Four Introductory Lectures on Political Economy

by Nassau William Senior

In the following Lecture I shall consider whether Political Economy may be better treated as a science or as an art.

If Political Economy is to be treated as a science, it may be defined as “the science which states the laws regulating the production and distribution of wealth, so far as they depend on the action of the human mind.”

If it be treated as an art, it may be defined as “the art which points out the institutions and habits most conducive to the production and accumulation of wealth.” Or if the teacher venture to take a wider view, as “the art which points out the institutions and habits most conducive to that production, accumulation, and distribution of wealth, which is most favourable to the happiness of mankind.”

According to the law which I have already mentioned, as regulating the progress of knowledge, Political Economy, when, in the 17th century, it first attracted notice as a subject of separate study, was treated as an art. At that time human happiness was considered as dependent chiefly on wealth, and wealth, as I have previously remarked, was supposed to consist of gold and silver. The object which the political economist proposed to himself and to his reader, was the accumulation within his own country of the utmost possible amount of the precious metals. The questions which now agitate society, as to the distribution of wealth, were unregarded. All that was aimed at, was its acquisition and retention in a metallic form. As respects the countries possessing native deposits of the precious metals, the means of effecting this were supposed to be obvious and easy. They had only to promote the extraction of silver from mines, and that of gold from auriferous sands, and to prohibit the exportation of either. This was the policy of Spain and Portugal. The countries not possessing a native supply, could obtain it only by what was called a favourable balance of trade, that is to say, by exporting to a value exceeding that of their imports, and receiving the difference in money. And the money so acquired, they were taught to retain, by prohibiting its exportation. The prevailing opinion shows itself in the preamble of the 5 Rich. II. stat. 1. cap. 2., one among the many statutes and proclamations by which this prohibition was for centuries enforced. “For the great mischief which this realm suffereth, and long hath done, for that gold and silver are carried out of the realm, so that, in effect, there is none thereof left, which thing, if it should longer be suffered, would shortly be the destruction of the same realm, which God prohibit;” and the statute proceeds to forbid such exportation on pain of forfeiture. The merchants, however, who were necessarily the first to test the effects of this prohibition, found it inconvenient. Some trades, particularly those with the East, could be carried on only by the constant exportation of gold or silver, and in all others it was occasionally useful. They did not venture to attack the theory that the prosperity of a country depends on its accumulation of money. Few of them, probably, doubted its truth. But they maintained that the means by which the legislature endeavoured to promote this excellent result, in fact defeated it. “Allow us,” they said, “to send out silver to Asia, and we will bring back silks and calicos, not for our own consumption, which of course would be a loss, but to sell on the Continent for more silver than they cost, and we shall add annually to the national treasure.” This was assented to, and after more than four centuries of prohibition, the export of bullion was allowed by the 15 Car. II. cap. 17. “Forasmuch,” says the act, “as several considerable foreign trades cannot be conveniently driven without the species of money and bullion, and that it is found, by experience, that the species of money and bullion are carried in greatest abundance, as to a common market, to such places as give free liberty of exporting the same, and the better to keep in and increase the current coins of this kingdom, be it enacted, that it shall be lawful to export all sorts of foreign coin and bullion, first entering the same at the custom-house.”

The art of Political Economy now became more complex. Its object, indeed, was a very simple one, merely to increase the current coin of the country; but this was to be effected, not by restraining every trade which carried out bullion, but only those which carried out more than they brought in. But how were such trades to be detected? A test was supposed to be applied, by ascertaining whether their imports were intended for home consumption, or for re-exportation. In the former case, the trade, whether profitable or not to the merchant, was obviously mischievous to the country.

In the second case the trade, if profitable to the merchant, must also benefit the country, as it would receive more money than it sent out. “It is not,” says Sir James Stewart[B], “by the importation of foreign commodities, and by the exportation of gold and silver, that a nation becomes poor; it is by consuming those commodities when imported. The moment the consumption begins, the balance turns. Nations which trade to India by sending out gold and silver for a return of superfluities of a most consumable nature, the consumption of which they prohibit at home, do not spend their own specie, but that of their neighbours, who purchase the returns of it for their own consumption. Consequently a nation may become immensely rich by the constant exportation of specie and importation of consumable commodities. But she would do well to beware not to resemble the milliner who took it into her head to wear the fine laces which she used to make up for her customers. While a favourable balance is preserved upon foreign trade, a nation grows richer daily; and when one nation grows richer, others must be growing poorer.”

[B] An Inquiry into the Principles of Political Economy, book ii. ch. xxix. pp. 418, 419, and 422.

Sir James Stewart’s work was published in 1767, and as he says that it was the work of eighteen years, it must have been written between that year and the year 1749. Though he calls Political Economy a science, he treats it as an art, and has the merit of having first given to it limits clearly separating it from the other moral and political arts. “Its object is,” he says, “to secure a certain fund of subsistence for all the inhabitants, to obviate every circumstance which may render it precarious, to provide every thing necessary for supplying the wants of the society, and to employ the inhabitants in such a manner as naturally to create reciprocal relations and dependencies between them, so as to make their several interests lead them to supply one another with their reciprocal wants.”[C] This agrees with my second proposal, namely, to define Political Economy as “the art which points out the institutions and habits most conducive to the production and accumulation of wealth.” As incidental to the art, he was forced to examine the science, and a considerable portion of his work consists of inquiries into the laws which regulate the production and distribution of wealth. The extracts which I have read, show that he did not escape the prevalent errors of his times. And these errors were so grave, as to render the practical portion of his treatise not merely useless for its intended purposes, but positively injurious. A legislator following his precepts, would waste the wealth of the richest country, and destroy the diligence of the most industrious. But the scientific part of the work, particularly the chapters on population, and on the influence of taxation on wages, contains truths of great importance, which were unknown to his contemporaries, and cannot be said to be generally recognised even now.

[C] Book I. Introduction.