ADAM SMITH,WITH HIS IMMEDIATE PREDECESSORSAND HIS FOLLOWERS.
England.
The stagnation in economic inquiry which showed itself in England in the early part of the eighteenth century was notbroken by any notable manifestation before 1735,when Bishop Berkeley put forward in his Querist,with much force andpoint,views opposed to those of the mercantile school on the nature of national wealth and the functions of money,thoughnot without an admixture of grave error.But soon a more decisive advance was made.Whilst in France the physiocrats wereworking after their own fashion towards the construction of a definitive system of political economy,a Scottish thinker ofthe first order was elucidating,in a series of short but pregnant essays,some of the fundamental conceptions of the science.
What had been written on these questions in the English language before his time had remained almost altogether within thelimits of the directly practical sphere.With Locke,indeed,the general system of the modern critical philosophy had comeinto relation with economic inquiry,but only in a partial and indeterminate way.But in Hume the most advanced form of thisphilosophy was represented,and his appearance in the field of economics decisively,marks the tendency of the latter orderof speculation to place itself in connection with the largest and deepest thought on human nature and general human history.
Most of the essays here referred to first appeared in 1752,in a volume entitled Political Discourses ,and the number wascompleted in the collection of Essays and Treatises on Several Subjects ,published in the following year.The mostimportant of them are those on Commerce,on Money,on Interest,and on the Balance of Trade.Yet these should not beseparated from the rest,for,notwithstanding the unconnected form of these little treatises,there runs through them aprofound unity of thought,so that they indeed compose in a certain sense an economic system.They exhibit in full measureHume's wonderful acuteness and subtlety,which indeed sometimes dispose him to paradox,in combination with the breadth,the absence of prejudice,and the social sympathies which so eminently distinguish him;and they offer,besides,the charm ofhis easy and natural style and his rare power of lucid exposition.
In the essay on money he refutes the mercantilist error,which tended to confound it with wealth."Men and commodities,"he says,"are the real strength of any community.""In the national stock of labour consists all real power and riches."Moneyis only the oil which makes the movements of the mechanism of commerce more smooth and easy.He shows that,from thedomestic as distinguished from the international point of view,the absolute quantity of money,supposed as of fixed amount,in a country is of no consequence,whilst an excessive quantity,larger,that is,than is required for the interchange ofcommodities,may be injurious as raising prices and driving foreigners from the home markets.He goes so far,in one or twoplaces,as to assert that the value of money is chiefly fictitious or conventional,a position which cannot be defended;but itmust not be pressed against him,as he builds nothing on it.He has some very ingenious observations (since,however,questioned by J.S.Mill)on the effects of the increase of money in a country in stimulating industry during the interval whichtakes place before the additional amount is sufficiently diffused to alter the whole scale of prices.He shows that the fear ofthe money of an industrious community being lost to it by passing into foreign countries is groundless,and that,under asystem of *******,the distribution of the precious metals which is adapted to the requirements of trade will spontaneouslyestablish itself."In short,a Government has great reason to preserve with care its people and its manufactures;its money itmay safely trust to the course of human affairs without fear or jealousy."A very important service was rendered by his treatment of the rate of interest.He exposes the erroneous idea oftenentertained that it depends on the quantity of money in a country,and shows that the reduction of it must in general be theresult of "the increase of industry and frugality,of arts and commerce,"so that it may serve as a barometer,its lowness beingan almost infallible sign of the flourishing condition of a people.It may be observed in passing that in the essay devoted tothis subject he brings out a principle of human nature which economists too often overlook,"the constant and insatiabledesire of the mind for exercise and employment,"and the consequent action of ennui in prompting to exertion.
With respect to commerce,he points to its natural foundation in what has since been called "the territorial division oflabour,"and proves that the prosperity of one nation,instead of being a hindrance,is a help to that of its neighbours."Notonly as a man,but as a British subject,"he says,"I pray for the flourishing commerce of Germany,Spain,Italy,and evenFrance itself."He condemns the "numberless bars,obstructions,and imposts which all nations of Europe,and none morethan England,have put upon trade."Yet on the question of protection to national industry he is not quite at the free-tradepoint of view,for he approves of a tax on German linen as encouraging home manufactures,and of a tax on brandy asincreasing the sale of rum and supporting our southern colonies.Indeed it has been justly observed that there are in himseveral traces of a refined mercantilism,and that he represents a state of opinion in which the transition irom the old to thenew views is not yet completely effected.
