The Principles of Political Economy

Henry Sidgwick


Chapter 2

The Scope of Political Economy

§3. But however great the change that was thus made, through the teaching of the Physiocrats and Adam Smith combined, in the current conception of Political Economy, it is important to observe that the transition thus effected from Art to Science was, in the nature of the case, incomplete. Political Economy became primarily a study of `what is' rather than of `what ought to be done': but this was because the two notions were, at least to a considerable extent, identified in the political economist's contemplation of the existing processes of the production and distribution of wealth. He described and analysed these processes, not only to show what they were, but also to show that they were not likely to be improved by human restraints and regulations. This is true not only of Adam Smith, but of almost all his disciples and successors for more than half a century. It should be noted, however, that they have maintained this identity of the actual with the ideal in very different degrees and on very different grounds; and that a considerable amount of mutual misunderstanding and mistaken inference has resulted from not observing these differences. Such mis-understanding has been a good deal aided by the ambiguity of the term `natural', applied by Adam Smith, Ricardo, and others, to the shares of different producers as determined by the economic laws which these writers expound. For by the term `natural' as commonly used, the notion of `what generally is', or `what would be apart from human interference', is suggested in vague combination with that of `what ought to be' or `what is intended by a benevolent Providence': and it is not always easy to say in what proportions the two meanings are mixed by any particular writer. Indeed it is somewhat difficult to determine this even in the case of Adam Smith himself. There is no doubt that---as Mr Cliffe Leslie has pointed out---Adam Smith's advocacy of the ``obvious and simple system of natural liberty'' is connected with his strongly marked theistic and optimistic view of the order of the physical and social world. He is convinced that ``all the inhabitants of the universe are under the immediate care and protection of that great, benevolent, and all-wise Being, who directs all the movements of nature, and who is determined, by his own unalterable perfections, to maintain in it, at all times, the greatest possible quantity of happiness'' {ref}: and this conviction gives him a peculiar satisfaction in tracing the various ways in which the public interest is ``naturally'' promoted by the spontaneous cooperation of individuals seeking each the greatest pecuniary gain to himself. At the same time he is too cool an observer of social facts to carry this optimism to an extravagant pitch. He takes care to point out, for instance, that the ``interest of the employers of stock'' has ``not the same connexion with the general interest of society'' as that of landlords and labourers: and even that ``the interest of the dealers in any particular branch of trade or manufactures is always in some respect different from and even opposite to that of the public'' {Ref}. So again when he speaks of ``hands naturally multiplying beyond their employment'' in the stationary state of a country's wealth, and describes the ``starving condition of the labouring poor as a natural symptom of the declining state'', we can hardly suppose that the term ``natural'' is intended directly to imply the design of a benevolent Providence. The Natural is here what actually exists or what tends to exist according to general laws, apart from casual disturbances and deliberate human interference. In consideration of these and similar passages we should, I think, refrain from attributing to Adam Smith a speculative belief in the excellence of the existing arrangements for producing and distributing wealth, to any further extent than is required to support his practical conclusion that they were not likely to be bettered by the interference of government. Still less should we attribute to him any intention of demonstrating that these arrangements realise distributive justice, in the sense that each man's remuneration is an exact measure of the service that he renders to society. On the contrary, he expressly affirms the opposite of this in the case of the landlord, whose rent ``costs him neither labour nor care'' and is ``not at all proportional to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give''. If at the same time, as a Moralist and Natural Theologian, he holds that there is nothing unjust in the established order of distribution, and that each individual is duly provided for by a beneficent Providence; it is not because he considers that each enjoys wealth in proportion to his deserts, but rather because he sincerely believes in the delusiveness---so far as the individual is concerned---of the common struggle to get rich, and holds that happiness is equally distributed among the different ranks of society in spite of their vast inequalities in wealth.

There is therefore a great interval between the position of Adam Smith and that, for instance, of Bastiat. In Bastiat's conception of the fundamental problem of Political Economy the questions of Science and Art are completely fused; his aim being, as his biographer says, ``to prove that that which is''---or rather would be, if Government would only keep its hands off ``is conformable to that which ought to be'': and that every one tends to get exactly his deserts in the economic order of unmodified competition. None of the English followers of Adam Smith has ever gone so far in this direction as Bastiat; and the most eminent of them, Ricardo, represents, we may say, the opposite pole in the development of Adam Smith's doctrine. When Ricardo, using Adam Smith's term to denote a somewhat different fact, speaks of the ``natural'' price of labour, his phrase carries with it no optimistic or theistic suggestions whatsoever; he means simply the price which certain supposed permanent causes are continually tending to produce. Indeed he explains that ``in an improving society'' the market-price of labour may remain an indefinite time above the ``natural'' price; and he contemplates with anything but satisfaction the result of the ``natural advance of society'', which in his view tends to the benefit of landlords alone. He remains true, no doubt, to Adam Smith's ``system of natural liberty'' as regards the distribution of produce no less than the direction of industry; but he is further even than Adam Smith from any attempt to demonstrate a necessary harmony of interests among the producers whom he would leave to settle their shares by free contract. In fact, two of his most characteristic doctrines are diametrically opposed to any such harmony: his demonstrations, namely, that marked improvements in agriculture have a tendency to diminish rent, and that the substitution of machinery for human labour is often very injurious to the interests of the class of labourers. And though he is averse to any direct legislative interference with the natural determination of wages, he is disposed to encourage ``some effort on the part of the legislature'' to secure the comforts and well-being of the poor by regulating the increase of their numbers. This last suggestion indicates a main source of the difference between Ricardo's teaching and that of his great predecessor. It is the Malthusian view of Population which has rendered the optimism of the eighteenth century impossible to English economists of the nineteenth. If the tendency of Nature left alone was to produce, as the ultimate outcome of social progress, a multitude of labourers on the verge of starvation, it was difficult to contemplate her processes with anything like enthusiasm. A less ``jaundiced'' mind than that of the hero of Locksley Hall might well feel depressed at the prospect,

``Slowly comes a hungry people, as a lion creeping nigher
Glares at one that nods and winks beside a slowly dying fire.''

Hence, though English economists have, speaking broadly, adhered to Adam Smith's limitations of the sphere of government, the more thoughtful among them have enforced these limitations sadly rather than triumphantly; not as admirers of the social order at present resulting from ``Natural liberty'', but as convinced that it was at least preferable to any artificial order that government might be able to substitute for it.

Still it remains true that English Political Economy, in whatever tone it has been expounded, has generally included an advocacy of Laisser Faire; and that not only in treating of the attempts to regulate Production, with which Adam Smith was practically most concerned, but also in dealing with the questions of Distribution, which the movement of nineteenth century thought has brought into continually greater prominence. Our economists have not commonly confined themselves to tracing the laws that determine the remuneration of services, so far as it depends on free contract among persons aiming each at obtaining the greatest pecuniary gain for a given amount of effort, abstinence, or other sacrifice; but they have also, for the most part, opposed all attempts to introduce, either by law or public opinion, any different division of wealth. If they have not gone the length of maintaining that distribution by free competition is perfectly just, as proportioning reward to service; they have still generally maintained it to be practically the best mode of dividing the produce of the organized labour of human beings; they have held that through the stimulus it gives to exertion, the self-reliance and forethought that it fosters, the free play of intellect that it allows, it must produce more happiness on the whole than any other system, in spite of the waste of the material means of happiness caused by the luxurious expenditure of the rich. Or if they have not even gone so far as this, they have at any rate taught that it is inevitable, and that any attempt to deviate from it will be merely throwing effort away. Thus, by one road or another, they have been led to the same practical conclusion in favour of non-interference; and it is hardly surprising that practical persons have connected this conclusion with the economic doctrines with which it was found in company, and have regarded it as an established ``law of political economy'' that all contracts should be free and that every one should be paid exactly the market-price of his services.

It must be obvious, however, as soon as it is pointed out, that the investigation of the laws that determine actual prices, wages and profits, so far as these depend on the free competition of individuals, is essentially distinct from the inquiry how far it is desirable that the action of free competition should be restrained or modified---whether by the steadying force of custom, the remedial intervention of philanthropy, the legislative or administrative control of government, or the voluntary combinations of masters or workmen. So far as the purely scientific economist studies primarily the results that tend to be produced by perfectly free competition, it is not because he has any predilection for this order of things---for science knows nothing of such preferences---but merely because its greater simplicity renders it easier to grasp. He holds that a knowledge of these simpler relations precedes, in the order of study, the investigation of the more complex economic problems that result from competition modified by disturbing causes But the adoption of perfectly free competition as a scientific ideal---a means of simplifying the economic facts which actual society presents, for the convenience of general reasoning---does not imply its adoption as a practical ideal, which the statesman or philanthropist ought to aim at realising as completely as possible. We may perhaps be led to hold with Bastiat that unrestricted competition would give every man his deserts and otherwise bring about the best of all possible economic worlds: but in order to reach this conclusion we must adopt some principle for determining what a man's deserts are, some criterion of social wellbeing which carries us beyond the merely scientific determination of wages, profits and prices. In short, as regards the whole department of distribution and exchange, the Art of Political Economy---if we admit the notion of Art at all---is easily and completely distinguishable from the scientific study of economic facts and laws.

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