While the Physiocrats fully exposed the error of confusing wealth with the precious metals, they themselves fell into the error of contusing wealth with material objects. Identifying the production of wealth with the production of raw materials, they concluded that manufactures and commerce, which merely change the position or form of raw materials. are barren and tinpro dnctive, though useful and desirable when strict lv subordinated to a7riculture; that the value added to raw materials in the processes of trade and ivdustry is equivalent merely to the cost or expenses of production, while agriculture yields a Het surplus—produ i net—over and above the expenses of production. To Quesnay, however, the large agricultural employer, not the agricultural laborer, was the real producer of wealth; and the physiocratie theory is especially strong and advanced. ill its analysis of capital. Agriculture being thus the sole ultimate source of national revenue, simplicity, economy., and justice demanded that the revenue of the State should be raised by a single direct tax—the imind unique levied upon rent. (See TAx.) The Physiocrats must accordingly be credited with the first statement of the epoch making theory of surplus value, the theory that the product of industry contains a certain fund of value, due to the cooperation of natural fac tors, which is in excess of the minimum remu neration required to elicit the toil :Ind sacrifice of industry. and which constitutes on this ac count an exceptionally satisfactory source of taxation.
whose of Nations appeared in 1 776, is easily the foremost fig ure in the history of economic thought. Next to his influence ill hastening free trade and in popularizing and dignifying the systematic study of wealth, Smith's most important service, per 1181)s, was ill divorcing political economy from ethics, and in part from politics. This appears plainly from the outline of his lectures, which were divided into four parts: 1. Natural The ology; 11. Ethics—incorporated in his Theory of Moral Sentiments ; Ill. Justice or Jurispru dence; IV. political Economy. Ile has been charged with the mistake of treating man as merely a wealth-seeking animal ill whom the altruistie motives tire wholly absent; hut this criticism neglects the fact that in his Theory of .11 oral Sent iments the motives of duty and sym pathy are accorded full and the de sire for wealth is treated as only one of the worthier objects of andpition. Even in Cie Wealth of Nations he opposes piece-work as calculated to incite the laborer to over-exertion, and voices the necessity for rest, diversion, and even 'dissipation.' 1Iis whole attitude in the Nations is essentially this: Assuming that the object of the study is to increase the na tional wealth as much as possible, this object will he most effectually secured by !perfect in dustrial nippily. lie left the prior question of the desire for wealth to the Theory of Moral Sentiments. On the other hand, he did not suc
ceed so well in separating polities from eennont ies. Ile could not get without the bounds of political philosophy, beeause his ultimate pur pose was to !Prove the supreme efficacy of the of laissez-faire. Yet before lie ('cold lay down maxims for thl• increase of wealth, it was neeessary to inquire how wealth was actual ly produced and distributed. and in doing this disinterested work of science he ceases to be the advocate. It was this passionless analysis of pro duction. value, and distribution which 11:1(1 the greatest effect upon the economists who followed him and led to the attempt to formulate a non partisan science of political economy, which should pass no ethical or political judgments. It must never he forgotten that Adam Smith was not wholly consistent in the development of his theories. At times he seems to hold that education should be left wholly to private ini tiative, but again he classes it among the neces sari' functions of government. In places lie seems to hold a brief for 'perfect industrial lib erty,' yet he does not hesitate to recommend the State regulation of banking, and his eharacter ization of the Navigation Act as "perhaps the wisest of all the commercial regulations of Eng on political grounds—is famous. This inconsistency, which was in reality ow jug to breadth of thought, shows itself in his method of investigation. Whether it was inductive or deductive has been the subject of wide and animated discussion. Wilatever the truth in this matter, the fact remains that at the hands of the economists who immediately sue• seeded him the science itself became increasing ly theoretical. increasingly deductive and ab stract. The most potent single quality of Smith's work which contributed to these results was its so-called `universalis01.! His work dealt with the wealth of nations, not that of a partioular nation, or a particular epoch. and his confidence in the existence of a natural law of universal ap plicability left an indelible impression upon sub• sequent thinkers. Cranted the existence of such a law. the conditions of time, place, race, and nationality must be matters of secondary im portance. The superiority of the deductive method naturally follows.
THE CLAtiSICAL School- The economic thought of the early part of the nineteenth century was dominated by a group of writers including Ben tham, Malthus, .1. B. Say, Ricardo, AleCulloch, James Mill, and others, who have been variously designated as the Classical, Orthodox. Rieardian, or English School. The leaders of this school differed upon points of economic doctrine, but the general system of thought developed by them is strikingly harmonious: deductive in method, pessimistic in tone, utilitarian and materialistic in its assumptions, and cosmopolitan in the sense that its ultimate scientific ideal was the discov ery of universal economic laws applicable to all nations at all times.