A SCIENCE IN ITS YOUTH

A.ANIKIN

Progress Publishers Moscow

Translated from the Russian by K. M. Cook Designed by G. Dauman

A. B. AHHKHH

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CONTENTS

Page

Introduction.............................................................................................

7

Economists of the Past and the Present Times. Marx and His Predecessors. Three Centuries.

Chapter I. Origins .................................................................................... 19

Who Was the First Economist. The Very Beginning: Aristotle. Economics and Chrematistics. The Science Receives Its Name. Political Economy and Economics.

Chapter II. The Gold Fetish and Scientific Analysis: the Mercantilists ... 37 Primitive Accumulation. Thomas Mun: an Ordinary Mercantilist. The Pioneers. Mercantilism and Our Age.

Chapter III. The Praiseworthy Sir William Petty..................................... 53

Petty Strides Across the Centuries. From Cabin Boy to Landowner. The Columbus of Political Economy. Political Arithmetick. Petty and Graunt, or Who Invented Statistics? The Age and the Man.

Chapter IV. Boisguillebert, His Age and Role......................................... 82

The French Poor. The Rouen Judge. Crime and Punishment. The Theoretician. Boisguillebert and French Political Economy.

Chapter V. John Law---Adventurer and Prophet................................... 96

A Dangerous Career and Bold Ideas. The Conquest of Paris. The Great Collapse. Law and the 20th Century.

Chapter VI. Pre-Adam Economics........................................................... 115

The 18th Century. Political Economy Likes Robinsonades. The Paradoxes of Doctor Mandeville. The Formation of the Classical School. David Hume.

Chapter VII. Benjamin Franklin and Transatlantic Economics.............. 135

Life and Works. Franklin the Economist. American Political Economy after Franklin.

Chapter VIII. Doctor Quesnay and His Sect ........................................... 152

The Age of Enlightenment. Madame de Pompadour's Physician. The New Science. The Physiocrats. Doctor Quesnay's ``Zig-Zag''.

First printing 1975

© M3£aTeAbCTBO «nporpecc», 1975

© Translation into English. Progress Publishers 1975

Printed in the Union of Soviet Socialist Republics

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Chapter IX. Turgot---Thinker, Minister and Man . Thinker. Minister. Man.

INTRODUCTION

Chapter X. Adam Smith. The Scottish Sage ............................................ 180

Scotland. Professor Smith. Smith in France. The "Economic Man". Laissez faire.

Chapter XI. Adam Smith. The Creator of a System................................ 199

The Wealth of Nations. Division of Labour. Labour Value. Classes and Incomes. Capital. Smithianism. Smith's Personality.

Chapter XII. David Ricardo. The Genius from the City.......................... 219

The Industrial Revolution. The Wealthiest Economist. At the Approaches: the Problem of Monetary Circulation. The Principle of Comparative Cost. The Main Book.

Chapter XI11. David Ricardo. The Crowning of the System................... 240

The Puzzle---Value. Sharing out the Cake, or Ricardian Surplus Value. Wither Capitalism? Member of Parliament. A Picture of the Man. Ricardo and Marx.

Chapter XIV. Around Ricardo---and Later............................................ 256

The 19th Century. Malthus and Malthusianism. Man and the Earth. The Disintegration of Ricardianism. John Stuart Mill. The Political Economy of Compromises.

Chapter XV. Economic Romanticism. Sismondi ..................................... 281

The Citizen of Geneva. Criticism of Capitalism. Crises. The Historical Fate of Sismondism. Proudhon.

Chapter XVI. The Say School and Cournot's Contribution .................... 300

France in the Age of Balzac. Say---Man and Scholar. Factors of Production and Incomes. "Say's Law". The School. Cournot: His Life and Work. Cournot's Contribution. Mathematical Methods in Economics.

Chapter XVII. Economic Nationalism. Friedrich List............................. 324

List and German History. Office, Prison, Emigration. The National System. List's Later Years. The Nation's Industrial Education. Protectionism and Free Trade. The Historical School. Rodbertus: a Special Case.

Chapter XVIII. The Wonderful World of the Utopists. Saint-Simon

and Fourier........................................................................................... 342

From Count to Pauper. The Teacher. Saint-Simonism. The Hard Life of Charles Fourier. This Mad World. The Shape of Things to Come.

Chapter XIX. Robert Owen and Early English Socialism........................ 366

The Man with the Big Heart. Owen and Political Economy. Owen's Communism. Working-Class Thinkers. From a Utopia to a Science.

There are scores, or rather hundreds, of scholarly works in various languages on the history of economic thought, and it is not the writer's aim to add yet another to the collection. This book has been written in the form of popular essays, making it possible to pinpoint the most salient biographical and scientific details; the emphasis has been placed on questions which are still most topical in the present day.

The book is intended for the general reader, who may not possess any specialised knowledge of political economy. Some people are accustomed to think of political economy as a dry and boring subject. Yet the economic structure of society contains no fewer fascinating problems and secrets than nature.

In recent times it has become particularly common for scholars in the exact and natural sciences to concern themselves with economic questions.

Nor is it accidental that at the beginnings of economic science we find outstanding thinkers who have left an indelible mark on human culture, people with wide-ranging and original minds, great scientific and literary talent.

ECONOMISTS OF THE PAST AND THE PRESENT TIMES

Economics has always played a most important part in the life of mankind, and this is particularly true today.

Marx said how absurd it was to maintain that the ancients lived on politics and the Middle Ages on Catholicism. Mankind has always "lived on economics", and politics, religion, science and art could exist only on the basis of economics. The fact that economics was undeveloped in the past is the main reason for such views about these periods. Modern economics plays a vital part in the lives of each and every one of us.

The world of today is actually two different worlds, socialist and capitalist, each with its own economy and its own political economy. The developing countries which have freed themselves from colonial rule are also playing an increasingly important role in the world arena. The need to decide which path of development to take is becoming increasingly urgent for these countries. A study of the history of political economy helps one to understand the problems of the modern world, to understand economic science as an integral part of one's own world outlook.

The classics of bourgeois political economy, particularly Adam Smith and David Ricardo, were the first to develop the theory of the economy as a system in which objective laws operate, independently of human will, but are accessible to human understanding. They believed that the economic policy of the state should not go against these laws, but rest upon them.

William Petty, Francois Quesnay and other scholars laid the foundations for the quantitative analysis of economic processes. They sought to examine these processes as a kind of metabolism and to define its directions and scope. Marx made use of their scientific achievements in his theory of the reproduction of the social product. The balance between consumer commodities and means of production, the proportions of accumulation and consumption, and the relations between the different branches play a most important part in the modern economy and economic studies. The works of these pioneers of economic science gave birth to modern economic statistics, the importance of which cannot be overestimated.

In the first half of the 19th century economic analysis attempted to employ mathematical methods without which it is now impossible to conceive of the development of many branches of economic science. One of the pioneers in this field was the French economist Antoine Cournot.

The classics of bourgeois political economy and also exponents of petty-bourgeois and Utopian socialism analysed many of the contradictions in capitalist economy. The Swiss economist Sismondi was one of the first to try to understand the causes of economic crises, the scourge of bourgeois society. The great Utopian socialist Saint-Simon, Fourier, Owen and their followers made a profound criticism of capitalism and compiled plans for the socialist reconstruction of society.

As V. I. Lenin wrote, "the genius of Marx consists precisely in his having furnished answers to questions already raised by the foremost minds of mankind. His doctrine emerged as the direct and immediate continuation of the teachings of the greatest representatives of philosophy, political economy and socialism".^^1^^

Classical bourgeois political economy was one of the sources of Marxism. Yet Marx's teaching was a revolutionary turningpoint in political economy. Marx showed that capital is a social relation, which is essentially the exploitation of the hired labour of proletarians. He explained the nature of this exploitation in his theory of surplus value and showed the historical tendency of capitalism: the aggravation of its antagonistic, class contradictions and the ultimate victory of labour over capital. Thus Marx's economic theory contains a dialectical unity: it both rejects the bourgeois conceptions of his predecessors and creatively develops everything positive which they created. The aim of this book is to reveal and explain this unity.

Scientific socialism is based on the economic theories of Marxism-Leninism. The explanation of the origins and roots of these theories is of great importance if they are to be fully understood and creatively developed.

V. I. Lenin, Collected Works, Vol. 19, p. 23.

MARX AND HIS PREDECESSORS

Philosophy, political economy and scientific communism are the three component parts of Marxism. The philosophy of Marxism is dialectical and historical materialism. The main principle of historical materialism is that the development of society is based on changes in its economic structure. Political economy studies this structure, and reveals the laws of movement of socio-economic formations and the transition from one formation to another. Scientific communism is the theory of socialist revolution, the ways of building the new, communist society and the basic stages and features of this society.

Each of the component parts of Marxism is also a development of the progressive ideas of earlier thinkers, a development of world science. These three component parts correspond to the three sources of Marxism. As V. I. Lenin wrote, "Marx ... continued and consummated the three main ideological currents of the nineteenth century, as represented by the three most advanced countries of mankind: classical German philosophy, classical English political economy, and French socialism combined with French revolutionary doctrines in general." '

This famous thesis is revealed in all its depth and concreteness primarily in the works of Marx himself. Marx described in detail, with great analytical profundity, everything he owed to Hegel and Feuerbach, Smith and Ricardo, Saint-Simon and Fourier. Among the qualities which Marx possessed was a remarkable academic conscientiousness. In particular, his knowledge of the economic literature of the eighteenth and first half of the nineteenth centuries was practically comprehensive.

Marx's main scientific work Capital is sub-titled "A Critique of Political Economy". The fourth volume of this work, Theories of Surplus-Value, is devoted to a critical analysis of all preceding political economy. Here Marx's main method was to single out in each writer the scientific elements which help in some degree or other to solve the principal task of capitalist political economy---to reveal the law of motion of the capitalist mode of production. At the same time he showed the

bourgeois limitations and inconsistencies in the views of these political economists of the past.

Marx devoted a considerable amount of space to the • criticism of political economy which he called vulgar, because it aims not at true scientific analysis, but at justifying and openly defending the capitalist system. Naturally the main representatives of this trend of bourgeois political economy also occupy a considerable place in the present volume. In criticising the apologetic views of bourgeois economists Marx developed proletarian political economy.

The reader of Capital and Marx's other economic works is presented with a whole gallery of scientific personages of the past. Like every other science, political economy was developed not only by the acknowledged masters, but also by the efforts of many, often lesser-known scholars. The classical school of political economy was for a century and a half a very broad trend within which a large number of scholars worked and wrote. Smith, for example, was preceded by whole generations of economists who thoroughly prepared the ground for him. Therefore, while concentrating mainly on the life and ideas of the most eminent figures, the author of the present volume has also striven to reflect to a certain extent the contribution of lesser-known, but frequently important thinkers with the aim of giving a fuller outline of the development of political economy as a science. It is important to explain the circumstances, the social and intellectual ``atmosphere'', in which these scholars lived and worked.

To confine a history of political economy to the works of Smith, Quesnay and Ricardo would be as wrong as, for example, to maintain that the whole history of mathematics is contained in the activity of Descartes, Newton and Laplace. Histories of 17th century art acknowledge the "minor Dutch painters" as well as the great Rembrandt.

For over a century now bourgeois science and propaganda has been trying to distort the historical role of Marx as a scientist. Here one can clearly distinguish two lines of approach. The first is to ignore Marx and his revolutionary teaching and to represent him as a figure of little scientific importance or as a figure outside the "Western cultural tradition" and, consequently, outside ``true'' science. Here the link between Marx and his predecessors, particularly the classical bourgeois economists, is belittled, underrated.

V. I. Lenin, Collected Works, Vol. 21, p. 50.

In recent decades, however, the second approach has become more typical: to turn Marx into an ordinary (or even extraordinary) Hegelian and Recardian. Marx's proximity to Ricardo and the whole classical school is emphasised strongly and the revolutionary nature of the turning-point in political economy brought about by Marx is glossed over. This was the attitude adopted by J. A. Schumpeter, the author of one of the largest 20th-century bourgeois works on the history of economic thought. Classing Marx as a Ricardian, he states that Marx's economic teaching differs little from Ricardo's and therefore suffers from the same defects. Incidentally, even Schumpeter admits that Marx "transformed these ( Ricardo's---A. A.) forms and he arrived in the end at widely different conclusions".^^1^^

One frequently encounters the belief that Marxism can be reconciled with modern bourgeois sociology and political economy because they all, it is asserted, proceed from the same source. John Strachey, the well-known British Labour theoretician, wrote that he regarded the latter as "a modest step in the indispensable process of re-integrating Marxism with the Western cultural traditions from which it derives, but from which it has widely diverged".^^2^^

As we know, in recent years there has been a considerable growth of interest in Marx and Marxism among bourgeois economists. It has become fairly common for them to attempt to use individual elements of Marx's teaching. In framing recommendations on economic policy concerning strategic problems (economic growth, accumulation, distribution of national income), where it is necessary to give a realistic assessment of the state of affairs, the more farsighted scholars are frequently attracted by the methods and results of Marxist analysis.

This growth of interest in Marxism can be seen, for example, from R. L. Heilbroner's history of economic thought up to the present day. This book contains an interesting account of the life and activity of Marx. The author notes that Marxist economic analysis remains the gravest, most penetrating examination the capitalist system has ever undergone. "It is

not an examination conducted along moral lines with headwagging and tongue-clucking.... For all its passion, it is a dispassionate appraisal and it is for this reason that its sombre findings must be soberly considered." '

The ``radical'' political economy that has appeared recently in the West challenges the orthodoxy of traditional doctrines. The representatives of this trend are particularly critical of the main schools for rejecting socio-economic analysis and for their formalism and sterility. They emphasise the effectiveness of the approach which links Marx with Ricardo: the class analysis of the problem of the distribution of incomes in

society.

Naturally, these phenomena are to be welcomed. What must be rejected, however, is the idea of a ``merger'' of Marxist and bourgeois political economy into a single scientific discipline. For Marxists economic theory is the basis for arguing the need for the revolutionary transformation of society, but bourgeois economists, the radicals included, do not draw these conclu-

sions.

Reformism and the related Right-wing opportunism in the communist and working-class movement tend to regard Marxism as a trend rooted solely in the humanist, liberal school of social thought in the 19th century. The fact that Marxism is primarily the revolutionary ideology of the working class and totally unlike any form of liberalism is glossed over. The theoretical side of Marxism is frequently divorced from its revolutionary practice.

Of great importance for spreading Marxist-Leninist doctrine among the masses is the struggle against ``Left''-wing revisionism and dogmatism. The latter tend to ignore the theories and views of the predecessors of Marxism. They also play down the scientific analytical side of Marxism, its view of social development as a process which takes place in accordance with objective laws. Voluntarism in economics and adventurism in politics are typical of ``Left''-wing revisionism.

Among the "New Left" one finds those who link Marxism with the anarchist ideas of Proudhon and Kropotkin, with whom Marx is alleged to have had a lot in common. It is a well-known fact, however, that for many years Marx and

Joseph A. Schumpeter, History of Economic Analysis, New York, 1955, p.

390.

J. Strachey, Contemporary Capitalism, London, 1956, pp. 14-15.

~^^1^^ R. L. Heilbroner, The Worldly Philosophers. The Lives, Times and Ideas of the Great Economic Thinkers, 3rd edition, New York, 1968, p. 153.

Engels conducted a fierce battle against Proudhon and his teaching. The idea of a ``counter-culture'' sometimes develops into the rejection of all aspects and elements of bourgeois culture. Marxism-Leninism has demonstrated in theory and practice the absurdity and harm of attempts to construct a new, anti-bourgeois culture out of thin air. The new culture does not reject the old one out of hand, but makes use of its best, progressive elements.

In this connection it should be noted that in the very first years of Soviet power V. I. Lenin constantly drew attention to the need for making use of all the riches of human culture in building communist society.

Marx, Engels and Lenin exposed and criticised bourgeois economic theories aimed at vindicating the capitalist system, revealed their social origins and aims, and their superficial, unscientific view of the laws and processes of economic development. They were particularly uncompromising in their attacks on ideology which threatened to damage the workingclass movement and divert it from revolutionary tasks.

At the same time the Marxist classics intended by their criticism to select from bourgeois economic conceptions the rational elements which promote an understanding of objective reality. They stressed, in particular, the need for a study of concrete economic writings by bourgeois scholars.

capitalist country and even in Marx's time political economy was still regarded as a predominantly English science. In France, too, capitalism began to develop earlier than in most other countries'; as a result the term "political economy" was first coined in French. The economists of this period include few Americans, but among them is the wise Franklin.

The first economists were usually, to quote Marx, " businessmen and statesmen". They were prompted to reflect upon economic questions by the practical needs of the economy, trade and state administration.

We see Shakespeare's contemporaries long-haired cavaliers in lace and austere soberly dressed merchants of the age of the early capitalist accumulation. These are the royal counsellors---the mercantilists Montchretien, Thomas Mun.

Another group. Here we have the founders of classical political economy, Petty, Boisguillebert and other forerunners of Adam Smith, in large wigs and long coats with wide turned-back sleeves. They do not engage in political economy professionally for such a profession does not exist as yet. Petty is a physician and unsuccessful politician, Boisguillebert---a judge, Locke---a famous philosopher, Cantillon---a banker. They usually address kings and governments, but are also beginning to write for the enlightened public. And for the first time they are posing the theoretical problems of the new science. Petty stands out in particular. He is not only a brilliant thinker, but also a vivid and original personality.

And here is the dynamic figure of John Law, the great schemer and adventurist, the ``inventor'' of paper money and the first theoretician and practitioner of inflation. The rise and fall of Law is one of the most vivid pages in the history of France at the beginning of the 18th century.

The huge wigs, such as we see on portraits of Moliere or Swift, are replaced by short, powdered ones with two curls on the temples. The calves are clad in white silk stockings. These are the French economists of the mid-18th century, the Physiocrats, friends of the great philosophers of the Enlightenment.

Their acknowledged leader is Francois Quesnay, a physician by profession and economist by vocation. Another eminent scholar is Turgot, one of the most sagacious and progressive statesmen in pre-revolutionary France.

THREE CENTURIES

Economists' ideas are to a great extent determined by the level of development of their country's society and economy. Therefore in the accounts of their life and activity the reader of this book will also find a brief outline of the economic features of the period and country.

The development of political economy from the 17th to 19th centuries was predetermined by the growth of a new social order, at that time a progressive one, namely, capitalism. People of great talent and forceful personality emerged, great thinkers.

Let us try to conjure up for a moment a gathering of the economists of three centuries. A varied company indeed!

Most of them are English, but there is a fair sprinkling of Frenchmen. This is understandable. England was the leading

Adam Smith.... His popularity in Russia was so great that Pushkin, depicting a young man from high society in the 1820s in his famous novel in verse Eugene Onegin, wrote that

From Adam Smith he sought his training

And was no mean economist;

That is, he could present the gist

Of how states prosper and stay healthy

Without the benefit of gold,

The secret being that, all told,

The basic staples make them wealthy.^^1^^

Smith's biography is somewhat similar to that of Newton: it contains few external events and an inner intellectual life of great intensity.

The name of Smith's followers is legion. In the late 18th and early 19th centuries being engaged in political economy meant being a follower of Smith. The great Scot began to be "put right" (meaning ``right'' in the political sense, not only in the sense of ``correct''). This was done by such people as Say in France and Malthus in England. Political economy began to be taught in the universities, becoming a ``must'' for educated young men from the privileged classes.

Now the rich financier and self-taught genius David Ricardo appears on the scene. This is the age of Napoleon, so naturally he is without a wig and is wearing a frock coat and long, tight breeches instead of a long coat and knee-length hose. Ricardo was to complete the development of bourgeois classical political economy. But already during his lifetime there were attacks on Ricardo, who had pointed out the conflict between the interests of the two main classes in capitalist society---the bourgeoisie and the workers.

Ricardo's followers fall into several different groups. On the one hand, the socialists tried to use his theories against the bourgeoisie. On the other, vulgar political economy developed in bourgeois science on the remains of Ricardo's teaching. Thus we approach the 1840s which saw the beginning of the activity of Karl Marx and Frederick Engels.

In expressing the ideas of the most progressive section of the

bourgeoisie, the classical economists clashed with the feudal, land-owing aristocracy which was firmly ensconced in England and which dominated in France until the revolution at the end of the 18th century. They clashed with the state which expressed the interests of the aristocracy and with the established church. And they by no means accepted and approved of everything in the capitalist system. Consequently the lives of many economists were fraught with protest, rebellion and struggle. Even the cautious Smith was subjected to attacks by reactionary elements. Among the socialists of the pre-Marxian period we find people of high principles and great civic and personal courage.

This book does not deal with the pioneers of economics in Russia, although in the period under review Russia produced some bold and original thinkers. Suffice it to mention the fine Russian writer and scientist of the Petrine period Ivan Pososhkov, the author of the first essay in Russia devoted especially to economic questions. A great deal of attention was paid to economic questions by Alexander Radishchev, the revolutionary enlightener and author of the famous book A Journey from Petersburg to Moscow in which he criticised the landowners and even the monarchy.

Some important economic works were written by the Decembrists, the participants in the first Russian revolutionary movement, who attempted to organise an uprising against the tsar in December 1825. Among these the works of Nikolai Turgenev and Pavel Pestel stand out in particular. The great Russian writer and revolutionary democrat Nikolai Chernyshevsky was an economic thinker of great profundity and a brilliant critic of bourgeois political economy. Marx thought highly of his scientific writings and practical activity.

However Russia in the 18th and early 19th centuries was considerably behind the West European countries in economic development. Serfdom still existed and bourgeois production relations were as yet only in embryonic form. Hence the strikingly individual character of the development of Russian jconomic thought. At the same time Marx's economic theory fell on fertile soil in Russia and quickly took root. Russian was the first language into which Capital was translated. The Kievan professor N. N. Ziber was one of the first to analyse the connection between Marx's teaching and the doctrines of Smith and Ricardo.

~^^1^^ A. Pushkin, Eugene Onegin, translated by Walter Arndt, New York, 1963,

p. 8.

2-745

May we express the hope that this book will not require from the reader "the endurance of a camel and the patience of a saint" without which, to quote Heilbroner, it is impossible to read through certain serious works on political economy.

And so from the political economy of the slave-owning society---to the political economy of the mid-19th century. On this long journey we shall be making several stops at key points.

CHAPTER I

ORIGINS

Wi

en primitive man made the first axe and bow, it was not

economics. It was only technology, so to say.

But then a group of hunters with several axes and bows killed a deer. The venison was divided between them, in all probability, equally: if some had received more then others, the latter would simply have been unable to survive. The life of the community grew more complex. A craftsman appeared, say, who made good instruments for the hunters but did not actually hunt himself. Meat and fish then had to be divided between the hunters and fishers, leaving a share for the craftsman, etc. At some stage there began exchange of products of labour between and within communities.

All this, although primitive and undeveloped, was economics, for it was a matter not only of people's relations to things---a bow, an axe, or meat---but also their relations with one another in society. And not relations in general, but material relations connected with the production and distribution of goods essential for people's lives. Marx called these relations production relations.

Economics is the social production, exchange, distribution and consumption of material goods and the sum total of the production relations arising on this basis. In this sense economics is as old as human society. The economy of the

primitive community was, of course extremely simple, since the instruments people used were also extremely simple and their labour skills very restricted. In other words, the productive forces, which determine a society's production relations, its economy and other aspects of life, were poorly developed.

Bible and completely ignores all other sources of the period is to be explained, one must assume, by circumstances quite unrelated to academic research. Namelv, that the Bible is the sacred book of Christianity and most American students are acquainted with it from early childhood. So research is adapting itself somewhat to this fact of modern life.

Ancient Greek society, at the stage of the advanced decline of primitive society and the formation of the slave-owning order, is given splendid literary portrayal in Homer's poems. These monuments of human culture are a veritable encyclopaedia of the life and philosophy of the people who inhabited the shores of the Aegean and Ionian seas about three thousand years ago. The most varied economic observations are skilfully woven into the fabric of the exciting tale of the siege of Troy and the wanderings of Odysseus. The Odyssey contains evidence of the low productivity of slave labour:

The master gone, the servants what restraints? Or dwells humanity where riot reigns? Jove fix'd it certain, that whatever day Makes man a slave, takes half his worth away.^^1^^

Naturally, the Code of Hammurabi, the Bible, and Homer can be regarded by the historian and economist as sources of information about the domestic life of ancient peoples. Only secondarily can they be referred to as specimens of economic thought, which presupposes a certain generalisation of practice, speculation and abstraction. The well-known bourgeois scholar Joseph A. Schumpeter (an Austrian who spent the second half of his life living in the United States) called his book a history of economic analysis and began it with the classical Greek thinkers.

It is true that the works of Xenophont, Plato and Aristotle contain the first attempts at a theoretical explanation of the economic structure of Greek society. We are sometimes inclined to forget how many threads link our modern culture with the remarkable civilisation of that small people. Our science, our art and our language have absorbed elements of ancient Greek civilisation. About economic thought Marx said: "In so far as the Greeks make occasional excursions into this sphere, they

WHO WAS THE FIRST ECONOMIST

When did man first start wondering why fire burns or thunder peals? Probably many thousands of years ago. And just as to ponder on the phenomena of the economy of primitive society, which was gradually changing into the first class society---- slaveowning society. But these reflections were not and could not be a science---a system of human knowledge about nature and society. Science did not appear until the age of mature slave-owning society, which was based on far more developed productive forces. People's knowledge of mathematics or medicine in the ancient states of Sumeria, Babylon and Egypt which existed four to five thousand years ago is sometimes quite impressive. The finest surviving specimens of ancient knowledge belong to the ancient Greeks and Romans.

A definite effort to comprehend the facts of economic life began long before the emergence of a special branch of science, political economy, in the 17th century. Many of the economic phenomena investigated by this science were already known to the ancient Egyptians or Greeks: exchange, money, price, trade, profit, interest. Above all people began to reflect upon the main feature of the production relations in that age, slavery.

At first economic thought was not separate from other forms of meditation on society, so it is impossible to say exactly when it first appeared. Not surprisingly economic historians start at different points. Some histories begin with the ancient Greeks, others with a study of ancient Egyptian papyri, the stone cuneiform of the Code of Hammurabi and the Hindu Vedas.

Many economic observations and interpretations of the economic life of the Hebrew and other people inhabiting Palestine and the neighbouring lands in the second and first millennium before Christ can be found in the Bible.

However, the fact that, for example, the American historian of economics Professor J. F. Bell devotes a large chapter to the

~^^1^^ The Odyssey of Homer, translated from the Greek by Alexander Pope, London, 1806, p. 256.

show the same genius and originality as in all other spheres. Because of this, their views form, historically, the theoretical starting-points of the modern science".^^1^^

The word economy (oixoyojiia from the words ofxoc---house, household, and oojjwC---rule, law) is the title of a special work by Xenophont in which sensible rules for the management of household and estate are examined. The word retained that meaning (the science of household management) for many centuries. True, it did not have such a restricted sense under the Greeks as our household management. For the house of a rich Greek was a whole slave-owning economy, a kind of microcosm of the Ancient World.

Aristotle used the term ``economy'' and its derivative ``economics'' in the same sense. He was the first to analyse the basic economic phenomena and laws of the society of his day and became, in fact, the first economist in the history of the science.

where his teacher Plato lived and died and where Aristotle himself had spent his youth.

Whatever the cause, in 335 or 334 B. C. Aristotle moved to Athens with his wife, daughter and adopted son. In the following ten to twelve years, while Alexander was conquering all the inhabited lands known to the Greeks, Aristotle erected the splendid edifice of science, completing and generalising his life's work with remarkable energy. Yet he was not destined to spend a peaceful old age amid pupils and friends. In 323 B. C. Alexander died, having barely reached the age of 33. The Athenians revolted against Macedon's rule and drove out the philosopher. A year later he died in Chalcis, on the island of Euboea.

Aristotle was one of the greatest minds in the history of science. His surviving and authenticated writings cover all the spheres of knowledge existing at that time. In particular, he was one of the founders of the science of human society, sociology, within the framework of which he examined economic questions as well. Aristotle's sociological writings belong to the period of his last years in Athens. They are, first and foremost, The Nicomachean Ethics (his descendants called it after his son Nicomachus) and the Politics, a treatise on the structure of the state.

In both the natural and social sciences Aristotle was a scientist of the "new type". He formed theories and conclusions not on the basis of abstract speculation, but always on a careful analysis of the facts. His Historia animalium was based on extensive zoological collections. Likewise for the Politics he and a group of pupils assembled and examined material about the structure and laws of 158 Hellenic and barbarian states. For the most part they were city states of the "polis"

typeAristotle has been remembered over the centuries as the wise mentor surrounded by pupils and disciples. During his last years in Athens he was in his fifties and evidently an energetic, cheerful person. He is said to have enjoyed chatting with his friends and pupils while strolling in the Peripakos, a covered walk in the Lyceum.

His philosophical school has gone down in history under the name of the Peripatetics.

The Politics and Ethics are written in the form of recorded conversations or sometimes reflections aloud. In seeking to

THE VERY BEGINNING: ARISTOTLE

In 336 B. C. Philip II of Macedon was treacherously murdered at his daughter's wedding. The instigators of the crime were never discovered. If the version is true that it was the rulers of Persia, they could not have done anything more disastrous for themselves: Philip's twenty-year-old son Alexander acceded to the throne and within a few years had conquered the mighty Persian Empire.

Alexander was a pupil of Aristotle, a philosopher from the town of Stagira. When Alexander became Emperor of Macedon Aristotle was forty-eight and his fame had already spread wide throughout the Hellenic world. We do not know what prompted Aristotle to leave Macedon shortly afterwards and move to Athens. Whatever the cause it was not disagreement with Alexander: their relations did not deteriorate until much later when the talented young man turned into a suspicious and capricious tyrant. Probably Athens attracted Aristotle as the cultural centre of the Ancient World, the town

~^^1^^ Frederick Engels, Anti-Dilhring, Moscow, 1969, p. 271 (Chapter X of Part II of Anti-Duhring was written by Marx).

explain an idea Aristotle frequently returns to it, approaching it from a different angle, so to say, and answering the questions of his audience.

Aristotle was a son of his time. He regarded slavery as natural and logical and a slave as a talking instrument. Moreover, he was in a certain sense conservative. He did not like the development of commerce and money relations in the Greece of his day. His ideal was a small agricultural economy (in which the slaves did the work, naturally). This economy would provide itself with almost all the essentials and the few things it lacked could be obtained by "fair exchange" with neighbours.

Aristotle's merit as an economist lies in the fact that he was the first to establish some categories of political economy and to demonstrate to a certain extent their interconnection. If we compare Aristotle's "economic system", composed from the various fragments, with the first five chapters of Adam Smith's The Wealth of Nations and Part I of the first volume of Capital by Karl Marx, we find an amazing continuity of thought. It is rising to a new stage based on the preceding ones. Lenin wrote that the urge to find the law of the formation and change of prices (i.e., the law of value) runs from Aristotle through the whole of classical political economy up to Marx.

Aristotle established two aspects of a commodity, its use value and its exchange value, and analysed the process of exchange. He posed the question which was to be the constant concern of political economy: what determines the correlations of exchange, or exchange values, or, finally, prices---their monetary expression. He does not know the answer to this question or, rather, he halts before the answer and seems to turn aside from it against his will. Yet he does produce some sensible ideas on the origin and functions of money and, finally, expresses in his own peculiar way the idea of its transformation into capital---into money which produces new money.

Such, with much digression, vagueness and repetition, is the path of scientific analysis traversed by the great Hellene.

Aristotle's scientific legacy has always been the subject of dispute. For many centuries his ideas on philosophy, the natural sciences and society, were turned into strict dogma, inviolable canon, and used by the Christian Church, pseudoscientific scholastics and political reactionaries in their fight against the new and progressive. On the other hand, the people

of the Renaissance, who revolutionised science, made use of Aristotle's ideas freed from dogma. The fight for Aristotle continues to this day. And it concerns, inter alia, his economic theory.

Read carefully the following two quotations which contain an assessment of the great Greek's economic views. The first belongs to a Marxist, the Soviet economist F. Y. Polyansky. The second to the author of a bourgeois history of economic thought, Professor]. F. Bell.

Polyansky

``Aristotle was far from taking a subjective view of value and inclined rather to an objective interpretation of the latter. In any case, he appears to have seen clearly the social need to cover production costs. True,

Bell

``Aristotle made value subjective, depending upon the usefulness of the commodity. Exchange rests upon man's wants.... When an exchange is just, it rests upon equality of wants, not upon costs in a labour-cost sence.''~^^2^^

he did not analyse the composition of costs and was not interested in this question. However, labour was probably allotted an important place in their composition." '

It is easy to see that these assessments are diametrically opposed. Both passages speak about value, the basic category of political economy, which we shall be meeting time and again.

A most important part of Marxist economic theory is the labour theory of value developed by Marx on the basis of a critical analysis of bourgeois classical political economy. The essence of this theory is that all commodities have one basic common quality: they are all the products of human labour. The quantity of this labour is what determines the value of a commodity. If it takes five working hours to make an axe and one hour to make a clay pot, all other things being equal the value of the axe will be five times greater than that of the pot. This can be seen from the fact that one axe, as a rule, will be

~^^1^^ A History of Economic Thought. Course of lectures, Part 1, Moscow University Press, 1961, p. 58 (in Russian).

~^^2^^ J. F. Bell, A History of Economic Thought, New York, 1953, p. 41.

exchanged for five pots. This is its exchange value expressed in pots. It may also be expressed in meat, cloth and any other commodity or, finally, in money, i.e., in a certain amount of silver or gold. The exchange value of a commodity expressed in money is its price.

The interpretation of labour as something which creates value is most important. For the labour of the producer of axes to be comparable with the labour of the pot-maker, it must be regarded not as a concrete type of labour of a given profession, but simply as the expenditure over a certain amount of time of a person's muscular and mental energy---as abstract labour, independent of its concrete form. The use value (usefulness) of a commodity is, of course, an essential condition of the commodity's value, but cannot be the source of that value.

Thus, value exists objectively. It exists independently of a person's feelings, independently of the way in which he values the usefulness of a commodity subjectively. Further, value has a social nature. It is determined not by a person's attitude to an object, a thing, but by the relationship between the people who create commodities by their labour and exchange these commodities among themselves.

Contrary to this theory modern bourgeois political economy regards the subjective usefulness of exchanged commodities as the basis of value. The exchange value of a commodity is deduced from the intensity of the consumer's wishes and the existing market supply of the commodity in question. It thereby becomes fortuitous, ``market'' value. Since the problem of value is being removed to the sphere of individual preference, value loses its social nature here and ceases to be a relationship between people.

The theory of value is important not only in itself. An essential conclusion of the labour theory of value is the theory of surplus value which explains the mechanism of the exploitation of the working class by the capitalists.

Surplus value is that part of the value of commodities produced in capitalist society which is created by the labour of hired workers, but not paid for by the capitalist. It is appropriated by him without payment and is the source of profit-making by the class of capitalists. Surplus value is the aim of capitalist production: its creation is the general economic law of capitalism. Surplus value contains the roots of economic antagonism, the class struggle between the workers

and the bourgeoisie. As the basis of Marxist economic doctrine, the theory of surplus value proves the inevitability of the development and deepening of the contradictions in the capitalist mode of production and, in the final analysis, its collapse. Attacks by bourgeois scholars on Marxism are directed primarily at the theory of surplus value. The subjective theory of value and all the related ideas of bourgeois political economy categorically exclude exploitation and class contradictions.

This explains the argument which has been going on for a good 2,400 years: was Aristotle a distant advocate of labour value or the forefather of theories which deduce exchange value from usefulness? This dispute is only possible because Aristotle did not create and could not have created a full theory of value.

He saw in exchange the equation of commodity values and searched hard for a common basis for equation. This in itself showed exceptional depth of thought and served as the point of departure for subsequent economic analysis many centuries after Aristotle. He made statements reminiscent of an extremely primitive version of the labour theory of value. It is evidently these to which F. Y. Polyansky is referring in the above passage. But perhaps even more important is the awareness of the problem of value which can be seen, for example, in the following passage from The Nicomachean Ethics:

``For, we must remember, no dealing arises between two of the same kind, two physicians, for instance, but say between a physician and agriculturist, or, to state it generally, between those who are different and not equal, but these of course must be equalised before the exchange can take place.... Hence the need of some one measure of all things.... Very well then, there will be Reciprocation when the terms have been equalised so as to stand in this proportion; Agriculturist: Shoemaker=wares of Shoemaker: wares of Agriculturist.''^^1^^

Here in embryonic form we have an interpretation of value as the social relation between the people who produce commodities which have varying use values. It would seem to be but one step to the conclusion that in the exchange of their

Aristotle, The Nicomachean Ethics, translated by D. P. Chase, London, Toronto, New York, 1920, p. 113.

products the farmer and the shoemaker relate to each other simply as the amount of work, labour time, necessary for the production of a sack of grain and a pair of shoes. But Aristotle did not draw this conclusion.

He could not, if only for the fact that he lived in an ancient slave-owning society which, by its very nature, was alien to the idea of the equality, the equal value of all types of labour. Manual labour was despised as the labour of slaves. Although there were also free craftsmen and farmers in Greece, Aristotle ``overlooked'' them, strangely enough, when it came to interpreting social labour.

However, having failed to lift the veil from value (exchange value), Aristotle turns, for an explanation of the mystery as if with a sigh of regret, to the superficial fact of the qualitative difference in the usefulness of commodities. He evidently senses the triviality of this statement (his idea is roughly that "we exchange things because I need your commodity and you need mine") and its quantitative vagueness, for he announces that money makes commodities comparable: "Hence the need of some one measure of all things. Now this is really and truly the Demand for them, which is the common bond of all such dealings.... And money has come to be, by general agreement, a representative of Demand." '

This is a fundamentally different position, which makes possible such statements as the above quotation from Professor Bell's book.

of this activity are also natural: they are a person's sensible private consumption.

What is chrematistics then? It is "the art of making a fortune", i.e., activity directed towards making a profit, accumulating riches, particularly in the form of money. In other words, chrematistics is the ``art'' of the investment and accumulation of capital.

Industrial capital did not exist in the Ancient World, but a considerable role was already played by commerce and money (usury) capital. This is what Aristotle depicted: "... In the art of making a fortune, in so far as this is expressed in trading activity, there is never any limit to the attainment of the aim, for the aim here is unlimited riches and possession of money.... Everyone engaged in monetary circulation seeks to increase his capital ad infinitum." '

Aristotle regarded all this as unnatural, but was realistic enough to see that pure ``economics'' was impossible: unfortunately economics invariably develops into chrematistics. This observation is correct: we would say that capitalist relations inevitably develop in an economy in which goods are produced as commodities, for exchange.

Aristotle's idea of the naturalness of economics and the unnaturalness of chrematistics has undergone a strange transformation. In the Middle Ages the scholastics followed Aristotle in condemning usury and in part commerce as an ``unnatural'' means of enrichment. But with the development of capitalism all forms of enrichment began to seem natural, permissible "by natural law". It was on this basis that the figure of homo oeconomicus arose in the socio-economic thought of the 17th and 18th centuries, the motive of whose actions is the desire to become rich. Adam Smith announced that economic man is acting for the good of society, by striving for his own profit, and thus there emerges the best of all possible worlds known to Smith---the bourgeois world. For Aristotle the expression homo oeconomicus would have meant the exact opposite, a man who seeks to satisfy his reasonable needs which are by no means limitless. This hypothetical figure without flesh and blood, the hero of economic works in Smith's day, he would probably have called homo chrematisticus.

Leaving the great Hellene, we must now move on almost two

ECONOMICS AND CHREMATISTICS

Another of Aristotle's interesting ideas is his well-known distinction between economics and chrematistics, which was the first attempt in the history of the science to analyse capital. The term ``chrematistics'' was invented by him, but unlike ``economics'' it has not become established in modern languages. It was derived from the word ``chrema'' meaning property, estate. For Aristotle economics is the natural domestic activity connected with producing the things necessary for subsistence, use values. It also includes exchange, but only to the extent required to satisfy personal needs. The limits

~^^1^^ Aristotle, op. cit., p. 113.

Aristotle, Politics, St. Petersburg, 1911, pp. 25-26 (in Russian).

thousand years to Western Europe in the late 16th and early 17th centuries. This does not mean, of course, that twenty centuries passed without trace in economic thought. Hellinic philosophers developed some of Aristotle's ideas still further. Roman writers had a great deal to say about the subject which we call agricultural economy. The religious veil which learning donned in the Middle Ages occasionally concealed some original economic ideas. In their commentaries on Aristotle the scholastics developed the concept of "just price". All this can be found in any history of economic thought. But the age of the decline of slave-owning society, the growth and supremacy of feudalism did not encourage the development of economics. Political economy as an independent science arose only in the manufacturing period of the development of capitalism, when important elements of capitalist production and bourgeois relations were already forming in feudal society.

forger and petty profit-seeker who allegedly changed to the Protestant religion in order to marry a rich Huguenot widow.

Almost three hundred years passed before his good name was restored and he was allotted a place of honour in the history of economic and political thought. Today it is clear that his tragic fate was no accident. His participation in one of the Huguenot uprisings, which were to a certain extent a form of class struggle by the downtrodden French bourgeoisie against the feudal-absolutist order, was the logical outcome of the life of this commoner by birth (his father was an apothecary), nobleman by chance, and humanist and fighter by vocation.

After receiving what was a good education for his day Montchretien decided at the age of twenty to become a writer and published a tragedy in verse on a classical theme. It was followed by several other dramatic and poetic works. We also know that he wrote on Histoire de Normandie. In 1605, when Montchretien was already a well-known writer, he was forced to flee to England after a duel which ended in the death of his adversary.

The four years in England played an important part in his life: he saw a country with a more developed economy and more developed bourgeois relations. Montchretien began to take an active interest in commerce, handicrafts and economic policy. Looking at English ways he mentally transferred them to France. It is possible that his meetings with many French Huguenot Emigres in England played an important part in his future fate. Most of them were craftsmen, many highly skilled ones. Montchretien saw that their labour and skill brought England considerable profit, whereas France, which had forced them into exile, suffered heavy losses.

Montchretien returned to France a convinced supporter of the development of national industry and trade, a champion of the interests of the third estate. He proceeded to put his new ideas into practice. He set up a hardware workshop and began selling his goods in Paris where he had a warehouse. But his main occupation was the writing of his Trade. In spite of the high-sounding title, he wrote a purely practical essay in which he sought to convince the government of the need for full patronage of the French manufacturers and merchants. Montchretien advocated heavy duty on foreign goods, so that their import did not harm national production. He extolled labour and sang the praises, unusual for his time, of the class

THE SCIENCE RECEIVES ITS NAME

The person who first introduced the term political economy in socio-economic literature was Antoine de Montchretien, Seigneur de Vasteville. He was a French nobleman of modest means who lived under Henri IV and Louis XIII. Montchretien's life was crammed with adventures worthy of a d' Artagnan. Poet, duellist, exile, attendant at the royal court, rebel and state criminal, he perished amid clashing swords and smoking pistols, caught in a trap set by his enemies. It was a lucky escape, however, for had the rebel been taken alive he would have faced torture and shameful execution. Even his dead body was sentenced to be profaned: the bones were smashed with iron, the corpse burnt and the ashes cast to the wind. Montchretien was one of the leaders of the uprising of French Protestants (Huguenots) against the King and the Catholic Church. He died in 1621 at the age of forty-five or forty-six, but his Trade de I'Oeconomie Politiquewas published in 1615 in Rouen. It is not surprising that the Trade was consigned to oblivion and the name of Montchretien besmirched. Unfortunately the main sources of biographical material about him are the partial or downright slanderous judgements of his ill-wishers. These judgements bear the stamp of bitter political and religious strife. Montchretien was called a highwayman,

which he regarded as the main creator of the country's riches: "The fine and splendid artisans are most useful to a country, I would make so bold as to say, necessary and honorable." '

Montchretien was one of the leading exponents of mercantilism which is the subject of the next chapter. He saw the country's economy primarily as an object of state management. The source of the country's and state's (king's) wealth he regarded, first and foremost, as foreign trade, particularly the export of manufactured and handicraft articles.

Immediately after the publication of his work, which he dedicated to the young King Louis XIII and his Regent Mother, Montchretien presented a copy of it to the Keeper of the State Seal (the Minister of Finance). Evidently this loyal-looking book was well received at court initially. Its author began to play a certain role as a kind of economic counsellor, and in 1617 was appointed governor of the town of Chatillon-sur-Loire. It was probably at this time that he was made a nobleman. When Montchretien became a Protestant and how he came to be in the ranks of the Huguenot rebels is not known. Possibly he lost hope that the royal government would put his plans into effect and was annoyed to see that instead it was fanning the flames of a new religious war. Perhaps he concluded that the principles formulated by him were more in accordance with Protestantism, and, being a man of decision and daring, took up arms on its behalf.

But let us return to the Trade de I'Oeconomie Politique. Why did Montchretien entitle his work thus and was there any special merit in it? It would appear not. The last thing he had in mind was to give a name to the new science. This and similar combinations of words were, so to say, in the air---the air of Renaissance, when many ideas and concepts of classical culture were resurrected, re-interpreted and given new life. Like any well-educated man of his day, Montchretien knew Greek and Latin and read the classics. He frequently refers to them in his Tracte, in accordance with the spirit of the times. Without a doubt he was aware of the sense in which the words economy and economics were used by Xenophont and Aristotle. The 17th-century writers continued to use these words to mean housekeeping, the management of the household and private

estate. A little after Montchretien an Englishman published a book entitled Observations and Advices O economical. The author defined economy as "the art of well governing a man's private house and fortunes" and concerned himself, for example, with such problems as a gentleman's choice of a suitable wife. According to his ``economic'' advice, a man should select for his spouse a lady who "may be no less useful in the day than agreeable at night''.

Obviously this was not quite the same economy that interested Montchretien. All his thoughts were directed towards the flourishing of the economy as a state, national community. It is not surprising that he used the attribute political with the word economy.

A good 150 years after Montchretien political economy was regarded primarily as the science of state economy, the economy of national states governed, as a rule, by absolute monarchs. Only with Adam Smith and the creation of the classical school of bourgeois political economy did its character change and it became the science of the laws of economy in general, in particular, of the economic relations between classes.

Montchretien's great service, of course, is not that he gave his book such a suitable title page. It was one of the first works in France and the whole of Europe specially devoted to economic problems. It singled out and delimited a special sphere of investigation, different from the spheres of other social sciences.

POLITICAL ECONOMY AND ECONOMICS

In recent decades the term political economy has gone out of fashion in the West and started to be replaced by the word economics. It is now used in a dual sense: in the sense of the economy, the sum total of production relations in a society, and in the sense of the science of the laws of economic development.

The terms economics and political economy should not be considered identical, however. Today the term economics in the sense of a branch of knowledge is understood more as the economic sciences. In addition to political economy these sciences now include diverse branches of knowledge about economic processes. The organisation of production, labour, sale of

~^^1^^ Quoted by P. Dessaix in Montchretien el ("economic politique nationale, Paris, 1901, p. 21.

3---745

products, industrial financing are all the subject of the economic sciences. This applies both to capitalist and socialist economy. As we know, capitalist planning takes place within the framework of large capitalist concerns, and its methods and forms are also the subject of economic science. State monopoly regulation of the economy, without which modern capitalism is inconceivable, also needs a basis of objective knowledge about the economy as a whole and its individual branches. Thus, the practical functions of the economic sciences are increasing.

The profession of the economist in the socialist countries today includes some highly diverse functions, from very concrete engineering or planning work to the purely ideological activity of teaching and propagating Marxist-Leninist political economy.

All this can be explained by the complexity of the concept of production relations. Some of their forms are of a more ' general and social nature. These are the actual subject of political economy, while more concrete forms of production relations are directly connected with technology, with productive forces. Yet other economic technological problems are linked only indirectly with production relations. The importance of the concrete economic sciences is bound to grow. Their development is linked with the application of mathematics and computer technology to economic research and the practical management of the economy.

Just as philosophy, which was once the science of sciences and embraced practically all branches of knowledge, has now become only "one of the many", so political economy, which formerly embraced all economic phenomena, is now only the head of the family of economic sciences. This is quite logical.

But there is more to the matter than that. Political economy, as it emerged from the hands of Smith and Ricardo, was essentially the science of the class relations between people in bourgeois society. Its central problem was the distribution of the product (or incomes)---a social problem, and a highly controversial one at that. Many of Ricardo's followers had tried to soften the controversial social nature of his political economy. But this was not enough for the bourgeoisie: for simultaneously on the basis of Ricardo's theories there arose the political economy of Marx, which openly proclaimed social

production relations to be the subject of the science and concluded the logical collapse of capitatalism.

Therefore in the seventies of the last century new economic conceptions appeared and took root simultaneously in a number of countries, which sought to deprive political economy of its revolutionary social content by rejecting the labour theory of value. The science was made to revolve round certain general principles void of social and historical content: the principle of the decrease in the subjective usefulness of commodities with use and the principle of economic balance. In fact, the subject of this political economy was not so much people's social relations in connection with production, as people's relations to things.

The main problem of economic science became a `` technological'' one void of social content, the problem of choosing between alternative possibilities for making use of the commodity in question, or, as it became accepted to say, of the factor of production in question: labour, capital or land. The problem of the optimal use of limited resources is undoubtedly an important one for any society and comes within the sphere of the economic sciences. But it cannot be regarded as the sole object of political economy.

The "social neutrality" of political economy was proclaimed. Why should science bother itself with classes, exploitation and the class struggle? But this concealed a new form of ideological defence of capitalism. In the hands of these economists---- Jevons in England, Menger and Wieser in Austria, Walras in Switzerland, and John Bates Clark in the United States---``old'' political economy was transformed into something beyond recognition. Now it was a set of abstract logical and mathematical schemes based on the subjective psychological approach to economic phenomena. Naturally this science soon began to require a new name. The term "political economy", which literally and traditionally possessed a social content, became a nuisance and embarrassment.

The American historian of economic thought Ben B. Seligman writes that Jevons "successfully eliminated the word political from political economy and turned economics into a study of the behaviour of atomistic individuals rather than of the behaviour of society at large".^^1^^

Ben B. Seligman, Main Currents in Modern Economics, New York, 1963, p. 499.

The nature of the ``revolution'' which took place in the science is even clearer if we quote the following passage from another well-known bourgeois scholar, the French economist Emile James: "These great theoreticians thought above all that the object of economic science was to describe mechanisms which would operate in any economic regime and tried not to pass judgement on institutions. With regard to problems of social organisation, their fundamental theories were neutral, that is to say, one could not conclude from them either praise or blame of the existing regime".^^1^^ The new Austrian economists "in their explanations of value by marginal utility were attacking above all the Marxist theory of labour value".^^2^^

In the course of the following century bourgeois economists developed techniques of economic analysis based on these principles. A vast literature arose in which the social edge of economic science was consciously or unconsciously blunted with the help of the ``new'' methods. The science began to forget its original function and content, although it continued to study many fascinating problems. Thus, the question of the terms political economy and economics is not a squabble over terminology, but a disagreement on fundamental principles.

CHAPTER II

THE GOLD FETISH

AND SCIENTIFIC ANALYSIS:

THE MERCANTILISTS

L-merica was discovered as a result of the Europeans' pursuit of Indian spices, and conquered and explored because of their insatiable thirst for gold and silver. The great geographical discoveries were linked with the development of trade capital and, in their turn, greatly promoted its future development. Trade capital was historically the initial form of capital. It was from this form that industrial capital grew.

The main trend in economic policy and economic thought from the 15th to 17th centuries (and to a large extent in the 18th as well) was mercantilism. One might describe it in a nutshell as follows: in economic policy---the utmost accumulation of precious metals in the country and state treasury; in theory---the search for economic laws in the sphere of circulation (trade and money turnover).

``Risk your life for metal's sake," as Goethe said. The gold fetish accompanied the whole development of the capitalist system and is an integral part of the bourgeois way of life and thought. But in the age when trade capital predominated the lustre of this idol was particularly bright. Buying to sell at a higher price---that was the principle of trade capital. And the difference is seen in the form of yellow metal. The fact that this difference could arise only from production, from labour, had not yet occurred to anyone. To sell abroad more than one purchased abroad---that was the height of the state wisdom of

Emile James, Histoire de la pensee economique au XX' siecle, Paris, 1955, pp. 10-11. ~^^2^^ Ibid.

mercantilism. And the difference was again seen by those governing the state and those who thought and wrote for them in the form of gold (and silver) pouring into the country from abroad. If there is a lot of money in the country, everything will be alright, they said.

and trading towns, the development of science and technology. It was the age of the Renaissance, which brought a flowering of culture and the arts after a thousand years of stagnation.

But science and culture were able to develop rapidly in this age because the old feudal social relations were collapsing and being replaced by new, bourgeois relations. There can be no question of an idyll, when millions of small farmers were being ruined and semi-feudal and free landowners were being turned into urban and rural proletarians. Nor can there be any question of an idyll when the class of capitalist exploiters, whose religion was money, was being formed.

Centralised national states with a strong monarchy grew up in the 16th century in a number of West European countries---England, France and Spain. In a struggle lasting several centuries the monarchies overcame the wilful barons and subjugated them. The feudal armed retinues were disbanded and the feudal lords' warriors and retainers found themselves "out of work". If these people did not want to become farm-labourers, they joined the army and navy and set off for the colonies in the hope of finding the fabulous riches of America or the East Indies. As farm-labourers they made the farmers and landowners rich, and by going abroad they generally made the fortunes of merchants, planters and shipowners. A few "climbed up the ladder", got rich and themselves turned into merchants or planters. Some large fortunes were the result of piracy and straightforward robbery.

The towns, the handicraft and commercial bourgeoisie, were the allies and support of the kings in their struggle with the barons. The towns provided the monarchy with money, arms, and sometimes men, for this struggle. The very shift of the centres of economic life to the towns undermined the power and influence of the feudal lords. The bourgeoisie, in its turn, demanded that the state should support their interests against the feudal lords, the "common folk" and foreign competitors. And the state gave this support. The trading companies and handicraft corporations received various privileges and monopolies from the kings. Laws were promulgated, which forced the poor under pain of harsh punishment to work for the entrepreneurs, and fixed maximum wages. The economic policy of mercantilism was pursued in the interests of the urban, and particularly the commercial, bourgeoisie. In many cases mercantilist enterprises also suited the interests of the

PRIMITIVE ACCUMULATION

The age of primitive accumulation is the pre-history of the bourgeois mode of production, just as mercantilism is the pre-history of bourgeois political economy. The actual term primitive accumulation appears to have been coined by Adam Smith: he wrote that the primitive accumulation of capital is the condition for the growth of labour productivity through the development of many interlinked branches of production (Smith called it "previous accumulation").

Marx spoke of "the so-called primitive accumulation" as this term took root in bourgeois science and acquired a special, virtuous meaning for the bourgeoisie.

The whole process of primitive accumulation, as a result of which society became divided into the classes of capitalists and hired workers, is portrayed by bourgeois economists as an economic idyll. A long time ago there were, on the one hand, the industrious and, in particular, thrifty, sensible elect and, on the other, lazy ragamuffins who squandered all they had and even more.... Thus it happened that the former accumulated riches, while the latter were eventually left with nothing to sell but their own skins. Right and justice reign in this idyll, reward for labour and punishment for sloth and squandering.

Nothing could be further from the truth. Of course, the primitive accumulation of capital was a real historical process. But in fact it took place amid a fierce class struggle and involved oppression, violence and deception.

This was not the result of evil intent, of man's ``primordial'' inclination to violence, etc. During primitive accumulation the objective historical law of the transition from one social formation to another, the capitalist one, was just beginning to operate. Consequently this process was essentially progressive, for it promoted the development of the economic history of society. The age of primitive accumulation was an age of relatively rapid increase in production, the growth of industrial

nobility, since the latter's incomes were in one way or another linked with trading and business activity.

The basis, the point of departure of any business is money which turns into money capital when the owner uses it to hire workers and purchase commodities for processing or resale. This fact lies at the basis of mercantilism, the essence and aim of which was to attract money---precious metals---into the country.

These measures were primitive in the age of early mercantilism. Foreign merchants were forced to spend on the spot all the proceeds from the sale of their goods within a given country, and special ``supervisors'' were even appointed, sometimes disguised, to see that they did so. The export of gold and silver was simply forbidden.

Later, in the 17th and 18th centuries, the European states changed to a more flexible and constructive policy. The rulers and their counsellors realised that the most reliable means of attracting money into the country was to develop the production of export goods and see that exports exceeded imports. Consequently the state began to promote industrial production, patronise manufactories and establish them.

These two stages in mercantilist policy correspond to two stages in the development of its economic theory. Early mercantilism, which is also called the monetary system, went no further than working out administrative measures to keep money in the country. Developed mercantilism sought the sources of the nation's enrichment not in the primitive accumulation of treasures, but in the development of foreign trade and favourable trade balance (an excess of exports over imports). It did not share the "administrative enthusiasm" of its predecessors. The exponents of developed mercantilism approved only that intervention by the state which, to their mind, accorded with the principles of natural law. The philosophy of natural law had a most important influence on the development of political economy in the 17th and 18th centuries. To a certain extent the science itself developed within the framework of the ideas of natural law. These ideas, which originated from Aristotle and other classical thinkers, received a new content in the new age. The philosophers of natural law deduced their theories from the abstract "nature of man" and his ``natural'' rights. Since these rights contradicted the secular and religious despotism of the Middle Ages to a

large extent, the philosophy of natural law contained important progressive elements. The humanists of the Age of the Renaissance adopted the standpoint of natural law.

Turning to the state, the philosophers, with the mercantilist theoreticians following on their heels, regarded it as an organisation capable of guaranteeing man's natural rights, which included personal property and safety. The social meaning of these theories was that the state should provide the conditions for the growth of bourgeois society.

The connection between economic theories and natural law later moved from mercantilism to classical political economy. The character of this connection changed, however, for in the period of the development of the classical school (the Physiocrats in France and followers of Adam Smith in England) the bourgeoisie had less need of state tutelage and opposed excessive state intervention in the economy.

THOMAS MUN: AN ORDINARY MERCANTILIST

The English called London "the Great Wen", meaning a lump or protuberance. Like a colossal excrescence, London, once the greatest town in the world for several centuries, towers over the ribbon of the Thames, with thousands of visible and invisible threads emanating from it.

For the history of political economy London is a special town. The world centre of trade and finance was a most suitable place for the birth and development of this science. Petty's pamphlets were printed in London and his life is linked with it just as closely as with Ireland. A century later Adam Smith's The Wealth of Nations was published there. David Ricardo was a true product of London, its turbulent business, political and scientific life. And Karl Marx spent more than half his life in London, where Capital was written.

Thomas Mun (1571-1641) was a typical exponent of English mercantilism. He came from an old family of craftsmen and traders. His grandfather was an engraver at the London Mint, and his father was a mercer. Unlike his French contemporary Montchretien, Mun did not write tragedies, did not fight duels and did not take part in uprisings. He lived a quiet, dignified life as an honest businessman and clever man.

Having lost his father at an early age, Thomas Mun was brought up in the family of his step-father, a rich merchant and one of the founders of the East India trading company, which arose in 1600 as a branch of the older Levant company that traded with the Mediterranean countries. After an apprenticeship in his step-father's shop and office, he began to work for the Levant company at the age of eighteen or twenty, spent several years in Italy, and travelled to Turkey and the countries of the Levant.

Mun soon became rich and highly esteemed. In 1615 he was elected for the first time to the committee of directors of the East India Company and soon became a skilled and active defender of its interests in Parliament and the press. But Mun was cautious and not excessively ambitious: he declined the offer to become Vice-Chairman of the company and refused to travel to India as an inspector of the company's manufactories. In those days it took three or four months to reach India and the journey was fraught with dangers: storms, illness, pirates....

On the other hand, Mun was one of the most eminent figures in the City and Westminster. In 1623 a publicist and writer on economic matters by the name of Edward Misselden described him as follows: "... his observation of the East India trade, his judgement in all trade, his diligence at home, his experience abroad, have adorn'd him with such endowments, as are rather to be wisht in all, than easie to bee found in many Merchants of these times''.

Exaggeration and flattery apart, there can be no doubt that Mun was by no means an ordinary merchant. As a recent researcher has put it, he was a strategian of trade. (The word trade, incidentally, had basically the same meaning as the word economy in the England of the 17th and 18th centuries.)

Mun's mature years coincided with the reign of the first two monarchs of the house of Stuart. In 1603, the childless Queen Elizabeth died after nearly fifty years on the throne. When she became queen England was an isolated island state riven by religious and political descord. By the time of her death it was a world power with a mighty fleet and an extensive trade. The Elizabethan Age was marked by a great cultural flowering. The new ascendant to the throne James I, the son of the beheaded Mary, Queen of Scots, both feared and needed the City. He wanted to reign as an absolute monarch, but Parliament and the London merchants held the purse-string. Financial and

trading difficulties which arose in the early twenties compelled the King and his ministers to turn for advice to experts from the City, and a special state commission on trade was set up. Thomas Mun joined it in 1622. He was an influential and active member of this advisory body.

^

In the stream of pamphlets and petitions, in the discussions of the commission on trade, the main principles of the economic policy of English mercantilism were formulated in the 1620s and continued to be applied right until the end of the century. The export of raw material (particularly wool) was forbidden, but the export of manufactured articles was encouraged, even by state subsidies. England seized more and more new colonies which provided the manufacturers with raw materials and the merchants with profit from the transit of and intermediate trade in sugar, silk, spices and tobacco. The entry of foreign manufactured goods into England was restricted by high import duties which weakened competition and encouraged the growth of national manufacturies (the policy of protectionism). Great attention was paid to the fleet, which had to carry cargoes all over the world and defend English trade. The most important aim of these measures was to increase the flow of precious metals into the country. But unlike Spain, which got its gold and silver straight from mines in America, the policy of attracting money proved beneficial in England because it involved the development of industry, the fleet and trade.

In the meantime a storm was gathering over the Stuart monarchy. The son of James I, the short-sighted and stubborn Charles I, antagonised the bourgeoisie who took advantage of the discontent of the broad mass of the people. In 1640, a year before Mun's death, Parliament met and openly attacked the King. Civil war broke out and the English bourgeois revolution began. Nine years later Charles was beheaded.

We do not know the political views of the elderly Mun, who did not live to see the outcome of the revolutionary events. But in his time he attacked complete absolutism in favour of restriction of the king's authority, particularly in the sphere of taxation. It is unlikely, however, that he would have approved of the king's execution. Towards the end of his life Mun was very rich. He bought considerable stretches of land and was known in London as a man able to give large loans in ready money.

Mun left two small works which, to coin a phrase, have gone down in the treasure store of economic literature. Their fate was a somewhat unordinary one. The first of these works entitled A Discourse of Trade, from England into the East Indies Answering to Diverse Objections Which Are Usually Made Against the Same was published in 1621 under the initials T. M. It was a polemic work directed against critics of the East India Company, who supported old, primitive mercantilism (the monetary system) and maintained that the company's operations were harming England, since it exported silver for the purchase of Indian goods and this silver was lost irrevocably by England. Efficiently, with facts and figures at his finger-tips, Mun disproved this contention, showing that the silver did not disappear but returned to England greatly increased: the goods carried on the Company's vessels would otherwise have had to be purchased at three times the price from the Turks and Levantines; moreover, a considerable portion of them were re-sold to other European countries for silver and gold. The importance of this pamphlet for the history of economic thought lies, of course, not in its defence of the interests of the East India Company, but in the fact that here for the first time was an exposition of the arguments of mature mercantilism.^^1^^

To an even greater extent Mun's fame rests on his second book, the title of which, as Adam Smith wrote, itself expresses the main idea: "England's Treasure by Forraign Trade, or the Balance of Our Forraign Trade Is the Rule of Our Treasure". This work was not published until 1664, almost a quarter of a century after his death. During the long years of revolution, civil war and the Republic it lay in a chest with other papers and documents which Mun's son inherited together with his father's chattels and real estate. The restoration of the Stuarts in 1660 and the revival in economic discussions prompted the rich, fifty-year-old merchant and landowner to publish the book and remind the public and the authorities of the name of Thomas Mun, now for the most part forgotten.

As Marx says, "it continued to be the mercantilist gospel for another hundred years. If mercantilism ... has an epochmaking work 'as a kind of inscription at the entrance',^^1^^ it is this book ...".^^2^^

This book, which is composed of rather diverse chapters evidently written in the period 1625-1630, gives a compact and accurate exposition of the very essence of mercantilism. Mun's style was not a flowery one. Instead of quotations from the classics he makes use of popular sayings and business calculations. Only once does he refer to an historical personage, Philip of Macedon, and this because the latter recommended that money be put into action in places which could not be taken by force.

As a true mercantilist, Mun sees riches primarily in their monetary form, in the form of gold and silver. His thinking is dominated by the viewpoint of trade capital. Just as the individual trading capitalist puts money into circulation in order to derive an increase from it, so the country should grow rich by means of trade, ensuring that exports exceed imports. The development of production is acknowledged by him only as a means for extending trade.

Economic works always pursue a more or less definite practical aim: to justify this or that economic measure, method or policy. But in the case of the mercantilists these practical tasks were particularly predominant. Mun, like other mercantilist writers, was far from the desire to create any sort of ``system'' of economic views. Economic thought has its own logic, however, and he was obliged to use theoretical concepts which reflected reality: commodities, money, profit, capital.... At all events, he tried to find the causal link between them.

THE PIONEERS

The new is always difficult. And in assessing the achievements of the 17th-century thinkers we should remember the enormous difficulties confronting them. The great English materialist philosophers Francis Bacon and Thomas Hobbes were in the process of formulating a new approach to nature

The words in quotes are a parody on the style of E. Diihring whom Marx is criticising here.

Frederick Engels, Anti-Diihring, Moscow, 1969, p. 274.

~^^1^^ For a long time English scholars tried to find a first edition of the Discourse which was thought to have come out in 1609. The existence of such an edition was referred to in the middle of the last century by John Ramsay McCulloch, the political economist and collector of old English economic literature. Today specialists believe that no such edition exists. Thus Mun was forestalled by the mercantilist tracts of the Italian Serra (1613) and the Frenchman Montchretien (1615). But this by no means detracts from his merit.

and society, which made it the main task of philosophy to explain their objective laws. The religious and ethic principles of many centuries' standing had to be overcome in economic thought. Previously the main question had been what ought to exist in economic life in accordance with the letter and spirit of the Holy Scriptures. Now it was a matter of what really exists and what must be done with this activity in the interests of the "wealth of society''.

Although the great geographical discoveries and the growth of trade had broadened their horizons, people still knew very little about the world. To say nothing of foreign countries, even the geographical and economic descriptions of England were inaccurate, full of mistakes and nonsense. The pioneers of economic thought had very few facts and hardly any statistics at their disposal. But life demanded a new outlook on human affairs and encouraged minds questing in new spheres. During the century between Mun and Smith the number of economic works published in England grew rapidly. The first bibliography of such works composed by Gerald Massey in 1764 contained more than 2,300 titles. This was mainly mercantilist literature, although the works of Petty, Locke, North and some other writers already contained the foundations of classical political economy.

Mercantilism was not a specifically English phenomenon. The policy of accumulation of money, protectionism and state regulation of the economy was pursued throughout Europe in the 15th to 18th centuries, from Portugal to Muscovy. The policy of mercantilism acquired developed forms in France in the second half of the 17th century under the all-powerful minister Colbert. Its theory was successfully elaborated by Italian economists. Whereas in England the title of almost any mercantilist tract contained the word ``trade'', in the case of Italy it was the word ``money'': for divided Italy the problem of money and its exchange between the small states was of prime importance. In Germany mercantilism in the form of so-called ``Kameralistik'' was the official economic doctrine right up to the beginning of the 19th century.

But the leading role in formulating mercantilist ideas was played by English economists. This is explained by England's rapid economic growth and the maturity of the English bourgeoisie. Marx based his profound analysis of mercantilism mainly on the works of English writers.

Adam Smith introduced the view of mercantilism as a kind of prejudice. This view became established among the vulgarisers of classical political economy. Marx objected to it: "...it must not be thought that these mercantilists were as stupid as they were made out to be by the later Vulgar-Freetraders." ' For its time developed mercantilism was a considerable scientific achievement. The most talented of these pioneers of economic thought rank with the greatest thinkers of the 17th century---in philosophy, mathematics and the natural sciences.

The national character of mercantilism as a theoretical system and as a policy had its own reasons. The accelerated development of capitalism was possible only in a national framework and depended to a great extent on the state which promoted the accumulation of capital and hence economic growth. In their views the mercantilists were expressing the genuine laws and demands of economic development.

Why does ``wealth'', i.e., the created, used and accumulated sum of goods----use values---grow more intensively in one country than in another? What can and must be done at manufactory level and particularly at state level to make wealth increase more rapidly? It is easy to see that the ability of political economy to provide answers to these questions justifies its existence as a science. The mercantilists tried to find the answers and sought them in the economic conditions of their day. One might say that they were the first to set the task of a "rational economy" as the most important problem of economic science. Many of their empirical conclusions and recommendations were objectively justified and in this sense scientific.

At the same time they also took the first steps towards an understanding of the laws of progression and the inner mechanism of capitalist economy. This understanding was extremely superficial and one-sided, for they sought the answer to the secrets of the economy in the sphere of circulation. They regarded production, as one critic has pointed out, merely as a "necessary evil", as a means for ensuring the flow of money into the country or, rather, into the hands of capitalist traders. Whereas in fact the foundation of any society is the production of material wealth, and circulation is secondary to this.

Karl Marx, Theories of Surplus-Value, Part I, Moscow, 1969, p. 179.

This mercantilist view is explained, in its turn, by the fact that trade capital was the prevalent form of capital in general at that time. For the most part production was still carried on in the pre-capitalist mode, but the sphere of circulation, particularly foreign trade, had already been taken over by what was large capital for those days. It is no accident that the activity of such enterprises as the East India, Africa and other companies was at the centre of economic discussions in England throughout the whole of the 17th century and the first half of

the 18th.

The very "wealth of nations" was regarded by the mercantilists essentially in the light of the interests of trade capital. Consequently they were bound to concern themselves with such an important economic category as exchange value. It was this in fact that interested them as theoreticians, for what more vivid embodiment of exchange value is there than money, gold? Yet even Aristotle's initial idea of the equation of various types of wealth and labour in exchange was foreign to them. On the contrary, they believed that exchange was unequal, unequivalent by its very nature. (This view is historically explained by the fact that they were thinking primarily of foreign trade exchange, which was often notoriously unequivalent, particularly in trade with backward and ``savage'' peoples.) The mercantilists, as a rule, did not develop the theory of labour value, the rudiments of which can be found in Aristotle and certain mediaeval writers.

Surplus value, which is in fact the fruit of the unpaid labour of hired workers appropriated by capitalists, appears in the form of trade profit in the mercantilists. The growth and accumulation of capital were seen by them not as the result of the exploitation of labour, but as the fruit of exchange, particularly foreign trade.

But these illusions and errors did not prevent the Mercantilists from seeing many problems in their true light. Thus, they were most concerned with that as large a section of the population as possible should be drawn into capitalist production. Combined with an extremely low real wage this would increase profits and accelerate the accumulation of capital. The mercantilists attached great importance in economic development to an elastic monetary system. Their interpretation of the role of monetary factors in the economy was in certain respects more profound than Adam Smith's. Assuming a strong state in

their economic projects, the later mercantilists also frequently objected to excessive and petty state regulation of the economy. This is particularly true of the English, who expressed the interests of a strong, independent and experienced bourgeoisie which needed the state only for the general defence of its interests.

Thomas Mun fought hard against strict regulation of the export of precious metals. He wrote that just as the peasant needs to cast seed into the earth in order to reap the harvest, so the merchant must export money and purchase foreign wares in order to sell more of his goods and bring the nation profit in the form of additional amounts of money.

MERCANTILISM AND OUR AGE

Mercantilism as a trend in economic theory disappeared from the scene towards the end of the 18th century. The principles of classical political economy were more in accordance with the conditions of the industrial revolution and manufacturing industry. These principles were particularly dominant in the most advanced capitalist countries---England and France. In economic policy this was reflected by a weakening in the direct intervention of the state in the economy and foreign trade.

In countries which embarked upon the path of capitalist development later, however, the ideas of the classical school could not take root fully. The bourgeoisie of these countries refused to accept that everything in economics must be left to the free play of forces. Not without justification it assumed that in this free play the English and also the French bourgeoisie had the best chance of winning. Therefore certain concrete mercantilist ideas never died, and the main points of mercantilist policy---state management of the economy, protectionism, securing an abundance of money in the country---have in many cases been actively used by governments.

Came the 20th century, and state monopoly capitalism developed in the industrial bourgeois countries. The economic ideas which corresponded to these conditions and reflected the task of state influence on the economy were most fully expressed in the 1930s by the English theoretician John Maynard Keynes. The bourgeois economic thought of recent

4---745

decades has developed to a large extent under the influence of his ideas. In many respects they determine the economic policy of modern capitalism pursued by the monopolies and the state today.

Capitalism can no longer exist by self-regulation, Keynes argued. The state must take on the task of planning the economy. This task is mainly to support and stimulate the money demand which tends to lag chronically behind production. Thus it is necessary to combat unemployment and short time in factories. Individual capitalists must be constantly urged to invest, i.e., build new factories and extend production.

Non-intervention by the state in the economy, which bourgeois political economy proclaimed for a century and a half, is a false and dangerous notion. First and foremost, the state must ensure that there is an abundance of money in the country and that it is ``cheap'', i.e., that interest rates on loans are low. Given such a situation the capitalists will be eager to obtain bank loans, make investments, and therefore hire workers and pay them wages. Free trade is a prejudice. If it is necessary for full employment, then restrictions on the import of foreign goods are also permissible, and so are dumping (exporting goods at low prices to gain control of markets) and currency devaluation.

These recommendations are strangely reminiscent of mercantilist ideas allowing, naturally, for the difference between modern capitalist economy and the economy that existed in Western Europe 250-300 years ago. The Swedish economist Eli Heckscher (1879-1952), an acknowledged expert on mercantilism, writes: "... Keynes' view of economic relationships is in many ways strikingly similar to that of the mercantilists, despite the fact that his social philosophy was quite different....''^^1^^ Of course it was different. Keynes is an ideologian of modern state-monopoly capitalism, whereas the mercantilists were expressing the interests of the growing trade and industrial bourgeoisie in the period of early capitalism.

Keynes expressed himself bluntly. He set himself the task of debunking "classical doctrine" (by which he meant, roughly speaking, the concepts of self-regulation and non-intervention by the state in the economy) and announced this on the very

first page. He behaved in the same way with the mercantilists, openly acknowledging them as his predecessors. True, the critics, Professor Heckscher in particular, later proved that Keynes to some extent simply ascribed his own views to 17th and 18th century writers, interpreting them in a most strange and convenient way, to put it mildly. Nevertheless the kinship between Keynes and the mercantilists is significant. Keynes himself formulated four points linking him with them.

Firstly, the mercantilists, in his opinion, endeavoured to increase the amount of money in the country by lowering interest on loans and encouraging investment. As we have just seen, this is one of Keynes' key ideas. Secondly, they were not afraid of price increases and thought that high prices helped to expand trade and production. Keynes is one of the founders of the modern conception of "moderate inflation" as a means of supporting economic activity. Thirdly, "the mercantilists were the originals of ... the scarcity of money as causes of unemployment".^^1^^ Keynes advanced the idea that increasing the amount of money by bank credit expansion and state budget deficits could be a most important weapon in the struggle against unemployment. Fourthly, "the mercantilists were under no illusions as to the nationalistic character of their policies and their tendency to promote war"~^^2^^. Keynes believed that protectionism could help to solve the problem of full employment in a given country, and advocated economic nationalism.

To this one might add a fifth point which Keynes obviously took for granted: an emphasis on the important role of the state in the economy.

As mentioned above, at the end of the 19th century bourgeois political economy rejected the labour theory of value and other theoretical principles of the classical school. Today it has also renounced the economic policy which proceeds from the theories of the classical bourgeois political economists. The main reason for this is the aggravation of the contradictions in capitalism. Bourgeois economists are seeking to soften these contradictions by increasing state intervention. The conception of the omnipotence of the state in the economy was most

~^^1^^ J. M. Keynes, The General Theory of Employment, Interest and Money, London, 1946, p. 346.

Eli F. Heckscher, Mercantilism, New York, 1955, Vol. 2, p. 340.

Ibid., p. 348.

fully expressed in the past by the mercantilists. Hence the kinship.

Not all modern bourgeois political economy has followed the Keynesian path. There are whole schools which reject the need for an increase in state intervention in the economy. They support "the freedom of private enterprise" against the inflationary enthusiasm of the Keynesians. These writers occasionally refer to attempts at state influence on the economy, production and full employment as `` neomercantilism'', using the term pejoratively. According to them, any such influence leads to the restriction of individual liberty and does not correspond to "Western ideals". These critics of ``neo-mercantilism'' do not see what the Keynesians are expressing (perhaps unconsciously) by their theories: that the increase in the role of the modern bourgeois state in the economy is an objective law. Otherwise capitalism would no longer be able to control the forces it has engendered.

On the other hand, the term ``neo-mercantilism'' is used to cast doubt on the economic policy of young developing states. The state sector of the economy, economic plans and programmes are called neo-mercantilism. The protection of national industry by customs tariffs and other measures is also neo-mercantilism. Bilateral trade agreements, financing of industry by state loans, regulating prices and restricting the profits of monopolies---all this is neo-mercantilism.

But how should these countries develop then? By freedom of trade, i.e., freedom for foreign monopolies with the benevolent non-intervention of the state. Then there would obviously be no neo-mercantilism. But nor would there be any independent economic development, for these are precisely the conditions which preserve backwardness and dependence!

Protectionism is being used in many developing countries as an instrument for promoting industrial development. In this case it is progressive and very different from the aggressive protectionism of the big developed countries, which is employed in the imperialist struggle for markets.

CHAPTER III

THE PRAISEWORTHY SIR WILLIAM PETTY

homas Mun's contemporaries were Shakespeare and Bacon, the great innovators in the arts and sciences. A similar innovator in political economy, William Petty, appeared a generation later. The famous people in the generation between them, born at the turn of the century, were soldiers and preachers. Oliver Cromwell, the leader and hero of the moderate bourgeoisie, and John Lilburne, his more left-wing political rival, fought with a sword in their right hand and the Bible in their left. The political and social revolution in the 17th century assumed a religious aspect by virtue of prevailing historical conditions. It donned the austere garb of Puritanism.

The bourgeoisie exhausted its revolutionary fervour in the Cromwellian Protectorate and in 1660, in alliance with the new nobility, restored the Stuart dynasty to the throne in the person of Charles II, the son of the executed king. But the monarchy was no longer what it had been: the revolution had not been in vain. The bourgeoisie had strengthened its position at the expense of the old feudal nobility.

During the twenty years of revolution (1641-1660) a new generation of people grew up, on whose way of thought the revolution made strong, although widely differing impressions. Politics and religion (they were inseparably linked) went out of fashion to a certain extent. People whose youth had been in the forties and fifties were tired of scholastic arguments in

which the Bible was the main source of wisdom. They inherited something different from the revolution: the spirit of bourgeois freedom, reason and progress. A bright constellation of talent appeared in science. The stars of the first magnitude were the physicist Robert Boyle, the philosopher John Locke and, finally, the great Isaac Newton.

It was to this generation and circle of people that William Petty belonged. He occupies a place of honour among the great scholars of his time. This English nobleman was, as Marx put- it, the father of political economy and in a sense the inventor of statistics.

revealed the true place which this brilliant Englishman holds in it. Petty was the father of bourgeois classical political economy, which did not limit itself to the study and description of visible economic phenomena but proceeded to an analysis of the internal laws of the capitalist mode of production, to a search for its law of progression. In the hands of Petty and his followers this science became a powerful instrument for understanding reality and striving for social progress.

Petty's striking and unusual personality greatly attracted Marx and Engels. "Petty regards himself as the founder of a new science...", "His audacious genius ...", "A highly original sense of humour pervades all his writings ...",' "Even this error has genius ...",^^2^^ "In content and form it is a little masterpiece...."---these comments in various works by Marx give an idea of his attitude to "the most brilliant and original of economic investigators...".^^3^^

The fate of Petty's literary heritage was an unusual one. McCulloch noted the somewhat strange fact that for all the importance of his role Petty's works were never published in full and existed only in old incomplete editions which had become a bibliographical rarity by the middle of the 19th century. McCulloch ended his note on Petty with the modest hope: "Nor could the noble successors of Petty, to whom much of his talent as well as his estates have descended, raise any better monument to his memory than the publication of a complete edition of his works.''

However, Petty's "noble successors"---the earls of Shelburne and the marquesses of Lansdowne---were not overanxious to put their ancestor on general display, who had been the son of a modest craftsman, acquired riches and noble rank by none too fair means and, to quote a recent biographer, had a "loud, if somewhat doubtful, reputation''.

For more than two centuries this aspect of the matter seemed more important to Petty's successors than the scientific and historical value of his writings. It was not until the very end of the 19th century that the first collection of Petty's economic works was published. At the same time one of his descendants published his biography.

~^^1^^ Karl Marx, A Contribution to the Critique of Political Economy, Moscow, 1970, pp. 52, 53.

~^^2^^ Frederick Engels, Anti-Diihring, Moscow, 1969, p. 275.

PETTY STRIDES ACROSS THE CENTURIES

The history of science contains cases of people being forgotten and resurrected later. Such as the somewhat mysterious figure of that remarkable economist of the early 18th century, Richard Cantillon, from whom, as Marx pointed out, such eminent economists as Francois Quesnay, James Steuart and Adam Smith borrowed heavily, was almost completely forgotten. He was practically discovered anew at the end of the 19th century.

Hermann Heinrich Gossen published a book in 1854 which attracted so little attention that the disappointed author withdrew it from the bookshops four years later and destroyed almost the whole edition. Twenty years later Jevons came across it by chance and proclaimed Gossen, who had long since departed from the land of the living, as the discoverer of "the new political economy". Today so-called Gossen's laws dealing with the category of utility of economic goods from a subjective, psychological standpoint occupy a considerable place in any bourgeois textbook or history of political economy.

Petty did not need to be rediscovered. He achieved fame already during his lifetime. Adam Smith was familiar with his ideas. McCulloch wrote in 1845 that "Sir William Petty was one of the most remarkable persons of the seventeenth century". He actually called Petty the founder of the labour theory of value and drew a straight line from him to Ricardo.

Nevertheless William Petty was only fully discovered for the science by Marx. Only Marx, by creating a new political economy and casting a new light on the history of the science

Ibid.

Today we have a clearer idea of Petty's political views, his social and scientific activity, and his relations with the great scientists of his day. Many details of his life are now known. Great people do not need their portraits touched up or their vices and shortcomings glossed over. This applies fully to William Petty. In the history of human culture he will live on not as a large Irish landowner and adroit (although by no means always successful) courtier, but as a bold thinker who opened up new paths in the science of society. For Marxists Petty is primarily the founder of classical political economy. Bourgeois economists, while recognising Petty as a great scientist and striking personality, frequently refuse to see him as the forerunner of Smith, Ricardo and Marx. Petty's place in the science is often limited to that of the creator of the statistical method of investigation.

Schumpeter insists that Petty's work contains no labour theory of value (or concept of value in general) and no appreciable theory of wages and that, consequently, there can be no question of his having understood surplus value. He is obliged for his reputation simply to "Marx's decree to the effect that Petty was the founder of economics"', and also to the eulogies of certain bourgeois scholars who, Schumpeter hints, did not realise whose axe they were grinding.

Many works by bourgeois scholars regard Petty simply as an exponent of mercantilism, perhaps one of the most talented and advanced, but no more. At the most he is credited, apart from the discovery of the statistical method, with the treatment of individual economic problems and questions of economic policy: taxation and customs duties. It cannot be said that this point of view reigns supreme in modern bourgeois science. Other views are expressed, and Petty's role in economic science is seen in a more correct historical perspective. However, the main attitude is that of Schumpeter, and this is no accident.

half centuries. A similar event took place in the family of the cloth-maker Anthony Petty in Romsey, Hampshire: his fourteen-year-old son William refused to carry on the family trade and got hired in Southampton as a cabin boy.

In the England of the 17th and 18th centuries going to sea was the usual form of protest by many young lads against a dull, humdrum life, the expression of youth's age-old thirst for adventure and independence. This was no revolt against the bourgeois way of life: on the contrary, the thirst for adventure was more or less consciously linked in these young men with the desire to get rich and assert themselves in the new bourgeois world. This feature was wholly characteristic of the young Petty too.

A year later Petty broke his leg at sea. In accordance with the harsh customs of the times he was simply put ashore at the nearest stretch of coast. This turned out to be the coast of Normandy in the north of France. Petty was saved by his practical nature, ability and good luck. In his autobiography he relates with scrupulous accuracy, again worthy of a Robinson Crusoe, what a trivial sum of money he was given before being set ashore, how he used it, and how he increased his ``fortune'' by purchasing various trifles and reselling them at a profit. He also had to buy a pair of crutches, which he was soon able to discard however.

Petty was a kind of child prodigy. In spite of the modest education which he received from the town school in Romsey, he knew Latin so well that he sent the Jesuits, who had a college in Caen, an ``application'' for admission in Latin verse. Whether they were astounded at the young man's ability or hoped to gain a valuable acquisition for the Catholic Church, the Jesuits admitted him to the college and paid for his upkeep. Petty spent two years there and as a result, to quote his own words, "I had obtained the Latin, Greek and French tongues, the whole body of common Arithmetic, the practical Geometry and Astronomy conducing to navigation...''^^1^^. Petty's mathematical ability was outstanding and in this sphere he kept abreast of the achievements of his day throughout his life.

In 1640 Petty earned his living in London by drawing sea charts. He then served in the navy for three years, where his talent for navigation and cartography was extremely useful.

FROM CABIN BOY TO LANDOWNER

The young Robinson Crusoe, hero of Daniel Defoe's novel, ran away from home and went to sea. Thus began his adventures which have been thrilling readers for two and a

J. A. Schumpeter, History of Economic Analysis, New York, 1955, p. 210.

~^^1^^ E. Strauss, Sir William Petty. Portrait of a Genius, London, 1954, p. 24.

These years were the height of the revolution, the bitter political and ideological struggle. Civil war broke out. The twenty-years-old Petty was basically on the side of the bourgeois revolution and Puritanism, but he had no desire to get involved personally in the struggle. He was fascinated by science. He went to Holland and France where he mainly studied medicine. This versatility was not only a sign of Petty's individual talent: the division into separate sciences was only just beginning in the 17th century and academic versatility was not a rarity.

Then followed three happy years of travelling, intense activity, and concentrated devouring of knowledge. In Amsterdam Petty earned his living in the workshop of a jeweller and optician. In Paris he worked as the secretary of the philosopher Hobbes who had emigrated there. By the age of twenty-four Petty was a fully developed person possessing extensive knowledge, great energy, pie de vivre and personal charm.

Returning to England Petty soon became in Oxford, where he continued to study medicine, and London, where he worked to earn a living, an eminent member of a group of young scientists. These scientists jokingly called themselves the "invisible college", but shortly after the Restoration they created the Royal Society, the first academy of sciences in the new age. When Petty received the degree of Doctor of Physics from Oxford University in 1650 and became Professor of Anatomy and Vice-Principal of one of the colleges, the "invisible college" began to meet in his bachelor flat which he rented in the house of an apothecary.

The political views of these scientists, including Petty, were not particularly radical. But the spirit of the revolution, which had by now led to the proclamation of the republic (May 1649) left its mark on all their activity. In science they fought against scholasticism for the introduction of experimental methods. Petty absorbed and carried all through his life this spirit of revolution and democratism, which in later years broke out from time to time in the rich landowner and nobleman, hindering his success at court.

Petty was obviously a good physician and anatomist. This can be seen from his success at Oxford, the young professor's medical writings and his subsequent high appointment. It was at this time that the event occurred which first made him known to a relatively large public.

In December 1650 in Oxford, in accordance with the barbaric laws and customs of the time, a certain Ann Green was hanged, a poor peasant girl who had been seduced by a young squire and accused of murdering her child. (It subsequently transpired that she was innocent: the child had been born prematurely and died a natural death.) After the fact of death had been established she was laid in a grave. At that moment Doctor Petty and his assistant appeared on the scene: their purpose was to take away the corpse for anatomical investigation. To their amazement the doctors discovered that there was still a breath of life in the hanged woman. By acting quickly they ``resurrected'' her! The subsequent development of events and Petty's actions, characteristic of many aspects of his nature, are interesting. Firstly, he carried out a series of observations not only on the physical but also on the psychic state of his unusual patient and recorded them with precision. Secondly, he showed not only medical skill but also humanity, obtaining a court pardon for Ann and organising a collection of money on her behalf. Thirdly, with his inherent flair for business, he used this happening to get publicity.

In 1651 Doctor Petty suddenly left his chair and obtained the position of doctor to the commander-in-chief of the English army in Ireland. In September 1652, he stepped on Irish soil for the first time. Why did he make such an abrupt change? Evidently the life of an Oxford professor was too quiet and unpromising for an energetic young man with a taste for adventure.

Petty saw Ireland, which had just been reconquered by the English after an unsuccessful uprising, ravaged by ten years of war, hunger and disease. The land belonging to Irish Catholics who had taken part in the anti-English uprising was confiscated. Cromwell intended to use this land to pay off the rich Londoners who had provided money for the war and also the officers and men of the victorious army. Before it could be allocated, stretches of land totalling millions of acres had to be surveyed and charted. (And this had to be done quickly for the army was restless and clamouring for rewards.) For the middle of the 17th century this was a task of colossal difficulty: there were no maps, no instruments, qualified people or transport. And the peasants kept attacking the surveyors....

This was the task that Petty undertook, seeing a rare opportunity for quick riches and advancement. His knowledge

of cartography and geodesy stood him in good stead. But something else was also required: energy, drive and cunning. Petty contracted with the government and the Army command to survey Army lands. He was paid mainly with money collected from the soldiers who were to receive the land. Petty ordered new instruments from London, assembled a whole army of surveyors numbering a thousand men, and compiled maps of Ireland which were used in the courts to decided land disputes right up to the middle of the 19th century. And this was done in a little over a year. He was a man who could put his hand to anything.

The "Army land survey" turned out to be a real gold mine for Petty who was now a little over thirty. Having come to Ireland a modest physician, he turned a few years later into one of the richest and most influential people in the country.

What was legal and what was illegal in this breathtaking rise to riches? It provoked violent arguments in Petty's lifetime and to a certain extent depends on one's point of view. The actual plunder of Ireland was illegal. Petty acted on this basis, but himself always remained within the framework of formal legality: not robbing, but receiving from the existing authority; not stealing, but purchasing; driving people off their land not by arms, but by a court decision. It is unlikely that there was no bribery or corruption, but that was regarded as the natural order of things....

Petty's tremendous energy, his passion for self-assertion, adventurism ... all this found expression for a certain time in his mania to get rich. Having received, by his own figures, £ 9,000 of pure profit from carrying out the contract, he used this money to purchase land from officers and men who could not or did not want to wait for their plots and occupy them. Moreover, he received part of his remuneration from the government in land. We do not know exactly by what means the cunning doctor increased his property, but his success exceeded all expectations. As a result he found himself the owner of thousands of acres in various parts of the island. Later his domains extended even further. At the same time he became the trusted assistant and secretary of the Lord Lieutenant of Ireland Henry Cromwell, younger son of the protector.

For two or three years Petty flourished in spite of the intrigues of enemies and ill-wishers. But in 1658 Oliver

Cromwell died and his son's position became increasingly insecure. Against his will the Lord Lieutenant was compelled to set up a special commission to investigate the doctor's activities. True, the commission included many of Petty's friends. What is more, he fought for his fortune and good name with no less energy, brilliance and skill than he fought for his ideas. He succeeded in clearing himself not only before the commission, but also before Parliament in London (to which he had recently been elected). He emerged from the struggle if not triumphantly, at least without any losses. The political chaos of the last few months before the Restoration in 1660 put the Petty case into the shade, which suited him admirably.

Shortly before the Restoration Henry Cromwell and his confidant performed some important services for eminent Royalists who came to power when Charles II returned from exile. This enabled the Protector's son to retire gracefully into private life, and gave Petty an entree to the court. In 1661 the cloth-maker's son was knighted and received the title of Sir William Petty. This was the height of his success. He enjoyed the favour of King Charles^ he had disgraced his enemies, he was rich, independent and influential....

It is known authentically from documents and Petty's correspondence that the crown twice offered him a peerage. He regarded these proposals, however, not without justification, as an excuse to ignore the requests with which he was pestering the King and court: to give him a real governmental post in which he could put his bold economic plans into action. His explanation of why he refused the royal favour in one of his letters is most characteristic of Petty's personality and style: that he would "sooner be a copper farthing of intrinsic value than a brass half-crown, how gaudily soever it be stamped or gilded".^^1^^ In the manyrtiered hierarchy of the court Petty had the lowest title.

Only a year after the death of Sir William Petty, his eldest son Charles was made Baron Shelburne. It was an Irish baronetcy, however, which did not confer the right to sit in the House of Lords in London. It was Petty's great-grandson who finally occupied this place and went down in English history as

Dictionary of National Biography, ed. by L. Stephen and S. Lee, Vol. 45, p. 116.

an important politician and the leader of the Whig party under the title of the Marquess of Lansdowne.

Incidentally, in 20th-century Britain eminent economists who have performed important services to the ruling classes are now given peerages for their scientific works. The first such "aristocrat of political economy" was Keynes.

the quantity of labour they contain.''^^1^^ In its turn "the determination of surplus-value depends on the determination of value".² These words express in a nutshell the essence of the English thinkers' scientific achievement.

It is interesting to trace his line of argument.

With the keen sense of a man of the new, bourgeois age he immediately raises what is basically the question of surplus value: "... we should endeavour to explain the mysterious nature of them, with reference as well to Money, the rent of which we call usury; as to that of Lands and Houses, afore-mentioned".^^3^^ In the 17th century land was still the main object to which human labour was applied. Consequently for Petty surplus value invariably appears in the form of land rent, which also conceals industrial profit. He also deduces interest from rent. Petty showed little interest in trade profit, which sharply distinguishes him from other contemporary mercantilists. His reference to the mysterious nature of rent is also interesting. Petty senses that he is confronted with a great scientific problem, that here the phenomenon's appearance differs from its substance.

Then comes a passage which is often quoted. Let us assume that a man (this man is to be the hero of economic treatises, not only arithmetic textbooks!) is engaged in producing corn. Part of what he produces will be used as new seed, part will be spent on satisfying his own requirements (including by means of exchange), and "the remainder of Corn is the natural and true Rent of the Land for that year". Here we have a division of the product and consequently of its value and the labour which created it into three main parts: 1) the part which represents the replacement of expended means of production, in this case seeds^^4^^; 2) the part which is essential for the sustenance of the worker and his family, and 3) the surplus, or net income. This latter part corresponds to the concept of the surplus product and surplus value introduced by Marx.

~^^1^^ Karl Marx, Theories of Surplus-Value, Part I, Moscow, 1969, p. 355.

~^^2^^ Ibid.

~^^3^^ W. Petty, The Economic Writings, Vol. 1, Cambridge, 1899, p. 42. Petty omits other expenditure of the means of production, say, manure,

and also the wear and tear of a horse, plough, sickle, etc. These expenses are not reimbursed by corn in kind (this may be why Petty does not take them into account), but have to be reimbursed in value. In ten years' time, say, the ploughman will need a new horse. From each annual harvest he should set aside some part of the cost of the future purchase of this horse.

THE COLUMBUS OF POLITICAL ECONOMY

As we know, Columbus was unaware right up to the end of his life that he had discovered America, for he had set out to find a sea passage to India, not a new continent.

Petty published pamphlets with specific and occasionally even mercenary aims, as was the custom with economists of the time. The most he ascribed to himself was the invention of political arithmetic (statistics). His contemporaries, too, saw this as his main achievement. In fact he did something else as well: the ideas which he expressed incidentally, as it were, on value, rent, wages, division of labour and money became the foundation of scientific political economy. This was the true "economic America" discovered by the new Columbus.

Petty's first serious economic work was entitled A Treatise of Taxes and Contributions and appeared in 1662. It is perhaps his most important work too: In seeking to show the new government how it could (with his personal participation, of course, and even under his supervision) increase the revenue from taxation, he also expounded his economic views most fully.

By this time Petty had almost forgotten that he was a doctor. He occupied himself with mathematics, mechanics and shipbuilding only in his rare moments of leisure or meetings with some of his scientist friends. His inventive and flexible mind was turning more and more to economics and politics. His head was full of plans, projects and proposals: tax reform, the organisation of a statistics service, the improvement of trade.... All this found expression in his Treatise. And more besides. Petty's Treatise is perhaps the most important economic work of the 17th century, just as Adam Smith's book on the wealth of nations was of the 18th century.

Two hundred years later Karl Marx wrote of the Treatise: "In this treatise he in fact determines the value of commodities by

Further Petty raises the question of "... how much English money this Corn or Rent is worth? I answer, so much as the money which another single man can save, within the same time, over and above his expense, if he employed himself wholly to produce and make it; viz. Let another man go travel into a Country where is Silver, there Dig it, Refine it, bring it to the same place where the other man planted his Corn; Coyne it, and c. the same person all the while of his working for Silver, gathering also food for his necessary livelihood, and procuring himself covering, &c. I say, the Silver of the one must be esteemed of equal value with the Corn of the other: the one being perhaps twenty Ounces and the other twenty Bushels. From whence it follows, that the price of a Bushel of this Corn to be an Ounce of Silver".^^1^^

Obviously the attempt to equate in terms of value the parts of corn and silver which are the surplus product is tantamount to equating the whole gross product. After all, the latter twenty bushels of corn are in no way different from the other, say, thirty bushels which replace the seed and provide the farmer's subsistence. The same applies to the twenty ounces of silver mentioned above. In another passage Petty expresses the idea of labour value in pure form: "If a man can bring to London an ounce of Silver out of the Earth in Peru, in the same time that he can produce a bushel of Corn, then one is the natural price of the other....''^^2^^

Thus, Petty is essentially formulating the law of value. He understands that this law operates in a most complex way, only as a general tendency. This is expressed in the following truly amazing passage: "This I say, to be the foundation of equallizing and ballancing of values; yet in the superstructures and practices hereupon, I confess there is much variety, and intricacy....''~^^3^^

Between exchange value, the size of which is determined by expenditure of labour, and the real market price are many intermediate stages which complicate the process of price formation immeasurably. With remarkable perception Petty names several price-forming factors which modern economists and planners have to take into account: the influence of

substitute commodities, novelty commodities, fashion, imitation, habits of consumption.

Petty takes the first steps towards an analysis of the abstract labour which creates value. For each concrete type of labour creates a concrete commodity, a use value: the farmer's labour---corn, the weaver's labour---cloth, etc. But each type of labour has something in common which makes all types of labour comparable and all goods---commodities, exchange values: expenditure of labour time as such, the expenditure of the productive energy of the worker in general.

In the history of economic science Petty was the first to start blazing the trail to the idea of abstract labour which became the basis of the Marxist theory of value.

One can hardly expect a balanced and complete economic theory from this founder and pioneer. Entangled in mercantilist ideas he could not get rid of the illusion that labour to extract precious metals was a special type of labour which created value most directly. Petty could not separate exchange value, which is most clearly embodied in these metals, from the very substance of value---the expenditure of universal human abstract labour. He has not the slightest idea that the degree of value is determined by the expenditure of socially necessary labour which is typical and average for the given level of economic development. Expenditure of labour in excess of that which is socially necessary is wasted labour and does not create value. With regard to the subsequent development of the science much that Petty wrote must be acknowledged as weak or downright wrong. But the main thing is that he sticks firmly to his point of view---the labour theory of value---and applies it successfully to many concrete problems.

We have already seen how he interpreted the nature of the surplus product. But in that case it was a simple commodity producer who himself appropriates the surplus product produced by him. Petty could not help seeing that in his day a considerable portion of production was already being done with the use of hired labour.

He was bound to arrive at the conclusion that the surplus product is produced not only and not so much for the worker himself, as for the owners of land and capital. The fact that he did can be seen from his reflections on wages. A worker's wage is determined and should be determined, in his opinion, only by the minimum necessary for subsistence. He should receive

~^^1^^ W. Petty, The Economic Writings, Vol. 1, Cambridge, 1899, p. 43.

~^^2^^ Ibid., p. 50.

~^^3^^ Ibid., p. 44.

5-745

not more than is necessary to live, labour and multiply. Petty realises at the same time that the value created by the labour of this worker is of a totally different magnitude and, as a rule, considerably larger. This difference is the source of surplus value which appears in the form of rent in Petty's writing.

Although in undeveloped form, Petty expressed the fundamental scientific principle of classical political economy: that wages and surplus value (rent, profit, usury) are inversely related in the price of a commodity which is determined in the final analysis by expenditure of labour. Given the same level of production an increase in wages can only take place at the expense of surplus value and vice versa. From here it is only a step to recognising the fundamental opposition of the class interests of the workers, on the one hand, and the landowners and capitalists, on the other. This is the final conclusion, which was to be made by classical political economy in the person of Ricardo. Petty comes closest to this view, perhaps, not in the Treatise, but in the famous Discourse on Political Arithmetick written in the 1670s, although there too the idea is in embryonic form only.

On the whole, however, his passion for political arithmetic prevented Petty from developing his economic theory and understanding of the basic laws of capitalist economy. Many brilliant conjectures in the Treatise remained undeveloped. Figures now fascinated him. They seemed to be the key to everything. The Treatise already contains the characteristic phrase: "The first thing to be done is, to compute. ..." This was becoming Petty's motto, a kind of magic spell: compute and everything will become clear. The creators of statistics suffered from a somewhat naive belief in its power.

Of course, the foregoing does not cover the whole content of Petty's main economic works. It is far richer. His ideas expressed the world outlook of the bourgeoisie which at that time was progressive. Petty was the first to study capitalist production and assess economic phenomena from the viewpoint of production. This is his great advantage over the mercantilists. Hence his critical attitude to the non-productive sections of the population of which he singles out in particular clergymen, barristers and officials. He assumes that it would be possible to reduce considerably the number of merchants and shopkeepers who are "yielding of themselves no fruit of all" either. This tradition of a critical attitude to non-productive

groups of the population is to become the lifeblood of classical political economy.

The style makes the man, as the old French saying goes. Petty's literary style is unusually fresh and original. Not because he was a master of literary niceties and subtleties. On the contrary, Petty is laconic, direct and austere. He expresses bold ideas in bold, unreserved form. He always keeps strictly to the point in simple words. The most voluminous of his works does not run to eighty pages.

The Charter of the Royal Society, of which Petty was one of the founder members, required that "... in all reports of experiments ... the matter of fact shall be barely stated, without any preface, apologies, and rhetorical flourishes". Petty regarded this splendid rule as applicable not only to the natural but also to the social sciences and sought to follow it. Many of his works remind one of "reports of experiments". (It would certainly not do modern economists and specialists in the other social sciences any harm to be guided by this rule.)

Simplicity of exposition does not prevent us from seeing behind Petty's works his striking personality, his irrepressible temperament, and political passion. This rich landowner, in his huge powdered wig and sumptuous silk robe (this is how Sir William looks in one of his later portraits), remained to a large extent the rough commoner and somewhat ironical physician. For all his wealth and titles, Petty worked unceasingly---not only mentally, but even physically. His passion was shipbuilding, and he was endlessly planning and building unusual ships. His individual features partially explain his antipathies: he could not stand idlers and parasites. Petty even adopted a strict attitude towards the monarchy. While trying to ingratiate himself at court, he at the same time wrote things which could not possibly please the King or the government: kings tend to like aggressive wars and the best way of stopping them is not to give them any money.

POLITICAL ARITHMETICK

More than anything in life the English King Charles II wanted to excel his august relative, Louis XIV of France, in some way. He organised balls and firework displays with an eye on Versailles. But he had far less money than the French ruler.

He bestowed the title of duke on some of his illegitimate sons, but Louis made his bastard offsprings marshals of France, which the Stuart could not do: his absolute monarchy was not that absolute.

Only science was left. Shortly after the Restoration at his instigation and under the patronage of the whole royal family the Royal Society was formed, of which Charles could be justly proud. Louis had nothing like that! The king himself conducted chemical experiments and studied navigation. This was in the spirit of the times. It was one of the entertainments of the "merry monarch", and so was the Royal Society.

The most interesting and witty member of the Royal Society was Sir William Petty. Among their intimates the King and the high-ranking nobility were free-thinkers, and no one could make fun of the sanctimonious of all denominations like Petty. One day the Lord Lieutenant of Ireland, the Duke of Ormonde, in a gay and probably not entirely sober company asked Sir William to demonstrate his art. Climbing onto a couple of chairs placed side by side, Petty proceeded to parody preachers of different denominations and sects amid general laughter. Carried away, he pretended to be clergymen reprimanding "some Princes and Governors", as an eyewitness puts it, for their bad management, partiality and cupidity. The laughter ceased. The Duke did not know how to quieten the spirit he had evoked.

The King and the Irish lord lieutenants enjoyed listening to Petty until he started talking about politics and trade. And he could not help doing this! For him all other conversation was just an excuse to expound his latest economic project. Each plan was bolder and more radical than the one before. This was dangerous, tiresome, unnecessary. Another Irish lord lieutenant, Lord Essex, said that Sir William was the most "grating man" in the three kingdoms (i. e., England, Scotland and Ireland). The Duke of Ormonde told him frankly that he was thought by some to be "a conjuror, by others to be notional and fanciful near up to madness, and also a fanatic''.

His life was not an easy one. His natural optimism sometimes gave way to a peevish melancholy or futile rage.

Why were Petty's plans hardly ever to the liking of the Court? Some, for all their brilliant boldness, were simply Utopian. Yet many were perfectly sensible for their day. The main point is that they were consciously and boldly aimed at

developing capitalist economy in England and Ireland, at a more decisive break with feudal relations. But the monarchy of Charles II and his brother James II hung on to these survivals, or at the most agreed to compromise measures under pressure from the bourgeoisie. Which is why it collapsed (a year after Petty's death).

Petty always regarded the wealth and prosperity of England by comparing it with neighbouring countries. Holland was a kind of yardstick for him, and he frequently returned to the complex question of the cause for its successful development. With the years he became increasingly convinced that England's position was directly threatened not by Holland, but by a larger and more active power---France. His economic ideas assumed an increasingly open anti-French political character.

In 1676 Petty finished writing his second main economic work, the Political Arithmetick, but dared not publish it. Alliance with France was the basis of Charles II's foreign policy. The English king was receiving a secret financial subsidy from Louis XIV: Parliament was tight-fisted, the revenue from taxes did not reach the king, so he had to make ends meet in another way. Sir William was no coward, but he had no desire to incur the displeasure of the court.

The Political Arithmetick circulated in manuscript. In 1683 Petty's work was published anonymously, without his knowledge and under a different title. Only after the "glorious revolution" of 1688-89 and the related radical change in English policy did Petty's son (Lord Shelburne) publish it in full under the author's name. In the dedication he wrote that the publication of his deceased father's book had been impossible before because "the doctrine of this Essay offended France''.

Petty's anti-French opinions were dictated by the interests of the English bourgeoisie. All the following century, right up to the beginning of the 19th century, England was to struggle hard with France and become firmly established as the world's first industrial power. But the most important thing in the Political Arithmetick are the methods by which Petty sought to prove his argument. This is the first work in the history of the social sciences to be based on the statistical method of enquiry.

Can one imagine a modern state without statistics? Obviously

not. Can one imagine modern economic research without statistics? Yes, but hardly. Even if a writer uses "pure theory" in literary or mathematical form and does not quote any statistical data, he invariably assumes that they exist in principle and that the reader is more or less familiar with them.

This was not the case in the 17th century. Statistics simply did not exist (nor did the word either: it did not appear until the end of the 18th century). Very little was known about the size, distribution, age and professions of the population. Even less was known about the basic economic indices: the production and consumption of basic commodities, incomes, the distribution of wealth. Only on taxation and foreign trade were there a few facts and figures.

Petty's great service was that he raised the question of establishing a state statistical service and outlined the main methods of collecting information. He frequently returned in his writings to the creation of a statistical service and invariably, as it were, incidentally, saw himself as its head. He called this post invented by him various names, more or less highsounding depending on his mood and assessment of his chances. Moreover, he hoped not only to calculate but to ``plan'' to a certain extent. For example, he compiled some estimates, remarkable for his time, on the "balance of the labour force": how many doctors and barristers the country needed (there were in fact no other specialists with higher education in the 17th century) and consequently how many students the universities should take each year.

Petty not only preached tirelessly the need for statistics, but also made brilliant use in arguing his economic views of the few and not very reliable facts at his disposal. He set himself a concrete task---to prove by means of objective numerical data that England was not poorer or weaker than France. This gave rise to a broader task---to provide a quantitative assessment of the economic position of the England of his day.

In the foreword to his work he writes about the method of political arithmetic: "The method I take to do this is not yet very usual. For instead of using only comparative and superlative words, and intellectual arguments, I have taken the course (as a specimen of the Political Arithmetick I have long aimed at) to express myself in terms of number, weight or measure; to use only arguments of sense; and to consider only such causes as have visible foundations in nature, leaving those that de-

pend on the mutable minds, opinions, appetites and possions of particular men to the consideration of others." '

One of Petty's most eminent followers, Charles Davenant, provided the following simple definition: "By political arithmetick we mean the art of reasoning by figures upon things relating to government...." Further on he notes that this art itself is undoubtedly very ancient. But Petty "gave it that name, and brought it into rules and methods''.

Petty's political arithmetic was the prototype of statistics, and his method anticipated a whole series of important trends in economic science. He wrote perceptively about the importance of calculating a country's national income and national wealth-indices which play a vast role in modern statistics and economics. He was the first to try and calculate the national wealth of England. Petty's democratism and unusual boldness are obvious from the following words: "...great care must be had distinguishing between the Wealth of the People, and that of an absolute Monarch, who taketh from the People, where, when, and in what proportion he pleaseth.''^^2^^ He was referring to Louis XIV here, but Charles II could also have seen this phrase as a strict reprimand.

Petty estimated England's material wealth at £250 million, but suggested that another 417 million be added, which he reckoned as a monetary assessment of the country's population. This paradoxical idea is more profound than may appear at first glance: Petty was seeking for a means of calculating the dimensions of the personal element of productive forces: labour skills, techniques, potential technological development.

Petty's whole economic theory begins with the question of the size and composition of the population. Marx noted in studying Petty: "Our friend Petty has quite a different 'population theory' from Malthus ... Population-wealth...''^^3^^ This optimistic view of population growth is typical of the early exponents of classical political economy. At the beginning of the 19th century Malthus laid the foundations of one of the apologetic trends in bourgeois political economy by announcing that the main cause of the poverty of the working classes

~^^1^^ W. Petty, Political Arithmetick, London, 1690, p. 244.

~^^2^^ W. Petty, The Economic Writings, Cambridge, 1899, Vol. 1, p. 272.

~^^3^^ Karl Marx, Theories of Surplus-Value, Part I, pp. 354, 355.

/

was the natural one of excessive multiplication (for more about this see Chapter XIV).

Petty calculated the national income of England. This developed into the modern system of national accounting which makes it possible to estimate approximately a country's volume of production, the distribution of its produce for consumption, accumulation and export, the incomes of the main social classes and groups, etc. True, Petty's calculations suffered from serious defects. He estimated national income as the sum of the consumer expenditure of the population, in other words, he believed that the accumulated portion of income which goes on capital investment in building, machines, land amelioration, etc., could be dismissed. This assumption was a realistic one for the 17th century, for the rate of accumulation was extremely low and the country's material wealth was growing slowly. Moreover Petty's error was soon corrected by his followers in political arithmetic, particularly Gregory King, who made some calculations of England's national income at the end of the 17th century which are remarkable for their fullness and thoroughness.

and ran into five editions within a few years, the second being required in the same year. The King himself showed an interest in it, and at his personal request Graunt was made a member of the newly-founded Royal Society. This was the first attempt to examine intelligently on the basis of existing scanty statistical data important problems of natural concern to people: the mortality and birth rates, the ratio between the sexes and the average life expectancy, population migration and the main causes of death.

The author of the Observations made the first timid attempts to approach the most important principle of statistics: that the study of a sufficiently large number of statistics on separate phenomena, each of which is fortuitous, shows that in general they are subject to extremely strict and regular laws. The birth and death of each separate individual is fortuitous, but mortality or birth rate in any given country (or even in a large town or region) is remarkably definite and slowly changing. Its changes can usually be scientifically explained and sometimes even predicted. The strict mathematical bases of statistics were laid in the following, 18th century, by the works of the great mathematicians---the creators of the theory of probability. But certain initial ideas were contained in the small book by the then unknown John Graunt.

He was born in 1620 and died in 1674, owned a haberdashery shop in the City, was self-educated and pursued his scientific investigations "in his free time". Petty became friendly with him in the late 1640s and at that time Graunt even acted as his patron. In the sixties the roles changed, but this did not cloud their friendship. Graunt was by then Petty's closest friend, his agent in London and the intermediary between him and the Royal Society. When Graunt's book attracted such interest, the rumour spread in London scientific circles that its real author was Sir William Petty who had preferred to hide behind this unknown name. This rumour grew stronger after Graunt's death. Petty's works and letters contain some passages which would appear to support it. On the other hand, he wrote quite clearly about "our friend Graunt's book''.

In the 19th century the question of the authorship of the Observations was widely discussed in English literature. Today the "Petty-Graunt problem" can be regarded as solved. The main author of the book and its basic statistical ideas and

PETTY AND GRAUNT,

OR WHO INVENTED STATISTICS?

Petty's later writings deal mainly with population, its growth, distribution and employment. He and his friend John Graunt share the honour of being the founders of demographic statistics. All its powerful modern techniques developed from the modest works of these pioneers.

Each science has its disputes about authorship and priority. Occasionally these disputes are fruitless, even harmful to the discipline. Sometimes they help to clarify its history and are therefore useful. A discussion of this kind in the history of statistics centred around the "Petty-Graunt problem". Its gist is as follows.

A small modest volume was published in London in 1662 under the title of Natural and Political Observations... Made Upon the Bills of Mortality^^1^^ by John Graunt. In spite of its odd, even morbid title, the book aroused considerable interest

The title is abridged for briefness.

methods was John Graunt. But with regard to his socioeconomic views he was clearly under the influence of Petty who possibly wrote the preface and conclusion in which these views are expressed. It is highly likely that the general idea for the book belonged to Petty, but its execution was undoubtedly the work of Graunt.^^1^^

Graunt was ruined by the Great Fire of London in 1666. Shortly afterwards he became a Catholic, which also undermined his social position. Possibly all this hastened his death. As Petty's friend and first biographer John Aubrey writes, at Graunt's funeral "with tears was that ingenious great virtuoso, Sir William Petty, his old and intimate acquaintance".^^2^^

The Great Fire, which destroyed half medieval London and cleared the ground for the building of the new town, is connected with one of Petty's boldest ideas. After the fire our indefatigable deviser of schemes presented the government with a plan for cleaning and rebuilding the town. The title said that the plan was compiled on the assumption that "all the ground and rubish were someone man's who had ready mony enough to carry on the worke, together with a Legislative power to cut all Knots".^^3^^ In other words, it obviously assumed state or municipal ownership of land and buildings as opposed to private ownership which was already hindering urban development.

One need only recall what problems and difficulties private capitalist ownership presents for the growth of London and Paris, New York and Tokyo, to fully appreciate this idea which was expressed more than three hundred years ago.

Petty was one of the first to express the idea of the existence in economy of objective, cognisable laws which he compared with the laws of nature and therefore called natural laws. This was a great step forward in the development of political economy as a science.

The actual idea of economic law could not arise until the basic economic processes---production, distribution, exchange and circulation---acquired a regular, mass form, until human relations acquired a predominantly commodity-money nature. The purchase and sole of commodities, the hiring of labour, the renting of land, and monetary circulation---only when these relations were more or less fully developed could people arrive at the conclusion that all this revealed the operation of objective laws. The mercantilists concerned themselves predominantly with one sphere of economic activity---foreign trade. Petty, on the contrary, was concerned with this least of all. He was interested in the recurring, law-governed processes which naturally determine the wage progression, rent and even, say, taxation.

By the end of the 17th century England was already becoming the most developed bourgeois country. This was basically the manufacturing stage of capitalist production, when its growth was promoted not so much by the introduction of machines and new methods of production, as by expanding capitalist division of labour on the basis of the old technology: a worker who specialises in any one operation acquires great skill in it, as a result of which labour productivity increases. The extolling of division of labour in political economy begins with certain remarks by Petty, who demonstrated its efficiency using the example of watch-making, and is particularly forcefully expressed in Adam Smith's writings, who made it the foundation of his system.

In Petty's day both industrial and agricultural production was already carried on according to capitalist principles to a large extent. The subjection of handicrafts and small-scale farming to capitalist enterprise took place slowly and in different ways in the various branches and areas. Vast regions of pre-capitalist forms of production still existed in most fields. But the trend of development had made its appearance, and Petty was one of the first to notice it.

Alongside the wool industry, which was still the basis of England's economy and trade, such branches as coal-mining

THE AGE AND THE MAN

The mercantilists did not see the objective laws in economic processes. They assumed that control of economic processes depended solely on the will of statesmen. What we now call voluntarism in economics was characteristic of the mercantilists.

M. V. Ptukha, Studies in the History of Statistics of the 17th-18th Centuries, Moscow, 1945, p. 45 (in Russian).

~^^2^^ E. Strauss, Sir William Petty. Portrait of a Genius, London, 1954, p. 160.

~^^3^^ The Petty Papers. Some Unpublished Writings of Sir William Petty ed. by the Marquis of Landsdowne, London, 1927, Vol. 1, p. 28.

and iron and steel smelting developed. In the 1680s about 3 million tons of coal was being mined annually, compared with 200,000 tons in the middle of the previous century. (But coal was still used almost exclusively as fuel: the coking process had not yet been discovered and meials were smelted with charcoal, which meant ruining the forests.) These branches developed as capitalist ones right from the start.

The countryside was also changing. The class of small landowners who carried on barter and petty trading was gradually disappearing. Their plots and the common land were becoming increasingly concentrated in the hands of large landlords who rented the' land to farmers. The wealthiest of these farmers were already carrying on capitalist farming with the use of hired labour.

Let us remember that Petty himself was a large landowner. With rare exceptions, however, he did not express the interests of the landed aristocracy in his writings.

Lenin said of Lev Tolstoy that there had been no proper peasant in literature before this count. To paraphrase one might say that there had been no proper bourgeois in political economy before this landlord. Petty understood clearly that the growth of the "nation's wealth" was possible only by the development of capitalism. To a certain extent he applied these ideas on his estates. In renting out his land he made sure that the farmers improved it and the means of cultivating it. He organised a colony of English emigrant craftsmen on his land.

As a person Petty was a mass of contradictions. The great thinker appears to the impartial biographer now as the frivolous adventurer, now as the insatiable profit-seeker and persistent litigator, now as the cunning courtier, now as the somewhat naive braggart. His irrepressible thirst for life was perhaps his most characteristic feature. But the forms which it took were dictated by the social conditions and circumstances in which he lived. In a sense wealth and honours were not an aim in themselves for him, but held a sort of sporting interest. He evidently experienced inner satisfaction, showing energy, cunning and practical guile in a way logical for his age and conditions. Wealth and title had little influence on his way of life and thinking.

John Evelyn, whom Petty knew in London, describes a sumptuous dinner at Petty's house in Piccadilly in his diary for

1675: "When I have been in his spendid Palace, who knew him in meaner Circumstances, he would be in admiration himself how he ariv'd to it; nor was it his value (or) inclination to splendid furniture and the curiositie of the age: but his Elegant Lady,^^1^^ who could indure nothing mean, and that was not magnificent; whilst he was very negligent himself and of a Philosophic temper: Lord, would he say what a deale of do is here; I can lie in straw with as much satisfaction; and was indeed rather negligent of his person....''^^2^^

All his life he had enemies---avowed and secret ones. They included people who envied him, political opponents, and those who hated him for the biting, pitiless gibes of which he was a past master. Some instigated physical violence against him, others wove intrigues. One day in a street in Dublin he was attacked by a certain colonel accompanied by two ``assistants''. Sir William put them to flight, almost losing his left eye from a blow of the colonel' sharp cane. The blow fell on a sensitive spot, for Petty had suffered from weak sight ever since childhood.

He was more vexed by the enemies who intrigued against him at court, with the Irish lord lieutenants, and in the law courts. Petty's letters to his friends in the last twenty years of his life contain much bitter complaint and acrimonious disappointment. Sometimes he becomes small-minded, cursing and complaining about trifles. But his natural optimism and humour always prevail. He goes on making plans, presenting reports and ... being unsuccessful.

From 1660 his life was spent part of the time in Ireland and part in London. It was not until 1685 that he finally moved to the capital with his family and all his possessions, of which the inost important were fifty-three boxes of papers. Charles II died in the same year and was succeeded on the throne by James II. The new king seemed well disposed to Petty and graciously received the projects on which the elderly Petty worked with a new bout of energy. But this too soon turned out to be an illusion.

In the summer of 1687 Petty's leg began to pain him badly. He turned out to have gangrene from which he died in

~^^1^^ A reference to Petty's wife, the beautiful and energetic widow of a rich landowner. Petty had five children.

The Diary of John Evelyn, London, 1959, p. 610.

December of the same year. He was buried in his native town of Romsey.

Petty's last letters to his intimate friend Sir Robert Southwell are of great interest. They were written two or three months before his death. They symbolise his beliefs, no longer obscured by self-interest, trivial affairs and private interests. He is replying to Southwell who reproaches him mildly for being occupied with things remote from life instead of seeing to his family business (the half-blind, ailing Petty was having Newton's recently published Mathematical Principles of Natural Philosophy read aloud to him).

Here too Sir William is true to character. He would give £200 for Charles (his eldest son) to be able to understand the book. About his children, whom he loved and for whose upbringing he showed great concern, Petty wrote: "I will not sweat to make my daughter a fortune, nor to be honey for drones, and I desire my son to live within the compass of that wife's fortune which he himself best loves". And further about the meaning of life: "...you will ask me why I persist in these fruitless labours.... I say they are labours of pleasure, of which ratiocination is the greatest and the most angelical".^^1^^

Sir William Petty enjoyed a triple reputation with his contemporaries: firstly, that of a brilliant scholar, writer and erudite; secondly, that of an indefatigable schemer and visionary; and thirdly, that of a cunning intriguer, an avaricious man, not too fussy about the means he employed. This third reputation pursued Petty from his `` accomplishments'' in the division of the Iiish lands right up to his death. And it was not without foundation.

Let us take a look at the latter half of Petty's life as the biography of man of property and smart dealer. The turning point in his life came in 1656-57, when he changed from a lower class intellectual into a profiteer and adventurer, and then a rich landowner. This change was an unpleasant surprise to his London and Oxford scientist friends. Petty was upset and pained by their reaction. He wrote to Boyle, whose opinion he particularly valued, begging him not to draw any hasty conclusions and to give him the chance of explaining what had happened personally. Time partially erased the estrangement, but traces of it remained.

Immediately after the Restoration Petty was obliged to fight hard to retain his lands: the former owners, some of whom enjoyed the support of the new government, were claiming them back. He threw himself into the battle with all his vigour and passion, putting a vast amount of spiritual energy and time into it. On the whole he was successful in keeping his scattered possessions and emerged triumphant. But he was persecuted by endless lawsuits.

And that was not all! Contrary to his principles and the exhortations of his friends, he threw himself into a new venture: he fell into the company of tax-farmers---rich financiers who bought the right to levy taxes from the government and robbed the country. In his works Petty attacked the" system of tax farming which stifled enterprise and production, and almost publicly called his companions swindlers and bloodsuckers. But nevertheless he paid his share. Soon afterwards he quarrelled with the ``bloodsuckers'', but could not get his money back. So now he was involved in yet another lawsuit---the most bitter and senseless of them all. Petty got deeply entangled in it and became furious, evoking the pity of his friends and the malicious delight of his enemies. In 1677 he even spent a short time in gaol "for contempt of court". These scandals ruined his last chances of a political career for which he was constantly striving. He was refused the appointments he required to carry out his projects.

The man of property became the slave of property. Petty himself in one of his letters compared himself to a galley slave exhausted from rowing against the wind. This was the tragedy of a talented man, whose energy and powers were spent in the harsh world of money, rent and tax-farming---a bourgeois tragedy.

His contemporaries sensed the tragedy, but naturally took a different view of it. They were amazed at the discrepancy between Petty's phenomenal abilities and his negligible success in the politics and government. Evelyn wrote that it was difficult to imagine anyone with a better inderstanding of the affairs of state. He continued: "There were not in the whole world his equal for a superintendant of Manufactures, and improvement of Trade; ... If I were a Prince, I should make him my second Counsellor at least''.

Yet Petty gained nothing more than a minor post in the Admiralty.

E. Strauss, Sir William Petty, London, 1954, pp. 168, 169-70.

Petty himself was by no means always blind to the triviality of the everyday affairs which exhausted his mind and energy. He sometimes laughed ironically at himself. But he could not break out of the vicious circle. The laconic brevity of his writings is to their credit and expresses his character. Yet at the same time it is the result of his preoccupation with other matters.

In 1682 Petty wrote with specific reference to the disputes on the re-minting of English coins a small work entitled Quantulumcunque Concerning Money. It is written in the form of thirty-two questions and brief answers. This work is as it were the steel framework of the scientific theory of money, the supporting structure, which remained to be filled in with other materials---amplifications, details, illustrations, and divisions between the various sections and problems.

Marx said of these modest notes, which were addressed to Lord Halifax and were not published in the author's lifetime, that they were "a smoothly finished work ..., which may be said to be cast in a single block.... In this book the last vestiges of mercantilist views, found in other writings by him, have completely disappeared. In content and form it is a little masterpiece ..."'.

Adopting the standpoint of the labour theory of value, Petty treats money as a special commodity which fulfils the function of a universal equivalent. Its value, like that of all commodities, is created by labour, but its exchange value is quantitatively determined by the amount of labour expended in the extracting of precious metals. The quantity of money necessary for circulation is determined by monetary trade turnover, i.e., in the final analysis by the quantity of commodities realised, their prices and the frequency of circulation of monetary units in the various transactions (velocity of circulation). Full value money can, within certain limits, be replaced by paper money issued by a bank.

Throughout the next two centuries the theory of money and credit developed to a large extent within the framework of the ideas expressed here (and in certain other works) by William Petty, or in the polemic with these ideas.

This modest essay, in which many of the ideas are condensed and sketchy, shows what powers of theoretical thought the man possessed. He did only a small part of what he could have done. And although this can probably be said of any man, in Petty's case it is of particular relevance and importance.

Frederick Engels, Anti-Duhring, Moscow, 1969, p. 276. (Chapter X of Part II of Anti-Diihring was written by Marx.)

CHAPTER IV

Boisguillebert attracted Marx not only as a scholar and writer. This clever and honest man, himself a "tiny cog" in the state machine of absolute monarchy, raised his voice in defence of the oppressed majority of the French people and had to pay for it.

BOISGUILLEBERT, HIS AGE AND ROLE

THE FRENCH POOR

In the first two decades of the reign of Louis XIV Colbert was in charge of the country's economy. He realised the importance of industry and did a great deal to develop it. The growth of some branches, however, caused harm to agriculture which Colbert regarded solely as a source of financial revenue for the state. The main defect of Colbert's policy was that it left feudal relations intact, and they were hampering the country's economic and social development. Perhaps Colbert's efforts would have been more successful if the king had not given him one main task: to extort money at any price for the wars which the ambitious Louis was constantly waging and for his unprecedentedly lavish court.

After Colbert's death some of the achievements of his policy were quickly lost, but its defects made themselves felt twice as strongly. In 1701 France's most unsuccessful and ruinous war began, the so-called War of the Spanish Succession, in which it faced a coalition of England, Holland, Austria and some small states.

As he grew old Louis XIV lost the knack of finding capable people to run the state. The energetic and industrious Colbert was succeeded by mediocrities. The most important of the ministers under Louis XIV and the two Bourbon monarchs who succeeded him was the controller general of finance, who concentrated in his hands the management of state finance, the country's economy, domestic affairs, justice, and sometimes military affairs also. He was essentially a prime minister, but one who merely executed the monarch's will.

The introduction of any economic reforms depended on the controller general. Knowing this Boisguillebert constantly sought to persuade the men who occupied this post in the last decade of the 17th century and the first decade of the 18th, Pontchartrain and Chamillart, of the usefulness of his projects. But these people would not even give him a proper hearing.

-tingels tells us that "Marx began his economic studies in Paris, in 1843, starting with the great Englishmen and Frechmen".^^1^^ It is difficult to say what led Marx to study the works of Boisguillebert, an economist of the early 18th century by then pretty much forgotten. Perhaps chance played a role here, for in 1843 a collection of works by French economists of the first half of the 18th century was published in Paris; and the essays of Boisguillebert were republished in it for the first time after an interval of 130 years. From a conspectus of Boisguillebert's works in a mixture of French and German, Marx proceeded to short notes and then to reflections. He was led to these reflections by the remarkable ideas, well in advance of their time, of a Rouen judge in the reign of Louis XIV.

Marx probably made use of this conspectus ten years or so later in his work on the book A Contribution to the Critique of Political Economy, in which he first made the profound assessment of "over a century and a half of classical political economy, beginning with William Petty in Britain and Boisguillebert in France, and ending with Ricardo in Britain and Sismondi in France".^^2^^

~^^1^^ Karl Marx, Capital, Vol. II, Moscow, 1967, p. 7.

Karl Marx, A Contribution to the Critique of Political Economy, Moscow, 1970, p. 52.

Having obtained an audience with Pontchartrain, Boisguillebert began his report by saying that the Minister would think him mad at first, but would soon change his mind when he had heard his, Boisguillebert's, ideas. After listening to him for a few minutes, Pontchartrain burst out laughing and said he adhered to his original opinion and did not need to prolong the conversation.

The government would not even hear of reforms which might affect the interests of the privileged estates (the nobility and clergy), or of the tax farmers, the rich financiers. Yet only such reforms could rescue the country's economy from prolonged crisis, and it was to this end that the importunate Rouen judge's projects were directed.

Boisguillebert's writings are a most important source of information about the disastrous state of the French economy at that time, the hard lot of the people, 75 per cent of whom were peasants. But many wrote about this. The eminent political and economic writer Marshal Vauban estimated in 1707 that 10 per cent of the total population was destitute, 50 per cent on the verge of destitution, 30 per cent in very straitened circumstances, and only 10 per cent lived well, the upper class, including several thousand people who were living in luxury.

Boisguillebert differed from other critics in that he understood to a certain extent the basic reasons for this state of affairs. Consequently he was able to do a great deal for the development of economic thought. It is no accident that he concentrated on the countryside. Here was the key to the development of bourgeois economy in France. The king, nobility and Church stubbornly kept this key locked up until the revolution at the end of the century broke all locks. The French peasant had gained his personal freedom several centuries before. But he was not the free owner of the land on which he lived and worked. The medieval principle of "no land without a seigneur" still operated in full force, although in changed forms. At the same time France did not possess the strong new class of capitalist tenant farmers which was developing in England. The peasantry was suffering under a triple burden: it paid rent and rendered all manner of feudal dues to the landowners; it supported the vast army of priests and monks by giving the Church a tenth of its income; and it was essentially the only payer of taxes to the king.

As Boisguillebert repeated many times in his works and report notes, this economic system deprived the peasant of any stimulus to improve land cultivation and expand production.

In subjecting all economic policy to the task of deriving tax revenue, the state made use of feudal survivals and delayed their destruction. The whole of France was divided into separate provinces by customs barriers, at which tolls were levied on all transported commodities. This hindered the development of the domestic market and the growth of capitalist enterprise. Another obstacle was the preservation in the towns of craft guilds with their privileges, strict rules and limited production. This was also profitable for the government, because it was forever selling the guilds the same old privileges. Even the few large manufactories which Colbert set up declined at the beginning of the 18th century. In 1685 Louis XIV revoked the Edict of Nantes which had allowed a certain amount of religious tolerance. Many thousands of Huguenot families, craftsmen and traders, left France taking with them their money, skills and entrepreneurial spirit.

THE ROUEN JUDGE

Economic projectors are a special type of people whom one can find, probably, at any time and in any country. They are similar to another peculiar tribe, inventors, and frequently face the same obstacles: the selfish interests of the strong of this world, conservatism and sheer stupidity.

Boisguillebert was one of the most passionate, honest and disinterested economic planners. He was bound to fail in the France of Louis XIV, and failure was a greater personal tragedy for him than even for Petty. Boisguillebert is perhaps not such a versatile and colourful figure as Sir William. But he commands more respect. In describing the bold judge from Rouen his contemporaries turned to classical antiquity for examples of similar civic virtues. Speaking of these two economists Marx wrote that "whereas Petty was just a frivolous, grasping, unprincipled adventurer, Boisguillebert... stood up for the interests of the oppressed classes with both great intellectual force and courage".^^1^^ It sould be noted that

~^^1^^ Karl Marx, A Contribution to the Critique of Political Economy, Moscow, 1970, p. 55.

Marx knew Boisguillebert only from his published works and in this description anticipated the man himself who was revealed more fully after his correspondence was discovered in the 1860s.

Pierre Le Peasant^^1^^ de Boisguillebert was born in 1646 in Rouen. His family belonged to the Normandy Noblesse de robe which was the term applied in old France to noblemen who held hereditary judicial and administrative office: in addition there was the noblesse d'epee who served the king with their swords. The noblesse de robe was rapidly augmented in the 17th and 18th centuries from the ranks of the nouveau riche bourgeois. Such is Boisguillebert's family background.

The young Pierre Le Peasant received an excellent education for his day, after which he went to Paris and took up literature. He soon turned to the traditional family profession of law, married a young woman from his circle in 1677 and obtained an administrative legal post in Normandy. For some reason he quarrelled with his father, lost his inheritance which went to his younger brother and was forced to "go out and seek his fortune". This he did most successfully, with the result that by 1689 he was already able to pay a large sum for the highly paid and influential post of lieutenant general in the judicial district of Rouen. In the strange governmental system of the period this was something like head town judge together with the administration of police and general municipal affairs. Boisguillebert held this post all his life and passed it on to his eldest son two months before he died.

The system of selling posts was one of the most flagrant social evils of the Bourbon monarchy. In this way the treasury extorted money from the bourgeoisie, thereby preventing the latter from investing it in production and trade. New posts were often invented or old ones divided up and resold. One of Louis XIV's ministers joked that as soon as his majesty created new posts there were fools to purchase them.

Boisguillebert evidently began to study economic questions in the late 1670s. Living among the rural population of Normandy and travelling around other provinces he saw the

desperate position of the peasantry and soon came to the conclusion that this was the cause of the country's general economic decline. The nobility and the King left the peasant just enough to prevent him from starving to death, and sometimes not even that. In such circumstances he could hardly be expected to increase production. In its turn the terrible poverty of the peasantry was the main cause for the decline of industry, since it did not have any large markets.

These ideas gradually matured in the judge's head. In 1691 he was already talking about his ``system'' and, obviously, setting it out on paper. The ``system'' was a series of reforms which we would describe today as bourgeois-democratic in character. Moreover Boisguillebert appears more as the defender of the peasants than the champion of the interests of the urban bourgeoisie. France is being treated like a vanquished country in the refrain that runs through all his works.

One might say that Boisguillebert's ``system'' in both its original form and the final form which it had acquired by 1707 consisted of three main elements.

Firstly, he considered it essential to introduce extensive tax reforms. Without going into details, let us say that he suggested replacing the old, obviously regressive system by proportional or slightly progressive taxation. These principles of taxation are still a matter of controversy today, so it is worth explaining them. Under the regressive system the greater a person's income the smaller the percentage of tax deducted; under the proportional system the percentage deducted for tax always remains the same; under the progressive system it increases the higher the income. Boisguillebert's proposal was exceptionally daring for his time: for the aristocracy and the Church paid practically no taxes, and he wanted to tax them at least at the same percentage as the poor.

Secondly, he proposed removing all restrictions on internal trade. He hoped that this measure would expand the home market, increase the division of labour and promote commodity and money circulation.

Thirdly, Boisguillebert demanded that a free market for corn be introduced and that its natural price should not be kept down. He regarded the policy of maintaining artificially low corn prices as extremely harmful, for these prices did not cover production costs and hampered agricultural growth. Boisguillebert believed that the economy would develop best

This was the economist's real surname. Boisguillebert was the name of the landed estate acquired by his ancestors. This addition to the surname was generally made when a bourgeois received a title. However, Pierre Le Peasant was always known under the name of de Boisguillebert.

with free competition, under which commodities would find their "true price" on the market.

He regarded these reforms as essential conditions for an economic recovery and an increase in the prosperity of the country and its people. Only in this way could the state's revenue be increased, he sought to convince the rulers. In an effort to inform the public of his ideas he published his first book anonymously in 1695-96 under the characteristic title of Le detail de la France, la cause de la diminution de ses biens et la facilite du remede, en fournissant en un mois tout I'argent dont le roi a besoin et enrichissant tout le monde (A detailed description of France, the reason for the decline in its prosperity, and a simple remedy which will supply in a single month all the money which the King needs and enrich the whole population).

The reference to a simple remedy and the possibility of achieving all this in one month is designed to a certain extent to catch the eye. Yet it also reflects Boisguillebert's genuine belief that all one needed to do was pass a number of laws and the economy would recover in a flash.

But the chain of disappointments had only begun. The book went almost unnoticed. In 1699 Pontchartrain's place was taken by Chamillart who knew Boisguillebert personally and appeared to be in sympathy with his views. The Rouen judge was again full of hope and worked with fresh energy, writing new works. But his main produce over the next five years was a series of long letters, memoranda to the Minister. These remarkable documents are letters, a real crie de coeur, as well as report notes.

Boisguillebert argues and cajoles, threatens economic disaster, begs and entreats. Confronted with a total lack of understanding, sometimes even ridicule, he remembered his dignity and fell silent. Then, consciously sacrificing personal pride for the sake of his native land, he again appealed to those in power: hurry, act, rescue.

finally received an area in the province of Orleans for his "economic experiment". It is not entirely clear how and in what conditions this experiment was carried out. In any case by the following year it had already ended in failure. In a small isolated area with the opposition of influential powers it could not have ended otherwise.

Now nothing could stop Boisguillebert. At the beginning of 1707 he published two volumes of his works. As well as theoretical treatises they also contained bitter political attacks on the government, serious accusations and ominous warnings. He did not have to wait long for the reply: the book was banned and its author exiled to the provinces.

Boisguillebert was now sixty-one. His affairs were in chaos and he had a large family---five children. His relatives tried to calm him down. His younger brother, a respected adviser of the parlement (provincial court) in Rouen, pleaded on his elder brother's behalf. He was not short of intercessors, and Chamillart himself realised the absurdity of his punishment. But the crazy inventor of schemes must submit. Gritting his teeth, Boisguillebert agreed: it was pointless to go on beating his head against a brick wall. He was allowed to return to Rouen. As a contemporary memoirist informs us, the Due de Saint-Simon,^^1^^ to whom we are indebted for many of the details in this story, the citizens greeted him with honour and joy.

Boisguillebert was never again subjected to direct repression. He published another three editions of his works, omitting, it is true, the most controversial passages. But morally he was a broken man. In 1708 Chamillart was replaced as controller general by Colbert's nephew, the clever and efficient Desmarets. He was well disposed towards the disgraced Boisguillebert and even tried to bring him into the administration of finance. But it was too late: Boisguillebert was a changed man and the finances were rapidly deteriorating, preparing the ground for John Law's experiment. Boisguillebert died in Rouen in October 1714.

Boisguillebert's integrated and strong personality emerges from all his works, letters and the scanty evidence of his contemporaries. In both business and private life he was obviously not an easy person to deal with: his characteristic

CRIME AND PUNISHMENT

The years went by. The Minister forbade Boisguillebert to publish his new writings, and the latter bided his time hoping that his ideas would be put into practice. In 1705 Boisguillebert

~^^1^^ An ancestor of the great Utopian socialist Count Claude Henri de Saint-Simon.

features were obstinacy, persistence, and stubbornness. SaintSimon remarks briefly that "his lively character was unique of its kind". It is clear, however, that he felt respect for Boisguillebert, bordering on awe.

His unaccommodating nature was the result of firm principles. He passionately defended his principles in both major and minor matters. And since these principles were, to put it mildly, unusual for the time, clashes were inevitable. For twenty years the modest judge from Rouen waged his hard battle, sacrificing peace of mind, prosperity and his material interests (Chamillart punished his stubbornness by imposing strange fines on him, forcing him to pay for posts he had already purchased). The ministers did not like him, but were also slightly (perhaps even more than slightly) afraid of him: Boisguillebert's superiority lay in the intrepid candour and conviction with which he defened his ideas and beliefs.

ment of production costs and a certain profit, net income. Further, they are prices which enable the process of commodity marketing to proceed without interruption and steady consumer demand to be maintained. Finally, they are prices under which money "knows its place", promotes the payments turnover and does not acquire a tyrannical hold on people.

The interpretation of the law of prices, i. e., essentially the law of value, as the expression of the proportionality of the economy was an entirely new and daring idea. Boisguillebert's other basic theoretical ideas are linked with this one. Given this treatment of prices the question naturally arose as to how "optimal prices" could be ensured in the economy. Boisguillebert took the view that this price structure would develop naturally under free competition.

He saw the fixing of the highest possible prices for corn as the main violation of the freedom to compete. Boisguillebert believed that if maximum prices were abolished the market prices for corn would go up, which would raise the incomes of the peasants and their demand for industrial goods, production of the latter would increase, and so on. This chain reaction would also ensure the universal establishment of "proportional prices" and the flourishing of the economy.

It is still a matter of dispute to whom the famous phrase "laissez faire, laissez passer" belongs^^1^^, which later became the motto for free trade and non-intervention by the state in the economy, and consequently the guiding principle of the classical school in political economy. It is ascribed variously in full or in part to Francois Legendre, a rich merchant of the time of Louis XIV, the Marquis D'Argenson (1730s), and Vincent Gournay, a trade superintendent and friend of Turgot's. But even if Boisguillebert did not invent the phrase, he expressed the idea contained in it most clearly. "Nature must be allowed to operate..." he wrote.

As Marx pointed out, Boisguillebert does no endow the concept of "laissez faire, laissez passer" with the selfish egoism of the capitalist entrepreneur, which it acquired later. In his writing "this teaching has also something human and significant in it. Human in contrast to the economy of the old

THE THEORETICIAN

Like all previous economists, Boisguillebert subordinated his theoretical constructions to practice, to substantiating the policy put forward by him. His role as one of the founders of economic science is determined by the fact that he based his reforms on an integrated system of theoretical views which was quite profound for its time. Boisguillebert's logic was probably similar to Petty's. He asked himself what determined the country's economic growth; he was specifically concerned about the causes for the stagnation and decline of the French economy. From here he proceeded to a more general question: which laws operate in the national economy and ensure its development?

We have already quoted Lenin's idea that the desire to discover the law of the formation and change of prices runs through the whole of economic theory, beginning with Aristotle. Boisguillebert made an original contribution to this long search. He approached the problem from the standpoint of what we would today call "optimal price formation". He wrote that the most important condition of economic balance and progress are proportional or normal prices.

What sort of prices are these? First and foremost, they are prices which ensure on average in every branch the defray-

~^^1^^ At the end of the 19th century the German scholar August Oncken expressed the opinion that the first part of the phrase referred to freedom of production and the second to freedom of trade.

state, which was striving to increase its income by unnatural means, significant, since it was the first attempt to liberate bourgeois life. It had to be liberated to show what it is like".'

At the same time Boisguillebert did not reject the economic functions of the state; this was inconceivable for such a realistic and practical person. He assumed that the state, particularly with the help of a sensible tax policy, could promote a high level of consumption and demand in the country. Boisguillebert realised that the sale and production of commodities invariably decreased if the flow of consumer expenditure diminished. It would not diminish if the poor earned more and paid fewer taxes, for they tended to spend their income quickly. The rich, on the other hand, were inclined to save their income and thereby aggravate the difficulties of selling produce.

This line of argument is important for the development of economic thought in the following centuries. Two fundamentally different standpoints on the question of the main factors of the growth of production and wealth in capitalist society emerged in the history of bourgeois political economy. The first was briefly that production growth is determined solely by the extent of accumulation (i.e., savings and capital investment). With regard to the money demand this will "come on its own", so to say. This conception led logically to a rejection of the possibility of economic crises and general overproduction. The other standpoint emphasised consumer demand as the factor for maintaining high rates of production growth. To a certain extent Boisguillebert was its forerunner. This standpoint, on the contrary, led logically to the problem of economic crises.

It is true that Boisguillebert linked ``crises'' (or rather, phenomena similar to crises, the latter being characteristic of the later stage of capitalist development only) not so much with the inner laws of economics as with bad governmental policy. He can also be understood as saying that given a good policy insufficient demand and crises can be avoided.^^2^^ Be that as it

may, in his main theoretical work Dissertation sur la nature des richesses, de I'argent et des tributes (Dissertation on the nature of wealth, money and taxes) Boisguillebert describes clearly and vividly what happens in an economic crisis. People can die from an excess of goods as well as a shortage. Imagine, he says, ten or twelve men chained at a distance from one another. One has a lot of food, but nothing else; another an excess of clothing, a third of drink, etc. But they cannot exchange with one another: their chains are the external economic forces, incomprehensible to man, which cause economic crises. This picture of disaster amid abundance calls to mind the 20th century: milk poured into the sea, corn burnt in locomotive fire-boxes---and this amid unemployment and poverty.

In theory and policy Boisguillebert's standpoint differs from mercantilist views and is to a large extent directed against them. He looked for economic laws not in the sphere of circulation but in the sphere of production, regarding agriculture as the basis of the economy. He refused to see the country's wealth in money and sought to dethrone it, differentiating between money and real wealth in the form of commodities. Finally, Boisguillebert's defence of economic freedom also meant a direct break with mercantilism.

BOISGUILLEBERT AND FRENCH POLITICAL ECONOMY

The fine and attractive feature of Boisguillebert's views is their humanism. Yet his "peasant mania" also had its reverse side from the point of view of economic theory. To a great extent he was looking backwards, not forwards, in underestimating the role of industry and trade and idealising a peasant economy. This influenced his views on fundamental economic questions.

competition and consequently "prepares (if not already contains) the famous 'law of markets' attributed to Jean-Baptiste Say, according to which there can never be general overproduction of products in a system based on the free exchange of products" (H. Denis, Histoire de la pensee economiaue, Paris, 1967, p. 151). Schumpeter, on the other hand, stresses that Boisguillebert saw lack of consumer demand and excess savings as a threat to the stability of capitalist economy and as the cause of crises, and is therefore a forerunner of the critics of "Say's law", in particular Keynes (J. A. Schumpeter, History of Economic Analysis, pp. 285-87).

K. Marx, F. Engels, Historisch-kritische Gesamtausgube, Werke, Schriften Bri|fe, Moskau u.a., Abt. I, Bd. 3, S. 575.

The incomplete and contradictory nature of Boisguillebert's views on this question allows historians of economic thought to take conflicting views on his role. The French economist Henri Denis writes that in the final analysis Boisguillebert's conception means that crises are impossible under free

The reasons for Boisguillebert's standpoint, which was appreciably different from Petty's, must be sought in the historical peculiarities of the development of French capitalism. The industrial and trade bourgeoisie was incomparably weaker in France than in England and capitalist relations developed more slowly. In England they were already established in agriculture as well. The English economy was characterised to a large extent by division of labour, competition, mobility of capital and labour. In England political economy was developing as a purely bourgeois system of views, while in France it was mainly petty bourgeois in nature.

English classical political economy, at the source of which Petty stands, put two most important and inter-connected problems at the centre of scientific analysis. What is the ultimate basis of commodity prices and where does the capitalist's profit come from? In order to answer these questions it was necessary to examine the nature of value. The labour theory of value was the logical basis of English economists' thought. In developing this basis they gradually approached an understanding of the difference between concrete labour which creates the various consumer values and abstract labour which lacks a qualitative characteristic, possessing only one parameter---length, quantity. This difference was never revealed and formulated before Marx, but the approach to it constitutes, to a certain extent, the history of English political economy from Petty to Ricardo.

The law of value was the true subject of its investigations. Yet, as Marx pointed out, "the full development of the law of value presupposes a society in which large-scale industrial production and free competition obtain, in other words, modern bourgeois society".^^1^^ This society developed much later in France than in England, which made it difficult for theoreticians to observe and understand the operation of the law of value.

It is true that by his conception of "proportional prices" Boisguillebert reduced "although he may not be aware of it... the exchange-value of commodities to labour-time".^^2^^ But he was far from understanding the dual nature of labour and

Karl Marx, A Contribution to the Critique of Political Economy, Moscow 1970, p. 60.

'

therefore completely ignored the value aspect of wealth, which actually embodies universal abstract labour. He saw only the material aspect of wealth, regarding it merely as a mass of useful goods, consumer values.

This shortcoming in Boisguillebert's thought is seen particularly clearly in his views on money. He does not understand that in a society where the law of value operates, commodities and money are an indivisible whole. For it is in money, that absolute repository of exchange value, that abstract labour finds complete expression Boisguillebert fought against money fanatically, distinguishing it from commodities which he regarded simply as useful goods. Since money is not in itself an object of consumption, it seemed external and artificial to him. Money acquires an unnatural, tyrannical power and this is the cause of economic disaster. He begins his Dissertation with bitter attacks on money: "... gold and silver, which the corruption of the heart has erected into idols.... They have been turned into gods to whom more goods, valuables and even people are still sacrificed than blind Antiquity ever offered the false divinities which have for so long formed the cult and the religion of most peoples." '

The Utopian urge to free capitalist production from the power of money, without at the same time changing its foundations is, as Marx put it, the "national failing" of French political economy, from Boisguillebert to Proudhon.

Boisguillebert could not reveal the class, exploitatory nature of bourgeois society, which in his time was only just beginning to form within the feudal order. But he bitterly criticised economic and social inequality, oppression and force: Boisguillebert was one of the first people whose works prepared the collapse of the "old order" and paved the way for revolution. The defenders of absolute monarchy realised this already in the 18th century. Almost fifty years after Boisguillebert's death one such defender wrote that his " disgusting works" incited hatred for the government, encouraging robbery and rebellion, and were particularly dangerous in the hands of the younger generation. Yet this is one of the reasons why we find Boisguillebert's works and personality important and interesting.

Economises financiers du XVIIF siecle, Paris, 1843, pp. 394, 395.

Ibid., p. 54.

CHAPTER V

Even the titles of books about Law which have come out in recent years are characteristic: John Law. Pere de I'lnflation, Der Magier des Kredits and La strana vita del banchiere Law. At the same time he occupies a place of honour in weighty volumes 011 the history of economic thought.

A DANGEROUS CAREER AND BOLD IDEAS

John Law was born in 1671 in Edinburgh, the capital of Scotland. His father was a goldsmith and, according to the custom of the times, also lent money on interest. In 1683 he purchased the small estate of Lauriston, thereby becoming a member of the landed gentry. Possessing money, good looks and charm, John Law embarked early on the life of a gambler and swashbuckler. At the age of twenty when, to quote one of his associates, he was "nicely expert in all manner of debaucheries", Law found Edinburgh too provincial and went to London. Although Scotland and England had the same king in all other respects the former was still an independent state.

In London the young Scot soon became known by the nickname of Beau Law. In April 1694 he killed an adversary in a duel. The court passed a verdict of murder and sentenced Beau Law to be executed. Thanks to the intercession of some influential persons King William III pardoned the Scot, but the relatives of the dead man began a new lawsuit against him. Without waiting for the outcome, Law escaped from prison with the help of friends after jumping thirty feet and spraining his ankle. The only place he could go was abroad and he chose Holland.

In the three years Law spent in London he kept company not only with drunkards and women. Possessing a good practical education and a gift for calculation and all manner of financial business, he made the acquaintance of financial dealers with whom London was swarming after the Revolution of 1688-89. A few years later the Bank of England was founded, an important event in the history of English capitalism.

Law was a romanticist about banking. This sounds rather strange today: romance and banking. But at that time, the dawn of capitalist credit, its possibilities seemed unlimited and miraculous to many. It was not without reason that Law in his writings frequently compared the setting up of banks and the

JOHN LAW---ADVENTURER AND PROPHET

he name of Law is well-known. The first biography of the famous Scot came out during his lifetime. After the collapse of "Law's system" in France he was written about in all the European languages. No French political writer of the 18th century neglects to mention him.

The creation of modern banks and the vast development of credit and stock-exchange speculation in the 19th brought with them a new wave of interest in the activity and ideas of this passionate apostle of credit. He was regarded no longer as just a brilliant adventurer, but also as an eminent economist.

The 20th century, the "century of inflation", has discovered a new aspect of this remarkable individual. John Law hoped through an abundance of credit and paper money to secure a constant flourishing of the economy. The same idea (in a new form naturally) lies at the basis of the anti-crisis policy of the modern bourgeois state. Bourgeois researchers are finding a really mystical similarity between Law and Keynes: "The parallel between John Law of Lauriston (1671-1729), controller general of French finance, and John Maynard Keynes (1883-1946) goes so deep and covers so wide a ground, even touching some aspects of their personal life, that a spiritualist might say that Keynes was a reincarnation of Law after two centuries."'

~^^1^^ Ferdinand Zweig, Economic Ideas. A Study of Historical Perspectives, New York, 1950, p. 87.

7-745

I

development of credit with the "discovery of India", i.e., the sea passage to India and America, along which precious metals and rare goods came to Europe. All his life he sincerely believed that by his bank he would do more than Vasco da Gama, Columbus or Pizarro had done! In John Law the as yet untested power of credit found its admirer, poet and prophet. This began in England and continued in Holland, where Law studied the largest and most respectable bank in Europe at the time, the Bank of Amsterdam. In 1699 we find him in Paris. From there he set off for Italy, taking with him a young married woman, English by birth, called Catherine Seingieur. From then onwards she was to accompany him on all his wanderings. Obsessed by the idea of creating a new type of bank, Law returned to Scotland in 1704 with Catherine and their one-year-old son, to try and put this idea into practice. The country was in the grip of economic difficulties. There was a depression in trade, unemployment in the cities, and the spirit of entrepreneurialism was crushed. All the better! Law expounded his plan for solving these difficulties in a book published in Edinburgh in 1705 under the title of Money and Trade Considered, With a Proposal for Supplying the Nation With Money.

Law was not a theoretician in any broad sense. His economic interests hardly ever extended beyond the problem of money and credit. But in fighting ardently for his plan he expressed on this problem thoughts which played a large and very conflicting role in economic science. Of course, Law's economic views must be seen in conjunction with his practical activity, the consequences of which were enormous. But in this activity as in his subsequent writings he merely put into practice and developed the basic ideas expounded in the Edinburgh book. "He was a man of system," repeated the Duke of SaintSimon, who has left us some important information about Law as an individual. Having arrived at the basic tenets of his system, Law preached and practised it with unwavering persistence and consistency.

Law maintained that the key to economic prosperity was an abundance of money in a country. It was not that he considered money itself as wealth, for he realised perfectly well that true wealth is commodities, factories and trade. But an abundance of money, in his opinion, ensured full use of land, labour and entrepreneurial talent.

He wrote: "Domestick Trade is the Employment of the People, and the Exchange of Goods..., Domestick Trade depends on the Money. A greater Quantity employes more People than a lesser Quantity.... Good Laws may bring the Money to the full Circulation 'tis capable of, and force it to those Employments that are most profitable to the Country: But no Laws ... can more People be set to Work, without more Money to circulate so, as to pay the wages of a greater number." '

Law obviously differs from the old mercantilists: although he too looks for the mainspring of economic development in the sphere of circulation, he does all he can to disparage metal money, rather than glorifying it. Two hundred years later Keynes called gold money a "barbarous relic". This might equally well have been said by Law. Money should not be metal. It should be credit which is created by the bank in accordance with the needs of the economy, or in other words, paper money. "The use of Banks has been the best Method yet practis'd for the increase of Money.''^^2^^

Law's system contained two more principles, the importance of which is difficult to overestimate. Firstly, for banks he proposed a policy of credit expansion, i. e., the granting of loans many times in excess of the supply of metal money held by the bank. Secondly, he demanded that the bank should be a state one and should carry out the economic policy of the state.

We must clarify this somewhat, especially as similar problems---in different conditions and forms---are just as topical today. Imagine that the owners of a bank have invested £1 million as its capital. In addition they have received gold deposits to the value of £\ million. The bank prints notes to the value of £1 million and loans them. To anyone with even the most rudimentary idea of bookkeeping it is obvious that the bank's balance-sheet will be as follows:

ASSETS

LIABILITIES

Gold Loans

2 million 1 million

Capital

Deposits

Bank notes

1 million 1 million 1 million

Total

3 million

Total

3 million

~^^1^^ J. Law, Oeuvres completes, Vol. 1, Paris, 1934, pp. 14-16.

~^^2^^ Ibid., p. 46.

Obviously this bank is absolutely reliable because its gold reserve entirely covers its deposits and bank notes which could be presented for payment at any time. But, Law asks not without justification, is a bank like this much use? It is a certain amount of use, of course: it facilitates payment and prevents gold from getting lost or rubbed down. It would be incomparably more useful, however, if the bank issued notes to the value of, say, £10 million and furnished the economy with them. Then we would have the following picture:

ASSETS

LIABILITIES

Law saw the advantages of credit, but would not or could not see its dangers. This was the main practical weakness of his system and the ultimate cause of its collapse. The theoretical flaw in Law's views was that he naively equated credit and money with capital. He thought that by expanding loans and money issue a bank would create capital and thereby augment wealth and employment. However no credit can be a substitute for the true labour and material resources necessary to expanding production.

The credit operations which Law envisaged in his first book and which he put into practice some ten to fifteen years later on a grandiose scale lend his system an air of blatant financial adventurism. Describing Law as "the principal spokesman of credit", Marx noted sarca -tically that such persons possess "the pleasant character mixture of swindler and prophet".^^1^^

Gold Loans

2 million 10 million

Capital

Deposits

Bank notes

1 million

1 million

10 million

Total

12 million

Total

12 million

This bank would operate at a certain risk. What would happen, say, if the holders of bank notes presented three million of them for exchange? The bank would be ruined or, as they said in Law's day, would cease payments. But Law believes that this is a justified and necessary risk. What is more, he assumes that if the bank is forced to cease payments for a while this is not such a terrible thing either.

In our example the bank's gold reserve is only 20 per cent of the total number of notes issued and even less if one adds the deposits. This is the so-called partial reserve principle which underlies all banking. Thanks to this principle banks are able to expand loans elastically and increase circulation. Credit plays a most important part in the development of capitalist production, and Law was one of the first to see this.

But the very same principle endangers the stability of the banking system. Banks tend to "get carried away" and step up loans for the sake of profit. Hence the possibility of their collapse, which may have serious consequences for the economy.

Another danger or rather another aspect of the same danger is that the bank's abilities are exploited by the state. What would happen if a bank were forced to increase its note issue not to satisfy the real requirements of the economy, but simply to conceal a deficit in the national budget? The word ``inflation'' had not yet been invented, but this was what would have threatened both Law's bank and the country in which it operated.

THE CONQUEST OF PARIS

The Scottish Parliament rejected the plan to found a bank. The English Government twice refused to grant Law a pardon for the crime committed by him ten years earlier. In connection with the preparation of the Act of Union to unite England and Scotland Law was again obliged to leave for the continent where he practically led the lif_ of a professional gambler. He lived in Holland and Italy, Flanders and France, sometimes with his family, sometimes alone, gambling everywhere and also speculating in securities, jewelry and Old Masters. In his Lettres Persanes (1721) Montesquieu puts the following ironical observation into the mouth of a Persian travelling around Europe: "Gambling is all the rage in Europe: being a gambler is a kind of status. The very title is a substitute for high birth, fortune and probity: it places all those who bear it in the rank of honest men....''

It was precisely in this way that Law acquired social standing and a fortune. Legends grew up around his skill as a gambler. His sang-froid, shrewdness, remarkable memory and good luck brought him some big wins. When Law eventually decided to settle in Paris he brought a fortune of 1,600,000 livres into France. But Paris attracted him not only by its gambling and

Karl Marx, Capital, Vol. Ill, Moscow, 1971, p. 441.

speculating. As the financial crisis grew more acute, he felt increasingly that his project would be accepted here. The state coffers were empty, the national debt enormous, credit was low and there was stagnation and depression in the economy. All this Law proposed to rectify by the creation of a state bank with the right to issue notes.

His moment came when Louis XIV died in September 1715. Law had already been putting over his idea to a man who had a good chance of being made the country's ruler until the heir to the throne came of age, Duke Philippe of Orleans, nephew of the old king. Philippe began to believe in the Scot. After ousting the other claimants to the regency and seizing power, he summoned Law straightaway.

It took more than six months to overcome the opposition of the aristocratic advisers of the Regent and the Paris parlement who feared radical measures and did not trust the foreigner. Law had to renounce the idea of a state bank and agree to a private joint-stock bank. But this was just a tactical manoeuvre: the bank was closely linked with the state right from the start. Founded in May 1716 the Banque Generale was a great success in the first two years of its activities. A talented administrator, shrewd businessman, adept politician and diplomat, Law confidently ran the country's whole monetary and credit system with the Regent's support. Banque Generale notes, the issue of which Law successfully controlled in this period, were put into circulation and often accepted even with a premium as compared to metal money. By comparison with the Paris moneylenders the Banque granted loans at moderate rate of interest, deliberately channeling them into industry and commerce. There was a perceptible revival of the economy.

THE GREAT COLLAPSE

Law owed allegiance not to a country, but to an idea. He first offered this idea unsuccessfully to Scotland, England, the Duke of Savoy and the Republic of Genoa. When France finally accepted it he sincerely felt himself to be a Frenchman. He immediately took French citizenship and later, when he judged it necessary for the success of the system, converted to Catholicism.

There is no doubt that Law really believed in his idea and put into its realisation in France not only all his money, but his

heart as well. Law was no common rogue who set out to steal as much as he could and then made off with his ill-gotten gains. Later in his "vindicatory memoranda" he frequently repeated that if that had been his plan he would not have brought all his fortune to France and would certainly have sent some assets abroad while he was still in power. We can believe the Duke of Saint-Simon when he says of Law that "there was no greed nor knavery in his nature". He was made a rogue by the very inexorable logic of his system!

In a letter written by Law in December 1715 to the Regent, in which he again explains his ideas, there is a mysterious passage which smacks of a hoax: "But the Banque is not the only idea of mine nor the greatest one; I shall produce something which will astound Europe by the changes it will make to the advantage of France, changes more important than those which have been produced by the discovery of the Indies or the introduction of credit. By this work Your Royal Highness will be able to raise the kingdom out of the sad situation to which it is reduced and make it more powerful than it has ever been, to establish order in its finances, to revive, support and develop agriculture, manufactories and commerce." '

Planners have always promised rulers streets paved with gold, but here is an economic alchemist who promises some sort of philosopher's stone. Two years later it became clear what lay behind these hazy promises. At the end of 1717 Law founded his second colossal undertaking---the Company of the Indies. Since it was originally created to colonise the Mississippi Basin, which belonged to France at the time, it was usually called the Mississippi Company.

Outwardly this was nothing particularly new. The East India Company had been flourishing in England for over a century and there was a similar enterprise in Holland. But Law's company differed from them. It was not an association of a narrow group of merchants who distributed the shares among themselves. The shares of the Mississippi Company were intended for sale to a relatively large section of capitalists and for active circulation on the stock exchange. The company was extremely closely linked with the state not only in the sense that it received vast privileges and monopolies in many spheres

~^^1^^ J. Law, Oeuvres completes, Vol. 2, Paris, 1934, p. 266.

from the state. At its head alongside the imperturbable Scot sat no other than Philippe of Orleans, Regent of France. The company was merged with the Banque Generate which at the beginning of 1719 went over to the state and became called the Banque Royal. The Banque loaned capitalists money to purchase shares in the company, and ran its financial affairs. The threads of management of both institutions were concentrated in Law's hands.

Thus, Law's second "great idea" was the idea of capitalist centralisation, capitalist association. Here too the Scot appeared as a prophet, a century or more ahead of his time. Not until the middle of the 19th century in Western Europe and America did the rapid growth of joint-stock companies begin. Today they constitute almost the whole of the economy in the developed capitalist countries, particularly large-scale production. Big enterprises are not within the scope of one or even several capitalists, however rich they may be. They require the combined capital of many proprietors. Of course, the small shareholders only supply the money and do not have the slightest influence on the course of events. The real running of the business is done by the people at the top, which in the case of the Mississippi Company was Law and some of his associates. Marx said about the progressive role of joint-stock companies: "The world would still be without railways if it had had to wait until accumulation had got a few individual capitals far enough to be adequate for the construction of a railway. Centralisation, on the contrary, accomplished this in the twinkling of an eye, by means of joint-stock companies." '

Stock-jobbing and speculation in the buying and selling of shares invariably accompany joint-stock operations. Law's system gave rise to stock-jobbing on a scale hitherto unknown. After the company had got firmly established in the first year of its existence, Law took strong measures aimed at raising the price and expanding the sale of the shares. For a start he purchased two hundred 500-livre shares, then costing only 250 livres each, promising to pay the face-value of 500 livres for each share in six months' time whatever it cost then. Behind this absurd, as it appeared to many, transaction was some shrewd calculation which turned out to be justified. In six

months the shares were worth several times their face-value and Law pocketed an enormous profit.

But this was not the main thing. The odd hundred thousand was not particularly important to him now. His aim was to attract attention to the shares, to interest buyers. At the same time he was expanding the company's business with great energy on a large scale. He combined real business with skilful publicity, thereby anticipating future practice in this too.

Law began the colonisation of the Mississippi Valley and founded town called New Orleans in honour of the Regent. Since there were not enough voluntary settlers, the government began to deport thieves, vagabonds and prostitutes to America at the company's request. At the same time Law organised the printing and distribution of all sorts of enticing literature about a fabulously rich land whose inhabitants were delighted to meet French people and brought gold, precious stones and other riches in exchange for knick-knacks. He even sent Jesuits there to convert the Red Indians to Catholicism.

Law's company devoured several French colonial companies which were doing badly and became an all-powerful monopoly. The few dozen old vessels which it owned were transformed by Law's words and his assistants' pens into vast fleets bearing silver and silks, spices and tobacco to France. In France itself the company took over tax-farming and, to be fair, did the job far more sensibly and efficiently than its predecessors. In general, all this was a strange mixture of brilliant organisation and bold enterprise with impetuous adventurism and downright fraud.

Although the company paid extremely modest dividends its shares shot up like balloons in spring 1719. This was what Law had been waiting for. Skilfully manipulating the market he began to make new issues of shares, selling them at higher and higher prices. The demand for shares exceeded their issue and when new subscriptions were announced thousands of people queued night and day outside the company's offices. And this in spite of the fact that by September 1719 the company was selling its 500-livre shares at 5,000 livres. The influential and aristocratic did not queue, but besieged Law himself and the other directors with requests to be allowed to subscribe. For a share that cost 5,000 livres on issue could be sold the next day on the stock exchange for 7,000 or 8,000! History has recorded some remarkable episodes: people trying to get into Law's

Karl Marx, Capital, Vol. I, Moscow, 1972, p. 588.

office by climbing down the chimney; or a noblewoman ordering her coachman to overturn the carriage outside Law's house to lure out the gallant gentleman and make him hear her plea. His secretary amassed a whole fortune out of bribes from petitioners waiting for an audience with Law.

The Regent Philippe's mother, a caustic old lady, who left a record of this fantastic time in her letters to relatives in Germany, wrote: "They are running after Law so that he has no peace day or night. A duchess has publicly kissed his hands. If duchesses are kissing his hands what parts of his body are other women ready to honour?" In a letter dated 9 November, 1719 she relates: "Recently in the company of several ladies, he expressed the desire to leave the room. They would not let him go and he was forced to admit his reason. 'Oh, that does not matter,' they announced. 'That's nothing; relieve yourself here and we will just go on talking.' So they stayed with him." '

Ev'en stranger things were happening in the Rue Quincampoix where the Stock Exchange had grown up and prospered. From dawn to dusk it was packed with crowds buying and selling, asking prices and making calculations. The 500-livre shares rose to 10,000, then 15,000 stopping at 20,000. The orgy of sudden wealth united all estates, which otherwise never mixed, not even in church. The noblewoman jostled next to the cabby, the duke haggled with the footman, and the abbot wetted his fingers settling up with the shopkeeper. The only god here was money!

People were reluctant to accept gold and silver in payment for shares. At the height of the boom ten shares were the same price as 1.4 or 1.5 tons of silver! Almost all payment was made in notes. And all this paper wealth---the shares and the bank notes---were the creation of that financial wizard Law.

In January 1720 Law officially became controller general of finance. He had in fact been managing the country's finances for a long time. But it was at this point that the first subterranean tremors were felt under his system.

Where did the company invest the vast sums which it amassed from new share issues? A small amount went on ships and commodities and the bulk on national debt bonds. In fact it shouldered the whole vast national debt (up to 2,000 million livres) by buying up bonds from their owners. This was the

establishment of order in finance which Law had promised. How was it possible to float more and more shares? Only because Law's bank kept on printing and circulating millions of new notes.

This state of affairs could not last for long. Law refused to see it, but his numerous enemies and ill-wishers, as well as simply farsighted speculators had already seen it. They naturally hastened to get rid of their shares and bank notes. Law reacted by supporting a steady price on the shares and restricting the exchange of notes for metal. But since money was necessary to support the shares, Law printed more and more of it. The numerous directives he issued in these months show signs of confusion. Law was fighting a losing battle, and the system was collapsing. By autumn 1720 the notes had turned into inflationary paper money worth only a quarter of their nominal value in silver. The prices of all commodities shot up. There was a food shortage in Paris and popular discontent grew. In November the notes ceased to be legal tender. The liquidation of the system had begun.

Law continued to fight hard to the last ditch. In July he barely escaped an enraged crowd which was demanding that the valueless papers be exchanged for legal tender, and had difficulty in finding refuge in the Regent's palace. Everyone remarked that he had become haggard, lost his customary self-assurance and courtesy. His nerves began to crack.

Many couplets, anecdotes and caricatures circulated around Paris ridiculing Law and also the Regent. The Duke of Bourbon, who was rumoured to have made 25 million livres through share speculation and invested them in material valuables, assured Law that he was now out of danger: the Parisians did not kill those they ridiculed. But Law had reason to think otherwise and never appeared without a strong bodyguard, although he had already been relieved of the post of minister. The Paris parlement, which had always opposed Law, demanded that he be tried and hanged. The Duke's trusted advisers suggested that he should at least be put away in the Bastille. Philippe began to realise that it would be better to get rid of his favourite in order to calm the unrest. His last favour was to allow Law to leave France.

In December 1720 John Law went secretly to Brussels with his son, leaving his wife, daughter arid brother in Paris. All his possessions were confiscated and used to pay off creditors.

~^^1^^ C. Kunstler, La vie quotidienne sous la Regence, Paris, 1960, p. 121.

What did Law's system and its collapse mean from the social point of view? This has been a point of dispute for some 250 years.

In the 18th century Law was generally severely criticised, but there was more moral contumely in this than sober assessment. In the middle of the last century Louis Blanc in his Histoire de la revolution franfaise and other socialists of similar views ``rehabilitated'' Law and even tried to depict him as a forerunner of socialism. Louis Blanc says that Law attacked gold and silver as the "money of the rich" and wanted to fill circulation with the "money of the poor", paper money. Through his all-embracing bank and trading monopoly Law is alleged to have been trying to assert the socialist principle of association against the bourgeois principle of cutthroat competition. Louis Blanc portrays some of Law's economic measures as a deliberate policy to ease the life of the working people.

This is somewhat remote from the truth. In the form in which Law wished to apply it the principle of association is a purely bourgeois principle. It stands in opposition not to capitalism, but to feudalism with its inert division of society into estates and absence of social mobility. Law wanted to bring together and make equal all his company's shareholders and his bank's clients, aristocrat and bourgeois, craftsman and businessman, but to bring them together as capitalists.

By his system Law prepared what capitalism was later to achieve fully: "The bourgeoisie, historically, has played a most revolutionary part.

``The bourgeoisie wherever it has got the upper hand, has put an end to all feudal, patriarchal and idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his 'natural superiors' and has left remaining no other nexus between man and man than naked self-interest, than callous `cash-payments'." '

Law was no defender of the oppressed classes even in the limited sense that Boisguillebert was. In his writings we see none of that true compassion for the people, the peasant, which can be found in the Rouen judge. Moreover it was quite incompatible with his character of adventurer, gambler and

profiteer. Law expressed the interests of the big moneyed bourgeoisie. He placed his hopes on its entrepreneurial spirit. Such was his policy too. He supported his company's shares, which were owned by the big capitalists, to the very last, leaving the bank notes, which were distributed among a wider public, to the mercy of fate.

The system and its collapse produced a considerable redistribution of wealth and income. It undermined even further the position of the nobility, who sold estates and mansions to join in the speculating. The events of the Regency period weakened the position of the monarchy and aristocracy.

On the other hand, Law's financial wizardry hit the urban poor who suffered greatly from the rise in prices. When paper money was made illegal, it transpired that a very considerable amount had been accumulated in small sums by craftsmen, tradesmen, servants and even peasants.

One most important social result of Law's system was the rise of the nouveau riche who had managed to keep the wealth amassed through wild speculation.

Law lived another eight years after his flight from Paris. He was poor. Naturally not as poor as a person starving to death but as someone who did not always have his own equipage and rented a modest apartment rather than a mansion. He was homeless, but he had always led the life of an exile and wanderer. He was never again to see his wife (whom he had never actually got round to marrying) or his daughter: he was not allowed to enter France and they were forbidden to leave it.

For the first few years he still hoped to return, to vindicate himself and continue his activity. He showered the Regent with letters in which he explained and defended everything again and again. In these letters the substance of his economic ideas remained the same, except that he proposed acting with more caution and patience.

In 1723 Philippe of Orleans died suddenly. All Law's hopes for a return of his post and possessions, and even the modest pension which the Regent had begun paying him, immediately collapsed. Men came to power who did not even wish to hear of him. At this time Law was living in London. The English government thought him sufficiently influential and shrewd to entrust with a semi-secret commission to Germany. He spent about a year in Aachen and Munich.

Karl Marx and Frederick Engels, Selected Works, in three volumes, Vol. 1, Moscow, 1973, p. 111.

Law was now but a shadow of the great financier and all-powerful minister. He turned loquacious, talking constantly about his affairs, defending himself and accusing his enemies. There was no lack of an audience: people thought the Scot knew the secret of turning paper into gold. Many assumed that he could not have been stupid enough not to put by part of his fortune outside France, and hoped to profit from it. The more superstitious thought he was a magician.

Law's last two years were spent in Venice. He divided his leisure between gambling (a passion of which only the grave cured him), chatting with his still numerous visitors and work on the voluminous Histoire des Finances pendant la Regence. This work was written in an attempt to vindicate himself to his heirs. It was first published two hundred years later. In 1728 he was visited by the famous Montesquieu on a journey round Europe. He found Law grown somewhat decrepit, but just as passionately convinced that he was right and ready to defend his ideas. John Law died of pneumonia in Venice in March 1729.

LAW AND THE 20TH CENTURY

His contemporaries thought that the monstrous excesses of Law's system could never be repeated. But they were wrong. Law's system was not the end, but the beginning or, rather, the herald of an age. His enterprises which astounded the imagination of the people of his day, now seem like children's playthings compared with what capitalism of the 19th and 20th centuries has erected.

In the middle of the last century Law's ideas, his Banque Generate and Mississippi Company, were resurrected, so to say, in the enterprises of the shrewd Pereire brothers, the Paris joint-stock bank Credit Mobilier. Napoleon III played the same role of patron and exploiter in respect of this speculative colossus as the Regent Philippe in Law's institutions. Asking what means this bank used to "multiply its operations" and subject the whole of France's industrial development to the play of the stock-exchange, Marx replies: "Why, the same as Law used" ', and goes on to explain the similarity in more detail.

The Credit Mobilier went bankrupt just before the FrancoPrussian war, but it played an historical role of some importance, laying the foundations for a new era in banking---the creation of speculative banks closely linked with industry. It was from the development of large joint-stock companies which gained the commanding heights in whole branches of industry, from the growth of the giant banks and their merging with industrial monopolies at the end of the 19th century that financial capital was formed.

But this was, so to say, ``constructive'' development. What about the excesses? What comparison can there be between Law's Mississippi adventure and the vast speculation of the group of businessmen who collected the money of 800,000 shareholders to build the Panama Canal and walked off with it? The word ``panama'' (a great swindle) became as common as the word ``Mississippi'' in Law's day.

And how can one compare the collapse of Law's system with the collapse of the New York stock exchange in 1929 or Law's inflation with the ``super-inflation'' of the 20th century, when money lost its value several million times over (Germany in the 1920s and Greece in the 1940s). It is difficult to overestimate the importance of the problem of inflation for modern capitalism. Inflation has become the ``norm'', a permanent feature of capitalist economy. It increases economic difficulties, intensifies social conflicts and promotes currency crises. Of course, modern inflation is an incomparably more complex and many-sided phenomenon than the depreciation of John Law's paper money. Modern inflation is a general economic process, which is often connected with the surplus issue of paper money, but occasionally takes place without this. In many cases the primary factor of inflation is a rise in prices, which is not directly linked with the ``monetary'' aspect but produced by other causes: a monopolist policy, a shortage of goods or foreign trade situation. But then the increase in the amount of money ``props'', so to speak, the rising level of prices, fixes it and may, in its turn, encourage inflation. Both the amount of money and the level of prices have acquired a one-way elasticity in modern conditions---they only rise, never fall. This law in embryo already existed in Law's system.

Law's personality as a financier with a fertile imagination, scope and energy has also been ``repeated'' many times in subsequent history. Capitalism needs such men and gives birth

Karl Marx, Friedrich Engels, Werke, Bd. 12, Berlin, 1969, S. 32.

to them. They are sometimes real people such as Isaac Pereire or John Pierpont Morgan, or fictional characters like the stock-exchange magnate Saccard, the main character in Zola's novel L'argent, and Cowperwood, Dreiser's titanic and stoical financier....

Law's financial practice and ideas played an important part in establishing and developing political economy. True, he had to wait a century or more for direct disciples in the science. On the other hand, although the brilliant development of political economy in the 18th and early 19th centuries proceeded to a large extent from Law's ideas, it proceeded by rejecting them as dangerous and pernicious heresy. The struggle against this heresy was of considerable importance in forming the views of Quesnay, Turgot, Smith and Ricardo. Analysing the development of French political economy, Marx notes: "The emergence of the Physiocrats was connected both with the opposition to Colbertism and, in particular, with the hullabaloo over the John Law system" '.

The classics' criticism of Law was progressive and aimed in the right direction. It was part of their struggle against mercantilism with which Law had much in common. Of course, he was very different from the primitive mercantilists who reduced all economic problems to money and the balance of trade. He regarded money mainly as an instrument for influencing economic development. But he did not advance beyond the superficial sphere of circulation and did not even attempt to understand the complex anatomy and physiology of capitalist production. And this was precisely what the classics of bourgeois political economy tried to do.

Relying upon monetary factors Law naturally linked all his hopes with the state. Right from the start he wanted a state bank and only temporary difficulties forced him to agree at first to a private one. His trading monopoly was a peculiar appendage of the state. Law was inconsistent in his economic policy: he abolished some state regulatory measures which were hampering the economy and immediately introduced others. He enjoyed the support of a feudal bureaucratic state, but it was against the crude and onerous intervention of such a state in the economy that the Physiocrats and Smith fought. In this respect too Boisguillebert was much closer to them than Law._____

~^^1^^ Karl Marx, Theories of Surplus-Value, Part I, p. 59.

However, in rejecting the concept of credit as creating capital, which Law advanced and sought to put into practice, the classics underestimated the important part which credit plays in developing production. They threw the baby out with the bath water, so to say. Law's views on credit are at least more interesting than Ricardo's, although on the whole he cannot be compared with the most important exponent of classical bourgeois political economy.

Law did not believe in the predetermined harmony of the "natural order", in the omnipotence of laissez faire. Here too he revealed an awareness of the contradictions of capitalism. It was the aggravation of these contradictions which forced bourgeois science to review its attitude towards Law. His rehabilitation at the time of Louis Blanc and Isaac Pereira was not the last one. A new rehabilitation, from a different standpoint of course, is being carried out by the followers of Keynes, the ideologists of state monopoly capitalism.

Both Law's main ideas, i. e., that of influencing the economy through the sphere of credit and finance, and that of the great role of the state in the economy, fitted perfectly here. At the beginning of this chapter we quoted the words of a modern writer about the likeness between Law and Keynes. This is not the only paradoxical statement. In France, for example, a book has come out entitled John Law et naissance du dirigisme. Dirigisme is the French version of state economic planning.

In the United States changes in rates of taxation on capitalist companies and individuals can be made only with the sanction of Congress. This is an old bourgeois democratic measure which limits the executive. Today the government's economic advisers are most dissatisfied with this state of affairs: the manipulation of taxes is a most important weapon of modern economic policy and they would like to have full control of it. This reminds us of Law who was delighted at the way questions could be solved in France at that time. "It is a fortunate country where action can be considered, decided upon and carried out within twenty-four hours instead of twenty-four years like England". He was not worried by the fact that France was a despotic absolute monarchy and that was the only reason why things could be done so quickly.

Law's ideas on the positive role of an abundance of money and inflation are resurrected time and again in the different

8---745

versions of bourgeois economists. They seek in "moderate inflation" a solution to economic crises, unemployment and economic depression. If pursued, however, this policy creates its own acute problems and conflicts. The profession of an economist in the West is that of a doctor at the sick bed of capitalism. The best these doctors can do is occasionally relieve the symptoms of the disease.

CHAPTER VI

PRE-ADAM ECONOMICS

I

n the century from Petty to Adam Smith economic science came a long way---from the first rudiments of the classical school to its formation into a system, from individual, sometimes random pamphlets to the definitive Wealth of Nations. The content and form of this work determined the nature of the treatises on economic theory written in the following century and even after.

As Marx wrote, "that period^^1^^, which abounded in original thinkers, is therefore the most important for the investigation of the gradual genesis of political economy"^^2^^. Of course, we shall only be able to touch upon a few of the outstanding scholars and writers who, brick by brick, erected the edifice of classical political economy in England. Some of their ideas are also interesting from the point of view of modern problems.

Marx is referring to the period from 1691 to 1752: from the publication of the works of Locke and North, which developed Petty's ideas, to the appearance of the main economic works of Hume, a close forerunner of Smith.

~^^2^^ Frederick Engels, Anti-Diihring, Moscow, 1969, p. 280 (Chapter X of Part II of Anti-Diihring was written by K. Marx).

THE 18TH CENTURY

Of course at the basis of all these processes lay changes in England's economy. First and foremost, the countryside was changing, English agriculture, which in the middle of the century was still producing about three times more than industry. The enclosure of land became particularly extensive at this time. Small peasant holdings and common land were gradually disappearing, giving way to large estates which were rented out in plots to rich farmers. This promoted the development of capitalism in both agriculture and industry.

There was a rapid growth in the class of hired workers without land or property, who possessed nothing but their own hands. This class was formed at the expense of the peasants who had lost their land or their ancient right of semifeudal leasing, and handicraftsmen and artisans who had been ruined by competition. But the real manufacturing proletariat still constituted an insignificant part of the "lower classes". There were many patriarchal features and vestiges of the "good old days" in capitalist exploitation. The horrors of industrial slavery were still to come.

At the other extreme the class of industrial capitalists was growing. It was joined by rich proprietor master craftsmen, merchants, and colonial planters who brought to England the tortunes they had amassed abroad. The subjection of production to capital was a complex process: often capitalists first penetrated as buyers-up and suppliers of raw material in cottage industries, then founded handicraft workshops and factories.

This was the end of the age of manufacture, i.e., handmade produce, based on the division of labour. Even with the former primitive instruments division of labour and specialisation of workers made it possible to increase productivity. Machine industry was just being born. The age of the great inventions was beginning. In the 1730s the first steps were taken towards the mechanisation of spinning and weaving and coke smelting was discovered. In the 1760s Watt invented the steam engine.

Credit was needed---by industrialists for their enterprises, merchants for foreign trade, and the government for colonial wars. This produced the emergence and rapid growth of banks and joint-stock companies which collected money capital. The national debt rose considerably. Securities and the stock exchange came into use. Alongside the industrial and trading capitalist whose main form of income was profit, there

One might say that the Britain of the new age was formed in the first half of the 18th century. This period consolidated the class compromise between the landowning nobility and the bourgeoisie. The interests of both exploiter classes merged and intertwined closely. The nobility became bourgeois and the bourgeoisie became landowners.

A political system grew up which basically remains to this very day and which for two centuries represented the bourgeois democratic ideal. It consisted of a parliamentary monarchy, where the king reigns but does not rule; two parties which replace each other from time to time in power; personal liberty and freedom of the press and speech unprecedented in the Europe of the time, which however could in fact be used only by the privileged and rich sections of society.

The Tories, the conservative party of the landowners, and the Whigs, the liberal party of the higher educated aristocracy and urban bourgeoisie, began their endless parliamentary and electoral battles. An important function of these battles was to distract the "lower classes" from the real controversial questions of the class struggle.

To a large extent the political struggle lost the religious complexion which it had in the preceding century. Alongside the official Church of England a number of former Puritan sects were also established and England became the "island of a hundred religions". But this did not hinder the socioeconomic development of the bourgeois nation. As the English historian G. M. Trevelyan notes: "While religion divided, trade united the nation, and trade was gaining in relative importance. The Bible had now a rival in the Ledger.''^^1^^

The Empire grew rapidly. North America was colonised, sugar and tobacco plantations flourished in the West Indies, India and Canada were conquered, and a large number of islands discovered in various parts of the globe. The wars waged by England were mainly successful. It became the world's undisputedly greatest maritime and trading power. In particular, English merchants practically had a monopoly on the slave trade and delivered many thousands of Negroes to America each year.

~^^1^^ G. M. Trevelyan, English Social History, London, 1944, p. 295.

appeared the competent figure of the moneyed capitalist who received his portion of surplus value in the form of interest on loans.

Commodity and money relations already permeated the whole life of the nation. Not only trade but also production became capitalist to a large extent. The basic classes of bourgeois society stood out more distinctly. As a result of the mass repetition of social phenomena such objective categories as capital, profit, interest, land rent and wages became clearly defined. All this could now be the object of observation and scientific analysis.

On the other hand, the bourgeoisie was still the most progressive class in society. It had not yet recognised the growing working class as its main adversary. The class struggle between them was still in embryonic form. Thus the conditions were formed for the development of classical political economy in England.

humous fame. Such illusions are not uncommon in the history of culture.

Defoe's own life was like an adventure storv. He was born in London in 1660 (there is some doubt about this date) and died there in 1731. The son of a Puritan small trader, Defoe made his own way in life thanks to his natural ability, energy and wit. A participant in the Monmouth rebellion of 1685 against King James II, he managed to escape execution or deportation to the colonies only by a fortunate accident. A wealthy merchant by the age of thirty, he went bankrupt in 1692 with debts amounting to £ 17,000.

It was at this time that Defoe began writing political pamphlets and won the confidence of William III (William of Orange) and his close advisers. In 1698 he published an economic work entitled Essay on Projects in which he proposed a number of bold economic and administrative reforms.

Shortly after the death of the king, his patron, in 1703, Defoe was pilloried and sent to prison for a caustic pamphlet against the Church of England in defence of Puritan dissenters. He was released from prison (where he spent eighteen months and wrote prolifically) by the Tory party leader, Robert Harley. In exchange for this Defoe devoted his pen, the pen of the finest journalist of his day, to the Tory party and Harley personally. He became Harley's secret agent and travelled to Scotland and various parts of England on important and confidential missions from him.

The death of Queen Anne and the fall of Harley put an abrupt end to his career. In 1715 he was again sent to prison on a charge of political libel. He gained his freedom having once more undertaken an unenviable task---to sabotage from the inside press organs hostile to the new government.

The man who wrote Robinson Crusoe possessed a wealth of experience. This is what gave the story of the adventures of the seafarer from York such profundity. Defoe knew neither rest nor peace to the end of his days. It is difficult to believe that between the age of sixty and seventy a man could write several large novels, a voluminous economic and geographical description of Great Britain, a number of historical essays (including one on the Russian Emperor Peter I), a whole series of books on demonology and magic (!) and a multitude of small articles and pamphlets on the most varied topics. In 1728 he published an economic work entitled A Plan of the English Commerce.

POLITICAL ECONOMY LIKES ROBINSONADES

The first edition of Daniel Defoe's novel Robinson Crusoe appeared in London in 1719. Its fate was an unusual one. On the one hand, it is an acknowledged masterpiece of the adventure story. On the other, the literature in many languages giving a philosophical, pedagogical and politicoeconomic interpretation of Robinson Crusoe and other Robinsonades could today fill a whole library.

A Robinsonade is a situation invented by a thinker and writer in which a single person (sometimes a group of people) is placed in living and working conditions outside society. It is, if you like, an economic model in which relations between people, i.e., social relations, are excluded and only the relations of an isolated individual with nature remain. Political economy likes Robinsonades, Marx remarked. One might add that this is even truer of post-Marxian than pre-Marxian bourgeois political economy.

In spite of the success of Robinson Crusoe, which Defoe wrote at the age of almost sixty, and of other novels written even later, he regarded them as trifling to the end of his life. Defoe thought that the numerous political, economic and historical works which his pen had produced would bring him post-

Let us return to Robinsonades. At the basis of bourgeois lassical political economy lay the idea of the natural man. This idea arose out of an unconscious protest against the `` artificiality'' of feudal society, in which man was constrained by all manner of coercive relations and restrictions. But the `` natural'' man of the new bourgeois society, the individualist freed from these relations and fitted for the world of free competition and equal opportunities, was regarded by Smith and Ricardo, and by their predecessors, not as the product of lengthy historical development but, on the contrary, its point of departure, the embodiment of "human nature''.

In seeking to explain the behaviour of this individualist in social production under capitalism, they based themselves on the ideas of "natural law" and focussed their attention not on the actual development of society, but on the imaginary figure of the solitary hunter and fisherman. Of course, this means that a concrete Robinson Crusoe who finds himself on a desert island is turned by the authors into something allegorical and abstract, often entirely conventional.

Thus, the Robinsonade is an attempt to examine the laws of production, which is of necessity always social and linked with a concrete stage in historical development, on an abstract model which excludes the main factor---society. Marx made an extremely profound criticism of the classical political economy Robinsonade. He remarked that this inclination had moved to the "latest political economy" of the mid-19th century: it now very conveniently found the economic relations characteristic of developed capitalism in the imaginary world of the "natural man". Let us quote a single sentence from Marx: "The production of an isolated individual outside society---a rare thing which could happen to a civilised person accidentally cast into the wilderness, who already contains social forces in himself dynamically (my italics---A.A.)---'is just as absurd as the development of a language without individuals who live and speak together." '

The underlined passage is interesting in connection with the plot of Robinson Crusoe. Remember that Robinson bears social forces to such an extent that in changed circumstances he rapidly turns from a "natural man", first into a patriarchal

slave-owner (Man Friday), and then into a feudal lord (the colony of settlers). He would have turned into a capitalist too if his society had continued to develop.

The Robinsonade was a real find for the subjective school in political economy, which attempts to examine economic phenomena in the light of individual feelings and psychology. This trend in political economy, which arose in the 1870s, focussed attention on the "atomistic individual". One can hardly imagine a more suitable figure than Robinson Crusoe.

A typical example is the Robinsonade of Bohm-Bawerk (1851-1914), an eminent economist of the Austrian subjective school. The author twice makes Robinson Crusoe serve as the point of departure for his argument---in the theory of value and the theory of the accumulation of capital.

Writers in the 17th and 18th centuries had already realised that value is a social relation, which exists only when things are produced as commodities, for exchange within society. All Bohm-Bawerk needs to introduce the concept of value is, as he himself puts it, "a colonist whose log cabin stands far from all communications in a virgin forest". This Robinson has five sacks of corn and the value of the corn is measured by the usefulness of the last of them.

Capital is the social relation between those who possess the means of production and those who are deprived of them, who sell their labour and are subjected to exploitation. It arises only at a specific stage of social development. But for Bohm-Bawerk it is simply any instruments of labour in their material form. Therefore as long as Robinson is engaged in picking wild fruit he has no capital. But as soon as he sets aside part of his labour time to make himself a bow and arrows, he becomes a capitalist: this is the initial act of accumulating capital. As we can see, capital is accumulated by means of simple economy and is not connected with any form of exploitation.

The tradition of the Robinsonade is so strong in bourgeois political economy that it has become difficult to write a book on economic theory without mentioning Robinson. The modern American economist Paul A. Samuelson opens his textbook with the dubious statement that the economic problems confronting Robinson were fundamentally no different from the problems of a large society.

Karl Marx, Grundrisse der Kritik der Poiitischen Okonomie, Moskau, 1939, p. 6.

THE PARADOXES OF DOCTOR MANDEVILLE

fundamental philosophical attitude on which the classical school was based.

Mandeville's main paradox is contained in the phrase "private vices made public benefits". Replace ``vices'' by the famous Smithian ``self-interest'' and you have Smith's main thesis about capitalist society: if each individual is allowed to pursue his own gain, sensibly, this will promote the wealth and flourishing of the whole society. In his book The Theory of Moral Sentiments Smith criticised Mandeville as follows: the author of the Fable of the Bees is wrong only in that he calls all egoistic striving and action a ``vice''. Self-interest, say, is not a vice at all.

But Mandeville's importance for the history of economic science does not stop at this. In his satire he made a biting criticism of bourgeois society and was one of the first to discover its basic vices. This was his alleged ``amorality''. Marx called him "an honest, clear-headed man".^^1^^

The beehive is human society, or rather, bourgeois England in Mandeville's day. The first part of the fable is a satire 011 it worthy of the pen of Swift. The central idea is that such a society exists and flourishes only because of the innumerable vices, absurdities and crimes that abound in it. ``Flourishing'' is possible in this society only because millions of people are

... damn'd to Sythes and Spades, And all those hard laborious Trades; Where -willing Wretches daily sweat, And wear out Strength and lAmbs to eat...'.

But they only have this work because the rich like comfort and luxury and spend a lot of money on things the need for which is often dictated by fashion, imagination, vanity, etc. Greedy litigious lawyers, charlatan physicians, lazy and ignorant priests, pugnacious generals, even criminals---they are all, contrary to common sense, vital in this society. Why? Because their activity engenders demand for all manner of goods and services, encouraging industry, invention and enterprise.

Thus, in this society

In the same London coffee houses and bookshops frequented by Defoe another colourful figure could also be found---Doctor Bernard Mandeville. A doctor without a practice, an inhabitant of the poor quarter and a lover of carousing in merry company, Mandeville enjoyed an unenviable reputation. It was said that he lived mainly on money from distillers and brewers who paid him for defending alcoholic liquor in the press.

Bernard de Mandeville was born in Holland in 1670. Shortly after leaving Leyden University in 1691 he went to live in England. He married, settled in London, became an English subject and, after living a life the details of which are little known, died there in 1733.

Mandeville owes his fame as a philosopher and writer to a single work. In 1705 he published anonymously a short poem in mediocre verse entitled The Grumbling Hive, or Knaves Turn'd Honest. The work attracted little attention. In 1714 Mandeville republished the same poem, adding a lengthy dissertation in prose. This time it was called the Fable ofthe Bees, or Private Vices, Public Benefits. It is under this title that Mandeville's book has become famous.

But this edition, too, appears to have gone unnoticed. It was only a new edition of the Fable of the Bees published in 1723, which bore the high-sounding sub-title of A Search into the Nature of Society that produced the reaction Mandeville must have hoped for. The grand jury of Middlesex found the book a ``nuisance'', and a controversy flared up in the press around it, in which Mandeville took part with obvious relish. Another five editions came out in the author's lifetime, and in 1729 he published a second volume of the Fable of the Bees.

The monumental Oxford edition contains a long list of references to Mandeville in the literature of two centuries. He was written about by Marx and Adam Smith, Voltaire and Macaulay, Malthus and Keynes.

Mandeville had a great influence on the development of English political economy, particularly on Smith and Malthus (although amusingly enough they both disown him as a coarse cynic!). This influence was not on the elaboration of main categories (value, capital, profit, etc.), but more on the

~^^1^^ Karl Marx, Capital, Vol. I, Moscow, 1972, p. 577.

~^^2^^ B. Mandeville, The Fable of the Bees. Or, Private Vices, Public Benefits. With an Essay on Charity and Charity-Schools. And a Search into the Nature oj Society, 5th edition, London, 1728, p. 3.

...Luxury

Employ'd a Million of the Poor,

And odious Pride a Million more.

Envy itself, and Vanity

Were Ministers of Industry,

Their darling Folly, Fickleness

On Diet, Furniture and Dress,

That strange ridic'lovs Vice, was made

The very Wheel, that tmrn'd the Trade.^^1^^

(One cannot help recalling here, for example, the American automobile companies, which change their models every year for no technical reason whatsoever, only in order to play on the vanity of the buyers and increase sales at any price. The directors of these companies could well agree with MandeviUe that the flourishing of the industry is based on ``fickleness'' and other human weaknesses, and that these weaknesses are deliberately encouraged.)

But the bees are grumbling at the prevalence of vice in their hive, and Jupiter, tired of their complaints, suddenly drives away vice and makes the bees virtuous. Thrift takes the place of extravagance. Luxury vanishes, and the consumption of everything exceeding simple natural needs ceases. The parasitic professions are abolished. Freed from chauvinism and aggressive inclinations

They have no Forces kept Abroad; Laugh at th' Esteem of Foreigners, And empty Glory got by Wars.^^2^^

In a word, normal, healthy principles of human society prevail. But, horrors! It is this that brings ruin and collapse to the society which MandeviUe has depicted in poetic form:

Now mind the glorious Hive, and see, How Honesty and Trade agree: The Shew is gone, it thinks apace; And looks with quite another Face, For 'twas not only that they went, By whom vast Sums were Yearly spent; But Multitudes, that lived on them, Were daily forc'd to do the Same.

~^^1^^ B. MandeviUe, op. cit.. p. 10.

~^^2^^ Ibid., p. 18.

In vain to other Trades they'd fly; All were O`re-stock'd accordingly.... The Building Trade is quite destroy'd, Artificers are not employ'd, No Limner for his Art is famed; Stone-cutters, Carvers are not named. '

In short, an economic crisis begins: unemployment rises, goods pile up in the warehouses, prices and incomes drop and construction ceases. What a society in which parasites, warmongers, spendthrifts and rogues bring prosperity, and such unqualified virtues as love of peace, honesty, thrift, and moderation lead to economic disaster!

Mandeville's ideas, which he developed in grotesque, paradoxical form (they are expounded more soberly in the later prose section of the Fable) are particularly interesting in the light of the development of political economy in the succeeding centuries. Let us mention two most important facts.

The idea that all classes and strata (landowners, priests, officials, etc.) are productive and economically necessary was taken up by Malthus and his followers. In a small pamphlet contained in the Theories of Surplus-Value Marx uses Mandeville's ideas and even his style to disprove this view. He writes: "... MandeviUe had already shown that every possible kind of occupation is productive.... Only MandeviUe was of course infinitely bolder and more honest than the philisdne apologists of bourgeois society.''^^2^^

The idea that excessive thrift is harmful and that unproductive expenditure, any form of extravagance, is beneficial, even essential, as long as it creates demand and employment has been resurrected and canonised in our day by Keynes. He regarded MandeviUe (and Malthus) as his precursor.

By the end of the 19th century bourgeois political economy, which refused to see any vices in the capitalist system, regarded MandeviUe as a charlatan and cunning casuist. It did not even occur to anyone to criticise the thrift which Adam Smith had elevated into the greatest private and public virtue. Only the world economic crisis of 1929-33 made leading bourgeois economists start thinking along Mandeville's lines: if people start saving they will not purchase commodities, which means a

~^^1^^ Ibid., pp. 18-19.

~^^2^^ Karl Marx, Theories of Surplus-Value, Part I, Moscow, 1969, p. 388.

drop in "effective demand"; people must be made to spend their money in any way and for any purpose.

The paradoxes of Doctor Mandeville are now more than 250 years old. But they are still alive, like the society which he examined with his critical eye.

It must be noted that these categories are most conventional and certainly do riot determine the development of ideas, but they help us to understand the complicated process of the growth of the science.

The main motive behind economic writing remains the practical one of arguing or defending a particular economic policy. Yet the works of Turgot and James Steuart which appeared in the 1760s differ greatly from the merchantilist pamphlets of the 17th and early 18th centuries. They were the first attempts at a systematic and theoretical exposition of the basic principles of political economy.

Moreover the "practical motive" takes a variety of forms. In the case of some writers it is the direct defence in the press of the interests of their class and their own personal interests. In others it is the more profound process of the scientific study of social phenomena, which takes account of class interest only in a complex and mediatory form. It hardly need be said that classical bourgeois political economy was created by men of the latter kind. Adam Smith, say, was neither a merchant nor an industrialist and could not expect to benefit personally from the policy of free trade which he argued in The Wealth of Nations. Moreover, it was one of the paradoxes of his life that after the book came out he received a salaried post in the customs, an institution which embodied the system against which he was fighting.

For all the brilliance of his paradoxes, Mandeville stands somewhat apart in the formation of the classical school in England. It is linked first and foremost with the names of Locke (1632-1704) and North (1641-1691) who were Petty's direct successors.

A most eminent 18th-century philosopher, one of the creators of the materialist theory of cognition and the father of bourgeois liberalism, Locke occupies an important place in economic science thanks to his work Some Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money published in 1691. At the same time Locke's philosophy as a whole served as the foundation for English political economy in the 18th and even early 19th centuries. Locke developed in the social sciences the ideas of natural law, which were a kind of equivalent to the mechanistic materialism of Newton in the natural sciences. For their time these ideas, as mentioned earlier, were progressive ones, since they intro-

THE FORMATION OF THE CLASSICAL SCHOOL

It is generally accepted that political economy was first taught as a separate science in 1801 in Edinburgh University by Dugald Stewart, a pupil and friend of Smith's. The economics professor did not become a familiar figure until the 19th century, although an important contribution continued to be made in the science by people who were not professors at all. The talented men who created the new science in the 17th and 18th centuries fall into three main categories.

Firstly, there are the philosophers who studied economic questions within the framework of their general systems of nature and society characteristic of the particular age. The most outstanding of them are Thomas Hobbes, John Locke, David Hume and, in a sense, Adam Smith, in England, Helvetius and Condillac in France, and Beccaria in Italy.

Next come the merchants and businessmen, who moved from the narrow practice of trade to public affairs and strove to think as statesmen. Here one might mention the names of Thomas Mun, John Law, Dudley North and Richard Cantillon. In France Boisguillebert, Turgot and Gournay represented the judicial and administrative branch characteristic of that country.

Thirdly and finally, there are the intellectual commoners, people of various professions, who sometimes moved into the upper class and sometimes did not. Marx noted that medical men, William Petty, Nicholas Barbon, Bernard de Mandeville and Francois Quesnay, were good students of political economy. This is understandable for medicine was the only specialised natural science in those days and attracted energetic, thinking people. Churchmen appeared among the economists of the 18th century, abbots in France and Italy (including the profound and original Italian economist Fernando Galiani) and Anglican ministers in England (Tucker, Malthus).

duced the principle of objective law in the sphere of social phenomena. Even Locke's important advance towards an understanding of surplus value was made from the standpoint of natural law. He writes that man should naturally have as much land as he can cultivate by his own labour and as many other goods (including, evidently, money) as he needs for private consumption. Artificial inequality in the distribution of property leads to some people having a surplus of land and money; they rent out the land and loan the money. Locke regarded land rent and interest as two similar forms of exploiter income.

Dudley North was an original personality. The younger son of an aristocratic family, he demonstrated such meagre talents for learning in childhood, that he was apprenticed (like Thomas Mun) to a merchant in the Levant Company. North spent many years in Turkey and returned getting on for forty a rich man. But, as a writer puts it, "he looked a barbarian, and was not much more cultured than one". North revealed his janissary manners when he became Sheriff of the City of London in 1683 in the period of Tory reaction under Charles II. He served the king loyally and did great harm to the Whigs, for which he was knighted and became Sir Dudley. After this he occupied several important posts, but the Revolution of 1688-89 ruined his chances of a further career.

Without possessing, say, a tenth of Locke's erudition, Sir Dudley revealed an exceptional talent for precise and bold economic thought which recognised no authorities. His small work Discourse Upon Trade, written at the same time as Locke's work and dealing with the same questions, is one of the finest achievements of 17th-century economic thought.

North did a great deal for the development of the basic scientific method of political economy---logical abstraction: in order to analyse an economic phenomenon, which is always infinitely complex and possesses countless relationships, one must imagine it in its "pure form", disregarding all inessential features and connections.

North took the first steps towards an understanding of capital, although it is true, that he examined it only in the form of monetary capital which yields interest. He showed that interest on loans is determined not by the quantity of money in the country (as the mercantilists and even Locke had thought), but by the relationship between the accumulation of monetary

capital and the demand for it. This laid the foundation for the classical theory of interest, from which an understanding of the category of profit later emerged. North also did a great deal for the development of the theory of money.

But perhaps the main point about North was his sharp and fundamental criticism of mercantilism and his resolute defence of "natural freedom". The cause for this was his objecting (like Petty and Locke before him) to the compulsory regulation of interest. North went further than they, however, in the fight against mercantilism. In this respect he is one of the direct forerunners of Adam Smith.

Neither Locke nor North went further than Petty in the labour theory of value. But it was gradually developed and established in the numerous works of the 17th and 18th centuries, preparing the ground for Smith. The growth of the division of labour, the emergence of new branches of production, the expansion of commodity exchange---all this confirmed the idea that people were actually exchanging chunks of human labour. Consequently the ratio of exchange, the exchange values of commodities, must be determined by the amount of labour spent on the production of each commodity. There was a growing awareness that land and production instruments definitely play a part in the creation of wealth as use values, but bear no relation to the creation of value.

These ideas crystallised slowly, with great difficulty, from a chaotic confusion of concepts. Adam Smith reproduced this hard struggle of developing ideas in his own head and we shall attempt to describe it below. Among his most important predecessors in the theory of value were Richard Cantillon, Joseph Harris, William Temple, and Josiah Tucker, who wrote between the 1730s and 1750s.

A writer, about whom we can say nothing whatsoever because his name is Anonymous 1738', formulated the theory of value with splendid precision, excelling even Smith in a certain sense. Many economic works were published anonymously in the 17th and 18th centuries. The authors of some have long been established and others have not played a significant role in the science. Anonymous 1738 is an exception, a figure like the unknown masters of the "Life of Mary" or the "Legend of St. Ursula''.

~^^1^^ This date, 1738, has not been fully authenticated.

9---745

Let us quote a key passage from this work which bears the modest title of Some Thoughts on the Interest of Money in General. For ease of analysis a commentary is given in the righthand

column.

``The true and real value of The author is actually giving the Necessaries of Life, is in a definition of use value here. Proportion to that Part which they contribute to the Maintenance of Mankind; and the

Value of them when they are A concept of exchange value exchanged the one for the is given which differs alother, is regulated by the together from use value; the Quantity of Labour necessari- idea of socially necessary ly required, and commonly labour time is contained here taken in producing them; arid in embryo, the Value or Price of them The writer sees the difference when they are brought and between price and value and sold, and compared to a com- notes that price varies under mon Medium, will be gov- the influence of a surplus or ern'd by Quantity of Labour shortage of money, employ'd, and the greater or less Plenty of the Medium or

common Measure. Water is as This classic illustration of the necessary for Life as Bread or so-called "paradox of value" Wine; but the Hand of God shows the fundamental difhas poured out that upon ference between use and exMankind in such Plenty that change value, every Man may have enough of that without any Trouble, so that generally 'tis of no

Price; but when and where The author states categoricalany Labour must be used, to ly that labour alone, not naapply it to particular Persons, ture, creates value, there the Labour in making the Application must be paid for, tho' the Water be not: And on that Account, at some Times and in some Places, a Ton of Water may be as dear as a Ton of Wine." '

~^^1^^ Quotation taken from R. L. Meek, Studies in the Labour Theory of Value, London, 1956, pp. 42-43.

In connection with the development of the theory of value progress was being made in other important spheres as well. Developing Petty's idea that the wages of hired workers are determined in the final analysis by the minimum necessary for subsistence, economists came closer to an understanding of the nature of this minimum. By studying population problems they explained to a certain extent the mechanism which ensures reproduction of the labour force in such a way that competition between workers reduces wages to a bare minimum.

An important step in the understanding of capital and income from capital was the distinction between profit from trade and industry and interest on loans. Joseph Massie and David Hume, who wrote in the 1750s, already understood clearly that in normal conditions interest is a part of profit: the merchant and the industrialist are forced to share with the owner of money, of loan capital.

Thus, pre-Smithian political economy does actually examine surplus value, but treating it only in the special forms of profit, interest, and also land rent, without understanding its nature.

DAVID HUME

In March and April 1776 Hume, who was on his deathbed and knew it, hurriedly wrote the story of his life. He lived for another four months. The autobiography was published shortly after his death with a brief letter of introduction by Adam Smith, his closest friend for a quarter of a century. Smith described the philosopher's last months. Hume died with an enviable peace of mind and unusual resolution. A cheerful sociable person, he retained these qualities to the end, although sickness turned him from a corpulent man into a living skeleton.

Smith's letter played an unusual role in political economy. It left no doubt that Hume, who was already known to be an atheist, did not die a God-fearing Christian. Smith, too, shared this pagan spirit.

The fury of the Church descended on the deceased Hume and living Smith. Smith's recently published The Wealth of Nations was only noticed by a narrow circle of educated people at first. But the battle which raged around the names of Hume

and Smith and which was an unpleasant surprise for Smith, a cautious and retiring man, attracted general attention to the book. One edition followed the other and in about ten years The Wealth of Nations had become the Bible of English political economy.

But Hume paved the way for Smith in another sense too. Hume's short, exquisitely composed essays, published mainly in 1752, give a concise summary as it were of the achievements of the pre-Smithian classical school in the struggle with mercantilism. They played an important role in preparing people's minds for The Wealth of Nations.

David Hume was born in Edinburgh in 1711, the youngest son of an impoverished nobleman. He was forced to make his own way in life, relying mainly on his masterly pen. Industry and thrift---the traditional Scottish virtues---he possessed in full measure.

At the age of twenty-eight Hume published his main philosophical work, the Treatise of Human Nature, which subsequently made him one of the most eminent 18th-century British philosophers. Hume's philosophy later became known as agnosticism. Like Locke Hume argued that feeling is the most important source of man's knowledge about material things, but he regarded these external things (matter) as fundamentally uncognisable in their entirety. He tried to find a place somewhere between materialism and idealism but by arguing the unknowability of the world inevitably gravitated to the latter. His criticism of religion made an important contribution to the struggle against obscurantism. But he was not a consistent atheist and his philosophy left a loophole for the ``reconciliation'' of science and religion.

Hume's book was not a success at first. He ascribed this to its complexity and set about popularising his ideas in short essays. In addition he turned to the philosophy of society. His initial success came with his political and economic works, and the multi-volume History of England during the Reigns of James I and Charles I brought him European fame. As an historian Hume supported the Tories, the landowners' party, which was also favoured by the conservative bourgeoisie. A refined intellectual, an "aristocrat of the spirit", Hume disliked the "Whig rabble", despised the coarseness of the shopkeepers and the stupidity of the Puritans, and referred to the rich London financiers as "barbarians on the banks of the Thames''.

In 1763-65 Hume lived in Paris as secretary to the British Embassy. He was extremely popular in the salons and was friendly with many figures in the French Enlightenment. He then moved to an administrative post in London. His last years were spent in Edinburgh among close friends---scholars and men of letters.

Hume's economic writing contains many interesting thoughts and observations. For example, he would appear to be the first to point out, in modern economic language, the existence of time-lags in the process by which prices rise due to an increase in the amount of money in circulation. Hume noted, in particular, that of all commodity prices the "price of labour", i. e., workers' wages, was the last to rise. These important laws help us to understand the social and economic processes which take place when there is inflation of paper money.

More than anyone else in the 18th century Hume developed the idea that gold and silver are distributed naturally between countries and that each country's balance of trade strives naturally for equilibrium in the final analysis. The idea of natural equilibrium, which is typical of the whole classical school, is strongly expressed in Hume's writing. It provides the basis for his criticism of mercantilism with its policy of artificial attraction and retention of precious metals. The concept of the natural tendency of trade balances (or balances of payments, to be more precise) towards equilibrium was developed further by Ricardo. We shall return to this in the chapter on him.

Even Hume's correct observations, however, were linked with an interpretation of money which is at variance with the labour theory of value. Like the French, Hume managed without a theory of value; this may have been the result of his philosophical agnosticism and scepticism.

In political economy Hume is known primarily as one of the creators of the quantity theory of money. Hume and other writers who advanced similar views proceeded from the historical fact of the so-called price revolution. After gold and silver poured into Europe in the 16th to 18th centuries, the level of commodity prices there gradually rose. Hume himself estimates that prices rose three or four times on average. From this Hume drew what seemed to be the obvious conclusion: that prices had risen because there was more money (real metal money!).

But appearances are deceptive, as the saying goes. For the whole course of this process can and must be explained differently. The discovery of rich deposits caused a drop in the cost of labour to extract precious metals and, consequently, a drop in their value too. Since the value of money in relation to commodities had dropped, the price of commodities rose.

Hume thought that regardless of the amount of real metal money in circulation, the ``value'' of money (or commodity prices, to put it more simply) would be established during the process of circulation in which a heap of commodities encountered a heap of money.

In fact, both money and commodities go into circulation with a value which has already been determined by the socially necessary expenditure of labour. Consequently only a fixed amount of money can be in circulation at a given speed of money turnover. Any surplus will go abroad or into hoards.

Paper money is a different matter. It can never go out of circulation. The purchasing power of each unit of paper money really does depend (together with other factors) on their quantity. If more of them are issued than the quantity of real metal money necessary for circulation, they will lose their value. This, as we know, is called inflation. Hume, while examining gold and silver, was in fact describing the phenomena of paper-money circulation.

Hume's service is that he attracted attention to problems which still play an important role in political economy: how can the quantity of money necessary for circulation be determined? How does the quantity of money affect prices? What are the specific features of price formation when money loses its value?

CHAPTER VII

BENJAMIN FRANKLIN AND TRANSATLANTIC ECONOMICS

-T ranklin was one of the last great universal thinkers of the 18th century. The role of Franklin in North America can be compared to that of such great pioneers of learning as Lomonosov in Russia, Newton in England and Descartes in France. A physicist and one of the creators of the modern science of electricity; a philosopher and writer who gave original expression to the new bourgeois democratic views of society of his time; a political and social figure, and one of the most radical leaders of the American revolution and the new state's struggle for independence. This is a far from complete list of the spheres of activity and interests of the celebrated American who himself regarded bookprinting as his main occupation.

Within the framework of his philosophical and political activities Franklin also dealt with questions of political economy. He is one of the pioneers of economic thought in the New World.

LIFE AND WORKS

Franklin's autobiography is a remarkable historical and literary document of his age. In one of the chapters, which Franklin wrote at the age of seventy-nine, he speaks of the

happiness of his life. And his was a long and happy life, indeed. He was happy as a citizen, scholar and private person. He lived to see the triumph of the cause to which the whole latter half of his life was dedicated: the independence of North America. His scientific services were recognised by the whole world. He was also happy in private life, if one discounts the fact that his only son William supported the enemies of his father and native land in the war with England.

From a poor apprentice Franklin became by the end of his life if not a rich man at least a very wealthy one. He owned several houses and pieces of land. In those days, particularly in America, this was the most important form of wealth.

Franklin was a man of the New World where, to quote Marx, "bourgeois relations of production imported together with their representatives sprouted rapidly in a soil in which the superabundance of humus made up for the lack of historical tradition".^^1^^

The descendants of the first settlers from England, mostly Puritans who had fled religious and political persecution, opened up the virgin lands and soon established handicrafts in the towns. But they worshipped Mammon no less than the Spanish conquistadors---although in a different way.

They created the earliest and most complete bourgeois democracy in history, defending the principles of personal liberty, elected authority and an independent judiciary. But this was a democracy in which formal equality before the law became a cover for financial and political inequality and in which unorthodox ideas were suppressed.

The Yankees did not have a decrepit feudal aristocracy, and they ridiculed titles and family privilege. In Herman Melville's novel Israel Potter, the hero, an American farmer and sailor who arrives in England during the War of Independence, cannot bring himself to say "Your Majesty" when addressing King George III or to call English courtiers ``Sir''. Yet the rich landowners of Pennsylvania and the merchants of Massachusetts were no less arrogant than the English lords.

By comparison with Western Europe America was the promised land of religious freedom and toleration. Yet a few years before Franklin was born ``witches'' were tried and

executed in Salem, very near his native town of Boston. The followers of the various religions lived their own isolated lives often dominated by the cruel despotism of ministers and rich parishioners. The Yankees excelled the English in religious hypocrisy. The first fighters against national oppression, they themselves ruthlessly wiped out the Red Indians and established slavery in the southern provinces.

Franklin came from this background of farmers and craftsmen, who were basically freedom-loving, brave and industrious. He absorbed all that was best in the developing nation. But his personality also reflected the contradictions of his nation's bourgeois development. He combined a profound democratism with respect for riches and power. The opponent of religious dogma and rites, he "never doubted, for instance, the existence of the Deity, that he made the world and governed it by his providence", to quote Franklin himself. The enemy of slavery and fighter for national freedom, Franklin nevertheless believed in the special mission of the Anglo-Saxon race. A simple and likeable man, he occasionally appeared to listeners and readers as a narrow-minded pedant and banal moralist.

Benjamin Franklin was born in 1706 in Boston in the large family of a Puritan soap and candle maker. He did not receive any systematic education and was a self-taught person to an even greater extent than Petty. After two years at elementary school the boy was sent as an apprentice to the printing press of his elder step-brother. Franklin relates: "...my brother was passionate and had often beaten me, which I took extremely amiss. I fancy his harsh and tyrannical treatment of me might be a means of impressing me with that aversion to arbitrary power that has stuck to me through my whole life." '

During these years other characteristic features of Franklin's developed: energy and push, exceptional industry and an insatiable thirst for knowledge. He read widely and made the acquaintance of educated people; his first literary ventures appeared. His attitude towards religion became fairly critical. At the age of seventeen Franklin left his home and native town. He went to Philadelphia, the Quaker capital of Pennsylvania, and worked there in a printing shop. A year later he went to England in order to improve his knowledge of printing and

Karl Marx, A Contribution to the Critique of Political Economy, Moscow, 1970, p. 55.

~^^1^^ B. Franklin, The Autobiography and Other Writings, New York, 1961, p. 33.

buy equipment for the press. He was promised letters of recommendation and money, but neither materialised.

Franklin spent more than eighteen months in England working in London printing houses and gaining experience and knowledge. In 1726, mature well beyond his years, the young man returned to Philadelphia. He had no money, but he brought books and type faces, and most important he was brimming with ideas, optimism and confidence.

As an enterprising printer Franklin soon acquired a respectable position and became one of the most eminent citizens of Philadelphia. A circle of young people formed around him, who were interested in scientific and literary pursuits. Franklin's life and activities were strictly organised down to the last minute. It is impossible to even list everything that his indomitable energy tackled. He founded Pennsylvania University, the first scientific society, the first public library and the first fire brigade in America, he was the first to start a large national newspaper, and he improved the postal service. In 1754 he represented the province at the Albany Congress and advanced his plan for uniting the colonies under the English king but with a certain amount of self-government. In London they were mortally afraid of anything that might unite the Americans as a nation and Franklin's plan was rejected.

Franklin always took a great interest in the natural sciences and was very clever with his hands. He investigated the nature of earthquakes arid invented a furnace of an ingenious design. In 1743 he saw some experiments with electricity which in those days used to be performed by travelling entertainers. He became extremely interested, took it up with his usual enthusiasm and vigour and in the space of five or six years conducted thousands of electrostatic experiments which were remarkably subtle and skilled for their day. Franklin's works laid the foundations of electrostatics. He created the unitary theory of electricity, introducing the concepts of positive and negative charge (until then many people had believed that there were two different types of electricity). Franklin proved the electrical nature of lightning, explained the phenomena of atmospheric electricity, and invented the lightning rod.

In 1757 Franklin left for England as the representative of Pennsylvania (and later of other provinces) to the English Government. The best part of the next thirty years was spent in Europe---first in England, then in France, with only two visits

to his homeland. During this period Franklin was the statesman, diplomat and political writer. For many years he sought to avert an armed conflict between the colonies and the ``Mother-country'', searching for ways of achieving autonomy within the British Empire. But England would not agree to any concessions. Revolt became inevitable, and war broke out in 1775. The Declaration of Independence, written mainly by Jefferson, as we know, also bears traces of Franklin's hand. In the autumn of the same year Congress sent him as the representative of the insurgent colonies to France, whose military and economic help was vital for the new-born republic. In the face of enormous difficulties Franklin secured a military alliance with France. The war took an unfavourable turn for England. In the peace treaty of 1783 she recognised the independence of the United States.

Franklin died in 1790. His last work to be published in his lifetime was a letter to the editor of a newspaper on the slave trade (his letter was published 24 days before his death). He fought against slavery all through later life, as President of the State of Pennsylvania and a member of the Constitutional Convention of 1787. The form of Franklin's last piece of writing is most typical. Bagatelles, he called his satirical miniatures, the small caustic pamphlets which he frequently wrote in his last decade. These ``bagatelles'' fashioned by the skilled hand of the elder Franklin, stung hard.

FRANKLIN THE ECONOMIST

The labour theory of value was formulated by Adam Smith in The Wealth of Nations. But before this one can trace its origin in many writings in the form of more or less vague surmises over a whole century. Franklin was to a large extent a follower of Petty in political economy. In all probability he became acquainted with Petty's works during his first visit to London. Perhaps they were recommended to the enquiring 19-year-old lad by Dr Mandeville: Franklin recalls being introduced to the author of the Fable of the Bees in an alehouse called The Horns in Cheapside.

Some scholars link Franklin's ideas also with the influence of another of his elder contemporaries, Daniel Defoe, particularly the latter's Essay on Projects.

Many researchers have argued Petty's influence on Franklin comparing Petty's works with Franklin's first economic essay A Modest Enquiry Into the Nature and Necessity of a Paper Currency.

Franklin's work on population studies, written in 1751, a remarkable phenomenon in economic literature, also bears traces of Petty's influence. Incidentally, in his demographic works Franklin made use of the actual state of affairs in the American provinces and expressed the interesting idea that "in natural conditions" without external interference the population tended to double each twenty-five years. This estimate was subsequently used by Malthus who maintained that production of the means of subsistence was bound to lag fatally behind the growth of the population. The historical pessimism of Malthusianism was entirely alien to Franklin, however. On the contrary, he believed in the enormous possibilities of production of the means of subsistence given the rational organisation of society. He regarded a large increase in the population of America as an essential prerequisite for the development of the new continent. Concerning Great Britain, however, he wrote: "... this island, if they could be employed, is capable of supporting ten times its present number of people." '

Like Petty Franklin formulated the labour theory of value in the course of arguing another, more concrete question. He was trying to get into the heads of the stubborn Quakers the idea of the use of paper money, particularly when there was a shortage of precious metals.

To do this he first had to cast metal money down from its pedestal, and here his reasoning is reminiscent not so much of Petty's views as of John Law's passionate argumentation. Franklin's main idea is that labour, not money, is the true measure of value. He writes: "By labor may the value of silver be measured as well as other things. As, suppose one man employed to raise corn, while another is digging and refining silver; at the year's end, or at any other period of time, the complete produce of corn, and that of silver, are the natural price of each other; and if one be twenty bushels, and the other twenty ounces, then an ounce of that silver is worth the labor of raising a bushel of that corn. Now if by the discovery of some nearer, more easy or plentiful mines, a man may get forty ounces of silver as easily as formerly he did twenty, and the

~^^1^^ Benjamin Franklin, The Works of Benjamin Franklin, Vol. 3, London, 1806, p. 115.

same labor is still required to raise twenty bushels of corn, then two ounces of silver will be worth no more than the same labor of raising one bushel of corn, and that bushel of corn will be as cheap at two ounces, as it was before at one, coeteris paribus".^}

This passage is quoted by Marx in his Critique of Political Economy where he gave the first and fullest description of Franklin's services in the field of political economy. Marx notes that Franklin "formulated the basic law of modern political economy",^^2^^ i.e., the law of value.

Marx reaffirmed his high opinion of the famous American's contribution to the development of political economy in Capital, where Franklin is described as "one of the first economists, after William Petty, who saw through the nature of value".^^3^^

First and foremost, Petty's brilliant ideas needed to be skilfully disseminated, propagated and applied to concrete economic questions. And this was precisely what Franklin did. But not all. Franklin came closer than Petty to the idea of the general nature, the equivalence of all the different types of labour. Unlike Petty he did not ascribe any special qualities to the labour of mining precious metals. On the contrary, in pursuing his practical aim he did all he could to prove that this was in no way different from any other type of labour from the point of view of creating value.

The gradual progression of scientific thought to an explanation of the dual nature of labour contained in a commodity^^4^^

~^^1^^ B. Franklin, The Works, Boston, 1840, Vol. II, p. 265.

~^^2^^ Karl Marx, A Contribution to the Critique of Political Economy, London, 1971, p. 55.

~^^3^^ Karl Marx, Capital, Vol. I, Moscow, 1972, p. 57.

~^^4^^ The dual content of labour which creates a commodity is connected with the fact that the consumer value of a commodity is created by concrete labour, and the value of the commodity by abstract labour. Given a simple and capitalist commodity production, based on private ownership of the means of production, concrete labour is opposed to abstract labour, as private labour is to social labour. The social nature of private labour of commodity producers is seen only in the process of commodity exchange, by reducing the various types of concrete labour to qualitatively homogeneous abstract labour which appears as the expenditure of human labour power in general and forms the value of a commodity.

The contradiction between concrete and abstract labour, use value and exchange value reveals the antagonistic contradiction between private and social labour.

The dual nature of labour was discovered by Karl Marx and this discovery forms the scientific basis of the Marxist theory of labour value.

represents the development of the labour theory of value and, in connection with this, the development of the whole classical school in political economy. It was a long path and a hard one. The young Franklin took a step along this path.

Franklin's campaign for paper money had a political and class basis. On the one hand, it was aimed against the great-power policy of England who was hampering the economic development of the colonies by imposing a severely restrictive system of metal money on them. On the other, Franklin was defending the interests of the farmers and simple townsfolk against the money-lenders and merchants who wanted to have the money they loaned returned to them in hard cash. They called this money ``honest'' money as opposed to paper money which was ``dishonest''. In order to get hold of silver (there was hardly any gold in the colonies) debtors were forced to make new loans or agree to low wages. As Franklin's later works show, he was fully aware of the class interests which were involved in the dispute over money.

Franklin got carried away in his criticism of metal money and went too far, which led to theoretical weaknesses. Having observed correctly that there was no difference between silver and corn from the point of view of the creation of value, he decided that there was also no difference between them in the role which they play in exchange, in commodity circulation. He ignored the specific social role of money commodity. Silver was a universal equivalent in America at that time, i.e., a commodity which stood out from all other commodities as the result of long evolution. Corn was not such a commodity. Like all other commodities it needed silver, real money, to express its value.

Capitalist commodity economy knows no other means of expressing value. In this sense silver was a ``special'' commodity. Paper money could exist only as the representative of, the substitute for, silver. In this capacity their circulation was quite ``legitimate'' economically.

Money performs a special social function. Unlike all other commodities it acts as the universal and direct embodiment of abstract labour. It does not need another commodity to express its value: it is constantly expressed in other commodities. The emergence and evolution of money is an objective and spontaneous process, independent of human will. Franklin, however, tended to treat money as an artificial ``invention'', as

a technical instrument for facilitating exchange. Consequently he regarded metal money not as a logical form of the development of money, but merely as an artificial element imposed by an external force.

In the final analysis the reason for the shortcomings of Franklin's analysis of the basic problems of political economy lies in the underdeveloped nature of bourgeois production relations in the society which he was studying. But if one remembers that his brochure, which was published in remote, provincial Pennsylvania, preceded Adam Smith's The Wealth of Nations by half a century, the scientific achievements of the great American assume their true proportions.

The remarkable ideas of the twenty-three-year-old writer expressed in the brochure could not have a direct influence on the development of economic science. In his later works Franklin never raised the question of the nature of value as such, but when he happened to touch upon it, he dealt with it in various ways. Sometimes on the basis of the same labour theory, sometimes in the spirit of Physiocratic teaching by which he was influenced, and sometimes in a subjectivist way: there is no equivalence in exchange because each of the participants in a transaction receives more subjective value, greater satisfaction.

We have already seen that the idea of the subjective nature of value serves apologetic ends in bourgeois political economy, because the theory of surplus value, which reveals the nature of capitalist exploitation, is inconceivable on its basis. This is why the ``subjectivistic'' statements of thinkers of the past attract bourgeois scholars. The author of the book Founders of American Economic Thought and Policy published in 1958, Professor Virgle G. Wilhite of Oklahoma University, gives Franklin an encouraging slap on the back in this respect.

In many of his works Franklin also approached the question of the "economic surplus", unearned income, what is basically surplus value, from various aspects. A humanist and rationalist, he saw the ``foolishness'' of a social order in which some people sweat their guts out so that others can idly squander the fruits of their labour. A tirelessly hard worker, he regarded this as an insult to human justice. Franklin wrote: "What occasions then so much want and misery? It is the employment of men and women in works, that produce neither the

necessaries nor conveniences of life,^^1^^ who, with those who do nothing, consume necessaries raised by the laborious.... It has been computed by some political arithmetician, that, if every man and woman would work for four hours each day on something useful, that labor would produce sufficient to procure all the necessaries and comforts of life, want and misery would be banished out of the world, and the rest of the twenty-four hours might be leisure and happiness."-^^2^^

Naturally Franklin had no idea how to bring about this Golden Age. His noble words are reminiscent, on the one hand, of Utopias of all ages and, on the other, of the sober criticism of parasitism and unproductive labour in the works of Adam Smith and his followers.

Franklin's indignation was certainly not aimed at capitalists. He was a son of his times, when the full development of bourgeois relations was still to come. His attacks on parasites and spongers did not stop him from regarding interest on capital as highly legitimate income, a reward for thrift. He regarded land rent in the same way and tried to establish the quantitative interdependence between the amount of land rent and interest on capital. He simply assumed that there was a ``fair'' rate of interest. This fair, or ``natural'' rate he estimated at 4 per cent per annum. In his opinion, this rate reconciled the interests of creditors and debtors and promoted class peace.

Franklin certainly did not regard hired labour as exploitation of the worker by the capitalist. He did not sense the social contradiction between them, because he saw the worker of the future merely as a patriarchal farm-labourer or apprentice, side by side with whom the owner of the farm or workshop sweated and toiled.

During his lifetime Franklin was known throughout the world not only as the "tamer of lightning" and the representative of the insurgent colonies, but also as the author of the Poor Richard's Almanack. From 1733 to 1757 he published in Philadelphia under the pseudonym of Richard Saunders a yearly almanac which contained various parables and maxims as well as astronomical and other information. All this Franklin

partly composed himself and partly borrowed from folklore and other sources.

Franklin provided the last issue of the almanac in 1757 with a foreword containing "Poor Richard`s'' maxims in condensed form. This small work entitled Father Abraham's Speech on the Way to Wealth, its genre difficult to determine, became extremely popular in the 18th century in America and England and was translated into many foreign languages, including Russian.

``Poor Richard`s'' aphorisms are the concentrated wisdom of a poor man of the people who wants to "make his way in life". Industry, thrift and prudence---these are the three pledges of prosperity and success: "God helps them that help themselves", "The Cat in Gloves catches no Mice", "If you would be wealthy, think of Saving as well as of Getting", "Many a Little makes a Mickle''.

These are just a few examples. One is unlikely to find a more unusual form of economic work. But it really is an economic treatise. It consists of the simplified maxims of political economy of the age of the formation of the bourgeoisie as a class, mixed with folklore and everyday wisdom. It is the maxims about which Marx said: "Accumulate, accumulate! That is Moses and the prophets: "Industry furnishes the material which saving accumulates." ' Therefore, save, save i.e., reconvert the greatest possible portion of surplus-value, or surplus-product into capital!''^^2^^

Incidentally, Franklin expressed his ideas on the economic importance of accumulation in somewhat stricter form also. In articles belonging to the latter period of his life he departed from his almost inborn Puritanism and wrote that luxury could also be morally justified in connection with the need to accumulate, for, in his opinion, the hope of winning luxury could serve as a mighty impetus to work and perseverance. Some of Franklin's ideas on the ``use'' of luxury are reminiscent of Mandeville.

Questions of economic policy occupied Franklin all through his life. A pragmatist and realist, he frequently solved them in different ways, depending on the concrete situation and even

A reference to household retainers and numerous servants, officials, priests, officers, etc.

Quoted from Vernon Louis Parrington, Main Currents in American Thought, New York, 1930, Vol. I, part 2, p. 174.

~^^1^^ Marx is quoting Adam Smith here, whose views on this question are very similar to Franklin's.

~^^2^^ Karl Marx, Capital, Vol. I, 1972, p. 558

10---745

the political requirements of the moment. Only his basic bourgeois democratic principles remained unchanged.

In 1760 Franklin published a pamphlet in which he argued, in particular, that the development of manufactories in the American colonies was unnecessary and even socially harmful. He wrote that agriculture alone was a truly noble human activity, and that there were unlimited possibilities for its development in America. This is generally regarded as due to the influence of Physiocrat doctrine, with which he became acquainted at this time in Europe. Obviously this view is not without justification. But at the same time, as historians have pointed out, Franklin was being cunning in this pamphlet and trying to quieten the fears of the English Government and encourage it to join Canada, which had been conquered from the French, to the rest of the American provinces.^^1^^

Franklin was certainly not free of mercantilist views, which is quite logical. In other works, quite unembarrassed by the contradictions, he argues the need to develop industry in America and gives mercantilist recipes for this: import duties, an abundance of money in the economy, the active patronage of the state, the settlement of new colonies, etc.

Yet this was not the narrow-minded, provincial, shortsighted mercantilism characteristic of many of his countrymen in the 18th and 19th centuries. When thinking in terms of the world market, he assumed that international specialisation of production and free trade would not impede the development of industry in America and would also be profitable for all trading nations. The above-mentioned American writer calls these views of Franklin's by the paradoxical name of "free trade mercantilism", noting the specifically American nature of this doctrine.^^2^^ It must be said, however, that the views of Hume and Smith were fairly close to it, although the question of the industrial development of the American colonies was not of such interest to them as to Franklin. In defending free trade they did not approach the subject dogmatically, but were governed by common sense.

This specific common sense, which is so evident in The Wealth of Nations, is perhaps what links Franklin most of all with the great Scot. Franklin was seventeen years older than

~^^1^^ P. W. Conner, Poor Richard's Politics. Benjamin Franklin and His New American Order, London, 1969, p. 73.

Smith and undoubtedly had a certain influence on him in their personal contacts. There is a story according to which Franklin was Smith's mentor and editor when the latter was working on the completion of his book in London in 1773-75. After their death (they both died in 1790) a younger friend of Franklin's, the doctor and politician George Logan, told his relatives, who subsequently made it common knowledge, the following details which he had heard from Franklin: "... the celebrated Adam Smith when writing his Wealth of Nations was in the habit of bringing chapter after chapter as he composed it to himself (Franklin---A. A.), Dr. Price, and others of the literati; then patiently hear their observations and profit by their discussions and criticism, sometimes submitting to write whole chapters anew, and even to reverse some of his propositions." '

It is difficult to say what is fact and what fiction in this curious statement. Franklin's words could have been distorted by Logan's family and his role in the completion of the work exaggerated. If their acquaintance had been so close and long-standing, more records would have remained of it.

AMERICAN POLITICAL ECONOMY AFTER FRANKLIN

Before the War of Independence (1775-1783) American economic thought had barely advanced beyond the main burning question of relations between the colonies and the metropolis. This is typical of Franklin, too, to a considerable extent.

The creation of an independent state opened up new horizons for the development of social thought. Nevertheless American political economy of the late 18th and early 19th centuries was provincial and existed largely on ideas imported from England and France. In America, however, where ``full-blooded'' bourgeois production relations developed about a century later than in the most advanced countries of Western Europe, there was not a sufficient basis for classical political economy, the school of Smith and Ricardo.

This showed itself in the critical attitude to both the theory and the practice of the English classics, of whom impartial class

Ibid., p. 74.

John Rae, Life of Adam Smith, London and New York, 1895, pp. 264, 265.

analysis and stricdy abstract thought were typical. The main principle of economic policy advanced by the classical school, free trade and a minimum of state intervention, was also unacceptable to the majority of the bourgeoisie in the state across the Atlantic. The tone was set there mainly by protectionists who urged the defence of industry against foreign competition by means of high customs duties. This practical problem of political economy was at the centre of economic writing. As the American specialist Turner remarked, "Indeed, prior to 1880, American economics was little more than a by-product of consideration on the tariff".^^1^^

Franklin, a forerunner of the labour theory of value, a liberal in economics and politics, and something of a Physiocrat, could not become the founder of an influential school in the United States. A considerable influence on American economic thought of the first half of the 19th century was exerted by Alexander Hamilton, a statesman of conservative views, who supported broad intervention by the state in the economy and was the founder of American protectionism.

One of Hamilton's followers was Daniel Raymond, the author of the first American systematic treatise on political economy. His book Thoughts on Political Economy came out in 1820. Raymond tried to set up his "American economic system" (he was a fervent nationalist) against Smith and the whole classical school. He attacked the labour theory of value, Smith's views on profit (he saw profit as the capitalists' wage) and economic liberalism.

•<

And, finally, there was Henry Charles Carey whom Marx called in 1852 "the only American economist of importance".² Marx regarded Carey as one of the most typical exponents of vulgar political economy which, unlike the classical school, aimed consciously at defending the interests of the bourgeoisie and proving that capitalism was viable and just. He was fairly well-qualified to do this.

Carey's ideas, like Franklin's, were basically closely connected with the special features of the development of capitalism in North America. However, Carey was writing a century after the founder of American economic science.

~^^1^^ Quoted from J. F. Bell, A History of Economic Thought, New York, 1953, p. 484.

~^^2^^ Karl Marx and Frederick Engels, Selected Correspondence, Moscow, 1965, p. 69.

During that century the face of the country and its social conditions had changed. The country of patriarchal farmers and craftsmen had turned into a land of developed capitalist relations. Towards the end of Carey's long life the United States was approaching England in volume of industrial output.

The high rates and enormous potential of capitalist economy in the United States gave rise to the optimism of Carey's views. He was full of enthusiasm and faith in the unlimited prospects for capitalist growth. The special conditions of capitalist development in North America led Carey to treat the defects and contradictions of bourgeois society as transient things not worthy of special attention. One might say that Carey's name is linked with the so-called doctrine of American exclusiveness according to which the United States could avoid the negative aspects (an acute class struggle and economic crises) which were inevitable in the capitalist development of the old continent. This doctrine has not entirely disappeared even today.

Marx credited Carey with the fact that "he expressed important American relations in an abstract form and in opposition to those of the Old World...".^^1^^

Carey's main method of analysis was to contrast American social relations with English ones which he regarded as abnormal and inhibited by factors which were external to capitalism "in its ideal form" (that is, in the USA version). If Carey had been referring to the vestiges of feudalism, which really were strong and onerous in England, he would have been right to a certain extent. But what he meant by factors which "distort natural conditions" were taxes, the national debt and other phenomena inherent in the very development of capitalism.

He is known primarily for his theory of the harmony of interests which denies the opposition of the class interests of the bourgeoisie and the proletariat and maintains that capitalist society creates a true association of classes. This was disproved by real events as early as in the 19th century. The powerful workers' strikes in the United States in the 1880s

~^^1^^ K. Marx, Fondements de la critique de I'economie politique, V. 2, Paris, 1968, pp. 549-50.

were one of the sources of the modern working-class movement.

Carey attacked Ricardo even more fiercely than Raymond did Smith. He called his theory a system of dissension between the classes and saw his ideas of free trade as, so to say, a personal attack on American capitalists. This English bourgeois, who was an honest man and a great scholar, appeared to him as a socialist, rebel and destroyer.

Marx regarded Carey's work as one of the most important sources of bourgeois political economy of the mid-19th century and noted that in the sphere of economic science Carey was rich in thorough studies of such questions as credit, rent, etc. In his study of the development of political economy in the USA, the Soviet specialist L. B. Alter has shown the extent and nature of Carey's influence on economic thought in France, Germany and Russia.^^1^^

The first anti-bourgeois trends of economic thought emerged in the 1820s and 1830s, under the influence of English and French Utopian socialism, and also in connection with the growing working-class movement in the USA. The young bourgeois democratic state with its vast expanses of unsettled land was the "promised land" for many visionaries and social reformers of the Old World. Robert Owen founded his commune in the United States; and the French communist Etienne Cabet carried on practical activity and propaganda there for many years. Several communes there tried to carry out Charles Fourier's projects. This produced many publications, the authors of which regarded economic questions from the standpoint of the various trends of Utopian socialism. As a rule, they did not advance beyond the main ideas of the founders of these theories in Europe (see Chapters XVIII and XIX).

The mass movement to the new lands of the West in the second third of the 19th century produced a special Utopian trend in American social thought. Dreams of a happy society of independent farmers and craftsmen without heavy industry, banks or speculators, and without a political machine of coercion, were in flat contradiction to the actual tendencies of development and doomed to disillusion. Nevertheless ag-

rarian-handicraft Utopias were exceptionally popular in the USA.

In the 1850s the first Marxist organisations appeared in the USA, whose leaders were friends and confederates of Marx and Engels. They were emigres from Germany after the revolution of 1848-49. One of the first exponents of scientific socialism in America was Friedrich Sorge, the grandfather of the famous Soviet intelligence agent in the Second World War. These people and organisations began to disseminate Marxist teaching in the USA.

However, the strength and possibilities of critics of the capitalist system were extremely limited by comparison with bourgeois ideology which dominated in the universities, the press, the academic world, and politics. In the second half of the 19th and early 20th centuries a number of influential schools of bourgeois political economy grew up in the USA, which already began to "produce for export''.

~^^1^^ See L. B. Alter, Bourgeois Political Economy of the USA, Moscow, 1971, pp. 108-26 (in Russian).

CHAPTER VIII

In the brilliant array of 18th-century thinkers a place of honour belongs to Quesnay and Turgot, the creators of classical French political economy.

The Enlighteners hoped that the ice of feudalism would gradually melt in the bright rays of the sun, the rays of liberated human intellect. This did not happen. The menacing icebreaker of the revolution loomed ever larger, and those of the younger generation of Enlighteners, including the Physiocrat economists, who lived long enough, recoiled in horror before the yawning abyss of the people's fury.

French economy in the middle of the 18th century when Quesnay took it up was not too different from the economy of the beginning of the century when Boisguillebert was writing. France was still an agrarian country and the position of the peasants had scarcely improved over the previous fifty years. Like Boisguillebert, Quesnay begins his economic works with a description of the disastrous state of French agriculture.

But some changes had taken place in those fifty years all the same. The class of capitalist farmers, who owned the land or rented it from landowners, had emerged and developed, particularly in the north of France. It was on this class that Quesnay placed his hopes for agricultural progress, and he rightly regarded such progress as the basis of the healthy economic and political development of society as a whole.

France was exhausted from senseless, devastating wars. In these wars it had lost almost all its overseas possessions and the profitable trade with them. Its position in Europe had also grown weaker. Industry mainly served the luxury and extravagance of the Court and the upper classes, while the peasantry made do with handmade articles on the whole. The sensational collapse of Law's system hampered the development of credit and banking. In the eyes of many people who expressed public opinion in mid-18th century France, industry, trade and finance had somehow been compromised. Agriculture seemed to be the last resort of peace, prosperity and naturalness.

If Law was a romantic about credit, Quesnay became a romantic about agriculture, although his personality and character contained nothing romantic whatsoever. Incidentally, the lack of this quality in the teacher was compensated for by the excessive enthusiasm of some of his pupils, particularly the Marquis of Mirabeau.

DOCTOR QUESNAY AND HIS SECT

ocation (and reputation) come to people in different ways. Francois Quesnay was a doctor and natural scientist. He did not take up political economy until he was almost sixty. By then he was the author of several dozen medical works. Quesnay spent the last few years of his life in an intimate circle of friends, pupils and followers. He was a man to whom La Rochefoucauld's words applied: "Few people have mastered the art of growing old". One of his acquaintances said that he had the head of a thirty-year-old on the body of an eighty-year-old. Quesnay was the most outstanding French political economist of the 18th century.

THE AGE OF ENLIGHTENMENT

Frederick Engels wrote that "the great men, who in France prepared men's minds for the coming revolution, were themselves extreme revolutionists. They recognised no external authority of any kind whatever. Religion, natural science, society, political institutions---everything was subjected to the most unsparing criticism: everything must justify its existence before the judgment-seat of reason or give up existence." '

~^^1^^ Frederick Engels, Anti-Diihring, p. 25.

The nation became fascinated by agriculture, but fascinated in a variety of different ways. It was a fashionable topic of conversation at Court, and puppet farms were set up at Versailles. In the provinces several societies for the promotion of agriculture were set up, which tried to introduce ``English'', i.e., more productive, methods of agriculture. Agronomical writings began to appear.

In these conditions Quesnay's ideas produced a response, although his interest in agriculture was of a different kind. Basing themselves on a view of agriculture as the only productive sphere of the economy, Quesnay and his school drew up a programme of economic reforms of an anti-feudal nature. Turgot later sought to introduce these reforms. For the most part they were implemented by the revolution.

Quesnay and his followers were basically far less revolutionary and democratic than the main core of Enlighteners led by Diderot, to say nothing of the left wing from which Utopian socialism later emerged. As a French historian of the last century, de Tocqueville, put it, they were "men of mild and calm disposition, men of substance, honest magistrates, skilled administrators...."' Even the ardent enthusiast Mirabeau heeded a popular remark by a contemporary wit that the art of eloquence in France consisted of saying everything without ending up in the Bastille. True, he was once arrested for a few days, but the influential Dr Quesnay soon got him out of gaol and the short imprisonment merely increased his popularity. After that he was more careful.

But objectively the activity of the Physiocrats was extremely revolutionary and undermined the foundations of the "ancien regime". Marx in his Theories of Surplus-Value wrote, for example, that Turgot was "one of the immediate lathers of the French revolution".^^2^^

of his harem, thus retaining her position of power to the very end. Next to these two most powerful people in France stood Dr Quesnay, Madame de Pompadour's private physician and one of the King's doctors. This round-shouldered, modestly dressed man, always calm and somewhat ironical, knew many state and intimate secrets. But Dr Quesnay also knew how to keep his mouth shut, and this quality was appreciated no less than his professional skill.

The King liked Bordeaux, but on Quesnay's orders, who considered the wine too heavy for the royal stomach, was compelled to give it up. However, he drank so much champaigne at dinner that he could sometimes hardly stay on his feet as he staggered off to Madame de Pompadour's chambers. Several times he felt faint, and Quesnay was at hand. He would relieve his patient's condition with simple remedies, while reassuring Madame who was trembling with fear at the thought of what would happen if the King were to die in her bed. She would immediately be accused of murder! Quesnay told her firmly that there was no danger of that happening. The King was only forty. If he had been sixty, Quesnay could not have answered for his life. The experienced, intelligent doctor, who had treated peasants and courtiers, shopkeepers and princesses in his time, could read Madame de Pompadour like a book.

In medicine Quesnay preferred simple, natural remedies, relying to a great extent on nature. His social and economic ideas are fully in conformity with this feature of his character. For the very word physiocracy means the power of nature (from the Greek physis---nature, and kratos---power).

Louis XV was favourably disposed to Quesnay and called him "my thinker". He gave the doctor a title and himself chose the coat-of-arms. In 1758 the King printed with his own hands on a manual printing-press which the Doctor had ordered for his physical exercises the first copies of the Tableau economique, the work which was to make Quesnay famous. But Quesnay did not like the King and secretly thought him a dangerous nonentity. He was quite unlike the Physiocrats' ideal ruler: a wise and enlightened guardian of the laws of the state. Gradually, using his constant presence and influence at Court, he tried to make the Dauphin, Louis XV's son and heir to the throne, into such a ruler, and, after his death, the new Dauphin, the King's grandson and future Louis XVI.

MADAME DE POMPADOUR'S PHYSICIAN

The King's mistress was only a little over thirty, but she was already losing the favour of the empty-headed and pleasure-loving monarch. She later took over the management

~^^1^^ Alexis de Tocqueville, L'ancion regime et la revolution, Paris,1856, p. 265.

~^^2^^ Karl Marx, Theories of Surplus-Value, Part I, p. 344.

Francois Quesnay was born in 1694 in a village near Versailles, and was the eighth of Nicolas Quesnay's thirteen children. At one time it was thought that Quesnay pere was a barrister or judicial official, but it later transpired that this story had been spread by the Doctor's son-in-law, a physician by the name of Hevin who published the first biography of his father-in-law shortly after Quesnay's death and tried to give him a slightly more impressive family background. Today we have documental proof that Nicolas was a simple peasant, who also engaged in small-scale trading.

Up till eleven Francois was illiterate. Then a kind gardener taught him to read and write. After this came lessons with the village cure and at the elementary school in the neighbouring small town. According to Hevin, all this time Francois had to work hard in the fields and at home, particularly as his father died when he was thirteen. The boy's passion for reading was such that he would sometimes leave the house at dawn, walk all the way to Paris, choose the book he needed and return home by nightfall, covering dozens of kilometres. This is also proof of his peasant stamina. Quesnay retained his good health right to the end, if one does not count the gout which began to torment him at a comparatively early age.

At seventeen Quesnay made up his mind to be a surgeon and became assistant to the local doctor. The main thing he had to be able to do was let blood: blood-letting was a universal remedy in those days. Although the teaching was bad, Quesnay studied hard and seriously. From 1711 to 1717 he lived in Paris, working in an engraving shop and practising in a hospital at the same time. By twenty-three he had found his feet to such an extent that he married the daughter of a Paris grocer with a large dowry, received his surgeon's diploma and began to practise in the town of Mantes, near Paris. Quesnay lived in Mantes for seventeen years and thanks to his industry, skill and a special ability to inspire confidence became the most pdpular doctor in the whole district. He delivered babies (he was particularly well-known for this), let blood, extracted teeth and performed some fairly complicated operations for those days. His patients gradually came to include the local aristocracy, he made the acquaintance of Parisian luminaries and published a number of medical works.

In 1734 Quesnay, now a widower with two children, left Mantes and at the invitation of the Due de Villerois took up the

post of his house physician. In the 1730s and 1740s he devoted a great deal of energy to the struggle which surgeons were waging against the ``faculte''---official academic medicine. According to an old statute, surgeons belonged to the same guild as barbers and were forbidden to engage in therapy. Quesnay became the leader of the ``surgeons' party" and eventually emerged victorious. It was at this time that he published his main scientific work, a kind of medicophilosophical treatise dealing with basic medical questions: the relationship between theory and medical practice, medical ethics, etc.

An important event in Quesnay's life was his move in 1749 to Madame de Pompadour who ``begged'' him from the Duke. Quesnay settled down in the entresol of the palace at Versailles, which was destined to play an important role in the history of economic science. By now he was a very wealthy man.

Medicine occupied a large place in Quesnay's life and activities. Over the bridge of philosophy he passed from medicine to political economy. The human organism and society. The circulation of the blood or human metabolism and the circulation of the product in society. This biological analogy directed Quesnay's thinking, and remains valuable to this very day.

Quesnay lived for twenty-five years in his apartment in the entresol of the palace at Versailles and was forced to leave only six months before his death, when Louis XV died and the new ruler swept all the vestiges of the past reign out of the palace. Quesnay's apartment consisted of one large but low and darkish room and two dark storerooms. Nevertheless it soon became one of the favourite meeting places of the "literary republic"---scholars, philosophers and writers who joined together in the early 1750s around the Encyclopaedia. Doctor Quesnay first preached his ideas not so much in the press as to the circle of friends who gathered in his entresol. Pupils and people of like mind appeared, as did those who disagreed with him. Marmontel left a vivid description of the meetings at Quesnay's: "While the storms gathered and dispersed under Quesnay's entresol, he worked hard on his axioms and calculations on agricultural economy, as calm and indifferent to the movements of the Court as if he were a hundred miles away. Down there they were discussing peace, war, the choice

of generals, the dismissal of ministers, while in the entresol, we were discussing agriculture, estimating the net product, or sometimes dining gaily with Diderot, d'Alembert, Duclos, Helvetius, Turgot, Buffon; and Madame de Pompadour, unable to attract this troop of philosophers down into her salon, came herself to see them at table and chat with them.''^^1^^

Later, when Quesnay's sect^^2^^ gathered round him, the meetings took on a somewhat different character: those who sat down at table were mainly Quesnay's pupils and followers or people whom they were introducing to the maitre. Adam Smith spent several evenings here in 1766.

What was Quesnay like?

From the multitude of fairly conflicting reports of contemporaries there emerges the picture of a cunning, wise man, who slightly concealed his wisdom under an air of simplicity; people compared him to Socrates. He is said to have liked fables with a deep and not immediately apparent meaning. He was very unassuming and not personally ambitious; without the slightest regret he often allowed his pupils the honour of publishing his ideas. In appearance he was fairly nondescript, and a newcomer to the "entresol club" could not immediately guess who was the host and chairman. "Devilishly clever", said the Marquis of Mirabeau's brother after visiting him. "Sly as a monkey," remarked a courtier after listening to one of his stories. His portrait painted in 1767 shows an ugly plebeian face with an ironical half-smile and clever, penetrating eyes.

To quote D'Alembert, Quesnay was "a philosopher at the Court, living there in solitude and study, not knowing the language of the country^^3^^ and not making the slightest effort to learn it, having little connection with its inhabitants, a judge as enlightened as he was impartial, and free of everything he heard said or saw done there.''~^^4^^

Quesnay used his influence on Madame de Pompadour and the King in the interests of the cause to which he was now

devoted. Together with Turgot he helped to get the law amended slightly, organised the publication of works of like-minded friends and had Lemercier appointed to a high post where the latter tried to carry out the first Physiocrat experiment. The death of Madame de Pompadour in 1764 somewhat weakened the position of the economists, but Quesnay remained consulting physician to the King who continued to favour him.

THE NEW SCIENCE

A peasant ploughs, fertilises and sows his plot of land, then reaps the harvest. He stores some seed, sets some grain aside to feed his family, sells some to acquire the most essential town commodities and is pleased to see that he still has a surplus. What could be simpler than this story? Yet it was precisely this sort of thing that prompted Doctor Quesnay's various ideas.

Quesnay knew what would happen to the surplus. The peasant would give it in money or in kind to his seigneur, the King and the Church. He even calculated what proportion they would each receive: four-sevenths to the seigneur, two-sevenths to the King, and one-seventh to the Church. This suggests two questions. Firstly, by what right do these three appropriate a considerable part of his harvest or income? Secondly, where does the surplus come from?

Quesnay answers the first questions roughly as follows: nothing can be done about the King and the Church---that's the hand of God, so to say. With regard to the seigneurs, he found an interesting economic explanation: their rent can be regarded as a kind of legitimate interest on so-called avances foncieres (land-advances)---the capital investment which they were supposed to have made long, long ago to put the land into a condition suitable for cultivation. It is difficult to say whether Quesnay himself believed this. In any case, he could not conceive of agriculture without landowners. The reply to the second question seemed even more obvious to him. The earth, nature has given this surplus! And in the same natural way it goes to the man who owns the land.

The surplus of the agricultural product, which is formed after all the expenses of its production have been deducted, Quesnay called the produit net (net product) and analysed its

~^^1^^ Oeuvres completes de Marmontel, t. I, Paris, 1818, pp. 291-92.

~^^2^^ This was the name given to the Physiocrats' school. The word was often used without any pejorative meaning or irony, simply to indicate the close ideological link between the followers of Quesnay. Adam Smith, who had the greatest respect for Quesnay, also writes about the ``sect'' in The Wealth of Nations.

Meaning the language of court gossip and intrigue. Franfois Quesnay et la Physiocratie, Paris, 1958, t. I, p. 240.

production, distribution and circulation. The Physiocrats' net product is the closest prototype of the surplus product and surplus value, although they restricted it to land rent and regarded it as the natural fruit of the earth. However their great service was that they "transferred the inquiry into the origin of surplus-value from the sphere of circulation into the sphere of direct production, and thereby laid the foundation for the analysis of capitalist production".^^1^^

Why did Quesnay and the Physiocrats discover surplus-value only in agriculture? Because there the process of its production and appropriation is most obvious. It is incomparably more difficult to discern in industry. The fact is that a worker in a given unit of time creates more value than the cost of his own subsistence. But a worker produces quite different commodities from the ones he consumes. He may make nuts and screws all his life, but he eats bread, occasionally meat, and most likely drinks wine or beer. In order to discern the surplus-value here one must know how to reduce nuts and screws, bread and wine to some kind of common denominator, i.e., to possess the concept of the value of commodities. And Quesnay did not have this concept. It simply did not interest him.

Surplus-value in agriculture seems to be a gift of nature and not the fruit of unpaid human labour. It exists directly in the natural form of the surplus product, particularly in grain. In constructing his model, Quesnay used in it not the poor metayer (sharecropper peasant), but his beloved tenant farmer who has beasts of burden and the simplest implements and also hires labour.

Reflections on the economy of this type of farmer led Quesnay to make a certain analysis of capital, although we do not find the word in his writing. He understood that, say, expenditure on land drainage, building, horses, ploughs and harrows was one type of advance, and on seed and the maintenance of hired labour another. The former expenditure is made once every few years and gradually reimbursed, the latter annually or all the time and must be reimbursed at each harvest. Accordingly Quesnay talks about avances primitives (which we call fixed capital) and avances annuelles (circulating capital). These ideas were developed by Adam Smith. Today

they are the elements of economics, but for its time this analysis was a great achievement. Marx begins his study of the Physiocrats in Theories of Surplus-Value with the following sentence: "The analysis of capital, within the bourgeois horizon, is essentially the work of the Physiocrats. It is this service that make them the true fathers of modern political economy."'

By introducing these concepts Quesnay laid the foundations for an analysis of the circulation and reproduction of capital, i.e., the constant renewal and repetition of the processes of production and sale, which is of great significance for the rational management of the economy. The very term reproduction, which plays such an important part in Marxist political economy, was first used by Quesnay.

Quesnay gave the following description of the class structure of the society of his day. "The nation is reduced to three classes of citizens: the productive class, the class of proprietors and the sterile class."*

A strange division at first glance. Yet it proceeds quite logically from the principles of Quesnay's teaching and reflects both its merits and defects. The productive class are, of course, the peasant farmers who not only reimburse the expenditure of their capital and feed themselves, but also create a net product. The class of proprietors are the receivers of the net product: the landowners, the Court, the Church, and all their servants, too. Finally, the sterile class is everyone else, i.e., those people, to quote Quesnay himself, "who are engaged in other services and other works than agriculture''.

What did Quesnay mean by this sterility? He regarded craftsmen, workers and traders as sterile in a different sense from landowners. The former labour, of course, but by their labour which is not connected with the land, they create as much produce as they consume, merely transforming the natural form of the product created in agriculture. Quesnay thought that these people were somehow employed by the two other classes. The proprietors do not work, but they are the owners of the land, the only production factor which Quesnay regarded as capable of increasing the wealth of society. Their social function is the appropriation of the net product.

Karl Marx, Theories of Surplus-Value, Part I, p. 45.

Karl Marx, Theories of Surplus-Value, Part I, p. 44. Francois Quesnay et la Physiocratie, Paris, 1958, t. II, p. 793.

11---745

The defects of this scheme are enormous. Suffice it to say, that workers and capitalists both in industry and agriculture are put in the same class by Quesnay. Turgot corrected this absurd error to some extent, and Smith completely rejected it.

Or take another detail of no small importance. If a capitalist only receives a kind of wage, how, from what, can he accumulate capital? Quesnay gets round this as follows. He says that the only normal, economically ``legitimate'' accumulation is that from the net product, i.e., from the income of the landowner. The manufacturer and merchant can only accumulate in a way that is not entirely ``legitimate'', by extracting something from their ``wage''. Hence the origin of the apologetic theory of accumulation by capitalist abstinence. In general Quesnay saw, first and foremost, class co-operation in society. It is no accident that Schumpeter describes him as asserting the "universal harmony of class interests, which makes him the forerunner of nineteenth-century harmonism (Say, Carey, Bastiat)".^^1^^

Quesnay's teaching cannot be reduced to this, of course. Let us see what practical conclusions emerge from it. Naturally his first recommendation was that agriculture should be promoted in every possible way in the form of farming by large units. Yet this was followed by two other recommendations which did not seem so innocent in those days. Quesnay believed that the net product alone should be liable to tax as the only true economic ``surplus''. All other taxes were a burden on the economy. What did this mean in practice? That the very feudal lords on whom Quesnay was bestowing such important and honoured functions in society would have to pay all the taxes. In the France of that day the position was quite the reverse: they paid no taxes whatsoever. Moreover, Quesnay said, since industry and trade were ``kept'' by agriculture this should be done as cheaply as possible. Which meant abolishing or at least relaxing all restrictions and controls on production and trade. The Physiocrats came out in support of laissez faire.

These were the main points of Quesnay's teaching. And of the Physiocratic school. For all its shortcomings and weaknesses it was an integrated economic and social view of the world, progressive for its day in theory and in practice.

Quesnay's ideas are scattered about in many short works and in the writings of his pupils and followers. His own works were published in various forms, often anonymously, between 1756 and 1768. Some remained in manuscript and were not discovered and published until the 20th century. It is not easy for the modern reader to understand Quesnay's writings, although they are contained in a single not very large volume: his main ideas are reproduced and repeated with shades of meaning and variations which are difficult to catch. In 1768 Quesnay's pupil Du Pont de Nemours published a book entitled De I'origine et des progres d'une science nouvelle (On the origin and progress of a new science). This book summed up the development of the Physiocratic school. He possibly did not intend the title to be interpreted in the way we read it today, but history has shown that he hit the nail on the head. Quesnay's works really did create a new science---political economy in its classical French form.

THE PHYSIOCRATS

A feature of Physiocratic theory is that its bourgeois essence was disguised in feudal clothing. Although Quesnay wanted to make the net product alone liable to taxation, he addressed himself in the main to the enlightened interest of the powers-that-be, promising them an increase in land revenue and a strengthened landed aristocracy.

To a large extent the ``trick'' worked. Not only because of the blindness of the powers-that-be, but because the landed aristocracy really could only be saved by bourgeois reforms, which had already taken place---in different circumstances, it is true---in England. But in old Dr Quesnay's recipe this bitter medicine was well sweetened and disguised in attractive wrapping.

In the early years the Physiocratic school was extremely successful. It was patronised by dukes and marquises, and foreign monarchs exhibited an interest in it. At the same time it was thought of highly by the Enlightenment philosophers, including Diderot. The Physiocrats at first succeeded in attracting the support of both the most reflective members of the aristocracy and the growing bourgeoisie. From the beginning of the 1760s, in addition to the Versailles "entresol

J. A. Schumpeter, History of Economic Analysis, p. 234.

club" where only the select few had admittance, a kind of public Physiocratic centre opened in the Marquis of Mirabeau's house in Paris. Here Quesnay's pupils (he rarely visited it himself) engaged in the propagation and popularisation of the maitre's ideas and recruited new supporters. The nucleus of the Physiocratic sect included the young Du Pont de Nemours,¹ Lemercier de la Riviere and several other people who were close acquaintances of Quesnay. Around the nucleus were groups of sect members less well acquainted with Quesnay, various sympathisers and fellow-travellers. A special place was occupied by Turgot, who belonged partly to the Physiocrats but was too great and independent a thinker to be the maitre's mouthpiece. The fact that Turgot could not squeeze into the bed of Procrustes made by the carpenter from the "Versailles entresol" compels us to look at the Physiocrat school and its leader with different eyes.

Naturally the unity and solidarity of Quesnay's pupils, their absolute devotion to their teacher, cannot help but command respect. But it was this that eventually became the school's weakness. All its activities consisted of expounding and repeating Quesnay's views, even his actual sentences. His ideas became increasingly stultified in the form of strict dogma. On the Tuesday evenings at Mirabeau's house fresh thought and discussion gave way more and more to ritual observances. Physiocracy was turning into a kind of religion, with Mirabeau's house for its place of worship and Tuesday evenings for its services.

The sect in the sense of a group of like-minded people was turning into a sect in the pejorative sense in which we use the word today: into a group of fanatical believers in strict dogma who rejected anyone with differing views.

Du Pont who was in charge of the Physiocrats' publications, ``edited'' everything that came into his hands, giving it a Physiocratic slant. The funny thing is that he regarded himself as more of a Physiocrat than Quesnay ever claimed to be, and refused to publish the latter's early works (according to Du Pont, Quesnay was not yet a proper Physiocrat when he wrote them).

This state of affairs was assisted by certain features in Quesnay's character. D. I. Rosenberg in his History of Political Economy remarks that "unlike William Petty, with whom Quesnay shares the honour of being called the creator of political economy, Quesnay was a man of unshakeable principles, but with a strong tendency to dogmatism and doctrinairism"'. With the years the tendency increased, encouraged, of course, by the devotion of the sect. Believing the truths of the new science to be ``self-evident'', Quesnay became intolerant of other opinions, and the sect strengthened this intolerance greatly. Quesnay was convinced that his teaching was universally applicable regardless of conditions of place and time.

His modesty did not decrease in the least. He did not seek fame, but she herself found him. He did not belittle his pupils, but they belittled themselves. In his last few years Quesnay became unbearably obstinate. At seventy-six he took up mathematics and imagined that he had made some great discoveries in geometry. D'Alembert owned that these discoveries were rubbish. His friends unanimously tried to persuade the old man not to make a laughingstock of himself and not to publish the work in which he expounded these ideas. But in vain.

When the work came out in 1773, Turgot was most distressed: "It's the scandal to end all scandals, the sun has lost its light." To which one can only reply with the Russian saying: even the sun has its spots.

Quesnay died at Versailles in December 1774. The Physiocrats could find no one to replace him. Moreover they were already in advanced decline. Turgot's term in office from 1774-1776 revived their hopes and activity, but his retirement came as a severe blow. In fact, this was the end of the Physiocrats. Moreover, 1776 was the year of the publication of Adam Smith's The Wealth of Nations. The French economists of the succeeding generation---Sismondi, Say and others---turned to Smith rather than to the Physiocrats. In 1815 Du Pont, now a very old man, reproached Say in a letter for the fact that he, nourished on Quesnay's milk, was "spurning his wet-nurse". Say replied that after Quesnay's

~^^1^^ After the Revolution Du Pont emigrated to the United States of America where his son founded the family business which eventually grew into the giant chemical monopoly Du Pont de Nemours and Company.

~^^1^^ L. I. Rozenberg, A History of Political Economy, Vol. I, Moscow, 1940, p. i (in Russian).

milk he had consumed much bread and meat, i.e., studied Smith and other new economists.

The decline of the Physiocrats in the 1770s was not only the result of their shortcomings. They were sharply criticised, what is more, from various sides. Having lost their patronage of the Court, they became the object of attacks by reactionary feudal elements. At the same time they were criticised by writers from the left wing of the Enlightenment.

DOCTOR QUESNAY'S "ZIG-ZAG"

As we read in the memoires of Marmontel, who has left us many interesting details about Quesnay's personality, the doctor was already drawing his " `zig-zag' of the net product" in 1757. This was the Tableau economique which was repeatedly published and interpreted in the works of Quesnay himself and his pupils. In all its versions, however, the Tableau is the same: it shows with the help of statistical examples and graphs how the country's gross and net product created in agriculture circulated in its natural and monetary form between the three classes into which Quesnay divided society.

To give albeit a general idea of the modern attitude to the Tableau economique, let us quote Academician V. S. Nemchinov. In his work Economico-Mathematical Methods and Models, awarded the Lenin prize, he writes: "In the 18th century at the dawn of the development of economic science ... Francois Quesnay ... created his Tableau economique, a brilliant flight of human thought. In 1958 it was two hundred years since the publication of this table, yet the ideas contained in it have not only not faded, but have acquired even more value.... To describe Quesnay's Table in modern economic terms, it is one of the first attempts at macro-economic analysis, in which the central place is occupied by the concept of the aggregate social product.... Francois Quesnay's Tableau economique is the first macro-economic scheme of the natural (commodity) and monetary flows of material values in the history of political economy. The ideas contained in it are future economic models in embryo. In particular, Karl Marx paid tribute to Francois Quesnay's brilliant work when he created his scheme of extended reproduction...." '

V. S. Nemchinov, Economico-Mathematical Methods and Models, Moscow, 1965, pp. 175, 177 (in Russian).

The general idea of these quotations will be obvious to the reader, but the details should perhaps be clarified. Macroeconomic analysis is the analysis of aggregate economic phenomena (social product, national income, capital investment) and related economic problems. By contrast, microeconomics is the analysis of categories and problems of commodity, value, price, etc., and also the circulation of individual capital. Quesnay's macro-economic model is a hypothetical scheme of reproduction and circulation of the social product, based on certain assumptions and postulates. It served as one of the main bearings used by Marx in his brilliant schemes of reproduction.

In a letter to Engels of 6 July, 1863, he first describes his studies in this sphere and outlines a numerical and graphic example: how the aggregate product arises from the expenditure of constant capital (raw materials, fuel, machinery), variable capital (workers' wages) and surplus-value. The formation of the product takes place in two different subdivisions of social production: the production of machinery, raw material, etc. (first subdivision) and that of objects of consumption (second subdivision).^^1^^

The extent to which Marx was inspired by Quesnay's ideas may be seen from the fact that right beneath his scheme he depicted the Tableau economique or, rather, its essence, in this letter. Marx's scheme, even in this original form, of course, was very different from Quesnay's Table: it shows the real source of surplus value---the exploitation of hired labour by capitalists. But the important thing is that Quesnay's work contained the germ of a most important idea: that the process of reproduction and realisation can take place uninterruptedly only if certain economic proportions are observed.

Both Quesnay in his Table and Marx in this first scheme proceeded from simple reproduction in which production and realisation are repeated each year in the same dimensions, without accumulation and extension. This is the natural progression from the simple to the complex, from the particular to the more general. Einstein first created a particular theory of relativity applicable only in inertial

~^^1^^ In this letter Marx still regards, on the contrary, the production of the means of subsistence as the first subdivision. V. S. Nemchinov notes that Marx does so "as if following the Physiocrats''.

movements, and then went on to elaborate a general theory of relativity.

In the second volume of Capital, which was published by Engels after the author's death, Marx developed the theory of simple reproduction and laid the foundation of the theory of expanded reproduction, i.e., reproduction with accumulation and an increase in the volume of production. Some most important works by V. I. Lenin are also devoted to these problems.

The main problem which occupied Quesnay was, to use the language of modern economics, the problem of economic proportions which ensure the development of the economy. The mere mention of this problem should suffice to remind one of its extreme topicality and importance in the present day. One might say that Quesnay's ideas lay at the base of input-output tables in various branches of the economy today in the USSR and other countries. These tables reflect the interrelations between the different branches and are playing an increasingly large role in the management of the economy.

There has recently been a growth of interest in Quesnay in non-Marxian political economy. The bicentenary of the Tableau economique was most impressively celebrated. France has recognised Quesnay as one of her national geniuses.

CHAPTER IX

TURGOT---THINKER, MINISTER

AND MAN

JL urgot's two years as controller general under Louis XVI are a dramatic page in the history of prerevolutionary France. His reformist activity was unsuccessful: for he sought to put right by reforms what could now only be "put right" by revolution.

The man had something of a Don Quixote about him. Actually he was a Don Quixote not so much by nature as by force of circumstance: the most rational ideas and expedient actions sometimes turn out to be quixotic. But the comparison is a fitting one in another respect too. Turgot was personally a man of great spiritual nobility, unreservedly high principles and rare selflessness. These qualities were strange and out of place in the courts of Louis XV and XVI.

THINKER

Turgot was born in Paris in 1727. He came from an old Norman noble family with a long tradition of serving the state. His father held a post in Paris which corresponded to the modern appointment of prefect or mayor. Turgot was the third son and therefore traditionally destined to enter the Church. Consequently Turgot received the best possible education for his day. After graduating from the seminary

with distinction and entering the Sorbonne to study for a degree, the 23-year-old abbe, the pride of the Sorbonne and rising star of Catholicism, suddenly decided not to take holy orders.

This was the decision of a mature and thinking person. Spending a lot of time on philosophy in this period and studying the English thinkers, Turgot wrote a number of philosophical works directed against subjective idealism which asserted that the whole external world was the product of human consciousness. Turgot's ability astounded his teachers and friends. He knew six languages well, studied many different sciences and possessed a remarkable memory. At twenty-two Turgot wrote a profound work on paper money, analysing Law's system and its defects. During this period, however, he was interested in economics primarily within the framework of broad philosophico-historical problems.

In 1752 Turgot became substitut and later conseiller in the Paris parlement, and in the following year used his modest inheritance to purchase the position of maitre des requetes. This office did not prevent him from studying hard various disciplines and also visiting salons where the intellectual life of Paris was focused. The young Turgot soon became one of the finest adornments of both society and philosophical salons. He became closely acquainted with Diderot, D'Alembert and their assistants on the Encyclopaedia. Turgot wrote several articles---philosophical and economic---for the Encyclopaedia.

A most important part in Turgot's life was played by the eminent progressive administrator Vincent Gournay, who became his mentor in the field of economics. Gournay, unlike the Physiocrats, regarded industry and trade as the most important sources of the country's prosperity. However, together with them he attacked guild restrictions on trade and supported free competition. As has already been mentioned, the famous principle of laissez faire, laissez passer is sometimes ascribed to him. Together with Gournay, then intendant of commerce, Turgot travelled round the provinces to inspect trade and industry. On their return to Paris when Turgot began to accompany Gournay on his visits to Quesnay's "entresol club", he was already immune to the extremes of Physiocratic school. Although Turgot agreed with some of Quesnay's main ideas and had great respect for him personally, he went his own way in the science in many respects.

Gournay died in 1759. In his Eloge de Gournay written immediately after his death, Turgot not only described his deceased friend's views, but systematically expounded his own economic ideas for the first time.

Turgot's scientific and literary activity was interrupted in 1761 by his appointment as intendant of Limoges. He spent thirteen years there, periodically travelling to Paris. The intendant, as the main representative of the central authority, was in charge of all the province's economic questions. But his main responsibility was the collection of taxes for the king.

Confronted with harsh reality Turgot wrote: "In the Limousin there are hardly any peasants who can read or write, and very few upon whom one can count for intelligence or probity; they are a stubborn race, opposing even changes which are designed for their own good." '

But Turgot did not lose heart. An energetic, even self-- confident and authoritative man, he began to introduce certain reforms in his province despite all difficulties. He sought to simplify the system of tax collection; he replaced the hated corvee, forced peasant labour to maintain the roads, by freely hired labour and built good roads; he organised a campaign to combat cattle epidemics and pests; and he introduced the potato, setting an example by ordering his chef to prepare potato dishes each day for himself and his guests.

He had to cope with poor harvests and lack of food. Acting boldly and sensibly in dealing with these disasters, he was compelled to deviate from- his theoretical principles which demanded that everything should be left to private initiative, free competition and the natural course of events. Turgot acted as a progressive and humane administrator. But in the reign of Louis XV he could do very little.

From Limoges and during his visits to Paris Turgot followed the successes of the Physiocrats. He became friendly with Du Pont and made the acquaintance of Adam Smith in Paris. However, his main writings in this period were endless reports, accounts, official notes and circulars. Only in his rare hours of leisure, at odd moments, could he study. Thus it was that in 1766, almost by accident, Turgot wrote his main economic work Reflexions sur la formation et la distribution des richesses: the

^^1^^ Quotation taken from D. Dakin. Turgot and the Ancien Regime in France, New York, 1965, p. 37.

basic ideas had long since formed in his head and been partially set out on paper, including official documents.

This work has an unusual history. Turgot wrote it at the request of friends as a textbook or guide for two young Chinese who had been brought by Jesuit missionaries to study in France. Du Pont published it in 1769-1770. As was his custom, he ``trimmed'' Turgot into a Physiocrat, as a result of which a sharp conflict arose between them. In 1776 Turgot himself published a separate edition.

The Reflexions are written with a brilliant laconism reminiscent of the best pages of Petty. They consist of 100 concise theses, like economic theorems (some, it is true, can be taken as axioms). Turgot's theorems fall into clear sections.

Up to and including theorem 31 Turgot is a Physiocrat, a pupil of Quesnay's. Yet he gives the theory of the net product a shade of meaning which caused Marx to remark: "[With] Turgot [the Physiocratic system is] most fully developed." ' Not its false initial premises, but the most scientific interpretation of reality within the framework of the Physiocratic system. Turgot is approaching an understanding of surplus value, imperceptibly moving from the "pure gift of nature" to surplus created by the farmer's labour, which is appropriated by the owner of the main means of production, land.

The next seventeen theorems deal with value, prices and money. In these pages and also in some other of Turgot's works bourgeois economists a hundred years later discovered the first seeds of the subjectivist theories which flourished so abundantly at the end of the 19th century. Like French political economy as a whole Turgot did not arrive at the labour theory of value. According to him, the exchange value and price of a commodity were determined by the relation between requirements, by the intensity of the wishes of the persons entering into the exchange, the seller and the purchaser. But these ideas of Turgot's are only slightly connected with the main body of his teaching.

It is basically the last 52 theorems that give Turgot the right to one of the most honoured places in the history of political economy.

As already mentioned, society in the Physiocratic system consisted of three classes: the productive class (farmers), the

proprietors and the sterile class (all the rest). Turgot makes a splendid addition to this scheme. The last class, according to him, "is subdivided, as to say, into two categories: that of the manufacturer entrepreneurs, the factory-owners, all possessors of large capital which they use to obtain profit by making people work by means of their advances; and the second category, composed of simple workers, who have no other possessions but their hands, who advance only their daily labour and have no other profit than their wages".^^1^^ The fact that the wages of these workers are reduced to the minimum necessary for subsistence is mentioned by Turgot in another passage. And analogously "the class of farmers is divided like that of factory-owners into two categories, that of the entrepreneurs or capitalists who make all the advances, and that of the simple salaried workers".^^2^^

This model of society consisting of five classes is closer to reality than Quesnay's model which divides society into three classes. It is a kind of bridge between the Physiocrats and the English classics, who clearly divided society into the three main classes from the point of view of their relation to the means of production: landowners, capitalists and hired workers. They got rid of the fundamental differentiation between industry and agriculture, which Turgot did not dare to do.

Another of his great achievements was his analysis of capital, which is considerably more profound and productive than Quesnay's.

The latter treated capital mainly as a sum of advances in various natural forms (raw material, wages, etc.), because with him capital is not linked closely enough with the problem of distribution of the product between the classes of society. Quesnay's system had no place for profit; his capitalist "managed on a wage", so to say, and Quesnay did not investigate which laws determined this ``wage''.

Here Turgot makes a great advance. He cannot manage without the category of profit and even, governed by true instinct, begins its examination with the industrial capitalist. The origin of profit is more obvious here, for the issue is not clouded by the Physiocrat prejudice that "all surplus comes from the land''.

~^^1^^ Turgot, Textes choisis et preface par Pierre Vigreux, Paris, 1947, p. 112.

^^2^^ Ibid., p. 114.

~^^1^^ Karl Marx, Theories of Surplus-Value, Part I, p. 54.

Turgot the Physiocrat proceeds, strangely enough, to apologise for having "somewhat reversed the natural order" and deals with agriculture in the second place only. But he need not apologise. On the contrary, his argument is most sound: the capitalist farmer who uses hired labour must receive at least the same profit on his capital as the factory owner, plus a certain surplus which is bound to give the landowner as rent.

Perhaps the most surprising theorem is the sixty-second. Capital invested in production possesses the ability of selfgrowth. What determines the degree, the proportion of this self-growth?

Turgot attempts to explain what constitutes the value of a product created by capital (in fact, by labour exploited by the capital in question). Firstly, the value of the product compensates for the expenditure of capital, including workers' wages.¹ The rest (basically surplus-value) is divided into three parts.

The first part is the profit equal to the income which the capitalist can obtain "without any difficulty" as the owner of money capital. This is the part of the profit which corresponds to loan interest. The second part of the profit is payment for the "labour, risk and skill" of the capitalist, who decides to invest his money in a factory or farm. This is entrepreneurial income. Thus Turgot notes a division in industrial profit, its division between the loaning and functioning capitalist. The third part is land rent. It exists only for capital which is invested in agriculture. This analysis was undoubtedly a step forward in economic science.

But immediately Turgot goes off at a tangent. He departs from the correct viewpoint that profit is the main, generalising form of surplus-value from which both interest and rent proceed. At first he reduces profit to interest: this is the minimum to which any capitalist" has a right. If, instead of sitting quietly at his desk, he ventures into the smoke and sweat of a factory or sweats in the sun, keeping an eye on his farm-labourers, he should have a slight addition----a special kind of wage. Interest, in its turn, is reduced to land rent: for the simplest thing to do with capital is buy a plot of land and

rent it out. So now the main form of surplus value is land rent, and the others are merely a product of it. Again the whole of society is "living on the wages" which are produced by the land only. Turgot returns to the bosom of the Physiocrats.

As we know, even the mistakes of great thinkers are fruitful and important. This also applies to Turgot. In examining the different forms of investing capital, he raises the important question of the competition of capitals, the natural levelling out of profit due to the possibility of moving capital from one sphere of investment to another. The next important step towards solving these problems was made by Ricardo. These searchings in French and English classical economy gradually led to the solution provided by Marx in the third volume of Capital in the theory on the profit and price of production, the theory of loan capital and interest and the theory of land rent.

MINISTER

The Bourbon monarchs left posterity some famous sayings. Legend has it that Henry IV coined the phrase "Paris is worth a mass". Louis XIV described the absolute monarchy in a nutshell with the words ``L'etat, c'est moi". And Lous XV uttered the equally famous "Apres nous le deluge". Louis XVI left no famous saying, possibly because he was soon beheaded, but perhaps because he was simply a fool. As Mirabeau (the son of the Physiocrat marquis) said, the only man in the family of King Louis XIV was Marie-Antoinette.

Louis XV died of smallpox in May 1774. The latter years of his life were marked by cruel reaction and financial crisis. The death of a despot is usually followed by liberal trends, even if a new tyrant is on the threshold. The death of the old king produced a sigh of relief all over France. The philosophers hoped that his 20-year-old heir, of mild and malleable disposition, would finally bring in the "Age of Reason" and put their ideas into practice. These hopes were further nurtured by the appointment of Turgot to high office, first as Minister of Marine and a few weeks later as controller general of finance, which meant in practice that he controlled all the country's internal affairs.

It is often said that Turgot became a minister by chance; his friend the Abbe de Veri had a word with Madame de

Turgot also makes special mention of an insurance fund which must be allotted from the value of the product for unforeseen expenditure (cattle plague, etc.)

Maurepas who put pressure on her husband, the new king's favourite, etc. This is only partly true. Turgot's appointment was the result of intrigue. The wily courtier Maurepas was counting on using Turgot's popularity and well-known honesty for his own ends. He had little time for his ideas and projects.

But this is not the whole story. More than ever before the country felt the need for change. This was understood even by the feudal aristocrats at the top. A new man was needed, who was not connected with the Court clique, not tainted with the embezzlement of public funds. The man was found---it was Turgot. In taking on the cleaning of France's Augean stables of finance and economy, Turgot did not flatter himself with the illusion that it would be an easy task. He deliberately shouldered the burden and bore it without faltering. His path was that of daring bourgeois reforms, which he regarded as essential from the point of view of human reason and progress.

Marx wrote of Turgot: "He was one of the intellectual heroes who overthrew the ancien regime." '

What exactly did Turgot do as minister? A fantastic amount if one bears in mind the short period of his office and the enormous difficulties which he encountered. Very little if one judges by the final, long-term results. If a man like Turgot could not put through the reforms that meant reforms were impossible. Therefore a straight path leads from Turgot's reforms to the capture of the Bastille in 1789 and the storming of the Tuilleries Palace in 1792.

The most urgent task which Turgot tackled right away was to put the state's finances in order. He had a long-term programme including such radical reforms as the abolition of tax farming and the taxing of incomes from landed property. Turgot was in no hurry to make his programme generally known, realising full well how interested circles would react to it. For the time being he worked hard to introduce many individual measures, getting rid of the most blatant absurdities and injustices of the tax system, relieving the tax burden on industry and trade, and bringing pressure to bear on tax-farmers. On the other hand, he tried to restrict budget expenditure of which the main item was maintenance of the Court. Here he soon clashed with the caprice and ill-will of the extravagant Marie-Antoinette. Turgot succeeded in achieving

a slight improvement in the budget and the establishment of state credit. But the minister's enemies were rapidly increasing and growing more active.

An important economic measure by Turgot was the introduction of free trade in corn and flour and the abolition of a monopoly which some cunning rogues had acquired with the support of a previous minister. This basically progressive measure, however, created great complications for him. The harvest of 1774 was a poor one, and the price of grain rose appreciably in the following spring. In certain towns, particularly Paris, there was popular rioting. Although no one has been able to prove it, there are grounds for thinking that these riots were to a large extent provoked and organised by Turgot's enemies with the aim of undermining his position. The Minister quelled them with a firm hand. He may have assumed that the people did not understand their own interests and that these interests should be explained to them in a different way. All this was used against Turgot by his ill-wishers, to whom Maurepas now secretly belonged: as time passed, he feared and envied Turgot more and more.

Yet Turgot went on without hesitating. In early 1776 he received the King's approval of his famous Six Edicts, which more than any of his previous measures undermined feudalism. The most important of them were the two about the suppression of the corvees and the abolition of the jurandes and maitrises, the privileged trade corporations. The latter was considered by Turgot not without justification to be an essential condition for the rapid growth of industry and the estate of capitalist entrepreneurs. The edicts met with bitter resistance, the core of which was the Paris parlement. They could not become law until they had been registered by parlement. The fight went on for more than two months. It was not until 12 March that Turgot obtained registration and the edicts became law.

It was a Pyrrhic victory. All the forces of the ancien regime now rallied against the reformist minister: the Court clique, the upper echelons of the Church, the nobility, the judiciary and the corporation bourgeoisie.

The people understood the democratic nature of Turgot's reforms to a certain extent. The peasants were overjoyed to be free of the hated corvees, but hardly knew his name. The more literate Parisian apprentices and journeymen rejoiced and

~^^1^^ Karl Marx/Friedrich Engels, Werke, Bd. 15, Berlin, 1969, S. 375.

12-745

wrote couplets in praise of Turgot. But the people were far below, and his enemies close at hand. The gay couplets of the journeymen and the practical articles of the Physiocrats were drowned in the vile stream of spiteful pamphlets, mocking rhymes and caricatures which flooded Paris. The lampoonists depicted Turgot sometimes as France's evil genius, sometimes as a helpless and unpractical philosopher, and sometimes as a puppet in the hands of the ``economists' sect". Only Turgot's incorruptibility and honesty were left unquestioned: no one would ever have doubted them.

The whole campaign was directed and financed by the Court clique. Other ministers hatched plots against Turgot. The Queen histerically demanded that Louis send him to the Bastille. The King's brother was one of the most vicious slanderers.

In this uproar the inexorably firm, proud and solitary Turgot was a truly majestic and tragic figure.

His fall was now inevitable. Louis XVI finally gave way to the pressure which came from all sides. The King did not dare tell his minister about retirement to his face: the order to vacate his post was brought to Turgot by a royal messenger. This took place on 12 May, 1776. Most of the measures initiated by him, particularly the edicts mentioned above, were soon fully or partially revoked. Nearly everything went on as before. Turgot's supporters and assistants whom he brought into government service retired with him, some being forced to leave Paris. The hopes of the Physiocrats and Encyclopaedists were crushed.

crutches, which he referred to ironically as his ``paws''. He died from a disease of the liver in May 1781, exactly five years after his retirement.

His friends were struck by the calmness with which Turgot reacted to his fall from favour and the failure of his reforms. He could even ridicule censors opening his letters. He seemed to enjoy having retired into private life: in the fifteen years that he was intendant and minister he had no time for reading, private study and contact with his friends. Now he was given the time.

In his letters Turgot discusses literature and music, and talks about his studies in physics and astronomy.

In 1778 as president of the Academic des Inscriptions et Belles Lettres he officially made his new friend, Benjamin Franklin, an academician. It was for Franklin, as ambassador for the resurgent American colonies, that he wrote his last economic work Memoire sur I'impdt. Like the rest of French society he took a passionate interest in American affairs during this period. With his inherent optimism he hoped that the Republic across the ocean would avoid the mistakes and shortcomings of decrepit feudal Europe.

Turgot was a constant visitor to the salons of his old friend the Duchesse d'Enville and Madame Helvetius, the philosopher's widow, where the most freethinking and enlightened people gathered. The intellect of this great admirer of human reason remained sharp and clear right up to the end.

Turgot was a somewhat stern and forbidding person in private life. He was occasionally accused of lacking flexibility and being too single-minded. This obviously made personal contact with him difficult, even for those who were close to him, and frightened those who did not know him well.

He was particularly irritated by hypocricy, thoughtlessness, and inconsistency. Turgot never learnt the manners of the Court. His biographer writes that residents of Versailles were embarrassed and scared by his appearance, "his piercing brown eyes, his massive forehead, his majestic features, the very poise of his head, a dignity like that of Roman statuary.''

He did not fit into the court at Versailles. Among his many talents he did not possess the gift described by Talleyrand---of using language not to explain one's thoughts, but to conceal them.

MAN

Although Turgot was not yet fifty he suffered from bad health. His attacks of gout were particularly painful. Of the twenty months he was in office seven were spent in bed. Yet his work was never interrupted, not for a single day. He went on dictating draft laws, reports and correspondence, receiving officials and giving instructions to his assistants. He was sometimes carried into the King's cabinet in a sedan chair.

He continued to despise ill health, although it pursued him doggedly. Sometimes he could only get about with the aid of

CHAPTER X

his scanty material by writing not so much a Biography of Adam Smith as a History of his Times." '

The needs of the age produce the man required. Determined by the actual development of capitalist economy, political economy in England reached the stage at which the need arose for the creation of a system, the systematisation and generalisation of economic knowledge. Smith was excellently equipped for the job both personally and academically. He was fortunate in combining an ability for abstract thought with the gift of being able to talk about concrete things vividly; encyclopaedic learning with exceptional conscientiousness and academic honesty; the ability to use other men's ideas with a great independence and criticalness of thought; a certain academic and civic boldness with professorial calm and orderliness.

A characteristic of economic science is that it makes it possible, or at least tries to understand and interpret the meaning of phenomena which appear simple and ordinary, but are of vital importance to man. Money is such a phenomenon. There is no one who has not held it in his hands, or does not know what it is. But money contains many secrets. For ecoiiomists this problem is inexhaustibly complex, and will undoubtedly continue to occupy their minds for many years to come.

Smith had a remarkable feeling for the romance of everyday economic phenomena. Under his pen all the acts of buying and selling, renting land and hiring workers, paying taxes and discounting bills acquired a special meaning and interest. It emerged that without understanding them one could not begin to fathom what happening in the ``dignified'' higher sphere of politics and state government. The fact that political economy aroused such interest in the age of Byron and Pushkin is due to Smith.

Another important fact is that Smith, in expressing the interests of the growing industrial bourgeoisie, was by no means its unconditional apologist. He not only strove subjectively for academic impartiality and independent judgment, but to a large extent achieved them. These qualities enabled him to create a system of political economy. To quote Marx, "he attempted to penetrate the inner physiology of bourgeois

ADAM SMITH

THE SCOTTISH SAGE

Jfolitical economy is celebrating two dates connected with the name of one of its founders: 1973 was the 250th anniversary of the birth of Adam Smith and 1976 will be the bicentenary of the publication of The Wealth of Nations. Once again attention is focused on this great Scot and his eminent role in the science.

Walter Bagehot, an English economist and publicist of the Victorian era, wrote in 1876: "Of Adam Smith's Political Economy almost an infinite quantity has been said, but very little has been said as to Adam Smith himself. And yet not only was he one of the most curious of human beings, but his books can hardly be understood without having some notion of what manner of man he was." '

The study of Smith has advanced greatly since then, of course. Nevertheless in 1948 the British specialist Alexander Gray said: "Adam Smith was so pre-eminently one of the master minds of the eighteenth century and so obviously one of the dominating influences of the nineteenth, in his own country and in the world at large, that it is somewhat surprising that we are so ill-informed regarding the details of his life.... His biographer therefore is almost perforce driven to eke out

~^^1^^ Bagehot's Historical Essays, New York, 1966, p. 79.

~^^1^^ A. Gray, Adam Smith, London, 1948, p. 3.

ISO

society ...".' Smith's book is an important achievement of human culture and the apex of 18th-century economic thought.

After Union the economic development of Scotland accelerated, although certain branches suffered from English competition and others from surviving feudal customs. The town and port of Glasgow grew particularly rapidly, and a whole industrial area developed around it. The existence of cheap labour from the village and highland areas and of large markets in Scotland, England and America promoted the growth of industry. The big landowners and rich tenant farmers began to introduce improvements in agriculture. In the seventy years between Union in 1707 and the publication of The Wealth of Nations in 1776 Scotland changed considerably. True, economic progress was limited almost exclusively to the Scottish lowlands, but it was here, in the triangle between Kirkcaldy, Glasgow and Edinburgh, that nearly all Smith's life was spent.

By the time Smith reached maturity, economy had bound the fate of Scotland indissolubly with that of England. To Smith, who saw everything in terms of the development of productive forces and the "wealth of the nation", this was particularly obvious. As for Scottish patriotism, in his case, as with many other enlightened Scots, it took a ``cultural'', emotional, but not political form.

The influence of the Church and religion on social life and learning was gradually diminishing. The Church had lost control of the universities. Scottish universities differed from Oxford and Cambridge in their spirit of freethinking, the importance of the secular sciences and their practical bias. In this respect Glasgow University, where Smith studied and later taught, stood out in particular. The inventor of the steam engine, James Watt, and one of the founders of modern chemistry, Joseph Black, worked with him and were his friends.

Around the 1750s Scotland entered upon a period of great cultural activity which can be seen in various branches of science and the arts. The brilliant array of talent which little Scotland produced over fifty years is most impressive. In addition to those already mentioned it includes the economist James Steuart and the philosopher David Hume, the historian William Robertson, and the sociologist and economist Adam Ferguson. Smith was well acquainted with such people as James Hutton, the geologist, William Hunter, the celebrated doctor, and Robert Adam, the architect. The influence of these

SCOTLAND

It has become a platitude that one can only understand Smith's political economy if one takes into account that he was a Scot, and what is more a typical Scot with a pronounced national character.

The French writer Andre Maurois begins his biography of another great Scot, Alexander Fleming, the discoverer of penicillin, with the words: "Scotsmen are not Englishmen. Far from it." Industry, thrift and economy are generally regarded as typical features of the Scottish national character. The Scots are considered to be sober, taciturn and businesslike. And inclined to discuss abstract subjects, to ``philosophise''.

However, the point is not the extent to which this somewhat trite description of Scottish national character is true. For Smith and an understanding of the individual nature of his views it is important to explain the position of his country and the Scottish people during his lifetime.

In 1707 the Act of Union between England and Scotland was passed. It benefited the English and Scottish industrialists, merchants and rich farmers whose influence increased perceptibly at this time. The customs barriers between the two countries were removed, the sale of Scottish cattle in England increased, and the Glasgow merchants gained access to trade with English colonies in America. For the sake of all this the Scottish bourgeoisie was prepared to sacrifice its patriotism somewhat: for Scotland was bound to play a subordinate role in the new United Kingdom. On the other hand, the majority of the Scottish aristocracy was opposed to Union. With the help of loyal and ferocious Highlanders, who still lived in a feudal order with relics of the tribal system, they rose up several times in revolt. The population of the economically more developed Scottish lowlands did not support them, however, and each uprising failed.

Karl Marx, Theories of Surplus-Value, Part III, Moscow, 1968, p. 165.

people and their works extended far beyond the confines of Scotland, and of the British Isles.

Such was the environment, the atmosphere, in which Smith's talent developed. Naturally he did not absorb Scottish culture alone. English learning and culture, particularly English philosophical and economic thought, moulded him no less than purely Scottish influences. In the practical sense the whole of his book is aimed at exerting a specific ( antimercantilistic) influence on the economic policy of the United Kingdom, the London government. Finally, one must mention another line of influence---the French. In Scotland, which had maintained traditional links with France since the time of Mary Stuart, the influence of French culture was felt more strongly than in England. Smith was well acquainted with the works of Montesquieu and Voltaire, and welcomed Rousseau's early works and the early volumes of the Encyclopaedia most enthusiastically.

year), which was compulsory for all students, he went on to study moral philosophy, thereby choosing the humanities. He also studied mathematics and astronomy, however, and always remained remarkably knowledgeable in these spheres. By seventeen Smith had the reputation among the students of being a scholarly and somewhat strange fellow. He would fall deep in thought in a noisy crowd or began to talk to himself, oblivious of all around him. These slight eccentricities remained with him all his life. After graduating from Glasgow, Smith was awarded an exhibition to continue his studies at Oxford University. The exhibition was paid from a bequest by a wealthy philanthropist. Smith spent six years in Oxford almost uninterruptedly.

The professors and tutors kept a careful eye on the students' reading, banning freethinking books. Smith's life at Oxford was a miserable one, and he always recalled his second university with hatred. He was lonely and frequently suffered from ill health. Again his only friends were books. Smith's reading ranged very wide, but he showed no special interest in economic science at this time.

In 1746 he left for Kirkcaldy where he spent two years, continuing his self-education. During one of his visits to Edinburgh he made such a strong impression on the rich landowner and patron, Henry Home (later Lord Kames), that the latter suggested organising a cycle of public lectures on English literature for the young scholar. Later the subject matter of his lectures, which were a great success, changed. They began to deal mainly with natural law; in the 18th century this concept included not only jurisprudence, but also political doctrines, sociology and economics. The first signs of a special interest in political economy belong to this period.

In 1750-51 he seemed to have been expressing the main ideas of economic liberalism. At all events, in 1755 he wrote in a special note that these ideas belonged to his lectures in Edinburgh: "Man is generally considered by statesmen and projectors as the material of a sort of political mechanics. Projectors disturb nature in the course of her operations in human affairs; and it requires no more than to let her fair play in the pursuit of her ends that she may establish her own designs.... Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes and a tolerable administration of justice; all the rest being

PROFESSOR SMITH

Adam Smith was born in 1723 in the small town of Kirkcaldy, near Edinburgh. His father, a customs official, died several months earlier. Adam was the only child of the young widow, and she devoted her whole life to him. The boy grew up delicate and sickly, avoiding the boisterous games of other children of his age. The family lived modestly, but did not know real poverty. Fortunately Kirkcaldy possessed a good school and teacher, who did not believe in stuffing the children's heads with nothing but Biblical quotations and Latin conjugations, as so many others did. What is more, Adam was surrounded by books right from the start. Such were the beginnings of the immense learning which later distinguished Smith.

True, he did not receive, for obvious reasons, such a brilliant education as the aristocrat Turgot. In particular he never had a good teacher of French and never learned to speak it properly, although he read it fluently. The classical languages, which were a must for an educated person in the 18th century, he did not really study until he was at university (particularly Greek).

Smith went to Glasgow University very early, at fourteen (as was the custom in those days). After the logic course (first

brought about by the natural course of things. All governments which thwart this natural course which force things into another channel, or which endeavour to arrest the progress of society at a particular point are unnatural and to support themselves are obliged to be oppressive and tyrannical."'

This is the language of the progressive bourgeoisie of the 18th century with its strict attitude towards the state which had not yet fully discarded its feudal clothing. In the passage one can already feel the bold, energetic style characteristic of Smith. This is now the same Smith who in The Wealth of Nations refers with wrathful sarcasm to "that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs".^^2^^ This would appear to be not only the negative attitude of a bourgeois ideologist to the state of his day, but also simply the profound hatred of a democratic intellectual for bureaucracy and political intrigue.

In 1751 Smith moved to Glasgow to take up the post of professor at the university. At first he received the chair of logic, then moral philosophy, i.e., social sciences. He lived in Glasgow for thirteen years with regular visits of two to three months a year to Edinburgh. In old age he wrote that this was the happiest time of his life. He lived in a very familiar and intimate environment, enjoying the respect of professors, students and eminent citizens. He was able to work without any interference, and a great deal was expected from him academically. He acquired a circle of friends and began to assume the characteristic features of the British bachelor and club man, which remained with him all his life.

As in the case of Newton and Leibniz, no woman played a conspicuous role in Smith's life. There exist, it is true, vague and unauthenticated rumours that he was twice on the verge of marriage---in the Edinburgh and Glasgow years---but each time nothing came of it for some reason. This does not appear to have disturbed his peace of mind, however. At least there are no traces of such disturbance in either his correspondence (most scanty, incidentally) or the reminiscences of contemporaries.

All his life his mother and cousin, an old maid, kept house for him. Smith outlived his mother by only six years, and his cousin by two. As one of Smith's visitors remarked, the house was "absolutely Scottish". Scottish national dishes were served and Scottish traditions and customs observed. This familiar way of life became a necessity to him. He did not like going away for long periods and always hurried back home.

In 1759 Smith published his first large scientific work, the Theory of Moral Sentiments. Although this book on ethics was a progressive work for its time, worthy of the age and ideals of the Enlightenment, it is important today mainly as a stage in the formation of Smith's philosophical and economic ideas. He attacked Christian morality, based on fear of retribution in the hereafter and the promise of heavenly bliss. A prominent place in his ethics is occupied by the antifeudal idea of equality. All men are naturally equal, therefore moral principles apply equally to all.

Smith was proceeding from absolute, ``natural'' laws of human conduct, however, and a very vague sense that ethics was basically determined by the socio-economic order of the society in question. Therefore, having rejected religious morality and "innate moral sense", he put another abstract principle in their place, the "principle of sympathy". He tried to explain all man's feelings and actions in relation to other people by his ability to "get into their skin", to imagine himself in their position and feel for them. However cleverly and sometimes wittily this idea is developed, it could not become the foundation of scientific materialist ethics. Smith's Theory of Moral Sentiments did not outlive the 18th century. It did not immortalise the name of Smith. Quite the reverse, the fame of the author of The Wealth of Nations saved it from oblivion.

In the meantime the direction of Smith's scientific interests had already changed perceptibly in the course of his work on the Theory. He was making an increasingly profound study of political economy. He was encouraged to do this not only by personal inclination, but also the demands of the times. Economic problems were making themselves felt with special force in commercial and industrial Glasgow. It had an interesting club of political economy, where people discussed trade and duty, wages and banking, land rent conditions and the colonies. Smith soon became one of the club's most eminent

~^^1^^ Quoted from W. R. Scott, Adam Smith as Student and Professor, Glasgow, 1937, pp. 53-54.

~^^2^^ A. Smith, The Wealth of Nations, Vol. I, London, 1924, p. 412.

members. His meeting and friendship with Hume also stimulated his interest in political economy.

At the end of the last century the English economist Edwin Carman discovered and published some important material which throws light upon the development of Smith's ideas. This was notes of Smith's lectures made by a student at Glasgow University and then slightly corrected and rewritten. Judging by the contents, these lectures were given in 1762-63. It is clear from them that the course of moral philosophy on which Smith lectured to the students had turned by then into a course of sociology and political economy. He expressed a number of remarkable materialist ideas, for example: "Till there be property there can be no government, the very end of which is to secure wealth, and to defend the rich from the poor".^^1^^ In the economic sections of these lectures one can see in embryonic form ideas later developed in The Wealth of Nations.

Another interesting find was made in the 1930s: a draft of the first few chapters of The Wealth of Nations. British scholars date this document 1763. It too contains several of the important ideas in the future book: the role of the division of labour, the concept of productive and unproductive labour, etc. These works also contain an extremely biting criticism of mercantilism and an argument for laissez faire.

Thus, by the end of his period in Glasgow, Smith was already a profound and original economic thinker. But he was not yet ready to produce his main work. The three-year visit to France (as tutor to the young Duke of Buccleuch) and his personal meeting with the Physiocrats completed his preparation.

SMITH IN FRANCE

Fifty years after the events described, Jean Baptiste Say asked the old Du Pont about Smith's stay in Paris in 1765-66. Du Pont replied that Smith had visited Doctor Quesnay's "entresol club". But he had sat quietly and said little at the Physiocrat gatherings, so one could not have suspected that this was the future author of The Wealth of Nations. A. Morellet, a scholar and writer, with whom Smith became friendly in Paris, says about Smith in his memoirs that "M. Turgot... had a

high opinion of his talent. We saw him many times; he was introduced to Helvetius: we talked about commercial theory, banking, national credit and many points of the great work which he was planning." ' From his letters it is also known that Smith became friendly with the mathematician and philosopher D'Alembert and the great fighter against ignorance and superstition, Baron Holbach. Smith visited Voltaire at his estate on the outskirts of Geneva and had several talks with him. He regarded him as one of the greatest Frenchmen.

As early as 1775 Smith published an article in the Edinburgh Review, which shows the author's exceptional knowledge of French culture. From his lectures it is obvious that he had a detailed knowledge of the ideas and activity of John Law. He was probably only slightly acquainted with the works of the Physiocrats, although he had read Quesnay's articles in the Encyclopaedia. His knowledge of their ideas was gained mainly in Paris, from personal encounter and from the Physiocrat literature which had begun to appear in abundance.

One might say that Smith went to France just at the right time. On the one hand, he was already a sufficiently mature scholar and person with views of his own. On the other, his system had not yet developed fully and he was able to absorb the ideas of Quesnay and Turgot.

The question of Smith's dependence on the Physiocrats, and Turgot in particular, has a history of its own. Smith penetrated more deeply the inner physiology of bourgeois society. Following the English tradition, he based his economic theory on the labour theory of value, whereas the Physiocrats did not actually have a theory of value. This enabled him to take a most important step forward by comparison with the Physiocrats; he proved that all productive labour creates value, not only agricultural labour. Smith had a clearer idea of the class structure of society than the Physiocrats.

At the same time there are spheres in which the Physiocrats were more advanced than Smith. This applies in particular to Quesnay's brilliant ideas about the mechanism of capitalist reproduction. Smith followed the Physiocrats in believing that capitalists could accumulate only by self-deprivation, by abstinence and refraining from consumption. But the Phisioc-

~^^1^^ A. Smith. Lectures on Justice, Police, Revenue and Arms, Oxford, 1896, p. 15.

A. Morellet, Memoires sur le dix-huitieme siecle, et sur la revolution franfoise, t. I, Paris, 1822, p. 244.

rats at least had the logical basis that, in their opinion, capitalists accumulated "out of nothing", since industrial labour was ``sterile''. Smith does not even have this justification. He is inconsistent in his thesis about the equality, the economically equal value of all types of productive labour. He could clearly not rid himself of the idea that agricultural labour still took preference from the point of view of the creation of value: here nature ``works'' with man.

Smith's attitude to the Physiocrats was quite different from his attitude to the mercantilists. He regarded the mercantilists as ideological adversaries and, for all his professional restraint, did not spare the sharpest (sometimes even excessive) criticism for them. Generally speaking he saw the Physiocrats as allies and friends who were advancing to the same aim by a different path. His conclusion in The Wealth of Nations is that "this system, however, with all its imperfections is, perhaps, the nearest approximation to the truth that has yet been published upon the subject of political economy".^^1^^ In another passage he writes that it "never has done, and probably never will do, any harm in any part of the World''.

The last remark could be taken as a joke. Adam Smith jokes almost imperceptibly, preserving an imperturbable seriousness. He was evidently like this in life too. One day during an official dinner at the university in Glasgow the person sitting next to him, who had come from London, asked in surprise why everyone was so respectful to a certain person there obviously not overblessed with intelligence. Smith replied: "We know that perfectly, but he is the only lord in our College." His neighbour could not tell whether this was a joke or not.

France exists in Smith's book not only in the ideas connected directly or indirectly with the Physiocrats, but also in a multitude of different observations (including personal ones), examples and illustrations. The general tone of all this material is critical. For Smith France with its feudal, absolutist system and fetters on bourgeois development was a vivid example of the contradiction between existing orders and the ideal "natural order". It could not be said that everything was perfect in England, but on the whole its system came much closer to the "natural order" with its freedom of the individual, conscience and, most important, enterprise.

What did the three years in France mean for Smith's private life? Firstly, his material position greatly improved. By agreement with the Duke of Buccleuch's parents he was to receive three hundred pounds a year not only during the journey but also as a pension all his life. This enabled Smith for the next years to devote himself exclusively to his book: he did not return to Glasgow University. Secondly, all his contemporaries noted a change in his character: he had become more disciplined, efficient and energetic, and even acquired a certain skill in dealing with different people, including his superiors. He was never to acquire social poise, however, and remained in the eyes of most of his acquaintances a somewhat eccentric and absent-minded professor. Rumours of his absent-mindedness grew quickly with his fame and became part of it for the man in the street.

THE "ECONOMIC MAN"

Smith spent about a year in Paris---from December 1765 to October 1766. But he did not occupy the same place in the Paris salons as his friend Hume had for the last three years, or Franklin was to in ten years' time. Smith was not made to shine in society and he knew it.

Of particular importance for him was his acquaintance with Helvetius, a man of great personal charm and brilliant intellect. In his philosophy Helvetius strove to free ethics from religious and feudal fetters. He announced that egoism was a natural human quality and a factor in social progress. The new, essentially bourgeois ethics proceeded on the assumption that each person strives naturally for his own gain and that this is limited only by the similar striving of other people. He compared the role of self-interest in society with the role of gravity in nature. This is connected with the idea of natural equality: each person, irrespective of birth and position, should be given an equal right to pursue his own gain, and the whole of society will profit from it.

Smith developed these ideas and applied them to political economy. His view of human nature and the relationship between man and society lay at the root of the views of the classical school. The concept of homo oeconomicus arose slightly later, but its inventors based themselves on Smith. The famous

~^^1^^ A. Smith, The Wealth of Nations, Vol. Ill, London, 1924, p. 172.

passage about "the invisible hand" is perhaps the most quoted one from The Wealth of Nations.

Smith's line of reasoning is roughly as follows. The main motive behind human economic activity is self-interest. But man can pursue this interest only by performing services for others, by offering to exchange his labour and the products of his labour. Thus division of labour develops. People help one another and in so doing promote the development of society, although each of them is an egoist and cares only for his own interests. The natural human striving to improve one's material position is such a powerful stimulus that if allowed to act freely it is capable of carrying society to prosperity. What is more, "drive nature out of the door and it will come in through the window" as they say in Russian: this stimulus is even capable "of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations...".^^1^^ Here Smith is attacking mercantilism, which restricts man's "natural freedom", the freedom to buy and sell, rent and hire, produce and consume.

Each individual strives to use his capital (as we can see, Smith is talking basically about the capitalist, not just man in general) so that its product will have the highest value. Usually in so doing he does not think of the public good and does not realise the extent to which he is promoting it. He has in view only his own gain, but is "led by an invisible hand (my italics---A. A.) to promote an end which was no part of his intention.... By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it".^^2^^

The "invisible hand" is the spontaneous operation of objective economic laws. These laws act independently of and often contrary to human will. By introducing the concept of economic laws into the science in such a form Smith made an important step forward. He put political economy on a scientific basis. The conditions under which self-interest and spontaneous laws of economic development operate most efficiently Smith called "the natural order". With Smith and subsequent generations of political economists this concept has a dual meaning, as it were. On the one hand, it is the principle

and goal of economic policy, i.e., the policy of laissez faire (see below), and on the other, it is a theoretical construction, a ``model'' for the study of economic reality.

In physics the abstract concepts of ideal gas and ideal liquid are used as a convenient way of obtaining knowledge. Real gases and liquids do not behave ``ideally'' or behave so only in certain circumstances. However it is worth while to ignore these deviations in order to study phenomena "in their pure form". The abstraction of the "economic man" and free (perfect) competition is somewhat similar in economics. The real man cannot be reduced to self-interest. Just as there never has been and never can be absolutely free competition under capitalism. However, the science could not study mass economic phenomena and processes if it did not make certain assumptions which simplify, model, infinitely complex and diverse reality, accentuating the most important features in it. From this point of view the abstraction of the "economic man" and free competition was totally justified and played an important role in economic science. In particular it corresponded to the real nature of 18th- and 19th-century capitalism.

Let us quote two examples from Marxist economic theory.

The law of value operates in a commodity economy based on private ownership as a spontaneous regulator and motive force of production. If, for example, due to some technical innovation, a commodity producer reduces expenditure of labour time on the production of each commodity unit, the individual value of the commodity drops. But the social value, which is determined by the average social expenditure of labour time, does not change, all things being equal. Your skilled commodity producer will sell each unit of his commodity at its former price, which is determined in principle by the social value, and receive an additional income, for in one working day, say, he is producing 25 per cent more units of the commodity than anyone else. Obviously competing commodity producers will try to copy new techniques. This is the first principle of the mechanism of "stimulating technological progress". The operation of the spontaneous factors described, which are independent of human will, brings about a reduction in socially necessary expenditure of labour per unit of commodity and a drop in social value. It is easy to see that the commodity producer is acting as an "economic man" here,

A. Smith, The Wealth of Nations, Vol. II, London, 1924, p. 40. Ibid., Vol. I, p. 400.

13---745

striving to maximise his income, and the conditions under which this takes place are those of free competition.

Another example---the formation of the average rate of profit under free competition capitalism. It is inconceivable that over any lengthy period the rate of profit in different branches of business would be substantially different. The levelling out of the rate of profit is an objective necessity. The mechanism which ensures this levelling is competition between the various branches and the flow of capital from branches with a low rate of profit to those with a higher one. Again it is obvious that here the capitalist is seen from one angle only---as the personification of the striving for profit. The condition about the possibility of the unrestricted flow of capital is the same as the condition about free competition. In reality there have always been factors restricting the free flow of capital and Marx was well aware of them. But these factors are to be introduced into the model only after it has been examined "in its ideal form''.

The capitalist, as Marx put it, is personified capital. In other words, the personal qualities of an individual capitalist cannot be of significance to political economy. He is of interest to the science only because and to the extent that he expresses the social relations of capital. Here one senses a certain kinship with Smith's ideas. But the conclusion is quite different. With Smith the capitalist, by pursuing his self-interest, is unconsciously strengthening capitalism. With Marx, by acting in much the same way, he is not only developing the productive forces of capitalism but also objectively preparing its logical collapse. There is also another fundamental difference linked with this. Marx examines man from the viewpoint of historical materialism as the product of lengthy historical development. This man, as the object of political economy, exists only within the framework of a given class society and acts in accordance with its laws. For Smith, however, the homo oeconomicus is the expression of eternal and natural human nature. He is not the product of development, but rather its point of departure. Smith shared this extra-historical and consequently false concept of human nature with all the eminent thinkers of his day, Helvetius, in particular.

With the concept of the "economic man" Smith raised a question of immense theoretical and practical importance: that of the motives and stimuli of human economic activity. He gave

an answer which was fruitful and profound for its time, if one bears in mind that his ``natural'' man disguised the real man of bourgeois society.

Socialism also came up against the problem of motives and stimuli when it turned from a scientific theory into a socio-economic fact. With the collapse of capitalism and the total abolition of exploitation of man by man bourgeois stimuli for human economic activity also disappeared.

But what stimuli have replaced people's urge to get rich which, as Adam Smith said, in the final analysis drives on capitalist production? Are they simply socialist consciousness, labour enthusiasm, patriotism? For there are no capitalists, the factories and fields belong to the people, and the people are working for themselves....

Yes, socialism does produce new and powerful stimuli for labour and activity. This is its great advantage over capitalism. These stimuli do not appear out of thin air, however, but develop in the socialist transformation of society and of the people themselves, their psychology, morals and consciousness. In a society where the principle of distribution according to labour operates, material interest rightly remains a most important stimulus to labour. The principles of cost accounting, which were formulated on the basis of Lenin's ideas, have become the main method of socialist management. The economic reform carried out in the USSR in recent years develops and deepens these principles in the new conditions of a developed socialist society.

LAISSEZ FAIRE

The policy of laissezfaire or, as Smith put it, natural freedom, follows directly from his views on man and society. If the economic activity of each person eventually leads to the good of society, it is clear that this activity must not be hampered in any way.

Smith believed that given free movement of commodities and money, capital and labour, society's resources would be used in the most rational way possible. The idea of free competition was the alpha and omega of his economic doctrine. It runs right through The Wealth of Nations. Smith even applied this principle to doctors, university professors and ... clergymen. If the clergymen of all denominations and

sects were given the right to compete freely among themselves and no single group received privileges or, of course, a monopoly, they would be most harmless (and this, he hints, is the most one can hope for from them).

Smith's achievement was not that he discovered the principle of laissez faire, but that he argued it so consistently and systematically. Although the principle was born in France, it needed a Britisher to develop it to its logical conclusion and make it the basis of economic theory. England, which had become the most developed industrial country in the world, was already objectively interested in free trade. The fashion for Physiocracy in France was to a large extent a whim of enlightened and liberal aristocrats and soon passed. The ``fashion'' for Smith in England turned into the creed of the bourgeoisie and embourgeoisified nobility. The economic policy of the English government throughout the following century was to a certain extent the implementation of Smith's programme.

The first steps were taken while Smith was still alive. There is an amusing story in this connection. Towards the end of his life Smith was a famous man. On a visit to London in 1787 he arrived at the house of a very aristocratic person. There was a large company in the drawing room, including the Prime Minister William Pitt. When Smith entered, everyone rose to their feet. According to his professorial habit he raised a hand and said: "Be seated, gentlemen." To which Pitt replied: "No, we will stand till you are first seated, for we are all your disciples." Possibly this is just a legend. But it is a plausible one. Pitt did pass a series of measures in the sphere of trade which corresponded in spirit to the ideas of The Wealth of Nations.

Smith nowhere set out his programme point by point, but this is not a difficult task. In practice laissez faire as he understood it implies the following.

Firstly, he demanded the repeal of all measures restricting labour mobility, to use a modern term. Above all, this applied to such feudal survivals as compulsory apprenticeship and the settlement laws. Obviously the objective aim of this demand was to ensure freedom of action for capitalists. But one must bear in mind the age when Smith was writing: the British working class at that time was still suffering not so much from capitalism as from its insufficient development. Consequently Smith's demand was a progressive and even humane one.

Secondly, Smith advocated completely free trade in land. He was against the holding of large estates and proposed a repeal of the law of primogeniture which forbade the division of inherited lands. He wanted land to be in the hands of owners who were capable of making the most economic use of it or agreeable to put it into circulation. All this was directed towards the development of capitalism in agriculture.

Thirdly, Smith proposed abolishing the relics of governmental regulation of industry and domestic trade. The excise levied on the sale of certain commodities on the home market should be introduced only for the sake of budget income and not to influence the economy. England no longer had any taxes on the movement of commodities within the country. But Smith's criticism was all the more telling and relevant for France.

Fourthly, Smith made a detailed criticism of the whole of English foreign trade policy and drew up a programme of free foreign trade. This was his most important demand, and it was most directly aimed against mercantilism. Thus the free trade movement was born, which became the banner of the English industrial bourgeoisie in the 19th century.

The whole of mercantilist policy came under fire from Smith: the striving for a compulsorily active balance of payments, the bans on the import and export of certain commodities, the high import duties, subsidies for export, and monopolistic trading companies. He was particularly critical of English colonial policy, and stated openly that it was dictated by the interests not of the nation, but of a small group of traders. Smith considered the policy of suppressing industry and restricting trade pursued by England in Ireland and particularly in the North American colonies, both shortsighted and absurd. He wrote: "To prohibit a great people, however, from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind." '

This was published in 1776 when England was already at war with the insurgent colonists. Smith sympathised with American republicanism, although he remained a good Britisher and supported not the secession of the colonies, but the creation of a union between England and the colonies on the basis of full

~^^1^^ A Smith, The Wealth of Nations, Vol. II, London, 1924, p. 78.

and equal rights. He expressed himself no less boldly on the East India Company's policy of plunder and oppression in India. It must also be remembered that Smith wrote many biting and harsh words in his book about the Church and the university education system. True, in England he was not risking either his head or his liberty and was not likely to be sent to prison, where some of his French friends, Voltaire, Diderot, Morellet and even Mirabeau, had been at various times. But he knew how vicious the hatred and attacks of the English clergy, the university authorities and newspaper hacks could be. He feared all this and did not conceal his fear.

Smith's attraction as a person is that, although a naturally cautious and wary man, he nevertheless wrote and published a daring book.

CHAPTER XI

ADAM SMITH THE CREATOR

OF A SYSTEM

THE WEALTH OF NATIONS

JLn spring 1767 Smith retired to Kirkcaldy and lived there almost continuously for the next six years, which he devoted entirely to work on his book. In one of his letters he complains that the monotony of life and the excessive concentration of energy and attention on a single object were undermining his health. Leaving for London in 1773, he felt so ill that he considered it necessary to give Hume the formal rights to his literary heritage in case he should die. Smith thought he was travelling with a finished manuscript. In fact it took him about another three years to finish the work. A quarter of a centurv separates The Wealth of Nations from his first economic essays in the Glasgow lectures. It was indeed his magnum opus.

An Inquiry into the Nature and Causes of the Wealth of Nations was published in London in March 1776.

The work consists of five books. The basic principles of Smith's theoretical system, which completes and generalises many ideas of English and French economists of the preceding century, are expounded in the first two books. The first contains, in essence, an analysis of value and surplus value, which Smith examines in the concrete forms of profit and land rent. The second book bears the title "Of the Nature, Accumulation, And Employment of Stock". The remaining three books are the application of Smith's theory partly to history but mainly to economic policy. The small third book