7. the sixteenth and seventeenth centuries, as a result of the inflow of gold and silver from America, these metals greatly declined in value, causing a great rise of prices in Europe. Adam Smith in his "Wealth of Nations" estimates that the general level of prices rose some 300 per cent during the seventeenth century. Since many wages and sal aries did not rise in proportion and lince the purchas ing power of annuities and pensions had declined, there was great suffering in Europe among many different classes. 1N-o longer were gold and silver re garded as the most important commodities. These metals existed in abundance, yet there was great mis ery and discontent.
This condition had its effect upon economic thought and produced a group of writers, most of them living in France, who took issue with the conclusions of' the Mercantilists and argued that agriculture, not trade, was the important pursuit of man. The source of wealth, they held, lay in Mother Earth, and a nation which sought to increase its wealth must encourage its people to till the soil and develop its natural re sources. Historians called this group of writers "Physiocrats" (from two Greek words physis, na ture, kratein, to rule).
8. English Classical next change in the character of economic thinking was brought about by Adam Smith, a Scotch professor of natural phi losophy. In "The Wealth of Nations," published in 1776, he exposed the crude fallacies-of the Mercantil ists and pointed out the economic advantages of corn petition and free trade, combating the Physiocratic doctrines in favor of governmental interference with trade and industry.
The keynote of his book is found in the phrase "laissez faire," let things alone, let not the law inter fere with the business man, let competition bring the best man to the top. The people of each country should devote themselves to those pw.-suits for which it and the..!,,- are best fitted. Adam Smith's book made a sensation in Europe and was the Bible of English economists for one hundred years. The last great expounder and advocate of its principles was John Stuart 1Nli11, an English philosopher who published a treatise on political economy about 1845. The Eng lish economists who followed Adam Smith are gener ally recog,nized as the ablest group of men who have written upon the science and are now generally re ferred to as the English Classical School of political economy.
The English economists have been criticized as re lying too much on the mode of reasoning known as deductive or a priori, or as being pure theorists who knew little about the facts of business. Modern economists, while recognizing the value of the deduc tive method, are seeking to make political economy the science of business as actually done today. In stead of reasoning as to bow business men would be have under certain hypothetical conditions, they are studying the conditions and problems which do actually confront the business man in his office.
9. Significance of human wants.—All the actions of men are prompted by their wants or desires. If the wants -of the people are few, their activities will be few and their lives simple and comparatively easy to understand. As their wants increase in number their activities become more complex and more difficult of comprehension.
The psychologist studies the' peculiarities of wants as manifested in the individual arid draws conclusions which 'are of interest to both the economist and the sociologist. He learns, for example, that there is practically no limit to the wants of which an ordinary human being is capable, a man in this respect being entirely different from the beasts. Second, be finds that the wants of different men differ greatly, one caring nothing at all for what another wants very much. Third,.he learns that a man's desire for any thing tends to decrease somewhat in proportion to the abundance of it in his possession; that a man, for ex ample, who has three fountain pens will not worry much if lie loses one, for he does not want or need it.
To the economist and to the business man since tliey are especially concerned about the production and sale of commodities, these three peculiarities of human wants are of great interest. The fact that human wants are capable of indefinite increase in number re veals the almost infinite possibilities of business and industry. It stimulates the imagination of the in ventor and gives incentive to the enterprising manu facturer and merchant, who have confidence in their ability to market new qualities or new kinds of goods. The fact that a want lessens in intensity when grati fied, finally reaching the point of satiety, is found by the economist to be the psychological basis of the well known law of demand and supply, as is explained in Volume 2 of the Modern Business Texts.