The New Student's Reference Work/Political Economy

Political Econ′omy has various definitions; but there is a general agreement that it is the science relating to the production, distribution and exchange of wealth.  The word is derived from the Greek words oikos for house and nomos for law or rule; but in its wider application it refers not only to the laws and institutions of nations in reference to industry and trade but to the arrangements of Providence in reference to the supply of man’s physical wants.  Although economic questions of various kinds occupied the minds of the Greeks and some other ancient nations and were discussed by their leading thinkers and writers, there was no real science or system of political economy until the time of Adam Smith and his forerunners in the 18th century.  Smith’s Wealth of Nations was the first systematic exposition of the subject by a man thoroughly qualified for his task; and his teaching was defined by himself as a system of natural liberty.  He opposed all regulations and restrictions of trade, as protective tariffs, that seem to interfere with the natural order of things, thus following the school of Rousseau in advocating a return to nature from what he deemed a perverted civilization.  He also followed the example of his predecessors, and showed himself in harmony with the new era by making labor the source of wealth.  The greatness of Smith’s work lies in the fact that he summed up the best thought of preceding times and that his writings have been made the basis of all subsequent progress in economic science.  But great as his influence has been, his ideas have by no means commanded general acceptance.  His system has been variously criticised as too abstract and merely theoretical; and his followers have been characterized as “students of maxims rather than markets.”  The strongest point, perhaps, that is urged against him and his school is that they overlook the importance of the nation as the unit in economic growth and development.  In answer to Smith’s various arguments it is urged that economic questions must be studied in the light of actual conditions in each state or nation and that the wise policy can be determined only from a knowledge of all the factors that enter into industry and trade.  Great changes have also taken place since Smith’s time, which have added new complications to the questions at issue and have placed political economy in a still more unsettled and unsatisfactory condition.  Among these changes the most important is the introduction of machinery, by which individual enterprises have given place to vast corporations and trusts, thus making the relations between capital and labor one of the leading questions in political economy; and it is urged with great force that the concentrations of capital make such a condition in the industrial world that the various issues between capital and labor cannot be settled by the mere “law of supply and demand,” but that moral principles must also be invoked.  Hence the relation of political economy to ethics must be considered by students of the science in our time.

In the United States one of the leading questions in political economy is that of high or low tariff.  While individual opinions range from the extreme positions of absolute free trade (the admission of all foreign imports without duty) to tariff rates that would almost prohibit the introduction of foreign products, the Republican and Democratic parties may be said to be divided on the question whether tariff duties should be levied on foreign imports for purposes of revenue only or whether we should also have a “system of protection” under which our manufactures should be secured against competition with those of other countries.  This question has been a fruitful theme of discussion by statesmen and legislators from Washington’s administration to the present time, even to the extent of being made the leading issue in several presidential campaigns.  See Wealth of Nations by Adam Smith; Principles of Political Economy by J. S. Mill; Clark’s Distribution of Wealth; and Hobson’s The Economic Distribution.