Then arose that giant of our science, one of the greatest minds of which humanity can boast--Adam Smith. He restored the ancient wisdom of our ancestors, and also clearly and irrefutably demonstrated what they had only instinctively recognised--namely, that the increase of wealth depends upon the productiveness of human labour. But while he threw round this truth the enduring ramparts of his logic and of his sound understanding, he altogether failed to see that the actual facts directly contradicted his doctrine. He saw that wealth did not increase step by step with the increased productiveness of labour; but he believed he had discovered the cause of this in the mercantilistic and physiocratic sins of the past. In his day the historical sense was not sufficiently developed to save him from the error of confounding the--erroneous--explanations of an existing evil with its causes. Hence he believed that the course of economic events would necessarily correspond fully with the restored laws of a sound understanding--that is, that wealth would necessarily increase step by step with the capacity of producing it, if only production were freed from the legislative restraints and fiscal fetters which cramped it.
But even this delusion could not long prevail. Ricardo was the first of the moderns who perceived that wealth did not increase in proportion to industrial capacity, even when production and trade were, as Smith demanded, freed from State interference and injury. He hit upon the expedient of finding the cause of this incongruity in the nature of labour itself. Since labour is the only source of value, he said, it cannot increase value. A thing is worth as much as the quantity of labour put into it; consequently, when with increasing productiveness of labour the amount of labour necessary to the production of a thing is diminished, then the value of that thing diminishes also. Hence no increase in the productiveness of labour can increase the total sum of values. This, however, is a fundamental mistake, for what depends upon the amount of labour is merely the relative value of things--the exchange relation in which they stand to other things. This is so self-evident that Ricardo himself cannot avoid expressly stating that he is speaking of merely the 'relative' value of things; nevertheless, this relative value--which, strictly speaking, is nothing but a value relation, the relation of values--is treated by him as if it were absolute value.
And yet Ricardo's error is a not less important step in the evolution of doctrine than those of his previously mentioned predecessors. It signifies the revival of the original problem of political economy, which had been lost sight of since Adam Smith; and Ricardo's follower, Marx, is in a certain sense right when, with bitter scorn, he denounces as 'vulgar economists' those who, persistently clinging to Smith's optimism, see in the productiveness of labour the measure of the increase of actual wealth. For all that was brought against Ricardo by his opponents was known by him as well as or better than by them; only he knew what had escaped their notice, or what they saw no obligation to take note of in their theory--namely, that the actual facts directly contradicted the doctrine. It by no means escaped Ricardo that his attempted reconciliation of the theory with the great problem of economics was absurd; and Marx has most clearly shown the absurdity of it. The latter speaks of the alleged dependence of value, not upon the productiveness of labour, but upon the effort put forth by the labourer, as the 'fetishism' of industry; this relation, being unnatural, contrary to the nature of things, ought therefore--and this, again, is Marx's contribution to the progress of the science--to be referred back to an unnatural ultimate cause residing, not in the nature of things, but in human arrangements. And in looking for this ultimate cause, he, like his great predecessors, comes extremely near to the truth, but, after all, glides past without seeing it.
On this road, which leads to truth past so many errors, the last stage is the hypothesis set up by the so-called Historical School of political economy--the hypothesis, namely, that there exists in the nature of things a gulf between economic theory and practice, which makes it quite conceivable that the principles that are correct in thesi do not coincide with the real course of industrial life. The existence of the problem is thereby more fully established than ever, but its solution is placed outside of the domain of theoretical cognisance. For the Historical School is perfectly correct in maintaining that the abstractions of the current economic doctrine are practically useless, and that this is true not only of some of them, but of all. The real human economy does not obey those laws which the theorists have abstractedly deduced from economic phenomena. Hence it is only possible either that the human economy is by its very nature unfitted to become the object of scientific abstraction and cognisance, or that the abstractions hitherto made have been erroneous--erroneous, that is, not in the sense of being actually out of harmony with phenomena from which they are correctly and logically deduced, but in the sense of being theoretically erroneous, deduced according to wrong principles, and therefore useless both in abstracto and in concreto.
Of these alternatives only the second can, in reality, be correct. There is absolutely no reasonable ground for supposing that the laws which regulate the economic activity of men should be beyond human cognisance; and still less ground is there for assuming that such laws do not exist at all. We must therefore suppose that the science which seeks to discover these laws has hitherto failed to attain its object simply because it has been upon the wrong road--that is, that the principles of political economy are erroneous because, in deducing them from the economic phenomena, some fact has been overlooked, some mistake in reasoning has been committed. There must be a correct solution of the problem of political economy; and the solution of the social problem derived from the theory of social evolution offers at once the key to the other.
The correct answer to the question, 'Why are we not richer in proportion to the increase in our productive capacity?' is this: Because wealth does not consist in what can be produced, but in what is actually produced; the actual production, however, depends not merely upon the amount of productive power, but also upon the extent of what is required, not merely upon the possible supply, but also upon the possible demand: the current social arrangements, however, prevent the demand from increasing to the same extent as the productive capacity. In other words: We do not produce that wealth which our present capacity makes it possible for us to produce, but only so much as we have use for; and this use depends, not upon our capacity of producing, but upon our capacity of consuming.
It is now plain why the economic problem of the disparity between the possible and the actual increase of wealth is of so comparatively recent a date. Antiquity and the middle ages knew nothing of this problem, because human labour was not then productive enough to do more than provide and maintain the means of production after covering the consumption of the masses and the possessors of property. There was in those ages a demand for all the things which labour was then able to produce; full employment could be made of any increase of capacity to create wealth; no one could for a moment be in doubt as to the purpose which the increased power of producing had served; there was no economic problem to call into existence a special science of political economy. Then came the Renaissance; the human mind awoke out of its thousand years of hibernation; the great inventions and discoveries rapidly followed one upon another; division of labour and the mobilisation of capital gave a powerful impulse to production; and now, for the first time, the productiveness of labour became so great, and the impossibility of using as much as labour could produce became so evident, that men were compelled to face the perplexing fact which finds expression in the economic problem.
That three centuries should have had to elapse before the solution could be found, is in perfect harmony with the other fact that it was reserved for these last generations to give us complete control over the forces of nature, and to render it possible for us to make use of the knowledge we have acquired. For so long as human production was in the main dependent upon the capacity and strength of human muscles, aided by the muscles of a few domestic animals, more might certainly be produced than would be consumed by the luxury of a few after the bare subsistence of the masses had been provided for; but to afford to all men an abundance without excessive labour needed the results of the substitution of the inexhaustible forces of nature for muscular energy. Until this substitution had become possible, it would have availed mankind little to have attained to a knowledge of the ultimate ground of the hindrance to the full utilisation of the then existing powers of production.
For in order that the exploitage of man by man might be put an end to, it was necessary that the amount of producible wealth