The National System of Political Economy by Friedrich List Pt 3
Author: Unknown
Date: 0101-01-01T00:00:00+00:00

Third Book

The Systems

Chapter 28

The National Economists of Italy

Italy has been the forerunner of all modern nations, in the theory as well as in the practice of Political Economy. Count Pechio has given us a laboriously written sketch of that branch of Italian literature; only his book is open to the observation, that he has clung too slavishly to the popular theory, and has not duly set forth the fundamental causes of the decline of Italy’s national industry — the absence of national unity, surrounded as she was by great nationalities united under hereditary monarchies; further, priestly rule and the downfall of municipal freedom in the Italian republics and cities. If he had more deeply investigated these causes, he could not have failed to apprehend the special tendency of the ‘Prince’ of Macchiavelli, and he would not have passed that author by with merely an incidental reference to him.(1*) Through a remark of Pechio, that Macchiavelli in a letter to his friend Guicciardini (in 1525) had proposed a union of all the Powers of Italy against the foreigner, and that as that letter was communicated to Pope Clement VII he had thus exercised considerable influence in the formation of the ‘Holy League’ (in 1526), we were led to imagine that the same tendency must underlie the ‘Prince.’

As soon as we referred to that work, we found our anticipation confirmed at first sight. The object of the ‘Prince’ (written in 1513) was clearly to impress the Medici with the idea, that they were called upon to unite the whole of Italy under one sovereignty; and to indicate to them the means whereby that end might be attained. The title and form of that book, as though its general intention was to treat of the nature of absolute government, were undoubtedly selected from motives of prudence. It only alludes incidentally to the various hereditary Princes and their governments. Everywhere the author has in view only one Italian usurper. Principalities must be overthrown, dynasties destroyed, the feudal aristocracy brought under subjection, liberty in the republics rooted out. The virtues of heaven and the artifices of hell, wisdom and audacity, valour and treachery, good fortune and chance, must all be called forth, made use of, and tried by the usurper, in order to found an Italian empire. And to this end a secret is confided to him, the power of which has been thoroughly made manifest three hundred years later — a national army must be created, to whom victory must be assured by new discipline and by newly invented arms and manoeuvres.(2*)

If the general character of his arguments leaves room for doubt as to the special bias of this author, such doubt will be removed by his last chapter. There he plainly declares that foreign invasions and internal divisions are the fundamental causes of all the evils prevailing in Italy; that the House of the Medici, under whose dominion were (fortunately) Tuscany and the States of the Church, were called by Providence itself to accomplish that great work; that the present was the best time and opportunity for introducing a new rיgime, that now a new Moses must arise to deliver his people from the bondage of Egypt, that nothing conferred on a Prince more distinction and fame than great enterprises.(3*)

That anyone may read between the lines the tendency of that book in the other chapters also, may be best seen by the manner in which the author in his ninth chapter speaks of the States of the Church. It is merely an irony when he says, ‘The priests possessed lands but did not govern them, they held lordships but did not defend them; these happiest of all territories were directly protected by God’s Providence, it would be presumption to utter a criticism upon them.’ He clearly by this language meant it to be understood without saying so in plain words: This country presents no special impediment to a bold conqueror, especially to a Medici whose relative occupies the Papal chair.

But how can we explain the advice which Macchiavelli gives to his proposed usurper respecting the republics, considering his own republican sentiments? And must it be solely attributed to a design on his part to ingratiate himself with the Prince to whom his book is dedicated, and thus to gain private advantages, when he, the zealous republican, the great thinker and literary genius, the patriotic martyr, advised the future usurper utterly to destroy the freedom of the Italian republics? It cannot be denied that Macchiavelli, at the time when he wrote the ‘Prince,’ was languishing in poverty, that he regarded the future with anxiety, that he earnestly longed and hoped for employment and support from the Medici. A letter which he wrote on October 10, 1513, from his poor dwelling in the country to his friend Bettori, at Florence, places that beyond doubt.(4*)

Nevertheless, there are strong reasons for believing that he by this book did not merely design to flatter the Medici, and to gain private advantage, but to promote the realisation of a plan of usurpation; a plan which was not opposed to his republican-patriotic ideas, though according to the moral ideas of our day it must be condemned as reprehensible and wicked. His writings and his deeds in the service of the State prove that Macchiavelli was thoroughly acquainted with the history of all periods, and with the political condition of all States. But an eye which could see so far backwards, and so clearly what was around it, must also have been able to see far into the future. A spirit which even at the beginning of the sixteenth century recognised the advantage of the national arming of Italy, must also have seen that the time for small republics was past, that the period for great monarchies had arrived, that nationality could, under the circumstances then existing, be won only by means of usurpation, and maintained only by despotism, that the oligarchies as they then existed in the Italian republics constituted the greatest obstacle to national unity, that consequently they must be destroyed, and that national freedom would one day grow out of national unity.

Macchiavelli evidently desired to cast away the worn-out liberty of a few cities as a prey to despotism, hoping by its aid to acquire national union, and thus to insure to future generations freedom on a greater and a nobler scale.

The earliest work written specially on Political Economy in Italy, is that of Antonio Serra of Naples (in 1613), on the means of providing ‘the Kingdoms’ with an abundance of gold and silver.

J. B. Say and M’Culloch appear to have seen and read only the title of this book: they each pass it over with the remark that it merely treats of money; and its title certainly shows that the author laboured under the error of considering the precious metals as the sole constituents of wealth. If they had read farther into it, and duly considered its contents, they might perhaps have derived from it some wholesome lessons. Antonio Serra, although he fell into the error of considering an abundance of gold and silver as the tokens of wealth, nevertheless expresses himself tolerably clearly on the causes of it.

He certainly puts mining in the first place as the direct source of the precious metals; but he treats very justly of the indirect means of acquiring them. Agriculture, manufactures, commerce, and navigation, are, according to him, the chief sources of national wealth. The fertility of the soil is a sure source of prosperity; manufactures are a still more fruitful source, for several reasons, but chiefly because they constitute the foundation of an extensive commerce. The productiveness of these sources depends on the characteristic qualifications of the people (viz.

whether they are industrious, active, enterprising, thrifty, and so forth), also on the nature and circumstances of the locality (whether, for instance, a city is well situated for maritime trade). But above all these causes, Serra ranks the form of government, public order, municipal liberty, political guarantees, the stability of the laws. ‘ No country can prosper,’ says he, ‘
where each successive ruler enacts new laws, hence the States of the Holy Father cannot be so prosperous as those countries whose government and legislation are more stable. In contrast with the former, one may observe in Venice the effect which a system of order and legislation, which has continued for centuries, has on the public welfare.’ This is the quintessence of a system of Political Economy which in the main, notwithstanding that its object appears to be only the acquisition of the precious metals, is remarkable for its sound and natural doctrine. The work of J. B.

Say, although it comprises ideas and matter on Political Economy of which Antonio Serra had in his day no foreknowledge, is far inferior to Serra’s on the main points, and especially as respects a due estimate of the effect of political circumstances on the wealth of nations. Had Say studied Serra instead of laying his work aside, he could hardly have maintained (in the first page of his system of Political Economy) that ‘the constitution of countries cannot be taken into account in respect to Political Economy; that the people have become rich, and become poor, under every form of government; that the only important point is, that its administration should be good.’

We are far from desiring to maintain the absolute preferableness of any one form of government compared with others.

One need only cast a glance at the Southern States of America, to be convinced that democratic forms of government among people who are not ripe for them can become the cause of decided retrogression. in public prosperity. One need only look at Russia, to perceive that people who are yet in a low degree of civilisation are capable of making most remarkable progress in their national well-being under an absolute monarchy. But that in no way proves that people have become rich, i.e. have attained the highest degree of economical well-being, under all forms of government. History rather teaches us that such a degree of public well-being, namely, a flourishing state of manufactures and commerce, has been attained in those countries only whose political constitution (whether it bear the name of democratic or aristocratic republic, or limited monarchy) has secured to their inhabitants a high degree of personal liberty and of security of property whose administration has guaranteed to them a high degree of activity and power successfully to strive for the attainment of their common objects, and of steady continuity in those endeavours. For in a state of highly advanced civilisation, it is not so important that the administration should be good for a certain period, but that it should be continuously and conformably good; that the next administration should not destroy the good work of the former one; that a thirty years’ administration of Colbert should not be followed by a Revocation of the Edict of Nantes, that for successive centuries one should follow one and the same system, and strive after one and the same object. Only under those political constitutions in which the national interests are represented (and not under an absolute Government, under which the State administration is necessarily always modified according to the individual will of the ruler) can such a steadiness and consistency of administration be secured, as Antonio Serra rightly observes. On the other hand, there are undoubtedly certain grades of civilisation in which the administration by absolute power may prove far more favourable to the economical and mental progress of the nation (and generally is so) than that of a limited monarchy.

We refer to periods of slavery and serfdom, of barbarism and superstition, of national disunity, and of caste privileges. For, under such circumstances, the constitution tends to secure not only the interests of the nation, but also the continuance of the prevailing evils, whereas it is the interest and the nature of absolute government to destroy the latter, and it is also possible that an absolute ruler may arise of distinguished power and sagacity, who may cause the nation to make advances for centuries, and secure to its nationality existence and progress for all future time.

It is consequently only a conditional commonplace truth on the faith of which J. B. Say would exclude politics from his doctrine.

In every case it is the chief desideratum that the administration should be good; but the efficiency of the administration depends on the form of government, and that form of government is clearly the best which most promotes the moral and material welfare and the future progress of any given nation. Nations have made some progress un der all forms of government. But a high degree of economical development has only been attained in those nations whose form of government has been such as to secure to them a high degree of freedom and power, of steadiness of laws and of policy, and efficient institutions.

Antonio Serra sees the nature of things as it actually exists, and not through the spectacles of previous systems, or of some one principle which he is determined to advocate and carry out. He draws a comparison between the condition of the various States of Italy, and perceives that the greatest degree of wealth is to be found where there is extensive commerce; that extensive commerce exists where there is a well-developed manufacturing power, but that the latter is to be found where there is municipal freedom.

The opinions of beccaria are pervaded by the false doctrines of the physiocratic school. That author indeed either discovered, or derived from Aristotle, the principle of the division of labour, either before, or contemporaneously with, Adam Smith; he, however, carries it farther than Adam Smith, inasmuch as he not only applies it to the division of the work in a single manufactory, but shows that the public welfare is promoted by the division of occupation among the members of the community. At the same time he does not hesitate, with the physiocrats, to assert that manufactures are non-productive.

The views of the great philosophical jurist, Filangieri, are about the narrowest of all. Imbued with false cosmopolitanism, he considers that England, by her protective policy, has merely given a premium to contraband trade, and weakened her own commerce.

Verri, as a practical statesman, could not err so widely as that. He admits the necessity of protection to native industry against foreign competition; but did not or could not see that such a policy is conditional on the greatness and unity of the nationality.

NOTES:

1. During a journey in Germany which the author undertook while this work was in the press, he learned for the first time that Doctors Von Ranke and Gervinus have criticised Macchiavelli’s Prince from the same point of view as himself.

2. Everything that Macchiavelli has written, whether before or after the publication of the Prince, indicates that he was revolving in his mind plans of this kind. How otherwise can it be explained, why he, a civilian, a man of letters, an ambassador and State official, who had never borne arms, should have occupied himself so much in studying the art of war, and that he should have been able to write a work upon it which excited the wonder of the most distinguished soldiers of his time?

3. Frederick the Great in his Anti-Macchiavel treats of the Prince as simply a scientific treatise on the rights and duties of princes generally. Here it is remarkable that he, while contradicting Macchiavelli chapter by chapter, never mentions the last or twenty-sixth chapter, which bears the heading, ‘A Summons to free Italy from the Foreigners,’ and instead of it inserts a chapter which is not contained in Macchiavelli’s work with the heading, ‘On the different kinds of Negotiations, and On the just Reasons for a Declaration of War.’

4. First published in the work, Pensieri intorno allo scopo di Nicolo Macchiavelli nel libro ‘Il Principe.’ Milano, 1810.

Chapter 29

The Industrial System (Falsely Termed by the School ‘The Mercantile System’)

At the period when great nationalities arose, owing to the union of entire peoples brought about by hereditary monarchy and by the centralisation of public power, commerce and navigation, and hence wealth and naval power, existed for the most part (as we have before shown) in republics of cities, or in leagues of such republics. The more, however, that the institutions of these great nationalities became developed, the more evident became the necessity of establishing on their own territories these main sources of power and of wealth.

Under the conviction that they could only take root and flourish under municipal liberty, the royal power favoured municipal freedom and the establishment of guilds, both which it regarded as counterpoises against the feudal aristocracy, who were continually striving for independence, and always hostile to national unity. But this expedient appeared insufficient, for one reason, because the total of the advantages which individuals enjoyed in the free cities and republics was much greater than the total of those advantages which the monarchical governments were able to offer, or chose to offer, in their own municipal cities; in the second place, because it is very difficult, indeed impossible, for a country which has always been principally engaged in agriculture, successfully to displace in free competition those countries which for centuries have acquired supremacy in manufactures, commerce, and navigation; lastly, because in the great monarchies the feudal institutions acted as hindrances to the development of their internal agriculture, and consequently to the growth of their internal manufactures. Hence, the nature of things led the great monarchies to adopt such political measures as tended to restrict the importation of foreign manufactured goods, and foreign commerce and navigation, and to favour the progress of their own manufactures, and their own commerce and navigation.

Instead of raising revenue as they had previously done by duties on the raw materials which they exported, they were henceforth principally levied on the imported manufactured goods.

The benefits offered by the latter policy stimulated the merchants, seamen, and manufacturers of more highly civilised cities and countries to immigrate with their capital into the great monarchies, and stimulated the spirit of enterprise of the subjects of the latter. The growth of the national industry was followed by the growth of the national freedom. The feudal aristocracy found it necessary in their own interest to make concessions to the industrial and commercial population, as well as to those engaged in agriculture; hence resulted progress in agriculture as well as in native industry and native commerce, which had a reciprocally favourable influence on those two other factors of national wealth.

We have shown how England, in consequence of this system, and favoured by the Reformation, made forward progress from century to century in the development of her productive power, freedom, and might. We have stated how in France this system was followed for some time with success, but how it came to grief there, because the institutions of feudalism, of the priesthood, and of the absolute monarchy, had not yet been reformed. We have also shown how the Polish nationality succumbed, because the elective system of monarchy did not possess influence and steadiness enough to bring into existence powerful municipal institutions, and to reform the feudal aristocracy. As a result of this policy, there was created in the place of the commercial and manufacturing city, and of the agricultural province which chiefly existed outside the political influence of that city, the agricultural-manufacturing-commercial State; a nation complete in itself, an harmonious and compact whole, in which, on the one hand, the formerly prevailing differences between monarchy, feudal aristocracy, and citizenhood gave place to one harmonious accord, and, on the other hand, the closest union and reciprocally beneficial action took place between agriculture, manufactures, and commerce. This was an immeasurably more perfect commonwealth than the previously existing one, because the manufacturing power, which in the municipal republic had been confined to a narrow range, now could extend itself over a wider sphere; because now all existing resources were placed at its disposition; because the division of labour and the confederation of the productive powers in the different branches of manufactures, as well as in agriculture, were made effectual in an infinitely greater degree; because the numerous classes of agriculturists became politically and commercially united with the manufacturers and merchants, and hence perpetual concord was maintained between them; the reciprocal action between manufacturing and commercial power was perpetuated and secured for ever; and finally, the agriculturists were made partakers of all the advantages of civilisation arising from manufactures and commerce. The agricultural-manufacturing-commercial State is like a city which spreads over a whole kingdom, or a country district raised up to be a city. In the same proportion in which material production was promoted by this union, the mental powers must necessarily have been developed, the political institutions perfected, the State revenues, the national military power, and the population, increased. Hence we see at this day, that nation which first of all perfectly developed the agricultural, manufacturing, and commercial State, standing in these respects at the head of all other nations.

The Industrial System was not defined in writing, nor was it a theory devised by authors, it was simply acted upon in practice, until the time of Stewart, who deduced it for the most part from the actual English practice, just as Antonio Serra deduced his system from a consideration of the circumstances of Venice.

Stewart’s treatise, however, cannot be considered a scientific work. The greater part of it is devoted to money, banking, the paper circulation — commercial crises — the balance of trade, and the doctrine of population: — discussions from which even in our day much may be learned, but which are carried on in a very illogical and unintelligible way, and in which one and the same idea is ten times repeated. The other branches of political economy are either superficially treated, or passed over altogether.

Neither the productive powers, nor the elements of price, are thoroughly discussed. Everywhere the author appears to have in view only the experiences and circumstances of England. In a word, his book possesses all the merits and demerits of the practice of England, and of that of Colbert. The merits of the Industrial System as compared with later ones, are: 1. That it clearly recognises the value of native manufactures and their influence on native agriculture, commerce, and navigation, and on the civilisation and power of the nation; and expresses itself unreservedly to that effect.

2. That it indicates what is in general the right means whereby a nation which is qualified for establishing a manufacturing power, may attain a national industry.(1*)

3. That it is based on the idea of ‘the nation,’ and regarding the nations as individual entities, everywhere takes into account the national interests and national conditions.

On the other hand, this system is chargeable with the following chief faults:

1. That it does not generally recognise the fundamental principle of the industrial development of the nation and the conditions under which it can be brought into operation.

2. That it consequently would mislead peoples who live in a climate unsuited for manufacturing, and small and uncivilised states and peoples, into the adoption of the protective system.

3. That it always seeks to apply protection to agriculture, and especially to the production of raw materials — to the injury of agriculture — whereas agricultural industry is sufficiently protected against foreign competition by the nature of things.

4. That it seeks to favour manufactures unjustly by imposing restrictions on the export of raw materials, to the detriment of agriculture.

5. That it does not teach the nation which has already attained manufacturing and commercial supremacy to preserve her own manufacturers and merchants from indolence, by permitting free competition in her own markets.

6. That in the exclusive pursuit of the political object, it ignores the cosmopolitical relations of all nations, the objects of the whole human race; and hence would mislead governments into a prohibitory system, where a protective one would amply suffice, or imposing duties which are practically prohibitory, when moderate protective duties would better answer the purpose.

Finally.

7. That chiefly owing to his utterly ignoring the principle of cosmopolitanism, it does not recognise the future union of all nations, the establishment of perpetual peace, and of universal freedom of trade, as the goal towards which all nations have to strive, and more and more to approach.

The subsequent schools have, however, falsely reproached this system for considering the precious metals as the sole constituents of wealth, whereas they are merely merchandise like all other articles of value; and that hence it would follow that we ought to sell as much as possible to other nations and to buy from them as little as possible.

As respects the former objection, it cannot be truly alleged of either Colbert’s administration or of that of the English since George I. that they have attached an unreasonable degree of importance to the importation of the precious metals.

To raise their own native manufactures, their own navigation, their foreign trade, was the aim of their commercial policy; which indeed was chargeable with many mistakes, but which on the whole produced important results. We have observed that since the Methuen Treaty (1703) the English have annually exported great quantities of the precious metals to the East Indies, without considering these exports as prejudicial.

The Ministers of George I when they prohibited (in 1721) the importation of the cotton and silk fabrics of India did not assign as a reason for that measure that a nation ought to sell as much as possible to the foreigner, and buy as little as possible from him; that absurd idea was grafted on to the industrial system by a subsequent school; what they asserted was, that it is evident that a nation can only attain to wealth and power by the export of its own manufactured goods, and by the import from abroad of raw materials and the necessaries of life. England has followed this maxim of State policy to the present day, and by following it has become rich and mighty; this maxim is the only true one for a nation which has been long civilised, and which has already brought its own agriculture to a high degree of development.

NOTES:

1. Stewart says (book 1. chapter xxix.): ‘In order to promote industry, a nation must act as well as permit, and protect. Could ever the woollen manufacture have been introduced into France from the consideration of the great advantage which England had drawn from it. if the king had not undertaken the support of it by granting many privileges to the undertakers, and by laying strict prohibitions on all foreign cloths? Is there any other way of establishing a new manufacture anywhere?’

Chapter 30

The Physiocratic or Agricultural System

Had the great enterprise of Colbert been permitted to succeed — had not the Revocation of the Edict of Nantes, the love of splendour and false ambition of Louis XIV, and the debauchery and extravagance of his successors, nipped in the bud the seeds which Colbert had sown — if consequently a wealthy manufacturing and commercial interest had arisen in France, if by good fortune the enormous properties of the French clergy had been given over to the public, if these events had resulted in the formation of a powerful lower house of Parliament, by whose influence the feudal aristocracy had been reformed — the physiocratic system would hardly have ever come to light. That system was evidently deduced from the then existing circumstances of France, and was only applicable to those circumstances.

At the period of its introduction the greater part of the landed property in France was in the hands of the clergy and the nobility It was cultivated by a peasantry languishing under a state of serfdom and personal oppression, who were sunk in superstition, ignorance, indolence, and poverty The owners of the land, who constituted its productive instruments, were devoted to frivolous pursuits, and had neither mind for, nor interest in, agriculture.

The actual cultivators had neither the mental nor material means for agricultural improvements. The oppression of feudalism on agricultural production was increased by the insatiable demands made by the monarchy on the producers, which were made more intolerable by the freedom from taxation enjoyed by the clergy and nobility. Under such circumstances it was impossible that the most important branches of trade could succeed, those namely which depend on the productiveness of native agriculture, and the consumption of the great masses of the people; those only could manage to thrive which produced articles of luxury for the use of the privileged classes. The foreign trade was restricted by the inability of the material producers to consume any considerable quantity of the produce of tropical countries, and to pay for them by their own surplus produce; the inland trade was oppressed by provincial customs duties.

Under such circumstances, nothing could be more natural than that thoughtful men, in their investigations into the causes of the prevailing poverty and misery, should have arrived at the conviction, that national welfare could not be attained so long as agriculture was not freed from its fetters, so long as the owners of land and capital took no interest in agriculture, so long as the peasantry remained sunk in personal subjection, in superstition, idleness, and ignorance, so long as taxation remained undiminished and was not equally borne by all classes, so long as internal tariff restrictions existed, and foreign trade did not flourish.

But these thoughtful men (we must remember) were either physicians to the King and his Court, Court favourites, or confidants and friends of the aristocracy and the clergy they could not and would not declare open war against either absolute power or against clergy and nobility: There remained to them but one method of disseminating their views, that of concealing their plan of reform under the obscurity of a profound system, just as, in earlier as well as later times, ideas of political and religious reform have been embedded in the substance of philosophical systems. Following the philosophers of their own age and country, who, in view of the total disorganisation of the national condition of France, sought consolation in the wider field of philanthropy and cosmopolitanism (much as the father of a family, in despair at the break-up of his household, goes to seek comfort in the tavern), so the physiocrats caught at the cosmopolitan idea of universal free trade, as a panacea by which all prevailing evils might be cured. When they had got hold of this point of truth by exalting their thoughts above, they then directed them beneath, and discovered in the ‘nett revenue’ of the soil a basis for their preconceived ideas. Thence resulted the fundamental maxim of their system, ‘the soil alone yields nett revenue’ therefore agriculture is the sole source of wealth. That is a doctrine from which wonderful consequences might be inferred — first feudalism must fall, and if requisite, landowning itself; then all taxation ought to be levied on the land, as being the source of all wealth; then the exemption from taxation enjoyed by the nobility and clergy must cease; finally the manufacturers must be deemed an unproductive class, who ought to pay no taxes, but also ought to have no State-protection, hence custom-houses must be abolished.

In short, people contrived by means of the most absurd arguments and contentions to prove those great truths which they had determined beforehand to prove.

Of the nation, and its special circumstances and condition in relation to other nations, no further account was to be taken, for that is clear from the ‘Encyclopיdie Mיthodique,’ which says, ‘The welfare of the individual is conditional on the welfare of the entire human race.’ Here, therefore, no account was taken of any nation, of any war, of any foreign commercial measures: history and experience must be either ignored or misrepresented. The great merit of this system was, that it bore the appearance of an attack made on the policy of Colbert and on the privileges of the manufacturers, for the benefit of the landowners; while in reality its blows told with most effect on the special privileges of the latter. Poor Colbert had to bear all the blame of the sufferings of the French agriculturists, while nevertheless everyone knew that France possessed a great industry for the first time since Colbert’s administration; and that even the dullest intellect was aware that manufactures constitute the chief means for promoting agriculture and commerce. The Revocation of the Edict of Nantes —
the wanton wars of Louis XIV — the profligate expenditure of Louis XV — were utterly ignored by these philosophers.

Quesnay in his writings has adduced, and replied to, point by point, the objections which were urged against his system. One is astonished at the mass of sound sense which he puts into the mouth of his opponents, and at the mass of mystical absurdity which he opposes to those objections by way of argument. Notwithstanding, all that absurdity was accepted as wisdom by the contemporaries of this reformer, because the tendency of his system accorded with the circumstances of France at that time, and with the philanthropic and cosmopolitan ideas prevalent in that century.

Chapter 31

The System of Values of Exchange (Falsely Termed by the School, The ‘Industrial’ System) — Adam Smith

Adam Smith’s doctrine is, in respect to national and international conditions, merely a continuation of the physiocratic system. Like the latter, it ignores the very nature of nationalities, seeks almost entirely to exclude politics and the power of the State, presupposes the existence of a state of perpetual peace and of universal union, underrates the value of a national manufacturing power, and the means of obtaining it, and demands absolute freedom of trade.

Adam Smith fell into these fundamental errors in exactly the same way as the physiocrats had done before him, namely, by regarding absolute freedom in international trade as an axiom assent to which is demanded by common sense, and by not investigating to the bottom how far history supports this idea.

Dugald Stewart (Adam Smith’s able biographer) informs us that Smith, at a date twenty-one years before his work was published in 1776 (viz. in 1755), claimed priority in conceiving the idea of universal freedom of trade, at a literary party at which he was present, in the following words:

‘Man is usually made use of by statesmen and makers of projects, as the material for a sort of political handiwork. The project makers, in their operations on human affairs, disturb Nature, whereas people ought simply to leave her to herself to act freely; in order that she may accomplish her objects. In order to raise a State from the lowest depth of barbarism to the highest degree of wealth, all that is requisite is peace, moderate taxation, and good administration of justice ; everything else will follow of its own accord in the natural course of things. All governments which act in a contrary spirit to this natural course, which seek to divert capital into other channels, or to restrict the progress of the community in its spontaneous course, act contrary to nature, and, in order to maintain their position, become oppressive and tyrannical.’

Adam Smith set out from this fundamental idea, and to prove it and to illustrate it was the sole object of all his later works. He was confirmed in this idea by Quesnay, Turgot, and the other coryphaei of the physiocratic school, whose acquaintance he had made in a visit to France in the year 1765.

Smith evidently considered the idea of freedom of trade as an intellectual discovery which would constitute the foundation of his literary fame. How natural, therefore, it was that he should endeavour in his work to put aside and to refute everything that stood in the way of that idea; that he should consider himself as the professed advocate of absolute freedom of trade, and that he thought and wrote in that spirit.

How could it be expected, that with such preconceived opinions, Smith should judge of men and of things, of history and statistics, of political measures and of their authors, in any other light than as they confirmed or contradicted his fundamental principle?

In the passage above quoted from Dugald Stewart, Adam Smith’s whole system is comprised as in a nutshell. The power of the State can and ought to do nothing, except to allow justice to be administered, to impose as little taxation as possible. Statesmen who attempt to found a manufacturing power, to promote navigation, to extend foreign trade, to protect it by naval power, and to found or to acquire colonies, are in his opinion project makers who only hinder the progress of the community. For him no nation exists, but merely a community, i.e. a number of individuals dwelling together.

These individuals know best for themselves what branches of occupation are most to their advantage, and they can best select for themselves the means which promote their prosperity.

This entire nullification of nationality and of State power, this exaltation of individualism to the position of author of all effective power, could be made plausible only by making the main object of investigation to be not the power which effects, but the thing effected, namely, material wealth, or rather the value in exchange which the thing effected possesses. Materialism must come to the aid of individualism, in order to conceal what an enormous amount of power accrues to individuals from nationality, from national unity, and from the national confederation of the productive powers. A bare theory of values must be made to pass current as national economy, because individuals alone produce values, and the State, incapable of creating values, must limit its operations to calling into activity, protecting, and promoting the productive powers of individuals. In this combination, the quintessence of political economy may be stated as follows, viz.: Wealth consists in the possession of objects of exchangeable value; objects of exchangeable value are produced by the labour of individuals in combination with the powers of nature and with capital. By the division of labour, the productiveness of the labour is increased; capital is accumulated by savings, by production exceeding consumption. The greater the total amount of capital, so much the greater is the division of labour, and hence the capacity to produce. Private interest is the most effectual stimulus to labour and to economy. Therefore the highest wisdom of statecraft consists in placing no obstacle in the way of private industry, and in caring only for the good administration of justice. And hence also it is folly to induce the subjects of a State, by means of State legislative measures, to produce for them selves anything which they can buy cheaper from abroad. A system so consistent as this is, which sets forth the elements of wealth, which so clearly explains the process of its production, and apparently so completely exposes the errors of the previous schools, could not fail, in default of any other, to meet with acceptance. The mistake has been simply, that this system at bottom is nothing else than a system of the private economy of all the individual persons in a country, or of the individuals of the whole human race, as that economy would develop and shape itself, under a state of things in which there were no distinct nations, nationalities, or national interests — no distinctive political constitutions or degrees of civilisation — no wars or national animosities; that it is nothing more than a theory of values; a mere shopkeeper’s or individual merchant’s theory — not a scientific doctrine, showing how the productive powers of an entire nation can be called into existence, increased, maintained, and preserved — for the special benefit of its civilisation, welfare, might, continuance, and independence.

This system regards everything from the shopkeeper’s point of view. The value of anything is wealth, according to it, so its sole object is to gain values. The establishment of powers of production, it leaves to chance, to nature, or to the providence of God (whichever you please), only the State must have nothing at all to do with it, nor must politics venture to meddle with the business of accumulating exchangeable values. It is resolved to buy wherever it can find the cheapest articles — that the home manufactories are ruined by their importation, matters not to it.

If foreign nations give a bounty on the export of their manufactured goods, so much the better; it can buy them so much the cheaper. In its view no class is productive save those who actually produce things valuable in exchange. It well recognises how the division of labour promotes the success of a business in detail, but it has no perception of the effect of the division of labour as affecting a whole nation. It knows that only by individual economy can it increase its capital, and that only in proportion to the increase in its capital can it extend its individual trades; but it sets no value on the increase of the productive power, which results from the establishment of native manufactories, or on the foreign trade and national power which arise out of that increase.

What may become of the entire nation in the future, is to it a matter of perfect indifference, so long as private individuals can gain wealth. It takes notice merely of the rent yielded by land, but pays no regard to the value of landed property; it does not perceive that the greatest part of the wealth of a nation consists in the value of its land and its fixed property. For the influence of foreign trade on the value and price of landed property, and for the fluctuations and calamities thence arising; it cares not a straw. In short, this system is the strictest and most consistent ‘mercantile system,’ and it is incomprehensible how that term could have been applied to the system of Colbert, the main tendency of which is towards an ‘industrial system’ -i.e. a system which has solely in view the founding of a national industry — a national commerce — without regarding the temporary gains or losses of values in exchange.

Notwithstanding, we would by no means deny the great merits of Adam Smith. He was the first who successfully applied the analytical method to political economy. By means of that method and an unusual degree of sagacity, he threw light on the most important branches of the science, which were previously almost wholly obscure. Before Adam Smith only a practice existed; his works rendered it possible to constitute a science of political economy, and he has contributed a greater amount of materials for that object than all his predecessors or successors.

But that very peculiarity of his mind by which, in analysing the various constituent parts of political economy, he rendered such important service, was the cause why he did not take a comprehensive view of the community in its entirety; that he was unable to combine individual interests in one harmonious whole; that he would not consider the nation in preference to mere individuals; that out of mere anxiety for the freedom of action of the individual producers, he lost sight of the interests of the entire nation. He who so clearly perceived the benefits of the division of labour in a single manufactory, did not perceive that the same principle is applicable with equal force to entire provinces and nations.

With this opinion, that which Dugald Stewart says of him exactly agrees. Smith could judge individual traits of character with extraordinary acuteness; but if an opinion was needed as to the entire character of a man or of a book, one could not be sufficiently astonished at the narrowness and obliquity of his views. Nay, he was incapable of forming a correct estimate of the character of those with whom he had lived for many years in the most intimate friendship. ‘The portrait,’ says his biographer, ‘was ever full of life and expression, and had a strong resemblance to the original if one compared it with the original from a certain point of view; but it never gave a true and perfect representation according to all its dimensions and circumstances.’

Chapter 32

The System of Values of Exchange (Continued) — Jean Baptiste Say and his School

This author on the whole has merely endeavoured to systematise, to elucidate, and to popularise, the materials which Adam Smith had gathered together after an irregular fashion. In that he has perfectly succeeded, inasmuch as he possessed in a high degree the gift of systematisation and elucidation. Nothing new or original is to be found in his writings, save only that he asserted the productiveness of mental labours, which Adam Smith denied. Only, this view, which is quite correct according to the theory of the productive powers, stands opposed to the theory of exchangeable values, and hence Smith is clearly more consistent than Say. Mental labourers produce directly no exchangeable values; nay, more, they diminish by their consumption the total amount of material productions and savings, and hence the total of material wealth.

Moreover, the ground on which Say from his point of view includes mental labourers among the productive class, viz. because they are paid with exchangeable values, is an utterly baseless one, inasmuch as those values have been already produced before they reach the hands of the mental labourers; their possessor alone is changed, but by that change their amount is not increased. We can only term mental labourers productive if we regard the productive powers of the nation, and not the mere possession of exchangeable values, as national wealth. Say found himself opposed to Smith in this respect, exactly as Smith had found himself opposed to the physiocrats.

In order to include manufacturers among the productive class, Smith had been obliged to enlarge the idea of what constitutes wealth; and Say on his part had no other alternative than either to adopt the absurd view that mental labourers are not productive, as it was handed down to him by Adam Smith, or else to enlarge the idea of wealth as Adam Smith had done in opposition to the physiocrats, namely, to make it comprise productive power; and to argue, national wealth does not consist in the possession of exchangeable values, but in the possession of power to produce, just as the wealth of a fisherman does not consist in the possession of fish, but in the ability and the means of continually catching fish to satisfy his wants.

It is noteworthy, and, so far as we are aware, not generally known, that Jean Baptiste Say had a brother whose plain clear common sense led him clearly to perceive the fundamental error of the theory of values, and that J. B. Say himself expressed to his doubting brother doubts as to the soundness of his own doctrine.

Louis Say wrote from Nantes, that a technical language had become prevalent in political economy which had led to much false reasoning, and that his brother Jean himself was not free from it.(1*) According to Louis Say, the wealth of nations does not consist in material goods and their value in exchange, but in the ability continuously to produce such goods. The exchange theory of Smith and J. B. Say regards wealth from the narrow point of view of an individual merchant, and this system, which would reform the (so-called) mercantile system, is itself nothing else than a restricted mercantile system.(2*) To these doubts and objections J.

B. Say replied to his brother that ‘his (J. B. Say’s) method (method?) (viz. the theory of exchangeable values) was certainly not the best, but that the difficulty was, to find a better.’(3*) What! difficult to find a better? Had not brother Louis, then, found one? No, the real difficulty was that people had not the requisite acuteness to grasp and to follow out the idea which the brother had (certainly only in general terms) expressed; or rather, perhaps, because it was very distasteful to have to overturn the already established school, and to have to teach the precise opposite of the doctrine by which one had acquired celebrity. The only original thing in J. B. Say’s writings is the form of his system, viz. that he defined political economy as the science which shows how material wealth is produced, distributed, and consumed.

It was by this classification and by his exposition of it that J.

B. Say made his success and also his school, and no wonder: for here everything lay ready to his hand; he knew how to explain so clearly and intelligibly the special process of production, and the individual powers engaged in it; he could set forth so lucidly (within the limits of his own narrow circle) the principle of the division of labour, and so clearly expound the trade of individuals. Every working potter, every huckster could understand him, and do so the more readily, the less J. B. Say told him that was new or unknown. For that in the work of the potter, hands and skill (labour) must be combined with clay (natural material) in order by means of the potter’s wheel, the oven, and fuel (capital), to produce pots (valuable products or values in exchange), had been well known long before in every respectable potter’s workshop, only they had not known how to describe these things in scientific language, and by means of it to generalise upon them. Also there were probably very few hucksters who did not know before J. B.

Say’s time, that by exchange both parties could gain values in exchange, and that if anyone exported 1,000 thalers’ worth of goods, and got for them 1,500 thalers’ worth of other goods from abroad, he would gain 500 thalers.

It was also well known before, that work leads to wealth, and idleness to beggary; that private self-interest is the most powerful stimulus to active industry; and that he who desires to obtain young chickens, must not first eat the eggs. Certainly people had not known before that all this was political economy; but they were delighted to be initiated with so little trouble into the deepest mysteries of the science, and thus to get rid of the hateful duties which make our favourite luxuries so dear, and to get perpetual peace, universal brotherhood, and the millennium into the bargain. It is also no cause for surprise that so many learned men and State officials ranked themselves among the admirers of Smith and Say; for the principle of ‘laissez faire et laissez aller’ demands no sagacity from any save those who first introduced and expounded it; authors who succeeded them had nothing to do but to reiterate, embellish, and elucidate their argument; and who might not feel the wish and have the ability to be a great statesman, if all one had to do was to fold one’s hands in one’s bosom? It is a strange peculiarity of these systems, that one need only adopt their first propositions, and let oneself be led credulously and confidingly by the hand by the author, through a few chapters, and One is lost. We must say to M. Jean Baptiste Say at the outset that political economy is not, in our opinion, that science which teaches only how values in exchange are produced by individuals, distributed among them, and consumed by them; we say to him that a statesman will know and must know, over and above that, how the productive powers of a whole nation can be awakened, increased, and protected, and how on the other hand they are weakened, laid to sleep, or utterly destroyed; and how by means of those national productive powers the national resources can be utilised in the wisest and best manner so as to produce national existence, national independence, national prosperity, national strength, national culture, and a national future.

This system (of Say) has rushed from one extreme view that the State can and ought to regulate everything — into the opposite extreme — that the State can and ought to do nothing: that the individual is everything, and the State nothing at all. The opinion of M. Say as to the omnipotence of individuals and the impotence of the State verges on the ridiculous. Where he cannot forbear from expressing a word of praise on the efficacy of Colbert’s measures for the industrial education of France, he exclaims, ‘One could hardly have given private persons credit for such a high degree of wisdom.’

If we turn our attention from the system to its author, we see in him a man who, without a comprehensive knowledge of history, without deep insight into State policy or State administration, without political or philosophical views, with merely one idea adopted from others in his head, rummages through history, politics, statistics, commercial and industrial relations, in order to discover isolated proofs and facts which may serve to support his idea. If anyone will read his remarks on the Navigation Laws, the Methuen Treaty, the system of Colbert, the Eden Treaty, &c. he will find this judgment confirmed. It did not suit him to follow out connectedly the commercial and industrial history of nations.

That nations have become rich and mighty under protective tariffs he admits, only in his opinion they became so in spite of that system and not in consequence of it; and he requires that we should believe that conclusion on his word alone. He maintains that the Dutch were induced to trade directly with the East Indies, because Philip II forbade them to enter the harbour of Portugal; as though the protective system would justify that prohibition, as though the Dutch would not have found their way to the East Indies without it.

With statistics and politics M. Say is as dissatisfied as with history: with the former because no doubt they produce the inconvenient ‘facts which he says ‘have so often proved contradictory of his system’ — with the latter because he understood nothing at all of it. He cannot desist from his warnings against the pitfalls into which statistical facts may mislead us, or from reminding us that politics have nothing to do with political economy, which sounds about as wise as if anyone were to maintain that pewter must not be taken into account in the consideration of a pewter platter.

First a merchant, then a manufacturer, then an unsuccessful politician, Say laid hold of political economy just as a man grasps at some new undertaking when the old one cannot go on any longer.

We have his own confession on record, that he stood in doubt at first whether he should advocate the (so-called) mercantile system, or the system of free trade. Hatred of the Continental system (of Napoleon) which had ruined his manufactory, and against the author of it who had turned him out of the magistracy, determined him to espouse the cause of absolute freedom of trade.

The term ‘freedom’ in whatever connection it is used has for fifty years past exercised a magical influence in France. Hence it happened that Say, under the Empire as well as under the Restoration, belonged to the Opposition, and that he incessantly advocated economy. Thus his writings became popular for quite other reasons than what they contained. Otherwise would it not be incomprehensible that their popularity should have continued after the fall of Napoleon, at a period when the adoption of Say’s system would inevitably have ruined the French manufacturers? His firm adherence to the cosmopolitical principle under such circumstances proves how little political insight the man had. How in little he knew the world, is shown by his firm belief the cosmopolitical tendencies of Canning and Huskisson. One thing only was lacking to his fame, that neither Louis XVIII nor Charles X made him minister of commerce and of finance. In that case history would have coupled his name with that of Colbert, the one as the creator of the national industry, the other as its destroyer.

Never has any author with such small materials exercised such a wide scientific terrorism as J. B. Say; the slightest doubt as to the infallibility of his doctrine was branded as obscurantism; and even men like Chaptal feared the anathemas of this politico-economical Pope. Chaptal’s work on the industry of France, from the beginning to the end, is nothing else than an exposition of the effects of the French protective system; he states that expressly; he says distinctly that under the existing circumstances of the world, prosperity for France can only be hoped for under the system of protection. At the same time Chaptal endeavours by an article in praise of free trade, directly in opposition to the whole tendency of his book, to solicit pardon for his heresy from the school of Say. Say imitated the Papacy even so far as to its ‘Index.’ He certainly did not prohibit heretical writings individually by name, but he was stricter still; he prohibits all, the non-heretical as well as the heretical; he warns the young students of political economy not to read too many books, as they might thus too easily be misled into errors; they ought to read only a few, but those good books, which means in other words, ‘You ought only to read me and Adam Smith, no others.’ but that none too great sympathy should accrue to the immortal father of the school from the adoration of his disciples, his successor and interpreter on earth took good care, for, according to Say, Adam Smith’s books are full of confusion, imperfection, and contradictions; and he clearly gives us to understand that one can only learn from himself ‘how one ought to read Adam Smith.’

Notwithstanding, when Say was at the zenith of his fame, certain young heretics arose who attacked the basis of his system so effectually and so boldly, that he preferred privately to reply to them, and meekly to avoid any public discussion. Among these, Tanneguy du Chגtel (more than once a minister of State) was the most vigorous and the most ingenious.

‘Selon vous, mon cher critique,’ said Say to Du Chגtel in a private letter, ‘ il ne reste plus dans mon יconomie politique que des actions sans motifs, des faits sans explication, une chaמne de rapports dont les extrיmitיs manquent et dont les anneaux les plus importants sont brisיs. Je partage donc l’infortune d’Adam Smith, dont un de nos critiques a dit qu’il avait fait rיtrograder l’יconomie politique.’(4*) In a postscript to this letter he remarks very naively, ‘Dans le second article que vous annoncez, il est bien inutile de revenir sur cette polיmique, par laquelle nous pouvions bien ennuyer le public.’

At the present day the school of Smith and Say has been exploded in France, and the rigid and spiritless influence of the Theory of Exchangeable Values has been succeeded by a revolution and an anarchy which neither M. Rossi nor M. Blanqui are able to exorcise. The Saint-Simonians and the Fourrierists, with remarkable talent at their head, instead of reforming the old doctrines, have cast them entirely aside, and have framed for themselves a Utopian system. Quite recently the most ingenious persons among them have been seeking to discover the connection of their doctrines with those of the previous schools, and to make their ideas compatible with existing circumstances. Important results may be expected from their labours, especially from those of the talented Michel Chevalier. The amount of truth, and of what is practically applicable in our day which their doctrines contain, consists chiefly in their expounding the principle of the confederation and the harmony of the productive powers. Their annihilation of individual freedom and independence is their weak side; with them the individual is entirely absorbed in the community, in direct contradiction to the Theory of Exchangeable Values, according to which the individual ought to be everything and the State nothing.

It may be that the spirit of the world is tending to the realisation of the state of things which these sects dream of or prognosticate; in any case, however, I believe that many centuries must elapse before that can be possible. It is given to no mortal to estimate the progress of future centuries in discoveries and in the condition of society. Even the mind of a Plato could not have foretold that after the lapse of thousands of years the instruments which do the work of society would be constructed of iron, steel, and brass, nor could that of a Cicero have foreseen that the printing press would render it possible to extend the representative system over whole kingdoms, perhaps over whole quarters of the globe, and over the entire human race. If meanwhile it is given to only a few great minds to foresee a few instances of the progress of future thousands of years, yet to every age is assigned its own special task. But the task of the age in which we live appears not to be to break up mankind into Fourrierist ‘phalanstטres,’ in order to give each individual as nearly as possible an equal share of mental and bodily enjoyments, but to perfect the productive powers, the mental culture, the political condition, and the power of whole nationalities, and by equalising them in these respects as far as is possible, to prepare them beforehand for universal union. For even if we admit that under the existing circumstances of the world the immediate object which its apostles had in view could be attained by each ‘phalanstטre,’ what would be its effect on the power and independence of the nation?

And would not the nation which was broken up into ‘phalanstטres,’

run the risk of being conquered by some less advanced nation which continued to live in the old way, and of thus having its premature institutions destroyed together with its entire nationality? At present the Theory of Exchangeable Values has so completely lost its influence, that it is almost exclusively occupied with inquiries into the nature of Rent, and that Ricardo in his ‘Principles of Political Economy’ could write, ‘The chief object of political economy is to determine the laws by which the produce of the soil ought to be shared between the landowner, the farmer, and the labourer.’

While some persons are firmly convinced that this science is complete, and that nothing essential can further be added to it, those, on the other hand, who read these writings with philosophical or practical insight, maintain, that as yet there is no political economy at all, that that science has yet to be constructed; that until it is so, what goes by its name is merely an astrology, but that it is both possible and desirable out of it to produce an astronomy.

Finally, we must remark, in order not to be misunderstood, that our criticism of the writings alike of J. B. Say and of his predecessors and successors refers only to their national and international bearing; and that we recognise their value as expositions of subordinate doctrines. It is evident that an author may form very valuable views and inductions on individual branches of a science, while all the while the basis of his system may be entirely erroneous.

NOTES:

1. Louis Say, Etudes sur la Richesse des Nations, Preface, p. iv.

2. The following are the actual words of Louis Say (p. 10): ‘La richesse ne consiste pas dans les choses qui satisfont nos besoins ou nos go�ts, mais dans le pouvoir d’en jouir annuellement.’ And further (pp. 14 to 15): ‘Le faux systטme mercantil, fondי sur la richesse en mיtaux prיcieux, a יtי remplacי par un autre fondי sur la richesse en vaieurs vיnales ou יchangeables, qui consiste א
n’יvaiuer ce qui compose la richesse d’une nation que comme le fait un marchand.’ And (note, p. 14): ‘L’יcole moderne qui refute le systטme mercantil a elle-mךme crיי un systטme qui lui-mךme doit ךtre appelי le systטme mercantil.’

3. Etudes sur la Richesse des Nations, p. 36 (quoting J. B. Say’s words): ‘Que cette mיthode יtait loin d’ךtre bonne, mais que la difficultי יtait d’en trouvor une meilleure.’

4. Say, Cours complet d’Economie politique pratique, vii. p. 378.

Table of Contents

- Chapter 28
- Chapter 29
- Chapter 30
- Chapter 31
- Chapter 32