John Rae - Social and Individual Wealth

John Rae: Social and Individual Wealth

The American writer, John Rae, furnishes another instance of early criticism of Smith's economics which should not be forgotten. Rae was a Scotch immigrant, first to Canada and later to the United States. His book was published in 1834 at Boston, Massachusetts, and was entitled, Statement of Some New Principles on the Subject of Political Economy, Ex­posing the Fallacies of the System of Free Trade, and of Some Other Doctrines Maintained in the Wealth of Nations.l While the title perhaps unduly emphasizes the merely critical part of the work, it sufficiently suggests the reason for presenting a brief treatment of its author at this point.

The first book of the New Principles is headed, "Individual and National Interests are not Identical." Rae adopts Lauder­dale's general idea of a difference between public and individual interests, and develops a theory of government interference in harmony with it. His idea differs from Lauderdale's, however, in that he does not consider a difference in the wealth itself, but one in the "causes giving rise to individual and national wealth." His treatment is diffuse and lacks the verve and acumen of Lauderdale's thought; but it is his merit that he clearly shows how fundamental to Smith's thought is the notion of an identity between national and individual wealth, and that he connects his analysis with public policy.

Rae states Smith's case thus: "The axiom which he brings forward, that the capital of a society is the same with that of all the individuals who compose it, being granted, it follows that to increase the capitals of all the individuals in a society is to increase the general capital of the society. It seems, there­fore, also to follow that as every man is best judge of his own business and of the modes in which his own capital may be augmented, so to prevent him from adopting these modes is to obstruct him in his efforts to increase his own capital, and . . . to check the increase of . . . general capital; and hence, that, as all laws for the regulation of commerce are in fact means by which the legislator prevents individuals conducting their busi­ness as they themselves would deem best, they must operate prejudicially on the increase of individual and so of general wealth." Furthermore, Rae points out that it is assumed by Smith that as the capital of a single individual grows through saving and accumulation, so the national capital is increased in the same way.

The whole scheme Rae rejects. In the first place, even assum­ing that individual and social interests are the same, it is not true that saving from revenue is the sole means that an individ­ual uses to increase capital. He must first gain his revenue, and thus the amount he can save depends partly on his talents and capacities. Moreover, the fact that an individual by gambling and tricky bargaining may gain wealth, shows that self-interest does not always lead to increased national wealth.

But it is not true that social and individual interests are identical, nor that the causes giving rise to wealth are the same in the two cases. For, while it is generally true that an individual can find employment, and so obtain an income from which he can save, in the case of a nation the "materials on which the national industry may be employed are to be provided, and often are or may be wanting." Individuals seem generally to grow rich by grasping a portion of existing wealth; nations, by the production of new wealth. "The two processes differ in this, that the one is acquisition, the other creation."

Rae then goes on to argue that the creation of wealth de­pends upon invention, and national wealth can be increased only through the aid of the inventive faculty.6 Thus the power of invention plays a leading part in his thought.

In this connection, it may be remarked that Rae also criticizes Smith's treatment of division of labor, holding that it springs from invention rather than the reverse, and hence is effect rather than cause of increased productivity. And, of course, there is an element of truth in this, for in reality the two are interrelated, each being now cause and now effect.

In harmony with the foregoing ideas, Rae opposed a strong tendency of the Classical School by holding that there is no presumption against governmental interference. From what has already been written, it is evident that he denies the exist­ence of any presumption in favor of laisser faire. But elsewhere he approaches the question in a different way, centering his criticism largely on the distinction between natural and artificial. He says that society is natural, proceeding from the operation of natural forces, both subjective and objective. But the states­man cannot be separated from society, nor can the actions generated by him be called unnatural. Therefore, the inter­ference of the legislator is natural, and, Rae thinks, often bene­ficial: legislation may promote intelligence and invention, and prevent dissipation of the community's funds.

Though criticism of method might more logically be reserved for later discussion, Rae's is so unique and so entwined with his criticism of the philosophy that it can hardly be passed over without a word here. Smith's method, Rae says, is not truly scientific, that is, inductive. There are two sorts of philosophy, he explains: one is explanatory and systematic, the other is inductive or scientific. The former seeks merely to explain phenomena, as does Smith, fitting them into some machinery of "natural" assumptions. Furthermore, it generalizes from familiar and ill-defined notions, and the confusion in Smith's use of the terms, value, wealth, stock, capital, self-interest, desire of bettering one's condition, etc., is illustrative. The doubts and difficulties into which political economy has fallen since Smith's day are evidence of the weakness of his method. "If we, therefore, view his work as an attempt to establish a science of wealth, on the principle of the experimental or inductive philosophy, it is exposed to the censure of transgressing every rule of that philosophy."

Just what influence Rae exerted is not clear. John Stuart Mill was acquainted with his book, and it may be conjectured that some of his modifications of the Classical system were the result. An English economist, Hearn, who, as will be seen, had some influence on Jevons, also knew Rae's work. In 1856 an Italian translation was made.