Even when students began to focus their attention upon general economic prosperity, it took them some time to develop a really broad view of that problem. One school, known as the mercantilists, emphasized commerce, particularly foreign commerce, to such an extent as to make it seem that they identified prosperity with foreign trade. Writers of this school, for example, were accustomed to point out that an abundant supply of cheap labor was one factor in the development of foreign trade, because with cheap labor the country could compete with rival nations in international trade. This was obviously not intended to promote the prosperity of the laborers who were to supply the cheap labor. Another school, the physiocrats, emphasized the importance of agriculture as the industry which really produced a surplus over and above the cost of production.

Both these schools made the mistake of assuming an analogy between public prosperity and private prosperity. A private business which sells more than it buys, or takes in more money than it pays out, is said to be prosperous. The mercantile school assumed the same to be true of the nation at large, overlooking the fact that in the nation at large what is profit to one man may be cost to some one else, as in the case of the merchants who exported goods at a profit because they paid the laborers so little for their work. Again, a private business may be said to be prosperous when its products are greater than its costs. In agriculture there is the rent of land, which is not, strictly speaking, a cost, but a surplus income to the owner. This surplus income is the surplus value of the produce over and above the cost of producing it. Since very little rent was produced by the handicraft manufactures of the day, the physiocrats assumed that these were not very profitable industries for the country at large, but that its main prosperity came from agriculture, where the main surplus, namely rent, accrued. Like the mercantilists, they overlooked the fact that this surplus might be the result, in part at least, of the poverty of the farm laborers. With a given efficiency, the cheaper they would work the lower the cost of growing crops and the higher the rent of the land.

It was not until Adam Smith’s epoch-making work, the “Wealth of Nations,”〖See Harvard Classics, X, and Lecture III in this Course.〗 was given to the world that students began to take a really broad and comprehensive view of the problems of national welfare. Different students naturally have different special interests, but they generally realize the bearing of their specialties upon the larger problem. It has seemed at times that too many were focusing their attention upon production or exchange, and too few upon problems of distribution. For the last twenty-five years the problem of distribution has attracted more attention than all the others; but now the idea is beginning to dawn that consumption is the most important field of all, though it has been receiving the least attention of any.

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