A History of Economic Doctrines / from the time of the physiocrats to the present day

by Charles Gide; Charles Rist

But its simplicity also constituted its weakness. To attain this simplicity more than one important fact that refused to fit in with the system had to remain in the background. The evidence employed was also frequently incomplete. None of the special themes—price, wages, profits, and rent, the theory of international trade or of capital—which occupy the greater portion of the work, but has been in some way corrected, disputed, or replaced. But the structure loses stability if some of the corner-stones are removed. And new points of view have appeared of which Smith did not take sufficient account. Instead of the pleasant impression of simplicity and security which a perusal of Smith’s work gave to the economists of the early nineteenth century, there has been gradually substituted by his successors a conviction of the growing complexity of economic phenomena.

To pass a criticism on the labours of Adam Smith would be to review the economic doctrines of the nineteenth century. That is the best eulogy one can bestow upon his work. The economic ideas of a whole century were, so to speak, in solution in his writings. Friends and foes have alike taken him as their starting-point. The former have developed, extended, and corrected his work. The latter have subjected his principal theories to harsh criticism at every point. All with tacit accord admit that political economy commenced with him. As Garnier, his French translator, put it, “he wrought a complete revolution in the science.”[245] To-day, even although the Wealth of Nations may no longer appear to us as a truly scientific treatise on political economy, certain of its fundamental ideas remain incontestable. The theory of money, the importance of division of labour, the fundamental character of spontaneous economic institutions, the constant operation of personal interest in economic life, liberty as the basis of rational political economy—all these appear to us as definite acquisitions to the science.

The imperfections of the work will be naturally demonstrated in the chapters which follow. In order to complete our exposition of Smith’s doctrines it only remains to show how they were diffused.

The rapid spread of his ideas throughout Europe and their incontestable supremacy remains one of the most curious phenomena in the history of ideas. Smith persuaded his own generation and governed the next.[246] History affords us some clue. To attribute it solely to the influence of his book is sheer exaggeration. A great deal must be set to the credit of circumstances more or less fortuitous.

M. Mantoux remarks with much justice that “it was the American War rather than Smith’s writings which demonstrated the decay of the ancient political economy and compassed its ruin. The War of Independence proved two things: (1) The danger lurking in a colonial system which could goad the most prosperous colonies to revolt; (2) the uselessness of a protective tariff, for on the very morrow of the war English trade with the American colonies was more flourishing than ever before. “The loss of the American colonies to England was really a gain to her.” So wrote Say in 1803, and he adds: “This is a fact that I have nowhere seen disputed.”[247] To the American War other causes must be added: (1) The urgent need for markets felt by English merchants at the close of the Napoleonic wars; they were already abundantly supplied with excellent machinery. (2) Coupled with this was a growing belief that a high price of corn as the result of agricultural protection increased the cost of hand labour. These two reasons were enough to create a desire for a general lowering of the customs duties.

Subsequent events have justified Smith’s attitude on the question of foreign trade. In the matter of domestic trade he has been less fortunate.

The French Revolution, which owed its economic measures to the Physiocrats, gave a powerful impulse to the principle of liberty. The influence of the movement was patent enough on the Continent. Even in England, where this influence was least felt; everybody was in favour of laissez-faire. Pitt became anxious to free Ireland from its antiquated system of prohibitions, and he succeeded in doing this by his Act of Union of 1800. The regulations laid down by the Elizabethan Statute of Apprentices, with its limitation of the hours of work and the fixing of wages by justices of the peace, became more and more irksome as industry developed. Every historian of the Industrial Revolution has described the struggle between workers and masters and shown how the former clung in despair to the old legislative measures as their only safeguard against a too rapid change, while the latter refused to be constrained either in the choice of workmen or the methods of their work.[248] They wished to pay only the wages that suited them and to use their machines as long as possible. These repeated attacks rendered the old Statute of Apprentices useless, and Parliament abolished its regulations one after another, so that by 1814 all traces of it were for ever effaced from the Statute Book.

But Smith did not foresee these things. He did not write with a view to pleasing either merchants or manufacturers. On the contrary, he was never weary of denouncing their monopolistic tendencies. But by the force of circumstances manufacturers and merchants became his best allies. His book supplied them with arguments, and it was his authority that they always invoked.

His authority never ceased growing. As soon as the Wealth of Nations appeared, men like Hume, and Gibbon, the historian, expressed to Smith or to his friends their admiration of the new work. In the following year the Prime Minister, Lord North, borrowed from him the idea of levying two new taxes—the tax on malt and the tax on inhabited houses. Smith was yet to make an even more illustrious convert in the person of Pitt. Pitt was a student when the Wealth of Nations appeared, but he always declared himself a disciple of Smith, and as soon as he became a Minister he strove to realise his ideas. It was he who signed the first Free Trade treaty with France—the Treaty of Eden, 1786.[249] When Smith came to London in 1787, Pitt met him more than once and consulted him on financial matters. The story is told that after one of these conversations Smith exclaimed: “What an extraordinary person Pitt is! He understands my ideas better than myself.”