The historical mission of the Physiocrats was to break the fetters of Mercantilism and to free industry and trade from the restrictions which were preventing its normal development. It was therefore in large measure a system of reaction and negativism. In its insistence upon the sole productivity of agriculture it went too far, and a broader system had later to be de veloped by Adam Smith which should give man ufactures and commerce their rightful place. Their doctrine of freedom of industry has exerted a powerful influence upon subsequent theory and economic policy. They also made positive contributions to the theory of taxation. The best-known writers among the Physiocrats were Frenchmen, Quesnay, Turgot, DuPont de Nemours, Mirabeau and Gournay, though the Englishman Cantillon had anticipated some of their doctrines.
Adam Adam Smith has been called the father of political economy, and his book 'The Wealth of Nations,' published in 1776, has undoubtedly had a greater influence and won for its author greater fame than any other book on this or allied subjects that has ever been printed. It was justly famous, for it marks an epoch in the development of economic thought and for the first time presented a dis tinct systematic and comprehensive treatise on economics. Smith was not wholly original, for he built upon the labors of his predecessors,— and under the Physiocrats the science had al ready made considerable progress,— but he avoided their errors and added much that was his own. He embodied in his work many of the ideas of the Physiocrats, though he avoided their extremes, and was also greatly influenced by contemporary English writers, notably Hume. The great merit of his work lies in its eminent saneness, breadth of view and catholicity.
In his treatment of economics Smith in troduced a new viewpoint. Hitherto all writ ers had considered the production of wealth as the end and aim of economic endeavor. But, though he dealt largely with production, Smith emphasized the importance of consump tion: Consumption is the sole end and pur pose of all production and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer? This is the modern standpoint. It was, however, often lost sight of by his immediate followers. Starting with the idea that the labor of a nation is the source of its annual income, The Wealth of Nations' opens with a classical discussion of the division of labor. Upon this division of labor depends in great measure its productiveness, but when this is introduced each member of society depends upon others for the satisfaction of most of his needs; hence arises the necessity for exchange and the use of money. The exchange of goods necessitates their compari son and hence the idea of value arises. From this point Smith is led to study the component elements of price, wages, profits and rent. These researches fill the first two books and constitute his general economic scheme. The third book is historical in character and con tains an account of the economic development of Europe; while the fourth book is devoted largely to a polemic against Mercantilism and Physiocracy; the fifth deals with public finance.
Smith's work, like that of the Physiocrats, was largely destructive; he had to overthrow before he could build up. He advocated the `simple and obvious system of natural liberty') and paved the way for free trade in England. He taught that when each individual pursues his own self-interest the best economic in terests for society will be secured. While he stood for freedom of trade and personal lib erty and initiative of the individual, he ad mitted certain modifications in this doctrine, as in his approval of the navigation laws, of a protective tariff for retaliatory purposes and in certain other cases of government interference. There is little doubt that if he could have seen some of the evils which followed this doctrine of non-interference after the develop ment of the factory system, he would have modified his views still more. Indeed one of the criticisms later urged against Smith is his theoretical absolutism. He is also criticized on the ground that he was unduly individual istic and materialistic, but in these respects he reflected the general philosophy of his age. He showed his breadth of view and judgment by taking what was best in the prevailing theories of his predecessors and combining this into a unified system, to which he also made original contributions, notably in his dis cussion of value.
One reason for the success and popularity of Smith's work was that he wrote just at the be ginning of a great industrial revolution. Be fore this time the system of industry in Eng land was the so-called domestic system, under which the work of production was carried on in the home of the worker by hand methods, though middlemen operating on a considerable scale had already appeared. But beginning about 1760 there occurred a remarkable series of inventions which affected many lines of in dustry—cotton spinning and weaving, coal mining, iron smelting, manufacture of earthen ware, and the improvement of transportation by the construction of roads and canals. The epoch-making change of this period lay, how ever, not in this series of inventions, import ant as they were, but rather in the substitution of non-human power for human muscles. This was first made possible on a commercial scale by Watt's improvement of the steam engine. A vast expansion of industry now took place, the factory system supplanted the domestic system, capital found new applications and be gan to play a more important role, while new labor problems arose with the new conditions of industry. New industrial forces were lib erated which demanded freedom from old restrictions and the new industrial leaders ap proved highly of Smith's doctrine of non-in terference. This accordingly became the corner stone of English economics for the next gen eration or so, until the evils of this policy be came so apparent as to lead to reaction. We may note some of the followers of Adam Smith.