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* POLITICAL ECONOMY. 187 POLITICAL ECONOMY. ■was the result of irresistiljle political forces of the day, first expressed in the economic publica- tions of Friedrich List (1789-1840). Germany was in the process of developing into a great empire, and. as has been pointed out in connec- tion with the mercantile system, such a period in the life of a nation is almost invariably attended with protective legislation designed to make the new State industrially, as well as politically, independent and homogeneous. The new German economics simply voiced these economic and political tendencies, to which atten- tion had been called by List. The work of the German economists who succeeded Roseher, Knies, and Hildebrand has been marked by a predominant use of the inductive method and a close adherence to actual economic phenomena; by special study of the effect of legal institutions, custom, law, and ethics upon economic phe- nomena; by an intermediate attitude between extreme protectionism and extreme free-trade views : and by a discriminating sympathy with the claims of socialism. Quite generally they look to the State rather than to individual initiative to solve the problem of poverty, and they have thus become known as Eatheder- Socialisten (socialists of the professorial chair), or State Socialists, as contrasted with the Social Democrats, whose radical programme they refuse to indorse. The American reaction precedes in point of time the Xational Oekonomie of Germany, and, like the latter, had its source in the political problems attendant upon the rise of a new State. The first systematic protest came from an early group of publicists, among whom may be men- tioned Alexander Hamilton. Daniel Raymond, Matthew Carey. Hezekiah Niles, and Friedrich List. Daniel Raymond is the author of the first treatise on political economy in which a distinct- ively American system was advanced. His first work. Thoughts on Political Economy, appeared in 1820. and undoubtedly attracted a good deal of attention in certain circles. The fundamental idea of Raymond's system is his conception of wealth. Wealth, he held, is not an aggregation of exchange values, such as Adam Smith had conceived it, but the capacity or opportunity to acquire the necessaries and conveniences of life by labor. The English political economy, he held, was a study of exchange values, of private economy as opposed to national economy, and the laws of wealth laid down by Adam Smith were untrue of a nation conceived as a unity. Ex- tending his doctrine of wealth, he maintained that the interests of one class do not always coincide with the interests of the nation as a whole, and that national wealth in its true sense will be most rapidly increased by developing all the national powers to their widest possible ex- tent. He is, thus, a warm advocate of protection as opposed to the doctrine of lnisse:-faire. We come to a second period of development in American economic thought with Henry C. Carey (1793-1879), by far the most influential of the earlier Amerrcan economists. Carey's work is especially noteworthy, not only for his earnest defense of protection, but for his economic optimism and his continued attacks upon the Ricardian school. Drawing his lessons from American experience, he flatly denied the 'Mal- thusian principle and the law of diminishing re- turns. Carey's position upon these points was Vol. XVI.— 13. undoubtedly well taken for the America of hia time, and although it is questionable whether he was justified in defending the exact converse of these propositions, he did unquestionably show that the fundamental premises of the classical economy were not universally applicable. Carey defended a broad social conception of wealth similar to that held by Raymond, defining it as the measure of power which man has acquired over nature, while "'the value of an object ex- presses the resistance of nature which labor has to overcome to produce the object." Carey thus was led to propose the theory that the value of an object depends rather upon the cost of re- production than the cost of production. Perhaps the central doctrine of his .system is that of association. The increase of wealth, the increas- ing mastery of man over nature, the develop- ment of a nation's powers. Carey held to be dependent upon the increasing association result- ing from a compact population following diver- sified pursuits with a close interrelationship be- tween agriculture and manufactures. It was this optimistic belief in the possibilities of increased association that led him to advocate protection and to survey an increasing population with the greatest complacency. Since Carey's time, other American economists, like Henry George and Francis A. Walker, have e.xerted a world-wide influence upon economic thought. The younger generation of American economists have been largely trained in the German universities, and have in the main accepted the positive doctrines of the German Historical School. Without depre- ciating the work of the great English economists it may be said that American investigation is marked by the attempt to test and supplement deductive reasoning by an appeal to statistics, law, and history. In a typical American uni- versity the specialist in economic theory works harmoniously with associates whose special do- main lies in economic history, statistics, finance, or the practical problems of the day. All methods are acknowledged to be useful, and all are em- ployed. The period of criticism has given way to a period of construction : but American economic thought is still profoundly affected by the optimism and what may be called the anti- cosmopolitanism of the early American reaction. The AiSTRiAX School represents a reaction within the limits of the classical economy itself. The name Austrian School is used simply be- cause the marginal utility theory of value, which constitutes the essence of this reaction, has been most thoroughly developed and most widely ap- plied by a group of Austrian economists, includ- ing Professors Merger, Wieser, Sax, and Boehni von Bawerk ; though the theory itself was propounded almost simultaneously in 1871 by Professor Jevons in England and Menger in Austria, and is now used by a large majority of economists everywhere. The adherents of this school hold, in brief, that the utility (i.e. power of satisfying want) possessed by a commodity decreases per unit as the amount consumed in- creases, and that value itself is, or expresses, tlie utility of the last or marginal increment of the commodity supplied for consumption. It cannot be doubted that they have transformed economic theory: the old unit of real value — the pain and sacrifice of labor — has given way to a unit of utility; and the cost-of-production theorj- of exchange has been replaced by a wider concep-