhappily every country that had acquired foreign possessions sought to engross their trade, thus injuring its own people and the colonial or subject race by checking the natural growth of commerce, and forcing it into unnatural channels. This so-called mercantilist policy was therefore just as disastrous to commerce as to morals.

“To found a great empire for the sole purpose of raising up a people of customers, may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers. Such statesmen, and such statesmen only, are capable of fancying that they will find some advantage in employing the blood and treasure of their fellow-citizens, to found and maintain such an empire.”

Far worse in their results than the regular conquests of government, were the irregular acquisitions of companies formed for trading purposes; and one of the masterly chapters added to the third edition of his book (1784) traces the misery, injustice, and commercial failure which had attended the rule of the East India Company.

“It is a very singular government, in which every member of the administration wishes to get out of the country, and consequently to have done with the government, as soon as he can, and to whose interest, the day after he has left it, and carried his whole fortune with him, it is perfectly indifferent though the whole country was swallowed up by an earthquake.”

What, then, was the practical policy which Smith recommended to the British Government? It had two main ends in view. First, to pay off the debt; secondly, to lessen and gradually remove all taxes which raised the prices of articles consumed by the labouring classes, or interfered with the free course of trade. Writing as he did, in 1775, on the eve of war, his thoughts naturally turned to the colonies, then so rich and prosperous, which had contributed nothing to the income but so heavily to the expenditure and debt of the British crown.

Smith would have liked the British Government to renounce its authority over the colonies, and so not only relieve the revenue from a serious annual drain, but at the same time convert the Americans from turbulent and fractious subjects to the most faithful, affectionate, and generous allies. But seeing that neither people nor government would brook such a mortification, he suggested that to save the situation they should try, by a scheme of union, to break up the American confederacy and reconstitute the empire on a fair basis. Let us give, he said, to each colony which will detach itself from the general confederacy a number of representatives in parliament proportionate to its contribution, and so open up a new and dazzling object of ambition to the leading men of each colony. If this or some other method were not fallen upon of conciliating the Americans, it was not probable that they would voluntarily submit, and “they are very weak who flatter themselves that, in the state to which things have come, our colonies will be easily conquered by force alone.” The leaders of the Congress had risen suddenly from tradesmen and attorneys to be statesmen and legislators of an extensive empire “which seems very likely to become one of the greatest and most formidable that ever was in the world.” Nay, if the union he suggested as an alternative to peaceful and friendly parting were constituted, he predicted that in the course of little more than a century the empire would draw more revenue from America than from the mother country; and “the seat of the empire would then naturally remove itself to that part of the empire which contributed most to the general defence and support of the whole.” It was such a scheme as this that Burke ridiculed when he pictured “a shipload of legislators” becalmed in mid-Atlantic.

As a politician Smith was doubtless attracted by the prospect of introducing a strong democratic and republican strain into parliament, though he pretends to think that the balance of the constitution would not be affected. He points out also that the constitution would be completed by such a union, and was imperfect without it, for “the assembly which deliberates and decides concerning the affairs of every part of the empire, in order to be properly informed, ought certainly to have representatives from every part of it.” In the last chapter of the Wealth of Nations he describes the project as at worst “a new Utopia, less amusing, certainly, but no more useless and chimerical than the old one,” and shows how the British system of taxation might be extended along with representation in parliament to the colonies in such a way as to produce a great addition to the imperial revenue and a large permanent surplus for the redemption of debt. In this way the debt could be discharged in a comparatively short period, and as revenue would be continually released, the most oppressive taxes could be gradually reduced and remitted. By this prescription “the at present debilitated and languishing vigour of the empire” might be completely restored. Labourers would soon be enabled to live better, to work cheaper, and to send their goods cheaper to market. Cheapness would increase demand, and the increased demand for goods would mean an increased demand for the labour of those who produced them. This again would tend both to raise the numbers and improve the circumstances of the labouring poor. Lastly, as the consuming power of the community grew, there would be a growth in the revenue from all those articles of consumption which remained subject to taxation.

The plan of an imperial parliament and imperial taxation could not be realised. Smith himself saw that the economic and constitutional objections were great, though “not unsurmountable.” Upon one point, however, he was clear. If it were impracticable to extend the area of taxation, recourse must be had to a reduction of expenditure; and the most proper means of retrenchment would be to put a stop to all military outlay in and on the colonies. If no revenue could be drawn from the colonies, the peace establishments “ought certainly to be saved altogether.” Yet the peace establishments were insignificant compared with what wars for the defence of the colonies had cost. But for colonial wars the national debt would have been paid off. It was urged that the colonies were provinces of the British Empire:—

“But countries which contribute neither revenue nor military force towards the support of the empire, cannot be considered as provinces. They may perhaps be considered as appendages, as a sort of splendid and showy equipage of the empire. But if the empire can no longer support the expence of keeping up this equipage, it ought certainly to lay it down; and if it cannot raise its revenue in proportion to its expence, it ought, at least, to accommodate its expence to its revenue. If the colonies, notwithstanding their refusal to submit to British taxes, are still to be considered as provinces of the British Empire, their defence in some future war may cost Great Britain as great an expence as it ever has done in any former war. The rulers of Great Britain have, for more than a century past, amused the people with the imagination that they possessed a great empire on the west side of the Atlantic. This empire, however, has hitherto existed in imagination only. It has hitherto been, not an empire, but the project of an empire; not a gold mine, but the project of a gold mine; a project which has cost, which continues to cost, and which, if pursued in the same way as it has been hitherto, is likely to cost, immense expence, without being likely to bring any profit: for the effects of the monopoly of the colony trade, it has been shewn, are, to the great body of the people, mere loss instead of profit. It is surely now time that our rulers should either realise this golden dream, in which they have been indulging themselves, perhaps, as well as the people; or that they should awake from it themselves, and endeavour to awaken the people. If the project cannot be completed, it ought to be given up. If any of the provinces of the British Empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should free herself from the expence of defending those provinces in time of war, and of supporting any part of their civil or military establishments in time of peace, and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.”

With these ever-memorable and resounding words he ends the great Inquiry, not vaguely admonishing some shadowy cosmopolis of economic men, but straightly beckoning his own countrymen and their rulers off the broad way of wantonness and mischief to the harder paths of an inglorious but fruitful economy.

The reader of this little volume will not expect or desire an excursus upon the multitudinous treatises, critical and apologetical, that have sprung out of the Wealth of Nations. The vitality of the book may be measured by the numbers of its detractors and defenders. Among the former the modern historical school of Germany claims notice; for has not its distinguished and erudite leader, Professor Schmoller, placed Adam Smith somewhere below Galiani, Necker, Hoffmann, Thünen, and Rümelin?

Perhaps the reason why economists of the modern historical school so often fail as valuers of men and books, is that they are enjoined by the very laws of their existence to be “learned”; and “learning” requires that obscure and deservedly forgotten writers should be rediscovered and magnified at the expense of surviving greatness. Too many modern critics of “Smithianismus,” instead of attending to the author’s own works and so penetrating his philosophy, seek him elsewhere, rummage in the literature of the period, overhaul every book, good, bad, or indifferent, characterise it in the text, and place its title-page and date in a footnote. Such labour, however useful to others, is apt to destroy the perspective and warp the judgment.

A man who snares facts is of all men the most likely to be caught in a theoretical trap. Here is an example. In 1759 Adam Smith wrote a book on moral sentiments which he founded on the natural instinct of sympathy. In 1776 he wrote a book on economic sentiments, which he derived from self-love or the desire of man to improve his position. Upon these facts the following theory is built up by the historical school of Germany:—

“Smith was an Idealist as long as he lived in England under the influence of Hutcheson and Hume. After living in France for three years, and coming into close touch with the materialism that prevailed there, he returned a Materialist. This is the simple explanation of the contrast between his Theory (1759), written before his journey to France, and his Wealth of Nations (1776), composed after his return.”

Most of this nonsense has been blown to the four winds by Mr. Cannan’s publication of the Lectures delivered at Glasgow before Adam Smith went to France; but a vast quantity of similar rubbish is embedded in the economic literature of the last thirty or forty years, and a difficulty which learned investigators have invented and solved has been dignified in Germany by the name of “Das Adam Smith Problem.”

The truth, as Smith conceived it, is that men are actuated at different times by different motives, benevolent, selfish, or mixed. The moral criterion of an action is: will it help society, will it benefit others, will it be approved by the Impartial Spectator? The economic criterion of an action is: will it benefit me, will it be profitable, will it increase my income? Smith built his theory of industrial and commercial life upon the assumption that wage-earners and profit-makers are generally actuated by the desire to get as high wages and profits as possible. If this is not the general and predominant motive in one great sphere of activity, the production and distribution of wealth, the Wealth of Nations is a vain feat of the imagination, and political economy is not a dismal science but a dismal fiction. But there is nothing whatever either to excite surprise or to suggest inconsistency in the circumstance that a philosopher, who (to adopt the modern jargon of philosophy) distinguished between self-regarding and other-regarding emotions, should have formed the first group into a system of economics and the second into a system of ethics.

If this comes of learning, an even more extravagant charge has been preferred by an emotional school. A heated imagination, certainly not encumbered with facts, and informed only that Adam Smith was the founder of an odious science, denounced him as “the half-bred and half-witted Scotchman” who taught “the deliberate blasphemy”—“Thou shalt hate the Lord thy God, damn His Laws, and covet thy neighbour’s goods.” The same authority declares that he “formally, in the name of the philosophers of Scotland, set up this opposite God, on the hill of cursing against blessing, Ebal against Gerizim”—a God who “allows usury, delights in strife and contention, and is very particular about everybody’s going to his synagogue on Sunday.” These three characteristics of Adam Smith’s deity were unfortunately chosen; for, as it happens, he disliked usury so much that he defended the laws which had vainly sought to prevent high rates of interest; disapproved vehemently of war, which he regarded as one of the deadliest enemies of human progress, and protested against the idea that a perfect Deity could possibly desire His creatures to abase themselves before Him. It is sad to think that to get his gold the Ruskinian must pass so much sand through his mind. The Fors Clavigera, with all its passionate intensity and high-strung emotion, is a standing warning to preachers not to abuse their masters, and to learn a subject before they teach it. Let those who climb so recklessly on Ebal deliver their curses from a safer foothold.

Perhaps what most impresses one in reading the Wealth of Nations is its pre-vision. The author seems to have been able to project himself into the centuries. He saw the blades of wheat as well as the tares that were springing up; and it would be hard to mention a single one of his forecasts and Utopias that has not been realised in some degree, or at least taken shape as a political project during the last century. He was, of course, above all, the precursor of Cobden and of the philosophic Radicals, who drew from him not only their economics, but their foreign and colonial policy. It is perhaps remarkable, after so fair a beginning had been made in his own lifetime, that the triumph of his doctrines was so long delayed. But most of what Shelburne, Pitt, and Eden did for commercial emancipation in the eighties was swept away by the French war. And when Napoleon fell, England was so weak, tyranny and superstition were so ground into the principles of her governing classes, that she seemed to be, in Milton’s phrase, beyond the manhood of a Roman recovery. For many years Smith’s disciples, and even the indefatigable Bentham, laboured almost in vain. Parliament was ignorant and bigoted. Until a great agitator arose, very little could be done; and the great agitator did not arrive quite soon enough to fulfil Pulteney’s prediction that Smith would convert his own generation and rule the next.

In the early years of the nineteenth century the practical influence of Smith’s teaching was felt principally in France and Germany. In France, as we have seen, Count Mollien was a professed disciple of the new economy. “It was then,” he said, in reviewing the events of his youth, “that I read an English book which the disciples M. Turgot had left eulogised in the highest terms—the work of Adam Smith. I had especially remarked how warmly the venerable and judicious Malesherbes used to speak of it—this book so disparaged by all the men of the old routine.” It is perhaps the most dazzling of all Smith’s posthumous triumphs, that he, through Mollien, should have been the philosophic guide of Napoleonic finance.

But his conquest of Germany was equally startling and momentous. The movement in that country can be directly traced to the university of Königsberg, where Kraus began to lecture on the Wealth of Nations in 1781. He soon gained the ears of the official class. In East Prussia, vexatious dues and taxes, with a multitude of feudal embarrassments, were removed from internal commerce, and in spite of much opposition Smith’s principles spread all over Germany. By the close of the Napoleonic war the officials as well as the professional economists were converts to the new ideas. Stein and Hardenberg, two truly great reformers, led the way. Year by year commercial restrictions were removed, and though jealousy of Prussia stood in the way of complete commercial union, the North German Zollverein constituted a great advance. It removed the barriers between Prussia and the adjoining States, and reduced external duties to such an extent that in 1827 Huskisson cited the example set by Germany to prove the wisdom of abandoning a restrictive policy. Even Friedrich List, who sought for political reasons to build up a counter theory of protection for infant industries, asserted that free trade was the right policy for England and for every adult nation. List, who often wrote with a bitterness and malice that only readers of his unhappy life can excuse, admitted in his principal work “the great services of Adam Smith”:—

“He was the first to introduce successfully into political economy the analytical method. By means of this method and of an unusual sharpness of intellectual vision he illuminated the most important branches of a science, which before his time had lain in almost utter darkness. Before Adam Smith there was only a policy (Praxis); his labours first made it possible to build up a science of political economy; and for that achievement he has given the world a greater mass of materials than all his predecessors and successors.”

Mill’s Political Economy is the only English treatise that can be compared with the Wealth of Nations. Indeed in his preface Mill challenges the comparison, but adds that “political economy, properly so-called, has grown up almost from infancy since the time of Adam Smith.” He finds the Wealth of Nations “in many parts obsolete, and in all imperfect,” and though he speaks generously enough of Adam Smith’s “admirable success in reference to the philosophy of the [eighteenth] century,” it is plain from this preface and from the autobiography that the later economist felt he could look down upon the earlier from the serene temples of increased knowledge and better social ideas. Mill’s confidence was not only justified for the time being by unqualified success in the sense that his own book at once became, and remained for a generation, the principal text-book of English students, it was also based upon what appear at first sight to be enormous advantages. A more logical and systematic arrangement is adopted. Errors are corrected; digressions are few; and in order to attain scientific exactitude, historical illustrations from the conditions and experience of nations are replaced by more precise instances of imaginary societies labelled A, B, C. Technical terms and definitions make it easy for the student to move lightly about in an artificial atmosphere.

But in this realm of political economy, is it not well to keep a foot, or at least an eye, on the ground? In Mill’s treatise there is a danger of mistaking words for things. It is never so in Smith’s inquiry. He gave twenty years to a task for which Mill could hardly spare as many months. With a gift for exposition, certainly not inferior, he had what Mill had not, a love of the concrete, a faculty for the picturesque, and withal a nervous force and vigour in argument quite peculiar to himself. It has been said that Smith hunted his subject with the inveteracy of a sportsman. With a wonderful knowledge of history, law, philosophy, and letters, he combined an intuitive insight into the motives of men and the unseen mechanism of society. At the same time, by restricting his horizon to wealth and its phenomena, he was able to see how men always had acted and always would act under certain circumstances, and by what rules public finance should be governed. This is the secret of his success in making political economy queen of the useful arts, and in raising her alone among political studies to the dignity of a science. “I think,” said Robert Lowe, “that Adam Smith is entitled to the merit, and the unique merit, among all men who ever lived in the world, of having founded a deductive and demonstrative science of human actions and conduct.” True, he is not a systematic writer. He does not shine, as so many inferior geniuses have shone, in the art of comparing, correlating, and harmonising the great truths which it is his glory to have discovered and illustrated. He puts us, as Lowe remarked with his usual felicity, in mind of the Sages of Ancient Greece, who, after lives of labour and study, bequeathed half a dozen maxims for the guidance of mankind.