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surprising to find that during a very large part of the intervening period economic investigation and discovery were mainly related to, or sprang out of, currency problems. The exchange of products was a condition of organised society, and currency was a necessary instrument of economic exchange. With the decline of the Roman Empire, itself largely a consequence of the fall of prices due to the failure under the slavery system-an uneconomic system of production-of a continuous and adequate supply of the precious metals as the instruments of exchange, the then existing stock almost disappeared. This fact, which is the keynote to the history of economic science up to the time of the PHYSIOCRATS, may be best studied in the writings of Mommsen, who has written a special treatise on the subject, of which a French translation (by the Duc de Blacis), Histoire de la Monnaie Romaine, is perhaps best known. It was the scarcity of the precious metals as the accepted instrument of exchange during the middle ages that led to the debasements of the coinages, the alterations of coinage ratios in different countries, the laws against usury, and the establishment of the so-called MERCANTILE SYSTEM. The ethical aspect of economics meanwhile continued a force (as evidenced by the writings of AQUINAS, q.v.) and strengthened or checked these developments in various ways. The treatises of Nicholas ORESME and COPERNICUS on the subject of money and coinage (reprinted in Paris under the editorship of WOLOWSKI in 1864) may be consulted as contemporary authorities on the difficulties of the period, and as examples of the progress of economic thought stimulated by the phenomena. Under such circumstances the mercantile system or the BALANCE OF TRADE theory was not without justification, indeed the same theory is practically recognised even by free traders in regard to the finances of India to-day. Amongst English treatises of the 17th and the early part of the 18th centuries on the subject, MUN's England's Treasure by Foreign Trade, 1664, and KING's British Merchant or Commerce Preserved, may be usefully consulted. Economic doctrines tend to crystallise into meanings which their authors would not recognise, thus COBDEN's free trade doctrine has lately been generally represented as a doctrine of low prices, though Cobden expressly repudiated this interpretation; and the desire for an adequate reserve of the metals which constituted the most easily exchangeable form of wealth, crystallised into an assumption that money alone was wealth. The impoverishment of France which resulted from the wars of Louis XIV., and the problems which were thus presented, led to the revolt of the physiocrats, led by QUESNAY and TURGOT, against this doctrine, and to what may be spoken of

as the rediscovery of the fact that real wealth consists of all exchangeable products, and that value is an expression of exchangeability of any kind. The necessary deduction was the doctrine of FREE TRADE. But really the same general conclusion had been arrived at from the consideration of the nature and functions of money alone. In John LOCKE's Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money, written in 1691 in opposition to LOWNDES' anti-usury and coinage proposals, we have not only a recognition of the special or conventional attributes of money as distinct from other commodities, and a clear perception of the QUANTITY THEORY OF MONEY, but a general annunciation of the principle of free trade or free exchange, and the doctrine of LAISSEZ FAIRE. With Locke, however, as with Somers, Montague (see HALIFAX, Earl of), and NEWTON, the consideration of general economics was subsidiary to that of money; or to speak perhaps more accurately, general economics were summed up in the question of the reform of the currency which necessarily involved all considerations of prices and exchange. An American writer, Mr. Dana HORTON, who spent some time in England investigating the records of this country, has given in his Silver Pound, a valuable and scholarly exposition of the problem presented to Locke, Somers, Montague, and Newton, and their practical conclusions. It is a fact that the reconsideration of the real nature of money, and the recommendation of conditions necessary for the free international movement of money, preceded and were closely allied with the development of the free trade doctrine. The most conspicuous expounders of the relation between monetary conditions and free trade in the 19th century have been Emile de LAVELEYE and Sir Louis MALLET, (see particularly the latter's posthumous volume Free Exchange). In the middle ages the monetary side of economics was forced on attention from the administrative point of view, as a question of government revenue and the provision of war funds. With the greater abundance of the PRECIOUS METALS, which followed the discovery of America, came a revival of industrial and commercial energy; an increase of production, exchange, and, consequently, wealth under the stimulus of rising prices; and a growth of selfassertiveness and power amongst the producing and trading classes. This caused what may be spoken of as a parallel development of the commodity side of economics. While the economic progress, which resulted from the great increase of the money supply from the mines of Potosi, developed a clearer perception of the disadvantages of monetary stringency, it also led to a recognition of money as a means to an end, rather than as an end in itself. The advent and influence of John Law, with his

paper money and banking schemes, was made possible in this way. From the philosophical point of view what Law aimed at was the monetisation of landed property, and he sought to give such property the condition of easy transportableness, or circulation, recognised by Aristotle in gold and silver, by means of paper representatives. Law's disastrous experiments undoubtedly gave an impetus to banking as a means of promoting exchanges without the aid of the precious metals, or perhaps, to speak more accurately, as a means of supplementing the monetary use of gold and silver by means of notes or other credit instruments ultimately redeemable in gold or silver, and therefore, held for the time being as equivalent to gold or silver (see ASSIGNAT; REVOLUTION, FRENCH, ECONOMIC ASPECTS OF). Law himself, it should be noted, was a believer in the mercantile system, but his career powerfully contributed to the evolution of the physiocratic doctrine. As authorities on this stage, in the development of the science, Law's own writings, and Courtois's Histoire des Banques en France, may be recommended.

(2) Economics as based on the Element of Labour.-Adam SMITH'S treatment of labour and its employment, as constituting the real wealth-fund of nations, was a natural sequence of the revolt from the crystallised dogma of the mercantilists, and to proceed to regard labour as in itself the real standard of value, was a not unnatural step. There is some reason to doubt whether Smith's views on this point have been quite adequately expounded or even understood; assuming a theoretical perfect mobility of labour, and the non-existence of monopolies, and estimating different qualities or kinds of labour as different quantities of labour, there is a point of view from which Smith's dictum might be philosophically justified. Certainly the cost of production theory seems closely allied to Smith's views on this point. It was of course apparent to Smith that land is a factor in the production of wealth, inasmuch as he defines real wealth as "the annual produce of the land and labour of the society." The definition, it may be remarked, is scarcely comprehensive enough at the present day, as it is clear that the wealth of a nation may consist largely of the accumulations of past years, or of revenue derived from investments in other countries, as well as of its own new annual production. We are chiefly indebted to Smith for laying down the ground-work of the modern science, and explaining the general conditions which govern production, including the division of labour, and for the exposure of the fallacies of the mercantile system, and thus more clearly bringing into view the principles of economic exchange or distribution.

(3) The Gradual Appearance of the Ethical

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Element.-After Smith's mapping out of the science, its ethical aspect could not fail to assert itself. The conditions of the creation of national wealth were defined; meanwhile poverty and pauperism continued to exist, and that fact brought the question of distribution permanently to the front. In the year following (1777) the publication of the Wealth of Nations, Dr. James Anderson, in a tract entitled An Inquiry into the Nature of the Corn Laws, stated the theory of rent generally known as Ricardo's (see ANDERSON), rent being described as in effect a premium for the cultivation of the richer soils, which reduced the profits of the cultivators to an equality with those of the cultivators of the poorer soils. Ricardo's definition was that rent arises out of the original and indestructible powers of the soil, begins when land of different qualities are cultivated, and increases with the increase in the inequality of the land successively brought under cultivation. MALTHUS and the anony

mous author (Sir Edward WEST) of an essay, On the Application of Capital to Land, preceded Ricardo, in 1815, in the re-discovery of Anderson's doctrine, and in the mind of the former it necessarily led to the discovery of the law of diminishing returns, and of the doctrine that population tends to increase faster than subsistence. These laws and the counteracting forces operating against them have been discussed by many economists, amongst others, M'CULLOCH, Dr. T. CHALMERS, CAREY, J. S. MILL, SIDGWICK, and Marshall (see DIMINISHING RETURNS). CAIRNES has conclusively established the former doctrine as a logical principle by challenging opponents to experiment, and by pointing out that the experiment is actually performed by every practical farmer when he brings inferior soil into cultivation, rather than force unprofitably soils of better quality. Francis A. WALKER's examination, in The Wages Question, of the capacity of labour for gradual degradation, and the circumstances which interfere with the mobility of labour, fully demonstrates the power and the "tendency of population to increase faster than subsistence. Counteracting forces, such as improvements in the methods of production, or increased efficiency, may control such tendencies; and it is the work of economists to elucidate and promote the application of such forces. Meanwhile the recognition of the tendencies or laws really reduced the question of the distribution of wealth to a question of wages. Ricardo held that with the constant necessity of resorting to inferior soils, prices and wages tended to rise and profits to fall. Here again we see the influence of the cost of production theory. We must remember that, as M'Culloch has pointed out (Introduction to The Works of David Ricardo, edited by M'Culloch), Ricardo arrived at the establish

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ment of general principles, and paid little attention to their practical application. As regards nominal wages, the doctrine is in a sense true; but the law of rent, as stated by Anderson, nevertheless implies the reduction of the real wages of agricultural labourers to the mere value of the produce obtainable with the maximum of effort from the poorest land, or the land that pays no rent. If the real wages of agricultural labourers have risen, it has not been in consequence of increasing scarcity of production in relation to demand or increased cost of production, but in consequence of the increased efficiency of labour as a result of the progress of the natural sciences and invention, and their application to the land.

The

(4) Application of (a) A priori.- The attention given to the discovery of general or "natural" laws or tendencies, led to the establishment of what is now recognised as the a priori school of economists, while the lamentable conclusions to which some of these laws seemed to lead resulted in a revolt against submission to them. The "DOCTRINAIRE school, influenced by its physiocratic origin, and, therefore, predisposed to attribute all wealth to the operation of uncontrolled natural laws and natural instincts, a view expressed in the very name of the physiocrats, adopted the principle of LAISSEZ-FAIRE, LAISSEZ-PASSER, a phrase first used as the expression of an economic doctrine by GOURNAY, one of the earliest physiocrats and a friend of Turgot's. fact that some of the practical applications of this doctrine, free trade, for instance, were manifestly benevolent; and the long struggle against private monopoly resulting from State control in the form of the CORN LAWS, developed the extreme and uncompromising tenet, characteristic of what has been called the MANCHESTER SCHOOL-that State interference with industry and trade could in no case be beneficial, and that, if left alone, all economic evils would cure themselves. The opponents of this doctrine held to the principle of State control or national policy, which, though to some extent a revival of the principle of the mercantile system, was not absolutely identical with it.

Its application from the landowning and capitalist point of view takes the form of so-called protection to native industry in the form of import duties; while from the proletariat point of view it has developed into the doctrines of COLLECTIVISM OF SOCIALISM, including the State ownership of the land and of all the instruments of production and distribution. Between these opposing schools, both eminently doctrinaire in their way, has arisen a third school known as the HISTORICAL SCHOOL, which to some extent combines the teachings of both the other schools. This school, on the one hand, believes in natural law, and, on the

other, in the employment or control of natural law, in accordance with the teachings of experi ence, but without any needless waste of natural energy. It is a little remarkable that, whereas in the earlier part of the century, Manchester, under the influences of the anti-corn-law movement, was the centre of the laissez-faire doctrine; and London, under the influence of the landowners, was the stronghold of the principle of State control; London to-day is the centre of laissez-faire principles, while Manchester is the centre where the teachings of the historical school have been most appreciated and applied. This result is largely a consequence of the economic advantage which has accrued to Lancashire, in the form of increased efficiency of production, as a result of the factory and mining acts (see FACTORY ACTS) and the legalisation of TRADE UNIONS.

This

In resisting attack the extreme laissez-faire school found it necessary to propound new doctrines, or to emphasise old doctrines which no longer accurately expressed the actual facts of the time. In other words, the laissez-faire school having served a useful purpose, tended, like previous schools, to crystallise and to become more and more dogmatic. Chief amongst the newly evolved doctrines was that of the wages fund, perhaps most intelligently expounded by Nassau William SENIOR. doctrine, like many others which have now been practically abandoned, arose out of conditions under which it was apparently true, and in so far as it expressed a relation between wages and the productive efficiency of labour Iwas not without value. Its fallacies under present conditions have been fully exposed in Walker's Wages Question, in which it is demonstrated that wages are now, at least partly, paid out of the product of present industry, and that new production rather than pre-existing capital, or that portion of capital applied to production, furnishes the true measure of wages. Another doctrine which has failed to stand in its entirety the test of modern research and developments is that of the dependence of exchangeable value on cost of production. To some extent this doctrine was based on Smith's conception of labour as a standard of value, and Ricardo's belief that prices and wages must rise with the diminution of production from poor land which required for its cultivation the same as, or even a larger quantity of labour than, rich land required. Modern mechanical developments, the approximation to annihilation of distance by the establishment of telegraphic, steamship, and rail. way communication, the consequent indefinite extension of cultivation to virgin lands, the instantaneousness of competition from all sources of supply, the rise of the "futures system of anticipating production, and the vast improvements in productive power have all

"

tended to make the older doctrinaire authorities less authoritative as exponents of actual conditions. Thus, in recent times, production has, beyond all question, tended to increase faster than population, or, at any rate, the power of production has done so. The laws of diminishing returns and cost of production of the dearest margin have not operated to raise either prices or wages; it is indeed notorious that both have been fixed rather by the cheapest than the dearest portion of the supplies, even when the dearest portion has been required for consumption. The effect of the reduced monetary cost of Argentine wheat in lowering the price of wheat throughout the world in spite of statistical considerations is an illustration. With the recently developed solidarity of the world's markets, prices in many instances, and consequently profits and wages, now depend rather on variations in the monetary standards and relative indebtedness of different countries than on differences in the total actual economic cost of production. Varia. tions in the relative values of the standards, in themselves largely a consequence of differences in the permanent indebtedness of borrowing, as distinct from lending, countries have made many of the old formulæ obsolete in a practical sense, though possibly true in an ultimate philosophical sense. Two doctrines which at present maintain a practical influence are the QUANTITY THEORY OF MONEY in relation to prices, and the doctrine of PROTECTION. The former doctrine was fully stated by J. S. MILL, and is maintained by Professor Foxwell and Professor Nicholson amongst more recent teachers of the science. J. S. Mill also reaffirmed the protectionist doctrine as provisionally applicable to new countries whose industry is practically limited to agriculture, as a means of beneficially introducing greater variety of production. The theory of protection philosophically considered has been most elaborately worked out in connection with the development of the United States. Its chief exponents have been Alexander HAMILTON, Friedrich LIST, Henry C. CAREY, and Simon N. PATTEN. An excellent account of American experience and thought on the matter has been compiled by Professor Ugo RABBENO of the university of Modena, and an English translation has been published with the title American Commercial Policy. The doctrines of the collectivist or socialist branch of the State control school have been enunciated chiefly by Karl MARX in Das Kapital; see also Emile de LAVELEYE'S Le Socialisme Contemporain, and Paul LEROY-BEAULIEU's Le Collectivisme.

(b) Historical; and the gradual rise of the principle of Freedom with new Aspects of State Control.-The founder of the historical school, which at the present time is practically in the ascendant, was Wilhelm ROSCHER, who inaugu

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rated the new departure by a treatise on the historical method of economic inquiry in 1843. Probably the most exhaustive summary of the kind, remarkable for its completeness as a treasury of economic facts and deductions and perfection of arrangement, are the five volumes of ROSCHER's System der Volkswirthschaft, the production of which extended over about fifty years of the author's life. The first volume was published in 1854, and the fifth in 1894. Roscher's great work was designed as "a manual and text-book for business men and students," and the volumes deal successively with (1) The General Principles of Economics; (2) Agriculture and its Allied Industries; (3) Trade, Monetary Systems, the Exchanges, and Manufacturing Industry; (4) Finance; and (5), published posthumously, Poor-Relief and PoorLaw Policy. Roscher's method is analogous to that of the unbiassed experimentalist in physical science; in short Roscher was in economic science what Michael Faraday was in physical science. From his point of view the science is not limited to the production of wealth, but embraces the whole social, family, and religious life of man; speech, art, science, laws, history, and even physiology are all factors to be taken into account in the elucidation of economic problems. Most of the mistakes which were made by the older economists were due to the exaggerated importance attached to the desire to buy in the cheapest market and sell in the dearest-to the neglect of equally powerful influences in the nature of man and hindrances to the free play of this principle in the relative weakness of the workman-which procured for political economy the title of the science of selfishness. Amongst the most successful followers of Roscher's method may be mentioned Emile de Laveleye, Cliffe LESLIE, WOLOWSKI, CUNNINGHAM, and Francis A. WALKER. The latter's restatement of the wages problem has probably done more to advance economics as a practical study for application in the amelioration of society, and for its vindication as a science than any specific investigation of a particular problem in economics since the time of Adam Smith. Another great result of the application of the HISTORICAL METHOD is the investigation of the limits within which the State may act to promote economic production and to control and counteract what may be spoken of as the occasionally uneconomic tendencies of unrestricted competition. Practical results of these investigations have been sanitary legislation, the various factory and mining acts for the special protection of women and children and for the general protection of the life and limbs of workers; the free education acts and municipal and state enterprises such as the gas and water undertakings of Manchester and the state railways of India; W. Stanley JEVONS'S The State in Relation to Labour, Lord Farrer's The

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State in Relation to Trade, and Sir Frederick | Pollock's Land Laws, may be usefully consulted with regard to the question of the economic justification and limitation of State interference. The relation between investigations in economics and the physical and biological sciences, established by the formation of the economic science and statistics section of the British Association, has also done much for the modern progress of political economy, and the long series of presidential addresses to that section form an invaluable record of economic thought and discovery in recent years. Apart from the practical effect of discoveries in chemistry and physics on agriculture and manufactures, the application of anthropometrical inquiries, and statistical investigation generally, to the study of economics, has long since dispelled the supposed antagonism between economics and the exact sciences. One result of this development of exact investigation has been the recognition of the personal and moral qualities of the labourer, his social surroundings, aspirations, and physical well-being, as economic forces tending to the increase of wealth, through the increase of efficiency. The contrast is apparent when we remember that Senior wrote, "it is not with happiness but with wealth that I am concerned as a political economist; and I am not only justified in omitting, but, perhaps, am bound to omit, all considerations which have no influence on wealth." To-day the happiness of the labourer is regarded as a most important influence in increasing the production of wealth. American statistical investigations in recent years have finally demonstrated the productive superiority of free over slave labour; Emile de Laveleye in his agricultural researches (L'Economie Rurale de la Belgique, L'Economie Rurale en Suisse et en Lombardie, and L'Economie Rurale en Néerlande) has shown, that the personal motive for the avoidance of waste under systems of peasant proprietorship and assured small holdings may more than compensate for the economic advantages of the application of the principle of the division of labour on large holdings. Amongst American economists SCHOENHOF (The Economy of High Wages) has done striking work in this direction. Perhaps the most impressive evidence of the change effected in economic thought by the historical school of economists, and by the recognition of the "interconnection of the sciences" developed by the British Association, is the fact that it is now possible to regard such proposals as that of a legislative eight-hours day and a fixed minimum wage from a strictly scientific, as well as from an ethical standpoint; or, in other words, to consider them as proposals tending to the increase of the national wealth and as true economic limitations in this sense to the doctrine of laissez faire. The relation between economics and the exact sciences is,

however, not limited to the last half-century. Aristotle was a naturalist as well as an economist; Copernicus and Isaac Newton both wrote on the currency and treated it as a question of fact and observation rather than of doctrine. Of recent writers JEVONS' study of chemistry colours his Principles of Science, essentially a treatise on logic and scientific method; his study of geology influences his work on the Coal Question, which now influences the finance of this country through turning the attention of statesmen to the necessity of the redemption of the National Debt. And in the present day Suess of Vienna, the author of the great work Das Antlitz der Erde, has shown in his Die Zukunft des Silbers that the currency question is largely and in some respects essentially a geological question. There was something prophetic in the application of the name "PHYSIOCRATS" to the first school of modern economists.

F. J. F.

VII. POLITICAL ECONOMY, Postulates of. Under this title Walter BAGEHOT proposed to pass in review the principal assumptions of economic science, as it had been developed in England (his title is The Postulates of English Political Economy), and to examine the conditions and the extent of the validity of each. The two essays bearing the title stated deal with The Transferability of Labour, and The Transferability of Capital respectively. The discussion of the former leads to the conclusion that there are at least four conditions which must be satisfied before it is safe to assume for any nation that labour can pass easily from employment to employment within it. These

are stated to be:-(i) The existence of such employments for it to move between; (ii) the existence of an effectual government capable of maintaining peace and order . . . and not requiring itself to be supported by fixity of station in society; (iii) the nation must be capable of maintaining its independent existence against other nations without a military system dependent on localised and immovable persons; (iv) there must be no competing system of involuntary labour limiting the number of employments, or moving between them more perfectly than contemporary free labour (vide Economic Studies, p. 40). In dis cussing the second of the postulates, the transferability of capital, the conditions laid down for its applicability are that there should exist: (i) Capital at the disposal of persons who may wish to transfer it; (ii) transferable labour; (iii) such a development of the division of labour as to create what we call "trade," that is to say, a set of persons working for the wants of others, and providing for their own wants by the return-commodities received from the others; (iv) a medium in which profits can be calculated, that is, a money, and moreover, a good money; (v) the means of shifting