Besides a difference in his general standpoint, there are other considerations which distinguish Turgot from the members of the Physiocratic school, and it would have been juster to him as well as more correct to have devoted a whole chapter to him.[115] Generally speaking, his views are much more modern and more closely akin to Smith’s. In view of the exigencies of space we must be content to draw attention to the principal doctrines upon which he differs from the Physiocrats.
1. The fundamental opposition between the productivity of agriculture and the sterility of industry, if not altogether abandoned, is at least reduced in importance.
2. Landed property is no longer an institution of divine origin. Even the appeal to the “ground expenses” is dropped. As an institution it rests merely upon the fact of occupation and public utility.
3. Movable property, on the other hand, holds a prominent place. The function of capital is more carefully analysed and the legitimacy of interest definitely proved.
But we must turn to Condillac’s book if we want to see how the Physiocratic doctrine should be completed and expurgated of its errors. Condillac was already well known as a philosopher when, in his sixtieth year, he published this new work in 1776. This admirable book, entitled Le Commerce et le Gouvernement considérés relativement l’un à l’autre, contains an outline of most modern problems. The title gives no adequate indication of the character of the work, and possibly accounts for the oblivion into which the book has fallen.
It is a genuine economic treatise, and not a medley of economic and political suggestions concerning social science, with an admixture of ethics and jurisprudence. Value is regarded as the foundation of the science, and the Physiocrats are thus out-classed from the very first.[116] Value itself is considered to be based upon utility, which is stripped of its popular meaning, and given a scientific connotation which it has never lost. It no longer implies an intrinsic, physical property of matter, but connotes a degree of correspondence between a commodity and a given human want. “Value is not an attribute of matter, but represents our sense of its usefulness, and this utility is relative to our need. It grows or diminishes according as our need expands or contracts.” This is the foundation of the psychological theory of value.[117]
But this is not all—though a great deal. He clearly realises that utility is not the only determinant of value; that quantity, i.e. scarcity or abundance, also exercises an important influence. With admirable judgment he seizes upon the connection between them, and shows how the two statements are united in one, for quantity only influences value according as its action upon utility intensifies or weakens demand. “But since the value of things is based upon need it is natural that a more keenly felt need should endow things with greater value, while a less urgent need endows them with less. Value increases with scarcity and diminishes with plenty. In case of plenty it may even disappear; a superabundant good will be valueless if one has no use for it.”[118] This could not be put more clearly to-day. Here we have the germ of the theories of Jevons and the Austrian school, though it took a long time to develop.
We might naturally expect a superior treatment of exchange following upon this new theory of value. If value is simply the satisfaction of want, exchange creates two values when it satisfies two needs at the same time. The characteristic of exchange is that each of the two parties yields what it has in superabundance in return for what it needs. But what is given up is superabundant, is useless, and consequently valueless; what is demanded has greater utility, and consequently greater value. Two men come to market each with a useless thing, and each returns with a useful one.[119] Consequently the Physiocratic saying that exchange means no gain to anyone, or at least that the gain of one only compensates for the loss of the others, is seen to be radically false. The Physiocrats—notably Trosne—attempted a reply, but, for reasons already given, they never succeeded in realising the subjective character of value.
This same theory should have carried Condillac a stage further, and helped in the rectification of the Physiocratic error concerning production. If value is simply utility and utility itself is just the correspondence between things and our demand for them, what is the agency that produces this harmony between things and desires? It is very seldom that nature succeeds in establishing it. “Nature is frequently fertile in things we have no desire for and lavish of what is useless”—a profound remark that ought to have cooled the Physiocrats’ love of the Alma Parens. “Matter is transformed and made useful by dint of human labour. Production means giving new form to matter.”[120] If this be true, then there is no difference between agricultural and industrial production, for they both transform what already exists.[121]
Moreover, the theory proves very clearly that if artisans and proprietors are dependent upon the agriculturists—as, indeed, they are—the latter in their turn are nothing but artisans. “If someone asks whether agriculture ought to be preferred to manufacture or manufacture to agriculture, we must reply that we have no preferences, and that the best use should be made of both.”[122]
Lastly, his definition of wages, short as it is, is of immense significance. “Wages represent the share of the product which is due to the workers as co-partners.”[123] Wages only “represent” the share that is due to the workers. In other words, the wage-earner, either through want of will or of power, cannot exercise his rightful claim to his own work, and simply surrenders the claim in return for a money price. This constitutes his salary, which is regulated, like every other price, by competition between buyers and sellers. Condillac makes no reference to an iron law of wages, but regards them as determined by the forces of demand and supply. He does, however, hint at the implicit alliance which exists between capital and labour.[124]
From a practical standpoint also, especially in his defence of free labour and his condemnation of corporations, Condillac is more categorical than the Physiocrats. “All these iniquitous privileges,” he writes, “have no claim to a place in the order beyond the fact that they are already established.” He is as persistent as Turgot in his justification of the taking of interest and in his demand for the determination of the rate by competition. This very elegant argument is employed to show its similarity to exchange: Exchange implies compensation for overcoming the drawbacks of distance, whether of place or of time.[125] Exchange generally refers to place, interest to time, and this is really the foundation of the modern theory.
CHAPTER II: ADAM SMITH
Notwithstanding the originality and vigour displayed by the Physiocrats, they can only be regarded as the heralds of the new science. Adam Smith,[126] it is now unanimously agreed, is its true founder. The appearance of his great work on the Wealth of Nations in 1776 instantly eclipsed the tentative efforts of his predecessors. To-day the Physiocratic doctrines scarcely do more than arouse historical curiosity, while Smith’s work has been the guide for successive generations of economists and the starting-point of all their speculation. Even at the present day, despite many changes in the fundamental principles of the science, no economist can afford to neglect the old Scotch author without unduly narrowing his scientific horizon.
Several reasons account for the commanding position held by this book—a position which no subsequent treatise has ever successfully rivalled.
First is its supreme literary charm. It is above all an interesting book, bristling with facts and palpitating with life. The burning questions of the hour, such as the problems presented by the colonial régime, the trading companies, the mercantile system, the monetary question, and taxation, supply the author with congenial themes for his treatment. His discussion of these questions is marked by such mastery of detail and such balance of judgment that he convinces without effort. His facts are intermixed with reasoning, his illustrations with argument. He is instructive as well as persuasive. Withal there is no trace of pedantry, no monotonous reiteration in the work, and the reader is not burdened with the presence of a cumbersome logical apparatus. All is elegantly simple. Neither is there