The modern science of Political Economy grew out of the empiricist tradition of English thought. It was a theoretical response to the vast expansion of manufacturing industry in the late eighteenth century and the consequent rise to power of middle-class entrepreneurs. For the first time ever, economic power was held by a class with no roots in the land. For this reason, the development of economic theory is connected with the beginnings of British democracy — in particular with the extension of the franchise to the urban middle class, eventually brought about by the Great Reform Bill Of 1832.
The undisputed founder of 'classical' economics was Adam Smith (1723-1790), whose book The Wealth of Nations (1776) was the first systematic study of the workings of modern economies. Smith's aim was to examine the causes of economic progress and its effects. Like the American revolutionaries, he takes it that men are born free. Prosperity, which he thinks of as the ever-increasing accumulation of material wealth, is most likely to be achieved in a society which declines to restrict freedom more than is necessary. This means that individuals, set free to pursue their own economic interests, benefit the community as a whole by adding to the sum of their nation's wealth. As Smith saw it, prosperity cannot be achieved by government. The state should play no role at all in the regulation of the economy, except to arbitrate — through the clear and firm administration of justice — when different self-interests come into conflict. Thus, in many respects, Smith's political views anticipate the nineteenth-century doctrine of laissez-faire.
The Wealth of Nations begins with the observation that 'the productive powers of labour' had been greatly improved in Smith's own time by what Ruskin was to call, with heavy irony, 'the great civilised invention of the division of labour'. This term refers to the method of production that is at the heart of industrial economies. When labour is divided, the individual worker ceases to be responsible for the manufacture of a whole product. On the contrary, he is obliged to work only on a part of it, so that his work becomes the specialized repetition of a single process. This system promotes greater speed and efficiency of production, but — as Ruskin, Marx and other moralists argued — alienates the worker from the products of his labour. Smith was aware of this problem, and disturbed by it. But, though he was by training and profession a moralist, he deliberately excluded moral considerations from his analysis of material problems. He was trying to initiate a science, a study of the laws that determine material prosperity.
These basic principles were developed and their detailed implications questioned and explored by David Ricardo (1772-1823) in his book The Principles of Political Economy and Taxation (1817). Ricardo systematized the laws of cause and effect in the theory, to give it a more scientific finish. His best-known contribution to the debate was the Labour Theory of Value, according to which, differences in the exchange value of commodities are determined by the relative quantities of labour that go into their production and distribution. (This argument had a clear effect on what Ruskin has to say about work and cost in Unto this Last.) Like Smith, Ricardo was a man of libertarian social attitudes, but he lacked something of the master's moral subtlety; and much of the inhumanity that appalled the critics of the classical economists had its origin in his work.
Still more disturbing to such critics were the theories of his contemporary, T. R. Malthus (1766-1834), author of An Essay on the Principle of Population (1798). He argued that, since population increases at a faster rate than the means of subsistence, the latter will control the growth of the former through the agency of starvation. Malthus's argument influenced Ricardo and resulted in the notorious 'Iron Law of Wages'. This law, first hinted at by Smith, states that there is a natural price for labour: one which enables the worker to subsist but, through the threat of starvation, prevents the working population from increasing or decreasing in number.
The theories of Smith, Ricardo and Malthus were championed by the Utilitarian school of philosophy, whose founder, Jeremy Bentham (1748-1832), had argued, in a famous sentence, that
'The greatest happiness of the greatest number is the foundation of morals and legislation'.
In his view, the principles of human conduct were governed by pain and pleasure alone. Laws were good if they were useful — that is, if they promoted as much pleasure in the individual as was compatible with the pleasure of others, and protected him as far as possible from pain. Human actions were therefore motivated by self-interest. It was the function of law and institutions to ensure that the individual subordinated his own need for happiness to the happiness of the community.
Bentham and the classical economists had a great deal in common, and their ideas were brought together mainly through the efforts of James Mill (1773-1836) — who had first encouraged Ricardo to write — and his son John Stuart Mill (1806-73). The younger Mill's philosophical work goes far beyond the narrowly mechanistic materialism of those who inspired it. Nevertheless, it was he who became the main target of Ruskin's assault, largely because his Principles of Political Economy (1848), which sought to integrate and develop the theories I have outlined, was, in Ruskin's words,
'the most reputed essay on that subject which has appeared in modern times'.
The assumptions preserved by Mill and criticized by Ruskin may be briefly summarized. Economies are governed by natural laws which cannot be changed by human will, any more than the laws of physical nature can. Among the effects of these laws is the tragic but inescapable fact that some individuals are condemned to poverty. Any attempt by governments or other institutions to interfere with the operations of these laws is doomed to worse than failure: in seeking to improve the lot of individuals, it will damage the economy and thereby the welfare of the whole community. The task of governments, therefore, must be to create conditions in which enlightened self-interest and the laws of supply and demand can work more freely and effectively. The sufferings of the poor will to a large extent be reduced when they perceive their condition and regulate their population accordingly.