Critics of the Classical School

Critics of the Classical School: From Lauderdale to Chase

The first and most important of Smith's critics was a Scottish peer, James Maitland, eighth Earl of Lauderdale. In his book entitled, Inquiry into the Nature and Origin of Public Wealth and into the Nature and Causes of Its Increase, published in 1804, Lauderdale said that individual wealth was determined to a large extent by the scarcity of the objects possessed. He reasoned that since exchange value is a basic consideration in estimating wealth, and since exchange value may be determined in part by the scarcity of the object, one is led to a conclusion at which common sense revolts, that wealth can be increased by making things scarce. When the riches of an individual are increased by the augmentation in the value of their possessions, he argued, the wealth of the community must have been decreased, and a conflict in public and private interest is therefore inevitable. Lauderdale further criticised Smith for the latter's belief that the nation's store of capital might—like an individual's—be increased by saving. He apparently was fearful of a condition of an over-supply of capital goods and underconsumption of consumers' goods. In. this he anticipated certain modern economists by well over 125 years.

John Rae (1786-1873) was another critic of Adam Smith taking much the same line of attack as Lauderdale. In his chief work, A Statement of Some New Principles on the Subject of Political Economy, published in 1834, he said that while indi viduals grow rich by securing ownership of a larger proportion of the wealth already in existence, nations grow wealthy by the creation of new wealth. For this reason he assigned to invention a place of primary importance in the nation's life. Rae wrote on other economic topics with an insight far beyond his time. His arguments for protection of infant industries were used by John Stuart Mill; his objection to the lavish consumption of wealth, purely for the sake of show or to excite envy in one's fellows, was later elaborated by Veblen in The Theory of the Leisure Class. Rae's keen psychological analysis of time as an explanation of interest and the accumulation of wealth were exceptional not only for his time but for ours.

As one goes from the English-speaking economists of the early 19th century to those of central Europe, the criticisms of Smith and his views upon wealth become more comprehensive. Whereas Smith assumed that economic life could be treated systematically without reference to other phases of life, and its operation controlled by natural laws inherent within itself, the early German and Austrian economists began with the opposite assumption. Economic life, they believed, was bound up with all the rest of life; and since the welfare of the state was so dependent upon it, economic activity had to be subordinated to and guided by the government. Adam Muller (1779-1829) was one of the first European critics of Adam Smith who followed this reasoning. In Die Elemente der Staatskunst, published in 181 o, he pointed out that the importance which things have to the state must be considered in calculating value, and the question of what is wealth must be discussed in the light of what produces wealth and what conserves and maintains it, by which he meant, of course, the state. In one respect his theories reflected those of Lauderdale. He believed that, contrary to Smith, consumption, not abstinence, was the way to increase wealth. Muller's career as administrative officer and finally as councillor in the state chancellery of Austria gave to his works an air of practicality which survives in spite of the vague world philosophy which underlies his main principles of economics.

Friedrich List (1789-1846) who was a contemporary of Miiller's—he held the positions of Professor of Economics at Tubingen, administrative official, member of his state legislature, and political reformer—wrote in very much the same line of thought as Muller though in a more popular style. He believed Smith was wrong in confining his work to an analysis of wealth defined in terms of exchange value to the neglect of the productive forces which underlie these values. The well-being of a nation is assured by the development of productive powers rather than by the accumulation of wealth, he argued. In one respect List went far beyond Muller. He conceived of productive forces as the entire institutional life of the state—its science, law, government, religion, and arts. Teachers, physicians, judges, and administrators do not produce wealth directly, but they develop what is more important, the productive powers of the nation.
Something of the Mercantilist outlook clings to List. He believed in national self-sufficiency and in national wealth as distinct from individual wealth; he advocated protection as against free trade; and he emphasized manufacturing. Some of his views and those of other economists of his group seem to be working out historically with uncanny precision. List's major work, Das Na-tionale System der Politischen (Ekonomie, published in 1841, was a popular exposition of the theories held by both himself and Muller. It was repetitious and poorly organized but its popular style got it wide circulation and consideration.

Two other aspects of the nature of wealth as described by Adam Smith were criticised by scholars who in most things were his close followers. The great French teacher and popularizer of the theories of Smith, Jean Baptiste Say (1767-1832), objected strenuously to the way in which Smith restricted wealth to material things bearing a value capable of being preserved. In Say's opinion the "immaterial products," such as physicians' and musicians' services, were wealth even though the value of their actions was consumed in the moment of production. He could see no reason, for example, why the work of a painter should be wealth (that is, bearing a value capable of being preserved) and the work of a musician be not reckoned as such. The argument has been carried even further. Why should not talent itself be considered as wealth although possessing none of the characteristics of wealth as defined by Smith?

John Stuart Mill (1806-1873), prominent in many fields of thought in England, did little toward originating any new facets to the existing views on wealth. His chief contribution was, as a follower of the classical school originated by Smith, the systematization in English of the views held by this school with such reasonable modifications as he saw fit to make. In this respect he and Say followed similar lines. Indeed, their views on wealth are almost identical. Mill said that wealth consisted of all useful or agreeable things which possessed value in exchange; they must be material and susceptible to accumulation. Like Say, also, he included the talents and skills.

Then there is a final criticism of wealth when defined as the sum total of all material objects having value in exchange. It is a criticism from a purely ethical point of view. implicit in the writings of both Miiller and List, it was first advanced directly by the essayist John Ruskin and more recently by Stuart Chase in his Tragedy of Waste. Things which possess value in exchange may include a great deal that is personally harmful and socially undesirable. Narcotics have value in exchange. In the field of medicine they make an important contribution to social well-being; but used as a habit they are distinctly bad. As Chase saw it, our society is burdened by the production of useless and harmful objects, frequently pushed onto an undesiring public by high-pressure advertising. Yet these things have value in exchange. Ruskin met the problem by coining the world illth to be applied to those objects which in his opinion were undesirable.
At most points the early socialists were critical of ideas advanced by the followers of Adam Smith, but on a definition of wealth they seemed to be in agreement. As a matter of fact, the socialists were not as much concerned over what constituted wealth as they were over how it was distributed and who owned it. Karl Marx (1818-1883) conceded that wealth in its economic sense consisted of an accumulation of commodities. Material possessions were not the only things of value, but they were the necessary prerequisites for achieving non-material values. Hence it was necessary to provide everyone with abundance of the material means of existence in order that all might enjoy the non-material advantages of society.