The Competitiveness of Nations in a Global Knowledge-Based Economy

O. H. Taylor

Economics and the Idea of Jus Naturale

The Quarterly Journal of Economics

Volume 44, Issue 2

Feb. 1930, 205-241.


I. The ethical-juristic conception of “natural law,” as well as the natural science conception of “natural laws,” affected economic thought in the eighteenth century, 205.  Separate study of the influence of former would throw light on laissez faire, 208.

II. General meaning of Jus Naturale conception in seventeenth and eighteenth centuries, 209.  Of no influence on economic theories of mercantilists, it shaped those of such writers as Grotius, Pufendorf, and Hutcheson, 211.

III. The philosophy of the Physiocrats.  Laws of economic process as it would go on in an ideal social order, prescribed by Nature but to be achieved by human efforts, 215.

IV. The philosophy of Adam Smith.  Human propensities and sentiments, with limited amount of human planning, would produce a harmonious social order, 226.  The Theory of Moral Sentiments in relation to the Wealth of Nations, 232.

V. Summary and conclusions, 239.


IN a former article in this journal, 1 I discussed certain notions about “natural laws” which have been common in the past to economics and the natural sciences, and the effects which those notions have had, in economics, in producing mistaken ideas about the nature of the laws at which our science has arrived.  The present paper is intended to be a logical sequel to that article, but it deals with a different topic.  It is concerned with those ideas about “natural law” in the ethical and juristic sense of the phrase (jus naturale or droit naturel - the rules of natural right or justice), and about a “natural” social order or scheme of institutions, which were so prominent in eighteenth-century

1. Nov. 1929, pp. 1-39

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thought; which the Physiocrats developed with great vigor and in a somewhat unique way, in intimate combination with their pioneer work in economic science; and which also appear, in a very different form and philosophical setting, in the works of Adam Smith.  In a future article I hope to deal with the relation between these eighteenth-century notions and the ideas of the English Utilitarians and the classical economists of the early nineteenth century.  The present discussion is limited to a consideration of their role in the economic philosophies of Quesnay and his disciples, and of Adam Smith. 2

The two problems which I have thus endeavored to separate are, indeed, not independent of each other.  Eighteenth-century ways of thinking about social problems were produced by a certain blending of ideas inspired by natural science with ideas developed out of the traditions of religious, ethical, juristic, and political philosophy.  Efforts to discover the “natural laws” of the mental and social life of mankind were commonly combined in more or less confused ways with efforts to discover or to formulate the supposed precepts of Nature for the proper regulation of conduct and of social arrangements.  Political economy as it emerged from this century was, perhaps even in a peculiar degree, a product of this interweaving and blending of scientific and ethical ideas.  To unravel this web of thought, and find out how the warp, which was a theory of the natural laws of the economic process, was interwoven with the woof, which was a theory of the legal régime ordained

2. Some of the better discussions bearing on this problem are to be found in Bonar, Philosophy and Political Economy; Hasbach, Die philosophischen Grundlagen der von F. Quesnay und A. Smith begrundeten politischen Oekonomie; and various articles in the Journal de l’histoire des doctrines économiques, by A. Dubois, E. Felix, B. Raynaud, and others.



by Nature as the one under which the economic process would best promote the general welfare, is no easy task.

The failure to unravel it, or analyze it into its two elements and distinguish the role played by each, has hitherto misled most of the numerous critics who have attacked “the old political economy” as a body of doctrines inspired by a “metaphysical” eighteenth-century notion of “natural laws.”  A century ago Auguste Comte confused the two in his strictures on political economy as a surviving product of eighteenth-century “metaphysics.”  T. E. Cliffe Leslie confused them in just about the same way in his essay on “Adam Smith’s Political Economy. 4  In recent times, Thorstein Veblen has disseminated in this country an interpretation of the old doctrines which is based in part upon the same mistake. 5  But it is indeed a “natural” mistake, and many others besides those mentioned have made it.

The eighteenth-century economists had a conception of the natural laws of the economic process which was a conception of beneficent laws, like that of the physical scientists of the time.  The faith in their beneficence was due to a “metaphysical” or, more properly, a theological influence; but as I pointed out in my former article, this influence did not prevent either physical scientists or economists from making progress in the discovery of actual scientific laws.  In the case of the economists, however, the notion of beneficent laws which control the “natural course of things” was combined with, and complicated by, the conception of precepts of Nature, which men ought to recognize or discover and carry out.  The

3. Cours de Philosophic Positive, (5th ed. Paris, 1893), iv, 210-223; especially (for interpretation of the economists’ ideas of natural laws), pp. 213-214.

4. T. E. Cliffe Leslie, Essays on Political Economy.  See also J. K. Ingram’s History of Political Economy, pp. 54-55, 89-91, etc.

5. T. Veblen, The Place of Science in Modern Civilization and Other Essays, especially pp. 86-89, 109, 112, 114-116, etc.

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result was a belief that things could take their beneficent “natural course” only in the rationally organized society which men were to create in obedience to Nature’s precepts.

The content of this theory of an ideal social order, ordained or intended by Nature, was such as to make it the first form of the philosophy of what we now look back upon as old-fashioned economic “liberalism.”  As I shall try to show, the character of this liberalism has generally been misunderstood.  It was not a doctrine that selfish interests should be given absolute free play while the state and society remained passive.  It was a particular theory of an ideal legal order, imposing equal restraints upon all in order to give equal and maximum liberty to all, so that a “natural” interplay and adjustment of interests might ensure the welfare of all.  But tho the ideal behind the liberal program for the regulation of economic life was admirable, the program itself was inadequate for its purpose, even in the epoch of its origin.  The simplicity of the program and the dogmatic confidence of its advocates reflected the quality of the eighteenth century’s faith in “Nature’s simple plan” for a harmonious social order.  And the close partnership of economic theory, in the period from 1750 to 1850, with liberal philosophy and the liberal movement, and the close contact, in the first half of this period, between its conception of “natural” economic laws and the ethical and juristic notion of “natural law,” tho they did not prevent the economists from laying the foundations of a real science of economic life, did give this science, in its infancy, an unfortunate bias in favor of the dogmatically held ideals of this simple liberalism.  The desire to understand the sources and nature of this bias is the motive of the present discussion.



It will be impossible, in the space here available, to discuss the history of the ethical and juristic doctrine of natural law. 6  A few remarks about the meaning which it had for its seventeenth- and eighteenth-century champions, and about the one body of literature in which economic theory had come into close contact with it before the time of the Physiocrats, will serve to introduce a closer study of its meaning and role in their system of thought, and in that of Adam Smith.

In a very general way, the doctrine is of course familiar enough.  It held that there is a set of rules of right or justice, and perhaps even of morality in general, which are, or may be, known by all men by the help either of “reason” or of a moral sense, and which possess an authority superior to that of such commands of human sovereigns, and such customary legal and moral regulations, as may contravene them.  In other words, natural law meant a body of ideal or perfect “law,” possessing in itself the full authority of actual law, but having its source, not in the will or command of any human authority, or in “custom,” or in any supernatural revelation of Divine will, but in the knowledge or perception, somehow possible for all men, of what is in itself right or just.

It is probably fair to say that by most of its expounders this body of “law” was called “natural” mainly because it was supposed to express the ethical ideals “natural” to mankind, or characteristic in a gen-

6. The well-known essays of Bryce and Pollock give summary treatments of its history, which are perhaps as good for the purpose as anything readily available in English.  J. Bryce, The Law of Nature, in Studies in History and Jurisprudence, Oxford, 1901; and F. Pollock, The History of the Law of Nature, in Essays in the Law, London, 1922.  Pollock’s is, I think, the better of the two essays.  See also his Essays in Jurisprudence and Ethics, chap. 2.

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eral way of human nature.  The normal faculties of human nature, if exercised in the right way, would lead men to recognize its rules and acknowledge their authority.  It is well known that Grotius connected natural law with a social instinct, supposedly possessed by all men as an intrinsic part of their natures. 7  Pufendorf defined natural law as those commands of God which are known, not from revelation or scripture, but as the result of reasoning from experience. 8  The supposition that the law was ordained by God was really unimportant for the theory, as Grotious explicitly said; the law as recognized by the morally reasonable man bore its own evidence of rightness and supreme authority. 9  For Hutcheson, the teacher of Adam Smith, it expressed the rules of conduct approved by an innate “moral sense.” 1  For Adam Smith himself, it expressed the “sentiments” of justice evolved in men’s minds by the play of “sympathy,” in their contacts with one another in social life. 2  For the Physiocrats, it was a code of exact rules to be discovered by the use of “reason”; but of reason as applied to the facts of experience about men and their social relations. 3  The essential point in all theories was that, through the use of some faculty or faculties belonging to human nature, men could discover the rules of this law.

However, in the eighteenth century especially, there was often a reference also to cosmic “Nature” as the

7. The social instinct makes men desire a peaceful and well-ordered society.  Their reason or intelligence shows them how to attain it, i.e., reveals to them the rules of natural law.  Grotius, De Jure Belli ac Pacis, Proleg., sec. 6-11 (Scott’s ed., 1925), trans. by Kelsey, ii, 11-13.

8. Pufendorf, Law of Nature and Nations, bk. II, chap. 3, sec. 20; Eng. ed. of 1703, pp. 113-116.

9. Grotius, op. cit, Proleg., sec. 11, p. 13.

1. F. Hutcheson, A Short Introduction to Moral Philosophy (5th ed., Philadelphia, 1788), pp. 20-22, 91-94.

2. See below, section IV of present article.

3. See below, section III of present article.


lawgiver.  The idea of “Nature” as a power that works toward ends, was embodied in commonplace phrases which occur with special frequency in eighteenth-century literature.  Physical science appeared to have revealed a harmonious order in the physical universe, which “Nature” was supposed to maintain or ensure by imposing the laws of physics upon all bodies.  And there was a belief that “Nature” would produce a similar harmonious order in the system of human activities constituting the life of society, if men, rightly using the faculties which Nature had given them for this purpose, would recognize and obey her moral laws or precepts for the proper regulation of these activities.  This notion involved a certain blending or confusion of the idea of Nature’s precepts to individuals with the idea of scientific social laws.

In the main body of economic literature produced during the seventeenth and the first half of the eighteenth century, the ethical conception of natural law as a body of Nature’s precepts rarely appears, and in any case plays no important role.  The so-called “mercantilist” writers were not concerned with the wider ethical, juristic, and social problems which the Physiocrats and Adam Smith brought within the scope of political economy.  They were interested only in the narrower problem of finding out how a nation could best foster the important branches of its industry and commerce and so increase its wealth, mainly by suitable regulation of its foreign trade.  Mun’s doctrine that the general “balance of trade” over fairly long periods was the thing to watch became the accepted one.  The idea was to use taxes, bounties, and the like to divert the expenditures and investments of the people into the desired channels.  This involved something like a conception of the economic system as a mechanism which could be manipulated; and the best of these writers -

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Mun, Child, and others - made much progress in analysis of the interconnections between economic phenomena. 4

These seventeenth-century English writers on “Trade” seldom referred to economic “laws,” but the idea was always present in their writings.  Petty, whose work was of a somewhat different order, did refer at times to “laws of nature,” and apparently tended to confuse the idea of causal laws with the ethical and juristic notion of natural law, as when he spoke of “the vanity and fruitlessness of making civil, positive laws against the laws of Nature.” 5  Yet Petty’s economic theories were entirely scientific in spirit. 6  Locke, in his essay on money and the rate of interest, referred casually to “laws of value,” using the expression, as the context shows, entirely in the modern, scientific sense. 7  When North wrote that “no laws can set prices in Trade, the rates of which must and will make themselves,” and suggested that the theory of Trade, like natural philosophy, must become “mechanical,” he was giving explicit statement to notions which had been implicit in the best work of his predecessors. 8

North’s analysis of commercial life led him to discard the balance of trade doctrine and adopt the position

4. The latent notion of manipulating the economic mechanism, and the effort to trace causal sequences among economic events in order to decide upon policies, may be seen not only in their discussions of the balance of trade, but also in their writings on money, interest, and other topics.  An excellent illustration is Child’s discussion of the ways in which a low rate of interest would affect the economic system.  Sir Josiah Child, A New Discourse of Trade, 4th ed. London, (undated), chap. 1; esp. pp. 46-86.

5. Economic Writings of Sir W. Petty, ed. by C. H. Hull, i, 48.  But see separate references to the two ideas on page 9 of this same work of Petty’s.

6. See Hull’s admirable discussion of Petty’s scientific background, aims, and method. Op. cit., Introd., pp. lx-lxxiv.

7. Considerations of the Lowering of Interest and Raising the Value of Money; in Locke’s Works, (London, 1823), v, 36.

8. Sir D. North, Discourses Upon Trade (1691; reprint, 1907), pp. 11,


of later laissez faire liberals.  But he made no suggestion that a liberal régime was decreed by any moral Law of Nature, or that any “natural rights” or “natural liberties” of men were involved. His contention was simply that analysis of the facts of commerce would prove this to be the policy best calculated to increase national wealth.

The eighteenth-century “mercantilists” were inferior on the whole to their seventeenth-century predecessors.  But Cantillon, Hume, and a few other writers carried forward to new achievements that analysis of the interrelations of trades, and of prices, incomes, and movements of goods and of money in commerce, which had been started in the preceding century.  There was thus a long period of progress in economic theory of an essentially scientific type, in which it did not come under the influence of the ethical conception of natural law.

But in another body of literature produced in the same period a certain amount of economic theory was worked out, from a very different starting point, in close connection with the juristic doctrine of natural law.  The works of Grotius, Pufendorf, and other writers on the Law of Nature, contain chapters or sections on money, value and prices, interest or usury, monopolies, and other economic topics. 9  Hutcheson’s work in economics, which probably suggested some of Adam Smith’s cardinal ideas, was parallel and similar to that of Pufendorf  1  This early modern school of natural law

9. Grotius, bk. II, chap. 12 (on Contracts), sees. 14-26, deals with (just) prices, monopolies, money, rentals, interest or usury, and partnerships.  Pufendorf, bk. V, chaps. 1-8, gives a much fuller treatment of the same topics.

1. Hutcheson, A Short Introduction to Moral Philosophy, bk. II, chap. 12.  Cf. Cannan’s introduction to A. Smith’s Lectures on Justice, Police, Revenue, and Arms, pp. xxv-xxvi, for a fair account of Hutcheson’s relation to Pufendorf, and to Adam Smith.

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jurists and moralists had given up the idea of the medieval lawyers and schoolmen that equity in business transactions must be ensured by imposition upon the parties, in every case, of the jurists’ idea of a “just price.”  They reasoned that in a free market, where every buyer and seller had alternatives made available by the prevalence of competition, the market price which would establish itself would always be a fair price, corresponding to the seller’s costs and a fair reward for his own services, and also to the value of the article to the buyer.  They developed some economic theory in order to prove this, and gave the rest of their attention to the legal regulations necessary to ensure free markets.

It remained for the Physiocrats and Adam Smith to combine the theory of how to promote national prosperity, and the theory of the interrelations between economic phenomena upon which that was based, with the theory of the legal system which would protect everyone in his “natural rights.”  They argued that the two aims must coincide; for “Nature” had so arranged things that the just legal system which she prescribed or “recommended” would also prove to be the best and indeed the only effective means of promoting national opulence.  In their schemes of doctrine, political economy became a development of the eighteenth-century notion of a harmonious, “natural” social order.  “Natural” institutions, prescribed by Nature but to be achieved by human effort, would facilitate a beneficent “natural” economic process.  Their very different developments of this doctrine must now be examined.



The Physiocrats are important for our purpose only because they did in a bold, rigorous, and doctrinaire way what Adam Smith did in a much more cautious way, and in the spirit of a very different philosophy.  Their influence upon Smith, especially in respect of such ideas as I am here concerned with, was probably almost nil; and their general influence upon the development of economic thought was not very great. 2  But they gave explicit and clear-cut development to the fundamental ideas of the political economy of liberalism; ideas which in the writings of other and more influential architects of that system remained latent or half-expressed.  Their expositions are therefore an excellent guide, if cautiously used, to the interpretation of the teachings of the English economists, who were not always so sure of, or so apt to express in rigid formulae, their general philosophies.

A student’s attitude toward the Physiocrats will always depend upon his temperament.  Like many other “philosophers” of the epoch in France they were not broadly and thoroughly equipped scholars, or careful students of facts, but facile builders of somewhat airy intellectual structures.  But they intended, and pretended, to base their work on observation of facts; and they did observe many important facts about agriculture as then carried on in France, and analyze them in an acute way.  They had a clear conception of society’s economic life as a single, continuous process, and excel-

2. Cannan, in his introduction to the report of Smith’s Lectures has made it clear that, with the exception of his theory of “distribution,” Smith’s debts for his economic ideas were to British writers, not to the Physiocrats.  That the philosophical ideas with which we are concerned here also came, in Smith’s case, from British and especially Scottish philosophy, and were of a different color from the analogous ideas of the Physiocrats, is brought out by Hasbach.  See also D. Stewart, Dissertation, pp. 336-337, 380-381, and 474-478.

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lent insights into many of its features.  Their effort to combine economic theory with legal philosophy was one which badly needs to be renewed in our time, tho of course in an infinitely more careful way and in a very different spirit.

There is some confusion of ideas in the Physiocratic conceptions of lois naturelles, droit naturel, and l’ordre naturel, but not so much confusion, I think, or so much mystery, as has often been supposed.  Political economy, in their conception of it, included the whole of social science; or rather, their conception of this science was limited to include only political economy. 3  It was to discover “les lois naturelles morales,” which they held to be as exact as “les lois naturelles physiques.” 4  Dupont cites the achievements of physical science in his time, and declares that only men’s prejudices make them unwilling to believe that these achievements can be paralleled in social science. 5  The partly religious or theological orientation of thought which was still fairly common at that time, even among natural scientists, led the Physiocrats to describe both the physical and the social laws of Nature as laws which are “as advantageous as possible to the human species.” 6  But there are plenty of passages in their writings which show well enough what they meant by this.

Quesnay’s argument to prove the beneficence of “les

3. Cf. Dupont de Nemours, De l’origine et des progrès d’une science nouvelle (ed. Dubois, Paris, 1910), p. 6.

4. Dupont, De l’origine, etc., pp. 6, 8; and Quesnay, Droit Naturel, in Works. ed. by Oncken, pp. 374-5.  The reader will recall that what we now call the “social sciences” were until recently, in most places, called the “moral sciences,” and their “laws” would be called “moral laws.”  Of course this terminology itself tends to carry with it confusion of scientific laws with precepts.

5. Ibid., p. 6, to be read in context of pp. 5-7.

6. Quesnay, Droit Naturel, Works, p. 375.  A natural law of either variety is always the law “le plus avantageux au genre humain.”  Natural laws are “immuables et irréfragables et les meilleurs lois possibles.”


lois naturelles physiques” has two parts.  In the first place, he argues that those conditions and events in the physical environment of a society which come about, not as results of any human actions, but as results of the operation of such forces of Nature as are beyond human control, are generally productive, on balance, of more good than harm to human welfare; and further, that such harm as they may do is always an inevitable result of the same “properties” of these conditions and events which make them useful or beneficial to mankind.  The storm which inconveniences the traveler waters the farms.  This illustration is supposed to be typical of natural phenomena in general as they affect human welfare.  The conclusion is that of the theodicy of Leibniz.  God has left none but logically inevitable evils in the world; its laws are as conducive as possible to human welfare; to make them any more so would require an omnipotence which could make rain both wet and dry, or could make two plus two equal to five.  It is an argument to be smiled at; but it shows that Quesnay was thinking of the actual laws of physical science, and affords no foundation whatever for Veblen’s charge that he was thinking of “animistic,” constraining laws which mould, not the actual course of events, but an ideal course of events, which is truly “real” and somehow latent in the actual, into harmony with human desires .7

The second part of Quesnay’s argument is more interesting.  It is that men, being endowed with “reason” and “free wills,” can adjust themselves to their environment so as to secure its benefits and avoid the incidental evils.  The Creator gave them reason and free wills for this purpose.  This completes the proof of

7. Ibid., p. 368, whole of paragraph in middle of page.  For Veblen’s interpretation see The Place of Science in Modern Civilization and Other Essays, pp. 87-89.

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his benevolence.  He has made a world which, on balance, is more friendly than hostile to its human inhabitants, a world to which they can so adjust themselves as to be prosperous, comfortable, and happy; and has given them the faculties which enable them to make the adjustment.  This leads to the Cartesian argument that human ills are really due to man’s “abuse” of his freedom of will, i.e., to his failure to keep his will under the control of his “reason,” and act always and only after acquiring full knowledge of, and giving rational consideration to, all of the effects of his actions.  Quesnay’s “optimism” was really that of the rationalistic “enlightenment,” which believed that the progress of science was going to result in a completely rational ordering of human life. 8

The interpretation of “les lois naturelles morales les plus avantageux au genre humain” is another story.  Here we encounter that blending of the idea of scientific social laws with the idea of moral rules of conduct which has puzzled so many readers of the writings of the Physiocrats.  These laws were regarded as the laws of the ideal social process, or procession of interconnected but severally “free” and rational human actions, which will take place as men come to understand and obey the moral precepts of Nature. Nature prescribes to men as members of society certain courses of action or conduct, by making these courses necessary, in the situations in which she has placed them, for the attainment of a maximum of both individual and social wealth and

8. What I have distinguished as the “second part” of Quesnay’s argument will be found on pp. 368-371 of the Works, beginning with the last sentence of the paragraph cited for the “first part” and running through to the end of chap. 3.  “Abuse” of the power of free will, or irrational action, is called a “violation” of natural laws - of natural moral laws (see below) and of the beneficent intent of physical laws, which are intended to ensure the effects that will result if men make the proper use of reason and free will.


welfare.  It is for them to discover, by the use of their “reason,” what these best courses of action are, and pursue them.  Then they will set up, and carry on their economic life in, the ideal order which Nature prescribes. 9

This notion of normative social laws really includes three ideas, which are not as clearly separated as they should be.  It includes the rules of droit naturel, which, as embodied in legislation and in the moral consciousness of citizens in the new social order, will regulate their behavior in accordance with their natural rights and duties.  It may also be said to include the rules of rational economic behavior, which will guide individuals in pursuing their economic interests within the limits fixed by the rules of justice.  Both of these sets of rules are precepts or injunctions of Nature, which men must discover and obey.  But the general conception also includes the laws of economics in the proper sense of that expression, i.e., the laws of the causal interconnections among the actions of separate individuals which make up economic life.  Each individual behaves “freely,” and in the ideal order rationally, in the economic situation which confronts him at a given time; but that situation is partly determined for him by the previous actions of other men, and he in turn helps to create situations which affect the rational choices of others.  The laws according to which the separate actions and situations are thus linked together are the explanatory laws of the general economic process.  It was the view of the Physiocrats that this process would ensure the working out of all desirable adjustments in the economic system, when all individuals should have become rational or prudent men, living in a rational or just society with its “natural” scheme of

9. Dupont, De l’origine, p. 7.

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institutions.  But they united the three conceptions, of rules of prudence, rules of justice, and economic laws of the process formed by the linking together of individual actions, in a single conception of Nature’s wise laws for the regulation of the social economy.

In spite of their confusion on this point, however, their work in explanatory economic theory forms a part of their writings which can be separated readily enough from their work in ethical and legal philosophy. 1  When they are describing and analyzing the general process of economic life, they are plainly working simply to discover causal or explanatory economic laws.  On the other hand, when they are describing and eulogizing the institutions of l’ordre naturel, and the rules of droit naturel, they are as plainly advocating an ideal to be realized by human efforts.  The effect of this inclusion of their theory of the economic process in a wider social philosophy was to make it a theory of the process as it would go on in the ideal social order.  But this did not make it a thing wholly detached from observation of the existing society.  It was possible to see what tended to happen, wherever men were free and able to take the courses of action indicated by their circumstances as most conducive to the simultaneous advancement of their own and of the nation’s wealth; and to reason out what would happen in a better society, free of existing hindrances to the achievement of ideal ad-

1. To a large extent the two things were even given separate places in the arrangement of their expositions.  Thus in Mercier de la Rivière’s L’Ordre Naturel, the first 35 chapters are devoted to ethical, political, and legal philosophy, with only incidental bits of economic theory.  The remaining nine chapters are concentrated economic theory - analysis of “commerce.”  On the other hand, Baudeau’s Premiere introduction à la philosophic d’economique - one of the most readable and attractive works of the school - is descriptive and analytical throughout, a picture of the structure and operation of the nation’s economic system, with attention everywhere to the institutions and rules of conduct required to make it work for the general welfare.


justments.  The Physiocratic ordre naturel was a utopia, but a utopia less unlike the existing state of affairs than many others that were being projected at the time.  It was to be a social order adjusted to the facts with which Nature confronted mankind, the order which Nature required them to achieve in order to fulfill her purpose, and their need, for the best possible adjustment to one another and to their common physical environment.  Some approximation to it had already been achieved everywhere, being indispensable to the continuing existence of society. 2  Hence the economic process in the existing society would be an approximation, somewhat remote, to the process as described in their economic theory, i.e., the process which would go on in the “natural” social order and would result in the best possible adjustments in the economic system, from the point of view of the wealth and welfare of the nation.

The main interest of the Physiocrats was in showing what the institutions of the natural order must be.  Their science was to discover the exact scheme of institutions which Nature had made necessary for attaining the greatest good of the nation as a whole.  Dupont criticizes Montesquieu for teaching that no general and exact science of what institutions ought to be is possible, because those of every nation are and must be adjusted, not only to its peculiar conditions of topography, soil, climate, etc., but also to the tempers, habits, and inclinations of its people.  This doctrine would lead to fatalistic acquiescence in local tradition and prejudice.  The ideal end of all political societies, says Dupont, is the same, namely, to make all of their members as prosperous and happy as possible.  There must be a

2. Dupont, De l’origine, p. 7: “Un ordre qu’on ne pourrait abandonner entièrement sans opérer la dissolution de la société et bientôt la destruction absolue de l’espèce humaine.”

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science of the best means of attaining this end, under the conditions which Nature imposes.  The “laws” of this science must be exact, and independent of all traditional opinions of what ought to be done, because “there can be nothing arbitrary in physical acts directed to a definite end.  One can arrive at a given point only by taking the route that leads to it.” 3

The institutions of l’ordre naturel were to conform to the principles of droit naturel.  In his article on Droit Naturel, Quesnay begins by saying that previous writers on this subject had arrived only at vague and confused ideas, because they had not built upon observation of definite facts about human beings, their physical and mental characteristics, and their various relations to one another in specific social situations.4 A study of these facts would show what Nature intends men to recognize as their respective rights and duties, in order that they may cooperate with one another in the most effective way.  Thus Nature has obviously made it the duty of parents to do certain things for their children, and has given children a corresponding right to these parental services.  The facts of the situation in which parents and children are placed are enough to show this. 5  All rights and duties among human beings are to be determined in the same way - by the facts and requirements of the situations in which they stand in relation to one another.

The general character of the institutional régime which the Physiocrats arrived at as their ideal is familiar enough.  All men were to be free to dispose of their own persons and of their labor to the best advantage, to acquire and control property in land and movable goods, and to have access at all times to the best mar-

3. De l’origine, p. 7.

4. Quesnay, Works, pp. 360-363.

5.Ibid., p. 365.


kets at home and abroad.  There was to be a government, headed by a monarch with the sole power to promulgate laws and control their administration.  But the monarch or “despot” could not “make” laws; he could only promulgate as statutes of the realm the rules of “natural law” (droit naturel); and he was to be checked by an independent judiciary, trained in natural law, and possessing a judicial veto.  An important function of the state was to educate all citizens, especially in the principles of natural law.  The land-owning aristocracy would be trustees for the nation of the produit net, the net income of their lands, which was the nation’s only net income above the costs of keeping production going and supporting the producers and the “sterile” urban population.  A part of the produit net would go to the state, as the only tax; and the landowners would use part of what was left in improving lands, so that production would not merely be kept going, but would be increased.  Tho a net income, the produit net was the landowner’s reward for those original “advances,” made by himself or by his ancestors, which had prepared the land for cultivation.  It provided him with both the means and the incentive to make new advances of the same kind.  The larger the produit net the greater the incentive would be to improve land and thus make economic progress cumulative.  With free markets, rents no greater than the produit net, and no taxes, the peasant cultivators would be able to stock their farms with adequate equipment, make adequate “annual advances” for cultivation, and bring their fields to the highest efficiency in production.  The useful, tho “unproductive,” industry and commerce of the towns would be similarly freed from its handicaps and enabled to function “naturally” in the new régime.  With universal free exchange

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and competition, prices and incomes would be kept at their “natural” levels, supplies in all markets would adjust themselves to demands, and the economic system would become the efficient and harmonious mechanism which Nature intended it to be.

It should be clear from what I have said that the laissez faire maxim, as used by the Physiocrats, was not a counsel of inaction.  Their “legal despotism” was to be a vigorous and active government, but active only along the wise lines pointed out by Nature.  The immediate program of action which they had in mind, of course, was one of destruction of old abuses.  But the permanent task of enforcing the rules of droit naturel meant the carrying out of a definite tho simple program of “social control” of economic life.  To protect every man in his natural rights, was to restrain every man from encroaching upon the natural rights of his fellows.  To give every man the same liberty and opportunity to pursue his own interests, was to prevent individuals, groups, classes, and localities from claiming and exercising privileges of a monopolistic character, or asserting their own interests beyond the limits of justice or to the detriment of the legitimate interests of others.  The particular forms of public and social action to which they objected were such as really impeded and crippled the normal activities of some groups and classes, for the sake of protecting the vested interests of others .6

The utilitarian character of the whole philosophy of the “sect” is also evident from what I have said.  Nature’s purpose is to maximize the wealth and happiness of mankind.  Her injunctions to men are the indications she gives, by the situations in which she has placed

6. My contention here is sufficiently supported by the fact that the Physiocrats always coupled individual rights with correlative duties.  See for instance Dupont, De l’origine, p. 11.


them, of the things they must do to play their parts in attaining this end.  Ascertaining the precepts of Nature thus means ascertaining what is necessary to the greatest general good.  But the utilitarianism of the Physiocrats lacks that fully and truly empirical and experimental character which is the mark of the most genuine utilitarianism.  The distinctive meaning of the doctrine that whatever is most useful is “right,”is that absolute and a priori ideas of what is “right” are to be thrown away, and men are to set themselves in all openness of mind to learn by experience what really is most useful.  In spite of their intention to arrive at the principles of droit naturel by observation of facts, the Physicocrats did not escape from the arbitrary dogmatism which that conception has always been too apt to carry with it.  They assumed that “Nature’s” indications of what is right in every social situation are always obvious upon a merely abstract consideration of its general features.  Their doctrine of “evidence” is here in point.  In the spirit of Descartes, they reasoned from “clear ideas” about the facts of social life, which seemed to them “evident” as soon as stated. 7  These ideas were generally “evident” enough, if taken as the abstractions which they really were; but the Physiocrats reasoned as if they were complete descriptions of concrete social facts, in which capacity they really could figure at best only as half-truths.  The system was a kind of abstract social geometry, useful as such, but needing an almost infinite amount of modification and filling out by detailed studies to make it an adequate map of the most useful social order.

7. See Quesnay’s article “Evidence” Works, pp. 764 ff.; and Mercierde la Rivière, L’ordre Naturel, chap. 9.

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Adam Smith’s philosophy of the natural order of things in social life was very different, evolved by a mind and temper very different from that of Quesnay, and built upon a much broader basis of scholarship and of careful empirical studies.  Smith belonged to the school which trusted not so much the natural human faculty of reason as the natural instincts or propensities and the natural feelings or sentiments of mankind to achieve the natural order.  Reason also had its part to play, in his view, but it was a minor part.  Things would turn out best if men attempted a rational or deliberate management only of their personal affairs and of such public affairs as could be brought within the range of their limited powers of foresight and control.  If every man would attend to the little part of the social system that was under his immediate charge, and for the rest would let his natural instincts and feelings be his guide, the system as a whole and the general welfare would take care of themselves.  Ambitious efforts of rationalistic reformers and statesmen to make men work together in accordance with their logical plans, would always come up against the fact that human beings could not be moved about like pieces on a chessboard.  The wise statesman would therefore learn to cooperate with Nature; i.e., to let natural tendencies, resulting from the natural propensities and sentiments of men, work themselves out in social life, with only a certain minimum of regulation by institutions which should themselves express or harmonize with the feelings, habits, and even to some extent the prejudices of the great mass of the population. 8

This view that a “natural” social order, including

8. Theory of Moral Sentiments, Part VI, sec. 2, csp. chap. 2.  See also Part VII, sec. 2, chap. 3.


“natural” institutions, is to be achieved by the normal operation of the instincts and feelings of men, supplemented by their intelligence as that may work in the spheres in which it is effective, puts Smith in the class of such thinkers as Bacon, Montesquieu, and Burke, who were more apt to appeal to traditions that had grown up in this way and become adapted to local conditions than to urge abstract theories and schemes of sudden reform.  Bacon’s conception of the leges lequm was less like other conceptions of juristic natural law than it was like a conception of social or even historical laws, which ensure a gradual adjustment of systems of law and policy to the tempers, habits, and requirements of the population. 9  Montesquieu indulged in some abstract doctrines, but his main idea was that institutions should be adjusted, and will in the end adjust themselves, to conditions, and to habits and impulses of the people, which are beyond the lawmaker’s control. 1  Burke opposed the abstract “natural right” theories of the French philosophes, but had his own theory of the way in which “Nature” instructs mankind in the evolution of sound institutions - chiefly through instincts and sentiments which, through a long historical process, find expression in institutions that work and become objects of loyalty. 2  Adam Smith was closer to the camp of Montesquieu and Burke than to that of Quesnay or Bentham. 3  He differed from the later historical jurists in his ability to combine with this largely anti-rationalist philosophy an acute and minute analysis of the social “mechanisms” which, with some help from human in-

9. Cf. D. Stewart, Dissertations, pp. 71-74.

1. Ibid., pp. 189-193.

2. Burke, Reflections on the French Revolution.

3. Bentham, of course, was not an adherent of any form of the doctrine of juristic “natural law,” but his own legal philosophy relied entirely on abstract logic to construct an ideal system of law.

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telligence, produce that adjustment to one another of all individual interests which is social “order.” 4

Smith’s neglected “Essays on Philosophical Subjects” 5 throw much light, I think, upon the philosophy which pervades both the Theory of Moral Sentiments and the Wealth of Nations.  The task of the natural sciences, according to Smith, is to find “connecting links” between events or phenomena which at first appear unrelated.  In this way it reduces the apparent chaos of phenomena to an ordered system, and in the end gives us the inspiring conception of the universe as a single, vast “machine,” whose parts work together as if according to a plan. 6  When the philosophers of antiquity first arrived at this conception, they could not help inferring that the unity and coordination of parts in the cosmos implied a unity in the “cause” of the whole, and an intelligent design; and thus “science gave birth to the first theism,” i.e., monotheism as distinguished from the earlier polytheism, which had pictured the gods as interfering in the natural course of things, instead of as planning that course. 7

It is not too much to say that in the Theory of Moral Sentiments and in the Wealth of Nations Smith was trying to do in social science what he described natural’ science as doing in its field, i.e., to discover “connecting

4. As bearing on this conception of social “order,” see J. Dickinson, “Social Order and Political Authority,” Am. Pol. Sci. Rev., May, 1929.

5. The history of these essays, and their connection with Adam Smith’s teaching, are touched upon in Francis Hirst’s biography of Smith.  Auguste Comte praised them, and largely on the basis of the indication they give of Smith’s acquaintance with natural science, made an exception in favor of their author in making his general charge against the “metaphysical” economists.  Cours de Philosophic Positive, 5th ed., iv, 212-213.

6. “The Principles Which Lead and Direct Philosophical Inquiries, Illustrated by the History of Astronomy,” Section II. In The Whole Works of A. Smith, (London, 1822), v, 10-18.

7. “The Principles Which Lead, etc., Illustrated by the History of the Ancient Physics,”  ibid., pp. 89-90.


links” among the minds and among the actions of separate individuals in social life, and thus arrive at the conception of a systematic order among social phenomena.  He did not sharply distinguish “order,” in the sense of a system of uniform causal relations among social events, from “order” in the sense of a set of harmonious adjustments among individual interests, resulting in a well-ordered society.  But in the social processes which he described as maintaining order and equilibrium among individual interests, human intelligence and planning, human moral feelings, efforts of men as responsible beings to achieve social order, and human legal institutions, all had parts to play.  The natural propensities and feelings of men, however, rather than their powers of rational foresight, were represented as the main agencies at work.  And in the fact that these propensities and feelings, which were due to the original endowments of human nature, tended to produce a harmonious order in social life, he found warrant for an inference that “Nature” or the “Author of Nature” was working through human propensities and feelings to realize a beneficent purpose that transcended human purposes.

The character of this optimistic teleology is perhaps best brought out in his argument against Hume’s explanation of the sense of justice, which prompts us to approve the punishment by the state of every individual who commits what we regard as an unjust act against another.  Hume had explained this feeling of indignation as due to a perception of the social utility of compelling every man to respect the rights of his fellows, and to “sympathy” with the general happiness thus protected.  Smith does not deny that this social utility is the good which is accomplished by enforcing justice; but he denies that perception or foresight of the

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social benefit is the cause of the feeling in question.  To make it the cause, he says, is to forget to apply in social science the principle of natural science that a scientific explanation must run in terms of “efficient causes,” not of ends or “final causes”!  The wheels of a watch make it give the correct time, not because they intend this result, but because they are controlled by a spring.  The intention was in the mind of the watchmaker who designed the mechanism, but the task of explaining the movements of the hands is one of explaining the working of this mechanism.  In the same way, Smith thinks, the moral feeling that makes us approve what is in fact socially useful is produced, not by our conscious intention to promote society’s welfare and our knowledge of how to promote it, but by the springs with which Nature has equipped our mental and emotional machinery.  He admits that conscious purposes and rational foresight play some part in the operation of human minds; but many of the socially useful results that flow from individual feelings and actions are planned, not by men, but by the Author of their natures.  Much that is imputed to the wisdom of men is due to the wisdom of God.  Psychological and social science has to explain the operation of the mechanisms by which the Divine purpose is achieved.  This argument makes it clear that Smith’s references to the purposes of Nature, the “guiding hand,” etc., were not substitutes for scientific explanations of social phenomena but an appendage to them.  They were set up in opposition to the hurnan teleology that attributes everything which comes to pass in social life to deliberate and far-seeing human purposes. 8

8 Theory of Moral Sentiments, Part TI, sec. 2, chap. 2; (6th ed.) i, 216-229.  I do not mean to deny that Smith’s belief that Divine wisdom had designed the mental and social mechanisms, had a tendency to bias his “scientific” account of their working, in the direction of “op-[timism.”  But a belief that individual behavior often promotes social welfare, without a conscious intention to promote it being in the mind of the individual, does not necessarily depend on theology.  See in this connection the praise of Smith’s Moral Sentiments in T. H. Huxley, Evolution and Ethics (New York, 1899), pp. 28, 30.]

HHC: [bracketed] displayed on page 231 of original.


As we should expect, in view of these characteristics of his thinking, Smith’s theory of the natural economic order differed from that of the Physiocrats in being less a theory of an ideal order to be achieved by a rational plan of reform than a theory of an existing order among economic events. 9  The Wealth of Nations is a descriptive and explanatory treatise.  The natural propensity of men to truck and barter, rather than rational foresight of an advantage to be gained, has led to the development of a system of division of labor, which makes men interdependent, and increases their economic efficiency. 1  The natural desire of every man to better his own condition, rather than rational plans of statesmen, ensures the continuous progress of national wealth. 2  The gravitation of men, money, and goods to their best markets keeps all prices and incomes near their “natural” levels, and carries men, without foresight on their part of the socially good result, into the fields of activity in which they can do most to increase the wealth of the nation, as well as their own wealth. 3  All this comes about almost regardless of the wisdom or folly of governments.  Smith criticizes the Physiocrats for regarding their precise “regimen of laws” as absolutely essential to the health of the economic organism.  His own view was that, though misdirected public policies could do some harm, the persistent pressures toward adjustment and progress kept in play by individual interests would

9. Cf. Viner, “A. Smith and Laissez-Faire,” Journ. of Pol. Econ. (April, 1927) p. 198.

1. Wealth of Nations, bk. I, chap. 2.

2. Ibid., bk. IV, chap. 9, p. 304 (my references are to 4th ed. by McCulloch, 1850).

3. Ibid., bk. I, chap. 7, and bk. IV, chap. 2, pp. 198-200.

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always act as the vis medicatrix to maintain a tolerable degree of health and soundness in the organism. 4

Yet Adam Smith also had his ideal of an institutional order, a little different from the system existing in his day in Great Britain.  His account of economic tendencies was intended to be close to the facts of contemporary society, but still closer to the facts as they would be if existing impediments to “natural” economic adjustments were removed.  The inquiry was in the main quite objective and scientific in spirit, but it is true that it was directed to the end of making out a case for the program of public policy which he believed to be “recommended by Nature.”  This program he described, in negative terms, as an abolition of “all systems either of preference or of restraint,” which would enable “the simple and obvious system of natural liberty” to “establish itself of its own accord.” 5  This language has obscured for his readers the fact that the “system of natural liberty” was Smith’s ideal legal system, corresponding in its own way to that of the Physiocrats.

The evidence of this, and of the character of his ideal, is to be obtained from a comparative study of the Wealth of Nations and the Theory of Moral Sentiments. 6  The relation of these two treatises has never, I think, been rightly understood.  The view that the central doctrine of one is inconsistent with that of the other is without foundation. 7  The “sympathy” of the Theory is not benevolence or altruism, and the “self interest” of the Inquiry is not selfishness.  A German historian of philosophy says truly that in the former work Smith found “in the mechanism of sympathetic

4. Ibid., bk. IV, chap. 9, p. 304.

5. Ibid., bk. IV, chap. 9, p. 311.

6. Some additional evidence is also provided by the report of Smith’s lectures on jurisprudence, published by Cannan. Sec page 235, note 5.

7. G. R. Morrow, The Ethical and Economic Theories of Adam Smith, and Hasbach, Untersuchungen über A. Smith, are fairly good on the relation of the two.


transfers of feeling an adjustment of individual interests similar to that which he… found in the mechanism of the exchange of external goods.” 8  A more precise statement of the matter can be given.  In one work we have a theory of the way in which “sympathetic transfers of feeling” set limits to the assertion of individual interests and promote social harmony: partly by creating moral sentiments in the minds of individuals which directly modify their conduct, and partly by causing society to evolve a legal system which expresses the moral sentiments common to the mass of mankind, and imposes restraints which not every individual would always impose upon himself.  In the other work we have a theory of the way in which the individual interests, thus limited, themselves promote economic adjustment and harmony.  The two treatises therefore give us complementary halves of Smith’s social philosophy.

The Theory of Moral Sentiments is a study of the sociological and psychological genesis of moral feelings.  I cannot wholly agree with Professor Viner’s opinion that it embodies a more extreme and repellent form of its author’s optimistic teleology than is to be found in the Wealth of Nations. 9  There is a difference of degree of this sort, but it does not seem to me to be very marked.  It is to be remembered that the Theory is dealing, not with the actual behavior of men, but with the genesis of the moral feelings which tell them how they ought to behave.  That the feelings are not always developed strongly enough to be effective in controlling conduct, is frequently admitted. 1  The ethical element in the

8. Windelband, History of Philosophy, trans. Tufts (2d. ed., 1914) P. 518.

9. J. Viner, “Adam Smith and Laissez Faire,” Journ. of Pol. Econ. (April, 1917), pp. 200-201.

1. E.g., Part I, sec. 3, chap. 3; Part 3, chap. 3, pp. 379-388 (6th ed., vol. i); Part 3, chap. 4; Part 5, chap. 2, pp. 19-20 (vol. ii); Part 6, sec. 3, PP. 120 if.

233 Index

treatise lies just in the idea of the individual’s responsibility for making the effort to develop and strengthen in his mind, and to act in accordance with, the feelings and the rules of conduct suggested to him by the social experience which comes through his faculty of sympathy.  The “connecting links” between the minds of men in the social mechanism that is being described stop short at the threshholds of the free volitions of individual minds.  If the volitions play their proper parts, the mechanism works harmoniously.  But the admission that they frequently fail to play their parts properly makes the Theory an account, not strictly of what social life is, but of what it can be.

The complex account of the operation of sympathy can only be summarized here.  Individuals tend to be led, by their sympathies and desires for sympathy, to restrain their selfish desires, ambitions, and impulses, and keep them within certain limits.  Immediate feelings not always sufficing to define and enforce these limits, they build up rules of conduct from their experience of what their feelings normally are.  These rules, he says, are the celebrated moral laws of Nature. 2  The limits which they impose upon the assertion of private interests are at a mean between those which, in the absence of sympathy, other interested parties would impose upon the individual to prevent him from encroaching upon their interests, and those which, in the absence of sympathy, he would allow himself to reach in giving rein to his expansive desires.

A vigorous pursuit of one’s own interests, within the limits thus imposed, is treated in the Moral Sentiments as the virtue of prudence.  Desire for the sympathy and approval of his fellows tends to make a man practise this virtue, just as it tends to make him stop in the pur-

2. Part VI, chaps. 4 and 5.


suit of his interests at the limits beyond which he would be doing injustice to others.  Mankind in general applauds every man who gets ahead in the race for wealth and social position, so long as he does not trample on the rights of his competitors.  The truly prudent man is therefore also the just man.  The chief thing that perverts the sense of justice and turns prudence into grasping selfishness is the bias that develops if one lives in a group of his allies and is in sympathetic contact with the minds of partial, not of impartial, spectators of his actions.  The prudent man retains his sense of justice by keeping a little aloof from his group and mixing as a friend in all kinds of company. 3

It is unfortunate that Smith never wrote his promised treatise on “the rules of natural justice which ought to underlie and be the foundation of the laws of all nations.” 4  But the Theory of Moral Sentiments, supplemented to some extent by the copy of a student’s notes of his lectures on natural jurisprudence, which Professor Cannan discovered, enables us to learn what his views were as to the general spirit of these rules. 5  They would simply protect every man’s right to pursue his own interests within the limits imposed by the necessity of giving similar protection to every other man.  Now I, think it is clear that the legal system embodying the rules of natural justice is the system of natural liberty of the Wealth of Nations.  When the systems of preference and restraint are abolished, it will “establish itself of its own accord,” i.e., not without human effort, but

3. Theory of Moral Sentiments, Part VI, sec. 1 (of Prudence); Part II, sec. 2, chap. 2, esp. p. 207 (vol. 1, 6th ed.); Part III, chap. 3, pp. 382-86.

4. Moral Sentiments, Part VII, sec. 4, vol. ii, pp. 395-399; and introd. to this 6th ed., vol. i, pp. vi-vii.

5. The lectures add only a little to our knowledge of his views on jurisprudence.  Cf. Cannan’s editorial introduction.

235 Index

as an expression of the moral sentiments “natural” to mankind. 6

The other systems violated those sentiments, in Smith’s opinion.  They were not only detrimental to national wealth, but they were also unjust; they involved “preference” or partiality as well as “restraint.”  They had been established, not in obedience to the sentiment of justice, but in pursuance of excessively clever - and mistaken - ideas of “policy.”  Men had supposed that, in order to get ahead of other nations in commercial rivalry, it was necessary to disregard moral scruples and sacrifice the interests, not only of foreigners, but of large classes in the home population to the interests of those engaged in the favored industries and trades.  Within the nation a similar belief in every locality had led to local ordinances which invaded rights or legitimate interests of numerous individuals, and interfered with that free movement of all things to their best markets so necessary to the proper working of the economic system.  The Wealth of Nations aimed to prove that justice, or equal liberty for all, was the best economic policy for nations and communities. 7

In harmony with this is the further fact that the individual self-interest approved in the Wealth of Nations as a socially beneficent force is the prudence of the Theory of Moral Sentiments, i.e., a self-interest working within limits fixed by rules and sentiments of justice.  This is shown, in a negative way, by the many vigorous criticisms of the selfishness of manufacturers and mer-

6. In the paragraph in which this system is referred to - the next to the last paragraph of Book IV, chap. 9 - he explicitly says that under it the state or sovereign still has the duty of “protecting… every member of the society against the injustice or oppression of every other member of it.”

7. W. of N., bk. IV, chaps. 1-8, repeatedly attacks the injustice of the restrictions of the “commercial system.”  See esp. chap. 2, and end of chap. 8.


chants, who band together to exclude new rivals from their trades and exploit the public. 8  Hasbach and others have commented on the contrast between the ideal prudent man of the Moral Sentiments and the business men portrayed in the Wealth of Nations.  Adam Smith was no admirer of business men as a class, and no spokesman or mouthpiece of a “rising bourgeoisie.”  The pursuit of private economic gain or advantage ceased to be regarded by him as a worthy and socially beneficent activity whenever it took the form of efforts to secure or to protect monopolistic advantages.

Universal free and fair competition was his ideal.  But his attacks upon the greed of those who sought to escape from or to limit competition show that he recognized that the kind of competition which he had in mind could exist only if all the competitors were like the ideal prudent man - men anxious to get ahead in all fair ways, but unwilling to do injustice to others.  The failure of so many business men to live up to this ideal he explained, in both of his treatises, as a failure due to the warping of their sense of justice by constant association with those who were more their allies than their rivals. 9  The resulting exaggeration of legitimate self-interest into anti-social selfishness was precisely the cause of those systems of public policy against which the Wealth of Nations was directed.  The system of natural liberty, by guaranteeing to all men the same liberty to compete on equal terms in every market and every field of employment or investment, would thereby deny to all men the right to assert and protect their vested interests at the expense of others and of society.

8. W. of N. (4th ed. by McCulloch, 1850), pp. 203, 207, 218-219, 298-299.

9. Moral Sentiments, 6th ed., pp. 382-386; W. of N., McCulloch ed., p.203.

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Competition, in Smith’s economic theory, played the role of a restraining force, which would limit the selfishness of every individual by making it necessary for him to treat all with whom he had dealings just as well as his competitors would treat them.  There is an analogy between this role of competition in his economic theory and the role of sympathy in the Theory of Moral Sentiments.  But my present argument is that there is more than this analogy between the two.  There is also a dependence of one of these restraining agencies upon the other.  Competition could work as Adam Smith thought it should work only in a society whose legal system, and whose current and effective standards of business morality, were products of the effective working of the force of sympathy.  It was the moral sentiments engendered by sympathy which dictated the system of natural liberty as the just legal system.  And the business man whose sympathies were working normally would accept this régime, seek no favors from the state which would be inconsistent with it, and practise competition in the spirit of it.  That many business men were in fact unwilling to do this, he was quite realist enough to acknowledge.  But he directed his argument mainly against legislative policies which aided groups of grasping business men to escape from the restraints of competition.  It was perhaps one of his greatest mistakes that he tended to assume that, if the law and public policy did not help any man to escape from the restraints of competition, he could not escape from them and would be compelled by competition to behave very much as if he had normal sympathies, whether he had them or not.



The economic and social philosophies of the Physiocrats and Adam Smith, though very different in character, thus came to very similar results.  Under a “natural” régime of institutions, or of law and policy, a “natural” economic process would ensure the working out of the right adjustments in the economic system and the maximization of national wealth.  For the Physiocrats the “natural” legal system was the one indicated by Nature, through certain simple and obvious facts of social life, to the “reason” of the reformer, as the system intended and calculated to promote the general welfare.  For Adam Smith it was the system which harmonizes with the moral sentiments that Nature engenders in men’s minds through the workings of sympathy.  The character or content of the ideal system was about the same for both.  It would guarantee to all men certain rights or liberties, thereby denying to every man all privileges inconsistent with the rights of others.  It was therefore not a system that implied passivity on the part of governments, or an absence of “social control” of individual behavior and the course of economic events.  The “natural” economic process was not an uncontrolled process but the process intended by Nature, and capable of complete realization as the actual economic process only if the state should do its part by establishing the laws and policies prescribed by Nature.

It is, of course, true that the functions of the state, in the ideal régime, were very narrowly conceived and limited, and that the need of any general or far-reaching collective or public control of the economic system, beyond that implied in protecting individual rights, was denied.  But this feature of these two economic philosophies was not an inevitable result either of the notion of “natural” economic laws, or of that of juristic

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“natural law,” or of the combination of the two.  It was a result of the content which these eighteenth-century writers happened to put into the latter of these concepts.  Protecting the rights of all individuals against encroachment by other individuals may involve a great deal of state activity, if the rights are defined in a certain way.  But the simple legal philosophies of Quesnay and Adam Smith defined individual rights in such a way that only a very limited amount of state activity appeared to be necessary. 1  Moreover, they failed to see that, in addition to its function of protecting rights, the state has a function of leadership of group activities. 2  As it happened, the efforts of governments of that day to exercise this function of leadership, in relation to industry and commerce, or to assist in the promotion of national wealth, had taken forms which they regarded, with much justification, as involving unfair partialities to special groups and interests, and as inept for their purpose.  For this reason they condemned those efforts as contrary to the plan and precepts of Nature.  But if other functions of the state besides those which they assigned to it had appeared to them to be functions which it needed to exercise, in order to play its own part most effectively in promoting the general welfare, their philosophies would have permitted and would even have compelled them to regard these other functions also as ordained by Nature.

In saying this, I am neither denying the importance of, nor condoning, the laissez faire note in these two economic philosophies.  The Physiocrats and Adam Smith did say that, in guaranteeing to all men impar-

1. It is also true that the assumption that the “reason” (in one case) or the “sympathies” (in the other) of the individual himself would generally go far to make him respect the rights of others, played a part here.

2. Cf. Dickinson, “Social Order and Pol. Authority,” Am. Pol. Sci. Rev., May, 1929.


tially those rights or liberties which they regarded as “natural,” the state would be doing about all that wise Nature required or permitted it to do, for its part, in promoting the general welfare; and that, in doing much more than this in the way of controlling economic activities, it would be violating the precepts of Nature and interfering with the harmonious “natural” working of the economic system.  In thus claiming the sanction of “Nature” for their particular ideals, they gave those ideals a certain dogmatic rigidity.  And in interweaving the exposition of their ideals with their expositions of explanatory economic theory, they built a laissez faire bias into the structure of economic thought.

0.H. Taylor

University of Pennsylvania



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