Early in the nineteenth century, two shrewd and eccentric Scotchmen wrote books in which they opposed Smith's economic system in a fundamental way. While accepting his individualistic point of view, they took the Wealth of Nations to task on the ground that it confused public and private wealth.
The first of these was Lord Lauderdale (1759-1830), who in 1804 published his Inquiry into the Nature and Origin of Public Wealth and into the Nature and Causes of Its Increase. French and German translations of this work appeared in 1808, and an enlarged English edition in 1819. Its main points concern value, wealth, and capital, in treating all of which the author showed much originality, and had a very considerable effect. More will be said of his ideas on value and capital in other chapters.
At the very outset, he emphasizes the importance of defining terms and analyzing their meaning; and he particularly stresses the distinction between "wealth" and "riches." The latter term he uses to designate private wealth. The former consists of "all that man desires, as useful or delightful to him".
Then, in his chapter on public wealth and private riches (pp. 43 ff.), Lauderdale begins by stating that all previous writers had made the mistake of confusing individual and national wealth, and had accordingly made national wealth equal the sum of individual riches. With such an idea, these writers had naturally reasoned that the proper way to increase national wealth is by means of "parsimony" (saving); for that is the means by which individuals become rich.
But here Lauderdale points to the fact riches of the individual depend in part upon the scarcity of the things saved, or, as we would say, an individual's wealth is the exchange value of his property. And he asks, does not common sense revolt against the idea of increasing wealth by making things scarce? "For example," he says, "let us suppose a country possessing abundance of the necessaries and conveniences of life, and universally accommodated with the purest streams of water: what opinion would be entertained of the understanding of a man, who, as the means of increasing the wealth of such a country, should propose to create a scarcity of water, the abundance of which was deservedly considered as one of the greatest blessings incident to the community? It is certain, however, that such a projection would, by this means, succeed in increasing the mass of individual riches; for to the water, which would still retain the quality of being useful and desirable, he would add the circumstance of existing in scarcity, . . . and thus the individual riches of the country would be increased in a sum equal to the value of the fee-simple of all the wells" (pp. 44-45). Or, in the case of food, to increase the supply would act vice versa. Or, again, would the declaration of a war which decreased the capital value of the national debt, rents, and other incomes, and so reduced private riches, decrease the lands, or waters, or any of the wealth of the nation? Surely not.
He concludes that it is very important to observe that in proportion as the riches of individuals are increased by an augmentation of the value of any commodity, the wealth of the nation is generally diminished (p. 50). This strongly suggests opposition between public and private interests. Indeed, he remarks: "... nothing but the impossibility of general combination protects the public wealth against the rapacity of private avarice" (p. 54).
In following chapters, Lauderdale treats of the source of wealth and the means of augmenting it, criticizing Smith vigorously on such points as non-productive labor, division of labor, and the function of capital. He concludes that wealth can be increased only by the means which produced it, namely, produetion by land, labor, and capital; parsimony, or the "baneful passion of accumulation," cannot avail.
This doctrine finds expression in the extreme conclusion that the best way to increase public wealth is to make great expenditures, while the quickest way to diminish it is to accumulate a sinking fund.
In his discussion of "accumulation" and consumption, he may be dubbed the father of the idea of overproduction based upon underconsumption.
Lauderdale's emphasis of consumption and demand, and his shrewd observations on the effects of varying distribution of wealth, are remarkable. He was far in advance of his contemporaries in these matters.
It is to be noted, too, that his treatment of capital anticipates the later development of economic thought, since he regards it as a factor coordinate with land and labor, which contributes to production by saving labor or by enabling man to do things beyond the reach of personal exertion. This is in advance of Smith's conception, but the thought is warped by Lauderdale's emphasis of oversaving and the fancied evil of having a nation overequipped with capital goods.
The breadth of Lauderdale's reading is notable, as he cites Xenophon, Locke, Petty, Vauban, Gregory King, Harris, Hume, "the works of all the Economists" (Physiocrats), William Pul-teney, Hooke, Smith, Malthus, and others.
To Americans, atjeast, it is of interest to note that an early economist of the United--States, Daniel Raymond (1820), refers to Lauderdale, anor virtually follows him in contrasting social with individual wealth,3 and the French economist, Ganilh, who was influenced by Lauderdale, in turn exerted an influence upon Raymond and other Americans. Indeed, the French translation had considerable effect ia the-land of the Physiocrats. In Germany, one of the chief economists influenced by him was Hermann. One of the many writers of the early nineteenth century who read and were influenced by Lauderdale was John Rae, concerning whom a word must be said next.