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第1章 Introductory(1)

The subject of these lectures is the industrial and Agrarian Revolution at the end of the eighteenth and beginning of the nineteenth centuries.The course is divided into three parts.The first deals with Adam Smith and the England of his time.It will describe England on the eve of the Industrial Revolution,and the system of regulation and protection of industry as it existed in 1760.It will give also an outline of Adam Smith's hook,its aims and character,and especially his theory of free trade.The second part will group itself round the work of Malthus,who dealt not so much with the causes of wealth as with the causes of poverty,with the distribution of wealth rather than with its production.It will describe England in the midst of the industrial Revolution,and will inquire into the problem of pauperism and the subjects connected with it.The third part will he associated with the name of Ricardo,and will deal with England at the time of the Peace.It will discuss the doctrine of rent and wages together with certain theories of economic progress,and will cover the questions of currency,so much agitated at that period,and the history of the commercial and financial changes which followed the Peace.

I have chosen the subject because it was in this period that modern Political Economy took its rise.It has been a weakness of the science,as pursued in England,that it has been too much dissociated from History.Adam Smith and Malthus,indeed,had historical minds;but the form of modern text-books is due to Ricardo,whose mind was entirely unhistorical.Yet there is a double advantage in combining the two studies.In the first place Political Economy is better understood by this means.Abstract propositions are seen in a new light when studied in relation to the facts which were before the writer at the time when he formulated them.So regarded they are at once more vivid and less likely to mislead.Ricardo becomes painfully interesting when he read the history of his time.And,in the second place,History also is better understood when studied in connection with Political Economy;for the latter not only teaches us in reading History to look out for the right kind of facts,but enables us to explain many phenomena like those attending the introduction of enclosures and machinery,or the effects of different systems of currency,which without its assistance would remain unintelligible.The careful deductive reasoning,too,which Political Economy teaches is of great importance to the historian,and the habits of mind acquired from it are even more valuable than the knowledge of principles which it gives,especially to students of facts,who might otherwise be overwhelmed by the mass of their materials.

Of late years,however,there has been a steady sustained attack upon the abstract Deductive Method of Political Economy pursued by Ricardo and Mill,and an attempt to set up historical investigation in its place as the only true method of economic inquiry.This attack rests on a misconception of the function of the Deductive Method.The best exposition of the place of Abstract Political Economy is to be found in Bagehot's Economic Studies.Bagehot points out that this abstract science holds good only upon certain assumptions,but though the assumptions are often not entirely correct,the results may yet be approximately true.Thus the economists,firstly,regard only one part of man's nature,and treat him simply as a money-making animal;secondly,they disregard the influence of custom,and only take account of competition.Certain laws are laid down under these assumptions;as,for instance,that the rate of wages always tends to an equality,the permanent difference obtaining in various employments being only sufficient to balance the favourable or unfavourable circumstances attending each of them-a law which is only true after a certain stage of civilisation and in so far as the acquisition of wealth is the sole object of men.Such hypothetical laws,though leading only to rough conclusions,are yet useful in giving us a point of view from which to observe and indicate the existence of strong over-mastering tendencies.

Advocates of the Historical Method,like Mr Cliffe Leslie,therefore,go too far when they condemn the Deductive Method as radically false.There is no real opposition between the two.The apparent opposition is due to a wrong use of deduction;to a neglect on the part of those employing it to examine closely their assumptions and to bring their conclusions to the test of fact;to arguments based on premises which are not only not verified but absolutely untrue (as in the wage-fund theory);and generally to the failure to combine induction with deduction.But this misuse of the method does not imply any radical faultiness in it.The right method in any particular case must be largely determined by the nature of the problem.Neither is it fair to make abstract Political Economy responsible for the confusion in many minds between its laws and the precepts which are based on them.It is a pure science,and its end is knowledge.But the Political Economy of the press and the platform is a practical science,that is,a body of rules and maxims to guide conduct.

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