Page:Encyclopædia Britannica, Ninth Edition, v. 19.djvu/384

368 POLITICAL ECONOMY it is not really the money, but the money s worth, that the borrower wants ; and the lender really assigns to him the right to a certain portion of the annual produce of the land and labour of the country. As the general capital of a country increases, so also does the par ticular portion of it from which the possessors wish to derive a revenue without being at the trouble of employing it themselves ; and, as the quantity of stock thus available for loans is augmented, the interest diminishes, not merely " from the general causes which make the market price of things commonly diminish as their quantity increases," but because, with the increase of capital, "it be( coum , t . _ _ . arises a competition between different capitals, and a lowering of profits, which must diminish the price which can be paid for the use of capital, or in other words the rate of interest. It was formerly wrongly supposed, and even Locke and Montesquieu did not escape this error, that the fall in the value of the precious metals consequent on the discovery of the American mines was the real cause of the general lowering of the rate of interest in Europe. But this view, already refuted by Hume, is easily seen to be erroneous. " In some countries the interest of money has been prohibited by law. But, as something can everywhere be made by the use of money, something ought everywhere to be paid for the use of it," and will in fact be paid for it ; and the prohibition will only heighten the evil of usury by increasing the risk to the lender. The legal rate should be a very little above the lowest market rate ; sober people will then be preferred as borrowers to prodigals and projectors, who at a higher legal rate would have an advantage over them, being alone willing to offer that higher rate. As to the different employments of capital, the quantity of pro ductive labour put in motion by an equal amount varies extremely according as that amount is employed (1) in the improvement of lands, mines or fisheries, (2) in manufactures, (3) in wholesale or (4) retail trade. In agriculture "Nature labours along with man," and not only the capital of the farmer is reproduced with his pro fits, but also the rent of the landlord. It is therefore the employ ment of a given capital which is most advantageous to society. Next in order come manufactures ; then wholesale trade first the home trade, secondly the foreign trade of consumption, last the carrying trade. All these employments of capital, however, are not only advantageous, but necessary, and will introduce them selves in the due degree, if they are left to the spontaneous action of individual enterprise. These first two books contain Smith s general economic scheme ; and we have stated it as fully as was consistent with the brevity here necessary, because from this formu lation of doctrine the English classical school set out, and round it the discussions of more recent times in different countries have in a great measure revolved. Some of the criticisms of his successors and their modifications of his doctrines will come under our notice as we proceed. The critical philosophers of the 18th century were often destitute of the historical spirit, which was no part of the endowment needed for their principal social office. But some of the most eminent of them, especially in Scotland, showed a marked capacity and predilection for historical studies. Smith was amongst the latter; Knies and others justly remark on the masterly sketches of this kind which occur in the Wealth of Nations. The longest and most elaborate of these occupies the third book ; it is an account of the course followed by the nations of modern Europe in the successive development of the several forms of industry. It affords a curious example of the effect of doctrinal prepossessions in obscuring the results of histori cal inquiry. Whilst he correctly describes the European movement of industry, and explains it as arising out of adequate social causes, he yet, in accordance with the absolute principles which tainted his philosophy, protests against it as involving an entire inversion of the " natural order of things." First agriculture, then manufactures, lastly foreign commerce; any other order than this he considers " unnatural and retrograde." Hume, a more purely positive thinker, simply sees the facts, accepts them, and classes them under a general law. "It is a violent method," he says, "and in most cases impractic able, to oblige the labourer to toil in order to raise from the land more than what subsists himself and family. Furnish him with manufactures and commodities, and he will do it of himself." " If we consult history, we shall find that, in most nations, foreign trade has preceded any refinement in home manufactures, and given birth to domestic luxury." The fourth book is principally devoted to the elaborate and exhaustive polemic against the mercantile system which finally drove it from the field of science, and has exercised a powerful influence on economic legislation. When protection is now advocated, it is commonly on different grounds from those which were in current use before the time of Smith. He believed that to look for the restoration of freedom of foreign trade in Great Britain would have been " as absurd as to expect that an Oceana or Utopia should be established in it ;" yet, mainly in consequence of his labours, that object has been com pletely attained ; and it has lately been said with justice that free trade might have been more generally accepted by other nations if the patient reasoning of Smith had not been replaced by dogmatism. His teaching on the subject is not altogether unqualified ; but, on the whole, with respect to exchanges of every kind, where economic motives alone enter, his voice is in favour of freedom. He has regard, however, to political as well as economic inter ests, and on the ground that " defence is of much more importance than opulence " pronounces the Navigation Act to have been " perhaps the wisest of all the commercial regulations of England." Whilst objecting to the preven tion of the export of wool, he proposes a tax on that export as somewhat less injurious to the interest of growers than the prohibition, whilst it Avould "afford a sufficient advantage " to the domestic over the foreign manufacturer. This is, perhaps, his most marked devia tion from the rigour of principle ; it was doubtless a con cession to popular opinion with a view to an attainable practical improvement. The wisdom of retaliation in order to procure the repeal of high duties or prohibitions imposed by foreign Governments depends, he says, alto gether on the likelihood of its success in effecting the object aimed at, but he does not conceal his contempt for the practice of such expedients. The restoration of freedom in any manufacture, when it has grown to considerable dimensions by means of high duties, should, he thinks, from motives of humanity, be brought about only by degrees and with circumspection, though the amount of evil which would be caused by the immediate abolition of the duties is, in his opinion, commonly exaggerated. The case in which J. S. Mill justified protection that, namely, in which an industry well-adapted to a country is kept down by the acquired ascendency of foreign producers is referred to by Smith ; but he is opposed to the admission of this exception for reasons which do not appear to be conclusive. He is perhaps scarcely consistent in approving the concession of temporary monopolies to joint-stock com panies undertaking risky enterprises "of which the public is afterwards to reap the benefit." 1 He is less absolute in his doctrine of Governmental non interference when he comes to consider in his fifth book the "expenses of the sovereign or the commonwealth." He recognizes as coming within the functions of the state the erection and maintenance of those public institutions and public works which, though advantageous to the society, could not repay, and therefore must not be thrown upon, individuals or small groups of individuals. He remarks in a just historical spirit that the performance of these functions requires very different degrees of ex pense in the different periods of society. Besides the 1 Professor Bastable calls our attention to the interesting fact that the proposal of an export duty on wool and the justification of a tem porary monopoly to joint-stock companies both appear for the first

time in the edition of 1784.