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Thus, like Adam Smith, on whom their doctrines had no small influence, the Physiocrates invested the ideal Code of Nature, which had come to them through the lawyers of their country from the jurisprudence of Rome, with a divine origin, and found in it a complete circumscription and definition of the province of human sovereignty.

The three same fundamental conceptions derived from the three same sourcesfrom Graeco-Roman speculation, from Christian theology, and from the revolt of the age against arbitrary interference with private industry and unequal imposts on the fruits of labour, formed the groundwork of the political economy of Adam Smith and the Physiocrates: the sole difference in this respect is, that the latter gave the name political economy to the whole of social philosophy, while Adam Smith limits the particular name to a department of social philosophy relating to wealth, and that they enunciated these doctrines as laws of Nature and God with more passionate emphasis.

Adam Smith had not derived any of the three fundamental ideas of his political economy from the Physiocrates for those ideas came to both from the history and philosophy of the past, and from the circumstances of the agebut he was strongly confirmed in them by his visits to France, his personal intercourse with them, and his study of their writings; he caught from them, moreover, not only particular propositions and expressions, but something of the form which his doctrine of natural distribution has taken, and also the precise limitation which he gives to the functions of the State.

He was, however, under a much more solid obligation to a much greater Frenchman, the illustrious Montesquieu. And the same oversight, coupled with a view of political economy which Mr. Buckle himself adopted from Ricardo and his school, leads him to describe Adam Smith's method as entirely deductive. The philosophy of Great Britain, Mr. The clerical system of deductive reasoning certainly runs through and warps the whole philosophy of Adam Smith. Nevertheless, his philosophical love of truth, and of interrogating nature itself in its real phenomena, and the inductive method of doing so which Scotch philosophy in his age had adopted from Montesquieu, preserved him from many errors into which the method of deduction from assumptions respecting Nature and its laws has led one school of his followers, which at the present day is not backward in claiming the clerical prerogative of orthodoxy.

It has already been observed that two opposite systems of reasoning were before the world in Adam Smith's age, and that he combined them boththe system of reasoning from a theoretical law of Nature, and the historical inductive method of Montesquieu, which traces the real order of things, and seeks in the circumstances and history of society the explanation of its different states in different ages and countries. The latter method had a powerful attraction for a new school of political and jural philosophy in Scotland to which Adam Smith belonged.

Lord Kaimes, his literary patron, and Millar, his own pupil, alike followed Montesquieu's method. What the more rapid advance of Great Britain than of France and other parts of the continent? To answer these inquiries he subjected the phenomena of history and the existing state of the world to a searching investigation, traced the actual economic progress of different countries, the influences of laws of succession, and of the political distribution of property, the action and reaction of legal and industrial changes, and the real movements of wages and profits so far as they could be ascertained.

Nor was he content with the inductions of the closet from written evidencethough necessarily the most important field of inductive investigation in social philosophyhe compared all the phenomena which careful personal observation, both in his own country and in France, had brought under his view.

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In short, he added to the experience of mankind a large personal experience for inductive investigation. Even the Physiocrates, although their study of actual phenomena was much less comprehensive and minute, though they were far more given to accepting at once their own unverified ideas as laws of nature, yet by no means neglected experience entirely.

They had studied the economic condition of their own country, and compared it with what they knew of Great Britain; and they believed their theories of the natural order of things founded on the evidence of the results of interference with industry and spoliation of its fruits on the one hand, and of individual liberty and security of property on the other. The extent to which observation guided their doctrines is remarkably illustrated by their division substantially into two schools, whose conclusions, though converging in the main, were reached by different paths of personal experience, and moulded by it.

Quesnay, the son of a small farmer, reared in the country amid the sufferings of the peasantry and the stagnation of agriculture under despotic restriction and ruinous imposts, and knowing of what imprisoned riches the soil was possessed, taught that land was the sole original source of wealth, agriculture the sole really productive employment, to whose fruits other industries gave only changes of form or place. Gournay, on the other hand, a merchant himself, and of a line of merchants, made the freedom of trade his staple doctrine, and summed up in the maxim, Laissez faire et passer, the duties of government.

There ran thus through the political economy of both Adam Smith and the Physiocrates, though much more extensively and systematically in the former, a combination of the experience philosophy, of inductive investigation, with a priori speculation derived from the Nature hypothesis. Hence, while on one hand the inductive method preserved the great Scotchman from grave errors into which not a few of his English followers in the mother-country of inductive philosophy have been led by the a priori method, on the other hand the bias given by preconceived ideas was so strong in the case of Smith himself, as to cause him to see in all his inductions proofs of a complete code of nature of a beneficent order of nature flowing from individual liberty and the natural desires and dispositions of men.

The truth is, that Smith wrote before the physical sciences had developed canons of induction, and he thought an induction complete when he had obtained an immense number of instances, and a theory proved when it seemed to fit every observed case. Throughout history, and over Europe, he saw nothing but disorder and misery from such human legislation as the world had known, wherever it went beyond protecting personal liberty and property; he saw on all sides a mass of poverty traceable to State interference; the only sources of whatever wealth and prosperity existed were the natural motives to industry, and the natural powers of production of individual men, and he leaped to the conclusion that nothing was requisite but to leave Nature to itself, that complete harmony existed between individual and public interests, and that the natural conduct of mankind secured not only the greatest abundance, but an equal distribution of wealth.

He thought he found in phenomena positive proof of the Law of Nature, and of the character of its enactments. We find here the explanation of the seeming contradiction which Adam Smith's combination of the theory of natural Law with the inductive historical method gives to Mr. They contain the induction on which is based the conclusion that the State has only to protect individual liberty, and the natural effort of every individual to better his own conditionor, in one word with which his first book begins , labourwill supply in the most ample manner all the necessaries and conveniences of life, will divide its functions spontaneously in the best manner, and will distribute its produce in a natural order, and with the utmost equality.

It has already been suggested that no such complete organization for the distribution of wealth is made by individual action, or what Adam Smith called Nature. Mill has shown the fallacy of defining political economy as the science of exchanges; a definition which, besides omitting some of the most important conditions determining the production of wealth, overlooks the truth that human institutions, laws of property and succession, are necessarily chief agencies in determining its distribution.

And it affords an instructive exemplification of the two methods which Adam Smith combined, a priori deduction from supposed principles of Nature, and inductive investigation of facts, that when the order of Nature is present to his mind, he finds a complete natural organization for the distribution of wealth, and no function for the State in the matter; but when he traces the actual progress of opulence, his readers are confronted at once with laws of succession, to which he traces the slow and irregular course of European progress after the barbarian conquests;.

With all these conceptions the theory of a complete equality of the advantages and disadvantages of different human occupations, and an equality, in that sense, of wages and profits, had obviously a powerful attraction for Smith. It affords surprising evidence of his true philosophical spirit of inquiry into facts that he should nevertheless have denied the actual equality of wages and profits, traced the great actual inequalities to their causes, and defined the conditions of equality and inequality, and the actual effect of industrial progress on these movements, in such a manner as to indicate the very progressive divergence which can be shown to have since taken place, and which a school of modern economists not only ignores, but sometimes angrily denies, as inconsistent with its a priori deductions.

Adam Smith, for his own part, not only limited ab initio the tendency to equality to what was practically the same neighbourhood, but pointed out that the kingdom was in fact divided into a number of different neighbourhoods with very different rates. Secondly, he traced many of the actual inequalities to pernicious institutions, a class of causes of inequality which later economists have done much to perpetuate by affirming a substantial equality.

Thirdly, in place of insisting that competition alone determines the rate of wages, and gives the labourer the utmost value of what he produces, Adam Smith maintained that combination on one hand, tacit or open, on the part of employers, was the normal condition of things; while, on the other, the necessitous position of the labourer exposed him to the exaction of very unequal terms.

Fourthly, he expressly confined the tendency to equality in the case of both wages and profits, even where competition was in full and free activity, to a stationary and simple condition of the industrial world. Fifthly, he showed that in place of equalizing wages, industrial progress had already produced great inequalities in England, and was beginning to do so in Scotland.

Three shillings a-week, the same price very nearly, still continues to be paid in some parts of the Highlands. In England the improvements of agriculture, manufactures, and commerce began much earlier than in Scotland. The demand for labour, and consequently its price, must necessarily have increased with those improvements. In the clothing manufacture, he expressly says, the division of labour was nearly the same as it had been for a century, and the machines employed were the same; adding that only three improvements in them of any importance had taken place since the reign of Edward IV.

In place of the infinite diversities of complexity and difficulty in the different employments of capital which have followed the progress of mechanics and chemistry, all modes of employing capital were, he says, about equally easy. The foreign trade of the kingdom was so small that he computed the annual importation of corn at only 23, quarters, and concluded that the freest importation never could sensibly affect.

In short, he applied the doctrine of equality only to a simple and almost stationary condition of industry and neighbourhood trade, in which few changes in the mode of production or the channels of trade took place from one century to another, and in which the inhabitants of each neighbourhood might comparatively easily estimate the profits and prospects of each different employment; and even to such a world, only with many modifications and exceptions. To such a world, in positive terms, he limited the tendency to equality which has been made by his successors, not only an unconditional assumption, but the basis of finance.

The truth is, that the doctrine of a tendency to equality is a mere theorem in political economy; and a theorem which imports the tendency only under special conditions well enunciated by Adam Smithconditions the opposites of those which prevail in the present industrial world. A state of the industrial world which was exceptional in Adam Smith's time is the normal state in our own; and it is certain, both from his positive doctrine and from his close attention to the realities of life, that had he lived even two generations later, his general theory of the organization of the economic world and the results of the competition for economic life would have been cast in a very different mould.

Alike in the theory of Nature which pervades his entire philosophy of society, and in his general conceptions of the industrial world, we trace the influence of the early world in which he lived. While concerned with the debilitating effects of commercial society on labourers, Smith acknowledged its potential to support their physical wants to a degree previously unknown.

He is well aware that these are not new questions. The problem was indeed a deeply systemic one that would require considerable political impetus to change. In this sense it might be reasonable to ask whether what we understand today as free market theory—against which a modern form of nationalistled trade policies might be said to operate—is different in important ways from the eighteenth-century political economy from which it is said to have originated. It might also be well to ask just how that transformation of the conceptual framework of political economy and its relationship to politics that came about after Smith took shape.

The history of the individual is but a detail of the sentiments and thoughts he has entertained in the view of his species; and every experiment relative to this subject should be made with entire societies, not with single men. Much admired by later classical economists, this work set down in clear and unambiguous terms many of the hallmarks of that tradition. One need only mention his discussion of the division of labour, the character of economic progress, and the class structures embedded in the emerging capitalist economy to appreciate the attractions they found in it.

There is a sense, of course, in which this is a tacit history. The vocabulary of political economy came to prefer terms like civilized society, human society, commercial society, capitalist society, or much later market society to describe essentially the same thing. While the decisive moment in this project seems to arrive with the articulation of the idea of a self-regulating market mechanism in the economic thought of the late eighteenth century, commercial society itself has a longer history.

Across Europe, various forms of market exchange had existed for centuries. But by the eighteenth century something resembling market society in its modern sense—a generalised system of production and distribution organised through markets—had begun to take concrete shape. Given this, we are compelled to ask why the thoughts of economic writers and thinkers had not turned in that direction earlier than the middle of the eighteenth century. This question brings us to the mercantilists.

Its organising principles—relating power, trade, and treasure to the pursuit of state enrichment and aggrandizement—were conveyed by a number of thinkers prominent among whom were Thomas Mun in England, Jean-Baptiste Colbert in France, and Antonio Serra in Italy. While divergent in many respects, the literature of mercantilism contains several unifying commitments.

One of the spheres of selfgoverning associations within Britain that Harris mentions as contrasting with the European state-oriented practice is that of commerce. Finally, the internal organisation of domestic industry fostering the balance of trade must always be hedged with consideration of war. Of course, there was a developed body of economic ideas common to mercantilist thinking that consisted of a simple and appealing premise: namely, that national wealth was equivalent to a stock of precious metals bullion.

If mercantilist thinking is reconstructed along these lines, this relation reveals the simplest of all the mercantilist messages: discourage imports and encourage exports. But this seems scarcely accurate—armies, navies, wars, and state building are also good reasons for heaping up gold. Almost every shade of opinion on trade seems to have been entertained at one time or another by one or another of the mercantilists. Irrespective of governmental form, mercantilist states needed to be populous in order to supply both the labour and military forces required for the defence as well as acquisition of treasures.

Contained within the mercantilist economic literature was a powerful and to some, rather frightening normative perspective on the proper character and the state to promulgate legislation in their interests, or whether the state had interests of its own that just happened to be coincidental with those of the merchants. So committed was he to this singular opinion that he felt that the subsistence wants of labourers should be minimised—especially their wants for imported luxury goods.

At this point it is worth explicitly noticing the view of society that is deeply embedded in arguments like these. Instead of serving human society it destroys it. A way must, therefore, be found to regulate cupidity, and this consists of the political order, which reins it back by fear and punishment, and gets it applied to things useful to society.

A further taste of this understanding of civil society contained in mercantilist literature may also be extrapolated from British mercantile policy towards the colonies in the eighteenth century. Colonial holdings served both as markets for exports and suppliers of raw materials.

Manufacturing was forbidden in most colonies, and commerce between them was controlled by monopoly. Franchises granted exclusive trading rights to particular merchants or groups of them—the East India Company being the famed example. The efforts of British sovereigns in issuing internal monopolies on everything from saltpeter, gunpowder, paper, and salt, to alum and soap instead produced a series of common law court decisions transferring the monopoly granting power to Parliament.

Society is produced by our wants, and government by our wickedness; the former promotes our happiness positively by uniting our affections, the latter negatively by restraining our vices. The one encourages intercourse, the other creates distinctions. In doing so, he introduced a rather more nuanced view of the role of statesmen in balancing the interests of state and society than had been evident in anything his predecessors had to say.

As is apparent from the above passage, he achieved this by introducing a concern for greater equity between the orders comprising it. Thus, his reliance in theory on a benevolent and knowledgeable statesman earned Steuart criticism for a certain lack of realism concerning the character and quantity of knowledge such political stewardship would require.

But it was about to do so. This was the idea that it was in civil society that liberty might most seriously be threatened. The argument was simple enough. A developing taste for luxuries induced labourers to produce a surplus that could be traded to obtain desired goods beyond subsistence. As the incentive to work increased, the constraints of physical necessity were progressively reduced.

This reduction of necessity was the factor that opened the space for greater freedom. Somewhat remarkably, given the kind of arguments for the perfect liberty of commercial relations that were soon to appear in the literature of Scottish political economy, Steuart had demonstrated that in society, individuals were united in greater interdependence without introducing the concept of the division of labour.

Yet a paradox remains at the centre of this conception of civil society. On the one hand, Steuart was implicitly critical of earlier mercantilists, such as Mun, for encouraging statesmen to foster the advantages of imbalanced trade both at home and abroad. When this can be accomplished without detriment to industry at home, he has the opportunity of joining all the advantages of ancient simplicity to the wealth and power which attend upon the luxury of modern states.

Ferguson used the term civil society in differing contexts. On this matter, he was in agreement with Montesquieu. His own history of the Roman republic, and his explicit comparisons of Rome and Carthage contained within it, are instructive. It was the very unintended arrangement of the system that was seen as problematic, striking at the capacity for an ordered and directed polity.

His view was that men are basically social, but that what drew them together was not simply self-interest—indeed, that same self-interest in extreme form had a tendency to tear them apart. If one then asks what exactly civil society was for Ferguson, it is clear that it was neither commercial society nor was it political order per se. Some have argued that Ferguson had a dualistic vision of civil society—as the prerequisite of peace and prosperity, and the harbinger of psychic atomism, corruption, and decline—but that does not seem quite right.

It is to mistake what Ferguson said about civilisation for the content of civil society. Instead, for Ferguson, civilisation was about material progress, while civil society was essentially about moral progress. Instead, it was a type of historically observable sentiment to be found in all humankind—a moral sentiment that led people to oppose vice and disorder, and that linked humankind in an aversion to cruelty.

This is where his position on unintended consequences takes on an altogether more intriguing character. While he praised the Stoics for believing in providence, and criticised the Epicureans for placing all their emphasis on chance, exactly what Ferguson had to say hinged on the premise that it was just not possible to state in advance what the outcomes of political plans and institutions would be. He maintained single-mindedly that the consequences of chance, and the set of cards a society is dealt in terms of resources, culture, and institutions , acted to constrain and shape their future possibilities.

The fact that all actions had consequences was obvious—some good, and some bad—but no spontaneous order was at work for Ferguson to reconcile them. That reconciliation required politics to protect civil society from the corruption of the commercial order. Phillips , 9 The move to a consideration of society in an enlarged framework of systemically interrelated activities of production, distribution, and exchange 9 Pocock has cautioned that historical transformations are not accomplished seriatum but that competing paradigms run for periods in tandem.

This appears to be the case for the earlier conceptions of polity or civil society as well as emerging conceptions of commercial society in this period. It ushered in new philosophies of explanation and science to the ferment that was civil society in the eighteenth century. Civil society had its own inherent organisation and extrapolitical identity.

This was not, as is so frequently suggested, a systemic argument for that coincidence of public and private advantage—understood as a generalised mechanism of market activity. Indeed, Mandeville was clear that he intended such psychological insights on the power of prodigality and avarice to apply only to the aristocratic and merchant classes, while the labouring classes, on whose poverty the wealth of others depended, were motivated in such a mercantilist analysis by the direct and consequential motivations of destitution.

For example, Mandeville spoke of money in the Fable as evil, but also as necessary to the existence and order of civil society. In rather explicit contrast to both Ferguson and Mandeville, Smith rarely used the term civil society. He more commonly wrote of civilised society or human society. In both the Wealth of Nations and the Lectures on Jurisprudence, Smith was interested in a philosophical or, as Stewart described it, conjectural history that reveals the hidden causes of the progress of civilisation from barbarism to its polished condition in modern times.

On this point, see also Horne , chapter 4. In the Wealth of Nations, Smith dealt more explicitly with only two stages: that of the transformation of civilisation from feudal to commercial society. In neither case does our regard for individuals arise from our regard for the multitude: but in both cases our regard for the multitude is compounded and made up of the particular regard we feel for the different individuals of which it is composed.

Instead, the good of the whole would be an unintended consequence of the individual concerns of its constituent parts. Smith viewed society as a system, and moral life was also a system. Whether he was considering government and laws, outlining the formation of moral sentiments, or discussing astronomy and the universe— all were presented as systems. In his lectures on the History of Astronomy, Smith brought the weight of the analysis of systematic forces to the forefront: Systems in many respects resemble machines.

A machine is a little system, created to perform, as well as to connect together, in reality, those different movements which the artist has occasion for. A system is an imaginary machine invented to connect in the fancy those different movements and effects which are already in reality performed. Smith, ca. The point was to constrain and simplify our understanding of society for the purposes of better understanding and assisting the continued progress of opulence.

The soverself-approval brings more contentment than the applause of the world. It would seem to be rather more accurate to say that identifying the mechanisms regulating social and commercial life came after the political economists had already separated civil society from polity. This is not to say that Smith reduced the concept of civil society to the market but rather that he suggested a vision in which society in both its commercial and civil perspectives was created by the same systematic interactions—and that the mechanism of the market lies at its centre even if it does not comprise the whole of it.

Society beyond the market involved the same psychology. But it was not until well after Smith that the concept of the selfregulating market mechanism and its unintended consequences came to play the much more politically constraining role in the concept of civil society that modern economists have attributed to them. That understanding was inextricably bound up with the science of a political economy.

Indeed, for Ricardo, the construction of a new political science—one on which a reformed constitution was to be built—required a more systematic consideration of the relationship between the operation of the mechanism of the market and political organisation. Second, he was not in the most important respects an individualist. His thought was also not individualist because his economic analysis focused instead on the conditions of reproduction and growth, where the relevant actors—economic, social, and political—were social classes and not individual agents, and where the relevant categories were objective economic ones rather than the subjective or psychological one of individual utility.

This led Ricardo to conceive of the dynamics of society and politics in just the same way as he conceived of the dynamics of economics—namely, in terms of the interplay between these larger group interests. It was primarily with Ricardo, and his approach to value and distribution, that the idea of class structure became a key economic characteristic of civil society for classical political economy. That this is so was heralded at the very outset of his Principles of Political Economy in The produce of the whole earth—all that is derived from its surface by the united application of labour, machinery, and capital, is divided among three classes of the community; namely, the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the labourers by whose industry it is cultivated.

To determine the laws which regulate this distribution, is the principal problem of Political Economy. Hume and Smith would offer different answers to this question. For Hume, the answer might lie in some form of republic, but for Smith it was unquestionably parliamentary sovereignty. Explaining the allocation of scarce resources between these individuals rather than the distribution of income between social classes came to dominate the textbooks of economics.

He does not use the term civil society anywhere in his work, and his focus on the market mechanism may tend perhaps to isolate society more simply as a generalised structure of class interest standing separate from government. This pursuit of individual [country] advantage is admirably connected with the universal good of the whole.

Download After Adam Smith A Century Of Transformation In Politics And Political Economy

By stimulating industry, by rewarding ingenuity. Ricardo wrote and spoke in favour of measures such as the secret ballot as well as parliamentary and franchise reform. His economic theorising, however, presented a dilemma for any concept of civil society, which on his account was now distinctly separable from politics. The point at which the understanding of civil society had arrived in the literature of classical economics after Ricardo is well illustrated in the writings of an unlikely pairing: John Stuart Mill and Marx.

In the case of Marx, this could hardly be more obvious. One does not need to enter into long disquisitions to prove it, since Marx is best left to speak for himself: Assume particular stages of. It would be no misuse of language to say that the whole thrust of classical economics and here Marx should be included too was to reduce the understanding of civil society to its economic foundations.

It remained the seat of class structures, institutional formations, corporate entities, and all kinds of other voluntary associations. It also remained a powerful source of social and economic problems that stood in need of a remedy. Things were about to take a dramatic turn, though, on that front as well.


His thinking was criticised after his death as having been able but wrongheaded. But whatever side one takes in the great Ricardo debate, it should not be forgotten that the central focus he had placed on the objective social relations of production and distribution ensured that his economic thought had a theoretical relevance to the conception of civil society in general as well as to the understanding of its actual operation. As we have seen, it did not take someone like Marx long to discover this reservoir of concepts and ideas—and to put it to a more revolutionary purpose.

Smith, Malthus, and Ricardo uniformly saw these as the natural attributes of commercial society, and the source, potentially at least, of natural societal fairness. These institutions and associations were also the focus of the economic activities comprising the life of commercial society. The same cannot be said of the principles of neoclassical economics that were introduced in the marginal revolution of the s. Integral to that change was a shift in the central focus of economic science from production and distribution to exchange—from what some have called the objective conditions of production to the subjective conditions of consumption.

Economics moved from thinking of a civil society composed of social classes, professional groups, corporate entities, trade unions, and cooperative societies, to a civil society of isolated individual utility maximisers. Homely tales of Robinson Crusoe, allocating his time between work and leisure on a desert island, became the vehicle through which the principles of economics could be illustrated.

The theory so constructed was also meant to apply, mutatis mutandis, to the rather more complex social reality of Western capitalism of their day. It was dramatically expanded, certainly, for the same reason. By establishing the homogeneity between the elements of cost interpreted as disutility , Jevons was able to show that the relative prices of commodities were determined by the ratios of their marginal utilities.

This effectively altered forever the manner in which arguments for and against economic liberty would be constructed. The early neoclassical economists did not solve the problem of what is or should be thought of as morally good, nor did they imply any theory of moral or social obligation. They did not suggest which policies would maximise the greatest happiness of the greatest number, but only which ones were Pareto optimal.

In its radical individualist programme, neoclassical thought took refuge in explanations of the whole in terms of the behaviour of its individual constituent parts. Unlike all earlier economic theories, neoclassical theory lacked any concept of human sympathy or alternative assumptions as to the social bonds that might serve as the effective cement of a society. On his line of thinking, political life was epiphenomenal—reproducing and preserving the social and economic relations of production from which it emerged.

It is a question that goes back at least as far as the ancients—and it has formed the cornerstone of some of the best-known contributions to social and political thought through the ages. In eighteenth-century Europe, it would be fair to say that ethics or moral philosophy was concerned with little else. Although each consideration will have to be brief, we wish to offer a set of vantage points from which to consider the relationship between economic life and political life. Finley was perhaps the most unreserved of them all in expressing this opinion. This widely accepted feature of ancient thought should, it was then suggested, be understood as the product of some ancient Greek philosophical propensity to merge or even submerge economic life into political, social, or ethical behaviour.

In place of economic principles, then, what is said to emerge in classical antiquity is something else—namely, political or moral philosophy. Others have claimed to have found the labour theory of value in Aristotle see, for instance, Meikle ; still others allege to have glimpsed elements of neoclassical price theory see, for example, Soudek ; Gordon It is clear enough, then, that a wide range of conclusions might be drawn regarding the nature of ancient economic theory.

This would seem to be an important omission, since both the household and city economies of ancient Greece comprised a nexus of relations between persons, determined by moral and political norms. The Greek attitude to the city economy and the acquisitive behaviour with which it was associated was sceptical. In both Nicomachean Ethics and the Politics, Aristotle held that the property of a household should sustain the life needs of its inhabitants as well as the leisure of its master.

Acquisitive behaviour was further criticised in that an individual became estranged from ties of philia or mutuality within their community in the process of accommodating their own self-interest. Although the concepts of oikos and polis are typically regarded as distinct from one another, then, their fundamental similarity—that both are human communities controlled by rule and subjection—must not be overlooked.

Aristotle pointed out that the successful operation of the individual household was not an end in itself but a single piece of a more complex economic puzzle. But does this suggest a priority of one form over the other? Can it be argued that for the Greeks, political life is teleologically prior or foundational to economic life? It might appear so, but we should not overlook other facets of ancient economic and cultural practice that complicate this Aristotelian perspective.

One of these practices is the use of money. Likewise, within the context of Roman imperial life under Augustus, coinage served a more propagandistic, political purpose. Yet the ancients also seem to have appreciated that the original function of coinage might have existed outside of the polis. The point is that there was no one word that meant money exclusively. When taxes are denominated in coin and taxpayers are required to discharge their liabilities in coin, then coinage and the polis become intimately connected. Still, to the extent that private exchanges predate taxes, even when a noncoinage circulating medium was in use, the polis and the market stand as distinctive, conceptually separable institutions.

In the context of the intercity market, people were exchanging for commodities rather than for communal relationships. In the absence of communal obligations, exchange could exist as a channel of personal accumulation rather than the communal allocation of resources von Reden , These two outcomes coexisted in the same economy, like two faces of the same coin, suggesting that the increased circulation of money in exchange for traded goods was somehow involved in the evolution of the market as a separate institution from the polis and thus not one necessarily grounded in political life.

This example might be regarded as an instance of economic life providing a foundational framework around which noncommercial aspects of life if we can call death that might be constructed. When considered within certain cultural contexts, economic life sometimes seems to obtain a degree of autonomy and even precedence over politics. If we wish to see a less ambiguous claim for political life dictating the basis of economic life, however, we would have to move far from the ancients to a group of more genuinely economic thinkers of the early modern era: the mercantilists. In the hands of some mercantilists, of course, it was more than this.

Not a few of its architects were deeply concerned with 5 There is evidence of other types of economic practice—in terms of active credit markets, taxation, and maritime loans—that could be examined or other thinkers who might be discussed, but here we only mean to draw attention to the complexities in the relationship of ancient economic and political life. In these manifestations, the state was seen as the central actor, and the capacity of the state to raise revenue that could underwrite military activity was the crucial objective.

In terms of the relation between economic and political life, however, the basic presuppositions of the mercantilist tendency were simple enough. Second, the principal source of such treasure was international trade see, for example, Mun , Both within and beyond the state, mercantilist doctrine required a sovereign capable of wielding such a tool with both political intent and political acumen in order to secure trade imbalances that favoured exports over imports see Mun , 8.

Mercantilism, in this sense, was a classic zero-sum game in which trade was effectively to be conducted on a warlike footing and understood as politics by another means see Mun , It is worth noting that mercantilist states might be organised politically in any number of ways—as monarchies, commonwealths, or republics. But whatever their political form, they all placed a priority on fostering population growth in order to supply the personnel necessary for national defence and facilitate that increase in state capacity necessary to produce domestic products for trade.

Economic life, in short, was to be conducted so as to serve political ends. Hence thrift, savings, and parsimony gathered their civic and moral force by virtue of their contribution to state power. At the same time, the human wants of subjects and labourers at subsistence—indeed of the nation generally—should be minimised. For Steuart, it was the function of an idealized statesman to ameliorate the negative effects of the spread of commercial relationships by controlling the pace of development through administered regulated prices and taxation , , , The same ends, it would soon be argued, could be secured by different means.

It ushered in yet another understanding of the relationship between economic and political life. This shift in perspective had several distinctive features. It involved the recognition that an autonomous economic sphere was pregnant with normative and moral possibilities. The classical economists raised the question of whether economic progress might of itself be the catalyst for political and constitutional reform. This was an exaggeration to be sure, but not one without some basis in the position that Smith had taken up in the s.

In the Idea of a Perfect Commonwealth, Hume argued that with the development of commerce, the role of government could not be limited to securing the personal economic liberty of the individual but ultimately would have to satisfy advancing expectations for fuller participation in political life instead. If this accurately captures the state in which the classical writers of late eighteenth-century Scotland had left the discussion, then when one moves on to the classical writers of the early decades of the nineteenth century, two developments of that earlier discussion appear on the stage.

On the one hand, there were those writers whose assertions unfolded along more reductionist or foundational lines—rendering economic life the foundation of political life. On the other hand, there were those writers whose contentions pursued a theme of separability—rendering economic life and political economy independent of political life and politics. Ricardo appears to have come close to, although perhaps without quite reaching, an understanding of politics as being exclusively contingent on the relations of economic life.

His better-known arguments for parliamentary reform a, b , for example, are permeated with the idea that political organisation and political policy ought to be subservient to the needs of the economy—that the interests of all the participants in economic life should be represented in government. It would be Marx, in his critique of Ricardo, who would go on to produce the ultimate reductionist claim about political life.

But there are even stronger examples in the classical literature where separability comes close to becoming a methodological principle. The latter, for Senior, was the exclusive preserve of the politician or statesman.

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In this sense, economic life would not be merely instrumental to politics but instead would be the very substance of it. Even in the work of Mill, where separability best characterises his discussions of individual liberty and distribution, it would hardly be accurate to claim that economic and political life were mutually exclusive for him, or that political life was of no theoretical interest to political economy. Theirs was a formal model of exchange where free actors, independent of social or political context, sought to maximise their own utility given any initial distribution of social wealth.

It would be wrong to say that political life had thereby been reduced to economic life, but it would not be wrong to say that the same rational action activates both economic human beings and political ones in their separable spheres of activity. The neoclassical economists generalised and mathematically formalised the old Benthamite calculus of pleasure and pain.

If the model of economic science is concerned with the relationship between abstract persons and things, institutional, cultural, and political contexts are irrelevant. This move at once severed any connection that economic theory had to past historical circumstances, and permitted its conclusions to range freely over any and all market societies, regardless of their history.

After Adam Smith: A Century of Transformation in Politics and Political Economy

And while this may have introduced an implicit norm of justice for some, debate about the inequality in the prior distribution was not seen to be within the purview of the economic science, whatever economists might think about it as political individuals. By working with the model of isolated exchange at the most general theoretical level, and imagining it to characterise the essentials of eco13 This is not to say that cultural, institutional, and political features could not, and did not, appear in neoclassical writings.

They certainly could and did. Nevertheless, these did not come without their costs. This strategy had distanced the neoclassical understanding of economic life not only from the concrete world of economic life but from political life as well. To ameliorate the consequences of the former, an elaborate methodological structure was created to reconnect the abstract with the concrete manifestations of economic life. Marshall was the most ambitious in this regard. This kind of conceptual language, which cast much in concrete economic life as somehow pathological, had the effect of encouraging the propensity among neoclassical economists to view the world as in need of being reshaped according to the norm.

Ironically, however, it was through this route that unexamined political commitments would sometimes be reintroduced into neoclassical reasoning. As to the separation of abstract economic life from political life, the neoclassical economists encountered yet another problem relating to unexamined political commitments—a problem that interestingly, Bentham thought probably wrongly had plagued Smith. This approach represents a halfway house between the view of the early classical writers that economic and political life were interdependent and that of the neoclassical writers that economic and political life were separable.

It also brings into sharper relief how one might think about the relationship between that theoretical actor, homo economicus, and any particular political or legislative policy. It is in this way that he sees the neoclassical and classical projects to be related. He characterises Smith as a systematizer whose project in the Wealth of Nations was to compare alternative institutional structures. Under these conditions, the historical error of identifying any success or failure within a particular structure of constraints for example, whether the failures of laissez-faire or command economies persisted.

Its ideological preferences for liberty, peace, and prosperity are openly expressed. This choice implies an identity between economic and political decision making—homo economicus and homo politicus become one and the same. If one continues reading this passage, though, it can be seen that this opening statement is rhetorical rather than didactic, and the politics that Hume articulates is one of factional allegiance and group dynamics rather than privately interested individual decision makers. The passage may be quoted in full: It appears somewhat strange, that a maxim should be true in politics, which is false in fact.

But to satisfy us on this head, we may consider, that men are generally more honest in their private than in their public capacity, and will go to greater lengths to serve a party, than when their own private interest is alone concerned. Honour is a great check upon mankind: But where a considerable body of men act together, this check is, in a great measure, removed; since a man is sure to be approved of by his own party, for what promotes the common interest; and he soon learns to despise the clamours of adversaries.

If political life has not been set to one side, then its terrain appears to have been colonised by homo economicus in terms of both the character and the content of decision making. It was a simple and powerful worldview—namely, that the varied phenomena of nature were linked and organised by discoverable common forces, and that the whole might be thought of as system resembling a machine. Newton famously summed it all up with an analogy about clocks. Looking back, it is clear enough now that it was on quite similar presuppositions and often with an explicit acknowledgment of the achievements of Newtonian mechanics that classical political economy was constructed.

If the movement of objects in the physical world was governed by hidden regularities, and if that world might be imagined as working rather like a machine, it did not take long for political economists to begin to explore the inner workings of the social world using a similar analogy. That a science of political economy that might be built along lines similar to those of classical mechanics was the immediate product of an Enlightenment project—and both its original architects and subsequent developers were all quite self-consciously engaged in that project.

To the extent that they were, it is safe to say that the foundation of political economy involved a purposeful enterprise and that it was not just happenstance. It created the speculative space for a general account of the operation of the market mechanism, rather than piecemeal or particular accounts of isolated economic phenomena. This train of thought entailed two closely related presuppositions. The second was the idea that philosophical investigation should proceed by understanding a distinction between appearance and reality.

To see the system clearly, to understand it rightly, one must look beyond mere appearances that only serve to obscure the real picture. The task of the political economist was, so to speak, to reveal what otherwise might have remained hidden. Smith was quite insistent on this philosophical claim: Nature, after the largest experience common observation can acquire, seems to abound with events which appear solitary and incoherent with all that go before them.

In fact, this distinction between appearance and reality was essential to the whole foundation enterprise of these early economic thinkers. The mechanization of the world picture, in both its natural and social dimensions, was thereby completed. The introduction of the economic machine into economic thinking transformed the landscape of political economy just as decisively as the introduction of machine production transformed the landscape of the actual economy.

But one needs to be rather more precise than this. Strictly speaking, the presence of socially organised exchange markets in the broadest sense does not seem to be the key characteristic of what the classical political economists had in mind when they spoke of modern commercial or market exchange. Socially organised exchange of one kind or another appears to have been a fairly common feature of most human societies throughout much of human history. Wherever it occurs, exchange is an institutionally embedded activity of individuals or groups of individuals see Polanyi The sources of this kind of claim are many: the ancients, the Bible veils of ignorance , and Newtonian mechanics.

The basis of this revolution in thinking about the economy was to be rational argument. Actual machines were deployed in the name of an industrial revolution in production. The basis of this revolution in economic activity was the rational organisation of production. Economy in thought rationality also seems to be analogous to the idea of the economy in production that was achieved by machines via rationalisation.

Gift exchange is a good example of this. Market exchange in commercial society also does this, but how markets preserve the organisation of social production is the key to understanding their operation. A market economy is a generalised system of production, distribution, and exchange organised through markets.

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Markets exist not only for all commodities including capital goods or produced means of production but also for labour and land. As Marx would later put it, this primitive accumulation of capital represented nothing other than the transformation of human labour into a commodity. In modern jargon, the same idea is captured in the familiar distinction between the long run and the short run.

On this point, there is no better place to start than with Smith: The natural price. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this centre of repose and continuance, they are constantly tending towards it. Like exchange, there had always been private property but there had not always been capitalism. Forms of property relations vary. It was quite another to go on to recognise and spell out what those forces might actually be.

Mill , 2. The force of competition is a ubiquitous feature of market economies. In fact, it is the motor that drives economic variables towards their natural levels. If we leave aside for the present the problem of monopoly, it is worth observing that free competition did not require a particular market structure to be in place, as was to become the case, for example, with the assumption of perfect competition required by Marshall and other later nineteenth-century neoclassical writers when they spoke of long-run normal prices. On that subject, the labour theory of value takes on central importance.

The issues for the transformation of political economy and politics that hinge on the development as well as criticism of the labour theory of value will be the subject of later chapters. The next point to mention in the present context is the idea that aggregate social outcomes were at once the product of the action of individual interests and yet not necessarily the same as those intended by individual actors.

It is his own advantage, indeed, and not that of society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to society. By preferring the support of domestic industry to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which is no part of his intention.

That latter leap in particular, as some of the above passages well illustrate, depends on adding to the general idea that outcomes of individual actions might be independent of the wills of human beings—a theory of economic functioning. The great ethical debates of that century took place between the advocates of the need to inculcate a disinterested spirit of civic or public virtue in order to ensure the orderly conduct of public affairs, and those who sought to show that self-interested action was all that was required.

Moral philosophy, as it was called at the time, was almost exclusively concerned with charting this terrain. By rational, he appears to have meant that calm, calculated, self-conscious adaptation of action in the pursuit of those interests whatever their origin. It is his own advantage. There will be cause to return to the normative and economic consequences of such actions later. For the present, it is necessary only to stress their rational character—namely, the supposition of the systematic adjustment of means to ends by individuals engaged in the business of making a living.

Indeed, equilibrium is one of those concepts that could scarcely be more central to economic theory. At the most elementary level, the term equilibrium is spoken about in a number of ways. Into the second enters the question of the normative characteristics of these conditions. The assertion there consists of two steps. It is not to be confused with the familiar question concerning the stability of competitive equilibrium in modern analysis.

There the question about convergence to equilibrium is posed in some hypothetical state of the world where none but the most purely competitive environment is held to prevail. This neither implied that these general tendencies were swift in their operation nor that they were subject at any time to interference from other obstacles. Like sea level, natural conditions had an unambiguous meaning, even if they were subject to innumerable crosscurrents. To put it another way, the distinction between general and special cases like its counterpart, the distinction between equilibrium and disequilibrium refers neither to the immediate practical relevance of these kinds of cases to actual market conditions, nor to the prevalence, frequency, or probability of their occurrence.

In fact, as far as simple observation is concerned, it might well be that special cases would be the order of the day. To unearth these regularities, one had to enquire behind the scenes, so to speak, to reveal what otherwise might remain hidden. In short, equilibrium, to revert to the modern terminology for a moment, became the central organising category around which economic theory was to be constructed. This is particularly apparent in the case of the natural law philosophers, but is also true of thinkers such as Locke and Hobbes.

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The question as to whether the social and economic world was actually governed by such regularities, so central to Smith and the physiocrats, simply did not concern Hume. Yet the earlier normative connotations of ideas like natural conditions, natural order, and the like quite rapidly disappeared when the terminology was appropriated by economic theory.

Nothing was good simply by virtue of its being natural. This, of course, is not to say that once the theoretical analysis of the natural tendencies operating in market economies had been completed, and the outcomes of the competitive process isolated in the abstract, an individual theorist might not at that stage wish to draw some conclusions about the desirability of its results—a normative claim, so to speak. But such statements are not inherent to the concept of equilibrium; they are value judgments about the characteristics of its outcomes.

Over the question of whether this additional property was necessary to the concept of equilibrium, however, there was to be less uniformity of opinion. Indeed, this matter gave rise to a debate in which almost all theorists of any repute became contributors at one time or another until at least the s. From being based on the idea that market societies were governed by certain systematic forces, more or less regular in their operation in different places and at different times, it now seems to be 10 It was not until the s that the issue seems to have been resolved to the general satisfaction of the profession.

In fact, it appears that these many cases are to be thought of as being more or less singular from the point of view of modern theory. Instead of being thought of as furnishing a theory applicable, as Mill would have said, to the whole class of cases under consideration, it is increasingly being regarded by theorists as the solution concept relevant to a particular model, applicable at best to an extremely limited number of cases. Although the plethora of equilibrium models with which most theorists now deal are technically more sophisticated than has ever been the case, modern opinion is not a little reminiscent of the state of affairs in economics prior to the advent of its systematic study in the hands of Smith and the physiocrats.

Yet to what extent this represents a measure of progress will have to await the judgment that is handed down in the future by those who require of economics something as simple, though elusive, as a few tolerably satisfactory solutions to the problems that confront modern market economies.

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Philosophers such as Niklas Luhmann and Robert Nozick have subjected its philosophical origins and implications to analysis. Nor has it lacked critics. One reason to think that Smith dismissed any serious consideration of an invisible hand principle or theorem is his understanding of the weight that should be attached to the intentions of individual agents ibid. Nor would it justify the claim that the market mechanism would best be understood as achieving the intentions entertained by the actors in it.

It would seem that we need other ways to understand this metaphor. One suggestion is that a literary context might be the most appropriate one for understanding its meaning. This too might have been a reference that Smith knew. Such an analysis suggests different principles of harmonisation at work in ordinary commercial life and the pursuit of political ends. The context in which this is best seen is his discussion of Quesnay. Here both his respect and disagreement with Quesnay are revealing.

Nature, not human activity, is the ultimate foundation of productivity. Such is the nature of this second species of Wonder, which arises from an unusual succession of things. Upon the clear discovery of a connecting chain of intermediate events, it vanishes altogether. What obstructed the movement of the imagination is then removed. Veils of ignorance or religion are thought to obscure the reality that science or systematic thought exposes.

Smith was not offering a proof of either providential order or design. The test of a metaphor could not be empirical in that way. In each case Smith appears to believe that it would. In modern economics, the invisible hand took a rather long time to appear on the scene. See also Brown It was not until the publication of the New Palgrave Dictionary of Economics in that the invisible hand warranted a separate entry Eatwell, Milgate, and Newman , — The list of its translated editions is too long to reproduce.

It reached its eighteenth edition in At the same time, however, Winch was moved to remark that since economists were not always reliable authorities about their own past, their retrospective image of Smith might be seriously faulty , It is not that it is completely unrecognisable; nor is it, as some have maintained, its opposite.

Its interpretive project has been to reveal a more useful or historically accurate version of what Smith had to say. On the importance of the Edinburgh Review, Bagehot should be read together with Stephen Clive remains invaluable, supplemented by Hollander , Semmel a , and Fontana A representative sample would include J.

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Hollander ; Schumpeter , and Phillipson , Hollander and Pribram are silent on the subject. For more recent contributions, see Berg , P. Jones , Fontana , and Rothschild His account of the Life and Writings of Adam Smith contained all the essential ingredients. See Napier , 2—7, 24ff.

On this indebtedness, see also Mill , ; b, 44 and De Marchi Stewart himself also provided an ex post facto reason , , 87nG that implied that it had something to do with reaction to the French Revolution on this matter, see also Hollander ; Winch , ; Rothschild A consideration of the theory of value was placed very much in the background, in contrast to the priority that Stewart accorded to the propagation of economic liberalism.