THIRD MODERN PHASE: SYSTEM OF NATURAL LIBERTY (cont.)
2. Adam Smith, with his Immediate Predecessors and his Followers
Italy—The first Italian translation of the Wealth of Nations appeared in 1780. The most distinguished Italian economist of the period here dealt with was, however, no disciple of Smith. This was Melchiorre Gioja, author, besides statistical and other writings, of a voluminous work entitled Nuovo Prospetto delle Scienze Economiche (6 vols., 1815-17 ; the work was never completed), intended to be an encyclopaedia of all that had been taught by theorists, enacted by Governments, or effected by populations in the field of public and private economy. It is a learned and able treatise, but so overladen with quotations and tables as to repel rather than attract readers. Gioja admired the practical economic of England, and enlarges of the advantages of territorial properties, manufactures, and mercantile enterprises on the large as opposed to the small scale. He defenda a restrictive policy, and insists on the necessity of the action of the state as a guiding, supervising, and regulating power in the industrial world. But hi is in full sympathy with the sentiment of his age against ecclesiastical domination and other mediaeval survivals. We can but very briefly notice Romagnosi (d. 1835), who, by his contributions to periodical literature, and by his personal teaching, greatly influenced the course of economic thought in Italy ; Antonio Scialoja (Principii d’Economia Sociale, 1840 ; and Carestia e Governo, 1853), an able advocate of free trade (d. 1877); Luigi Cibrario, well known as the author of Economia Politica del medio evo (1839 ; 5th ed. 1861 ; French trans. by Barneaud, 1859), which is in fact a view of the whole social system of the period ; Girolamo Boccardo (b. 1829 ; Trattoto Teorico-pratico di Economia politica, 1853) ; the brilliant controversialist Francesco Ferrara, professor at Turin from 1849 to 1858 (in whose school most of the present Italian teachers of the science were, directly or indirectly, educated), a partisan of the laissez faire doctrine in its most extreme form, and in an advocate of the peculiar opinions of Carey and Bastiat on the subject of rent ; and, lastly, the Neapolitan minister Ludovico Bianchini (Principii della Scienza del Ben Vivere Sociale,1845 and 1855), who is remarkable as having followed in some degree an historical direction, and asserted the principle of relativity, and who also dwelt on the relations of economics with morals, by a due attention to which the Italian economists have, indeed, in general been honourably distinguished.
Spain—The Wealth of Nations was translated into Spanish by Ortiz in 1794. It may perhaps have influenced Gaspar de Jovellanos, who in 1795 presented to the council of Castile and printed in the same year his celebrated Informe de la Sociedad Economica de Madrid en expediente de ley Agraria, which was a powerful plea for reform, especially in taxation and the laws affecting agriculture, including those relating to the systems of entail and mortmain. An English version of this memoir is given in the translation (1809) of Laborde’s Spain, vol. iv.
Germany—Roscher observes that Smith did not at first produce much impression in Germany.1 He does not appear to have been known to Frederick the Great ; he certainly exercised no influence on him. Nor did Joseph II. take notice of his work. And of the minor German princes, Karl Friedrich of Baden, as a physiocrat, would not be accessible to his doctrines. It was otherwise in the generation whose principal activity belongs to the first decade of the 19th century. The Prussian statesmen who were grouped round Stein had been formed as economists by Smith, as had also Gentz, intellectually the most important man of the Metternich régime in Austria.
The first German expositor of Smith who did more than merely reproduce his opinions were Christian Jacob Kraus (1753-1807), Georg Sartorius (1766-1828), and August Ferdinand Lüder (1760-1819). They contributed independent views from different standpoints,—the first from that of the effect of Smith’s doctrine on practical government, the second from that of its bearing on history, the third from that of its relation to statistics. Some what latter come Gottlieb Hufeland (1760-1817), Johann Friedrich Eusebius Lotz (1771-1838), and Ludwig Heinrich von Jakob (1759-1827), who, whilst essentially of the school of Smith, apply themeselves to a revision of the fundamental conceptions of the science. These authors did not exert anything like the wide influence of Say, partly on account of the less attractive form of their writings, but chiefly because Germany had not the, like France, a European audience. Julius von Soden (1754-1831) is largely founded on Smith, whom, however, he criticizes with undue severity, especially in regard to his form and arrangement ; the Wealth of Nations he describes as a series of precious fragments, and censures Smith for the absence of a comprehensive view of his whole subject, and also as one-sidely English in his tendencies.
The highest form of the Smithian doctrine in Germany is represented by four distinguihed named:—Karl Heinrich Rau (1792-1870), Friedrich Nebenius (1784-1857), Friedrich Benedict Wilhelm Hermann (1795-1868), and Johann Heinrich von Thünen (1783-1850).
Rau’s characteristic is "erudite thoroughness." His Lehrbuch (1826-32) is an encyclopedia of all that up to his time had appeared in Germany under the several heads of Volkswirthschaftslehre, Volkswirthschaftspolitik, and Finanzwissenschaft. His book is rich in statistical observations, and is particularly instructive on the economic effects of different geographical conditions. It is well adapted for the teaching of public servants whose duties are connected with economics, and it has in fact been the source from which the German official world to the present time has derived its knowledge of the science. In his earlier period Rau had instead on the necessity of a reform of economic doctrine (Ansichten der Volkswirthschaft, 1821), and had tended towards relativity and the historical method ; but he afterwards conceived the mistaken notion that the method "only looked into the past without studying the means of improving the present," and became himself purely practical in the narrower sense of that world. He has the merit of having given a separate treatment of Unternehmergewinn, or wages of management. The Prussian minister Nebenius, who was largely instrumental in the foundation of the Zollverein, was author of a highly esteemed monograph on public credit (1820). The Staatswirthschaftliche Untersuchungen (1832; 2d ed., 1870) of Hermann do not form a regular system, but treat a series of important special subjects. His rate technological knowledge gave him a great advantage in dealing with some economic questions. He reviewed the principal fundamental ideas of the science with great thoroughness and acuteness. "His strength," say Roscher, "lies in his clear, sharp, exhaustive distinction between the several elements of a complex conception, or the several steps comprehended in a complex act." For keen analytical power his German brethren compare him with Ricardo. But he avoids several one-sided views of the English-economist. Thus he places public spirit beside egoism as an economic motor, regards price as not measured by labour only but as a product of several factors, and habitually contemplates the consumption of the labourer, not as a part of the cost of production to the capitalist, but as the main practical end of economics. Von Thünen is known principally by his remarkable work entitled Der Isolirte Staat in Beziehung auf Landwirthschaft und Nationalökonomie (1826 ; 2d ed., 1842). In this treatise, which is a classic in the political economy of agriculture, there is a are union of exact observation with creative imagination. With a view to exhibit the natural development of agriculture, he imagines a state, isolated from the rest of the world, circular in form and of uniform fertility, without navigable rivers or canals, with a single large city at its centre, which supplies it with manufactures and receives in exchange for them its food-products, and proceeds to study the effect of distance from this central market on the agricultural economy of the several concentric spaces which compose the territory. The method, it will be seen, is highly abstract, but, though it may not be fruitful, it is quite legitimate. The author is under no illusion blinding him to the unreality of the hypothetic case. The supposition is necessary, in his view, in order to separate and consider apart one essential condtion—that, namely, of situation with respect to the market. It was his intention (imperfectly realized, however) to institute afterwards several different hypotheses in relation to his isolated state, for the purpose of similarly studying other conditions which in real life are found in combination or conflict. The objection to this method lies in the difficulty of the return from the abstract study to the actual facts ; and this is probably an insuperable one in regard to most of its applications. The investigation, however, leads to trustworthy conclusions as to the conditions of the succession of different systems of land economy. The book abounds in calculations relating to agricultural expenditure and income, which diminish its interest to the general reader, though they are considered valuable to the specialist. They embody the results of the practical experience of the author on his estate of Tellow in Mecklenburg-Schwerin. Von Thünen was strongly impressed with the danger of a violent conflict between the middle class and the proletariate, and studied earnestly the question of wages, which he was one of the first to regard, not merely as the price of the commodity labour, but as the means of subsistence of the mass of the community. He arrived by mathematical reasonings of some complexity at a formula which expresses the amount of "natural wages" as =&Mac195; ap, where a is the necessary expenditure of the labourer for subsistence, and p is the product of his labour. To this formula he attributed so much importance that he directed it to be engraved on his tomb. It implies that wages ought to rise with the amount of the product ; and this conclusion led him to establish on his estate a system of participation by the labourers in the profits of farming, of which some account will be found in Mr Sedley Taylor’s Profit-sharing between Capital and Labour (1884’,. Von Thünen deserves more attention than he has received in England ; both as a man and as a writer he was eminently interesting and original ; and there is much in Der Isolirte Staat and his works that is awakening and suggestive.
Roscher recognizes what he calls a Germano-Russian (deutsch-russische) school of political economy, represented principally by Heinrich Storch (1766-1825). Mercantilist principles had been preached by a native ("autochthonen") economist, Ivan Possoschkoff, in the time of Peter the Great. The new ideas of the Smithian system were introduced into Russia by Christian von Schlözer (1774-1831) in his professorial lectures and in his Anfangsgründe der Staatswirthschaft, oder die Lehre von National-reichthume (1805-1807). Storch was instructor in economic science of the future emperor Nicholas and his brother the grandduke Michael, and the substance of his lessons to them is contained in his Cours d’ Économie Politique (1815). The translation of this treatise into Russian was prevented by the censorship ; Rau published a German version of it, with annotations, in 1819. It is a work of a very high order of merit. The epithet "deutsch—russisch" seems little applicable to Storch ; as Roscher himself says, he follows mainly English and French writers—Say, Sismondi, Turgot, Bentham, Steuart, and Hume, but, above all, Adam Smith. His personal position (and the same is true of Schlözer) led him to consider economic doctrines in connexion with a stage of culture different from that of the Western populations amongst which they had been formulated ; this change of the point of view opened the door to relativity, and helped to prepare the historical method. Storch’s study of the economic and moral effects of serfdom is regarded as especially valuable. The general subjects with which he has particularly connected his name are (1) the doctrine of immaterial commodities (or elements of national prosperity), such as health, talent, morality, and the like ; (2) the question of "productive" and "unproductive." As characters of labour and of consumption, on which he disagreed with Smith and may have furnished indications to Dunoyer ; and (3) the differences between the revenue of nations and that of individuals, on which he follows Lauderdale and is opposed to Say. The latter economist having published at Paris (1823) a new edition of Storch’s Cours, with criticisms sometimes offensive in tone, he published by way of reply to some of Say’s strictures what is considered his ripest and scientifically most important work, Considérations sur la nature du Revenu National (1824 ; translated into German by the author himself, 1825).
A distinct not of opposition to the Smithian economics was sounded in Germany by two writers, who, setting out from somewhat different points of view, animated by different sentiments, and favouring different practical systems, yet so far as their criticisms are concerned, arrive at similar conclusions; we mean Adam Müller and Friedrich List.
Adam Müller (1779-1829) was undoubtedly a man of real genius. In his principal work Elemente de Staatskunst (1809), and his other writings, he represents a movement of economic though which was in relation with the (so-called) Romantic literature of the period. The reaction against Smithianism of which he was the coryphaeus was founded on an attachment to the principles and social system of the Middle Ages. It is possible that the political and historical ideas which inspire him, his repugnance to contemporary liberalism, and his notions of regular organic development, especially in relation to England, were in some degree imbibed from Edmud Burke, whose Reflections on the Revolution in France had been translated into German by Friedrich Gentz, the friend and teacher of Müller. The association of his criticisms with mediaeval prepossessions ought not to prevent our recognizing the elements of truth which they contain.
He protests against the doctrine of Smith and against modern political economy in general on the ground that it present a mechanical, atomistic, and purely material conception of society, that it reduces to nullity all moral forces and ignores the necessity of a moral order, that it is at bottom no more than a theory of private property and private interests, and takes no account of the life of the people as a whole in its national solidarity and historical continuity. Exclusive attention, he complains, is devoted to the immediate production of object possessing exchange value to the transitory existence of individuals ; whilst to the maintenance of the collective production for future generations, to intellectual products, powers, possessions, and enjoyments, and to the state with its higher tasks and aims, scarcely a thought is given. The truth is that nations are specialized organisms with distinct principles of life, having definite individualities which determine the course of their historical development. Each is through all time one whole; and, as the present is the heir of the past, it ought to keep before it constantly the permanent good of the community in the future. The economic existence of a people is only one side of province of its entire activity, requiring to be kept in harmony with the higher ends of society ; and the proper organ to effect this reconciliation is the administration of justice, represents the totality of the national life. The division of labour, Müller holds, is imperfectly developed by Smith, who makes it to arise out of a native bent for truck or barter ; whilst its dependence on capital—on the labours and accumulations of past generations—is not duly emphasized, nor is the necessary couterpoise and completion of the division of labour, in the principle of the national combination of labour, properly brought out. Smith recognizes only material, not spiritual, capital ; yet the latter, represented in every nation by language, as the former by money, is a real national store of experience, wisdom, good sense, and moral feeling, transmitted with increase by each generation to its successor, and enables each generation to produce immensely more than by its own unaided powers it could possibly do. Again, the system of Smith is one-sidedly British ; if it is innocuous on the soil of England, it is because in her society the old foundations on which the spiritual and material life of the people can securely rest are preserved in the surviving spirit of feudalism and the inner connexion of the whole social system—the national capital of laws, manners, reputation, and credit, which has been handed down in its integrity in consequence of the insular position of the country. For the continent of Europe a quite different system is necessary, in which, in place of the sum of the private wealth of individuals being viewed as the primary object, the real wealth of the nation and the production of national power shall be made to predominate, and along with the division of labour its national union and concentration—along with the physical, no less the intellectual and moral, capital shall be embraced. In these leading traits of Müller’s thought there is much which foreshadows the more recent forms of German economic and sociological speculation, especially those characteristic of the "Historical" school.
Another element of opposition was represented by Friedrich List (1798-1846), a man of great intellectual vigour as well as practical energy, and notable as having powerfully contributed by his writings to the formation of the German Zollverein. His principal work is entitled Das Nationale System der Politischen Oekonomie (1841; 6th ed., 1877). Though his practical conclusions were different from Müller’s, he was largely influenced by the general mode of thinking of that writer, and by his strictures on the doctrine of Smith. It was particularly against the cosmopolitan principle in the modern economical system that he protested, and against the absolute doctrine of free trade, which was in harmony with that principle. He gave prominence to the national idea, and insisted on the special requirements of each nation according to its circumstances and especially to the degree of its development.
He refuses to Smith’s system the title of the industrial, which he thinks more appropriate to the mercantile system, and designates the former as "the exchange-value system." He denies the parallelism asserted by Smith between the economic conduct proper to an individual and to a nation, and holds that the immediate private interest of the separate members of the community will not lead to the highest good of the whole. The nation is an existence, standing between the individual and humanity, and formed into a unity by its language, manners historical development, culture, and constitution. This unity is the first condition of the security, wellbeing, progress, and civilization of the individual ;and private economic interests, like all others, must be subordinated to the maintenance, completion, and strengthening of the nationality. The nation having a continuous life, its true wealth consists—and this is List’s fundamental doctrine—not in the quantity of exchange-values which it possesses, but in the full and many-sided development of its productive powers. Its economic education, if we may so speak, is more important than the immediate production of values, and it may be right that the present generation should sacrifice its gain and enjoyment to secure the strength and skill of the future. In the sound and normal condition of a nation which has attained economic maturity, the three productive powers of agriculture, manufactures, and commerce should be alike developed. But the two latter factors are superior in importance, as exercising a more effective and fruitful influence on the whole culture of the nation, as well as on its independence. Navigation, railways, all higher technical arts, connect themselves specially with these factors; whilst in a purely agricultural state there is a tendency to stagnation, absence of enterprise, and the maintenance of antiquated prejudices. But for the growth of the higher forms of industry all countries are not adapted—only those of the temperate zones, whilst the torrid regions have a natural monopoly in the production of certain raw materials ; and thus between these two groups of countries a division of labour and confederation of powers spontaneously takes place. List then goes on to explain his theory of the stages of economic development through which the nations of the temperate zone, which are furnished with all the necessary conditions, naturally pass, in advancing to their normal economic state. These are (1) pastoral life, (2) agriculture, (3) agriculture united with manufactures ; whilst in the final stage agriculture, manufactures, and commerce are combined. The economic task of the state is to bring into existence through legislative and administrative action the conditions required for the progress of the nation through these stages. Out of this view arises List’s scheme of industrial politics. Every nation, according to him, should begin with free trade, stimulating and improving its agriculture by intercourse with richer and more cultivated nations, importing foreign manufactures and exporting raw products. When it is economically so far advanced that it can manufacture for itself, then a system of protection should be employed to allow the home industries to develop themselves fully, and save them from being overpowered in their earlier efforts by the competition of more matured foreign industries in the home market. When the national industries have grown strong enough no longer to dread this competition, then the highest stage of progress has been reached ; free trade should again become the rule, and the nation be thus thoroughly incorporated with the universal industrial union. In List’s time, according to his view, Spain, Portugal, and Naples were purely agricultural countries ; Germany and the United States of North America had arrived at the second stage, their manufactures being in process of development ; France was near the boundary of the third or highest stage, which England alone had reached. For England, therefore, as well as for the agriculture countries first-named, free trade was the right economic policy, but not for Germany or America. What a nation loses for a time in exchange values during the protective period she much more than gains in the long run in productive power,—the temporary expenditure being strictly analogous, when we place ourselves at the point of view of the life of the nation, to the cost of the industrial education of the individual. The practical conclusion which List drew for his own country was that she needed for her economic progress an extended and conveniently bounded territory reaching to the sea-coast both on north and south, and a vigorous expansion of manufactures and commerce, and that the way to the latter lay through judicious protective legislation with a customs union comprising all German lands, and a German marine with a Navigation Act. The national German spirit, striving after in dependence and power through union, and the national industry, awaking from its lethargy and eager to recover lost ground, were favourable to the success of List’s book, and it produced a great sensation. He ably represented the tendencies and demands of his time in his own country ; his work had the effect of fixing the attention, not merely of the speculative and official classes, but of practical men generally, on questions of political economy ; and he had without doubt an important influence on German industrial policy. So far as science is concerned, the emphasis he laid on the relatives historical study of stages of civilization as affecting economic questions, and his protest against absolute formulas, had a certain value ; and the preponderance given to the national development over the immediate gains of individuals was sound in principle ; though his doctrine was, both on its public and private sides, too much of a mere chrematistic, and tended in fact to set up a new form of mercantilism, rather than to aid the contemporary effort towards social reform.
Most of the writers at home or abroad hitherto mentioned continued the traditions of the school of Smith, only developing his doctrine in particular directions, sometimes not without one-sidedness or exaggeration, or correcting minor errors into which he had fallen, or seeking to give to the exposition of his principles more of order and lucidity. Some assailed the abuse of abstraction by Smith’s successors, objected to the conclusions of Ricardo and his followers their non-accordance with the actual facts of human life, or protested against the anti-social consequences which seemed to result from the application of the (so-called) orthodox formulas. A few challenged Smith’s fundamental ideas, and insisted on the necessity of altering the basis of general philosophy on which his economics ultimately rest. But, notwithstanding various premonitory indications, nothing substantial, at least nothing effective, was done, within the field we have as yet surveyed towards the establishment of a really new order of thinking, or new mode of proceeding, in this branch of inquiry. Now, however, we have to describe a great and growing movement, which has already considerably changed the whole character of the study in the conceptions of many, and which promises to exercise a still more potent influence in the future. We mean the rise of the Historical School, which we regard as making the third epoch in the modern development of economic science.
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