Book III of The Wealth Nations treats of “The Different Progress of Opulence in Different Nations.” More evidently than in any earlier section of The Wealth of Nations, the second of the two elements of the author’s method now appears, the opposite tendencies of which were never fairly brought to light till the time of Cliffe Leslie. These are the deductive and the historical methods. Neither of these two methods was developed to its extreme results.
Neither was put in the form of a distinct thesis in methodology. There could consequently have been no formal doctrine of the relations between them. Both were mobilized for Smith’s purposes, and each was worked out by Smith’s successors as a methodology which implied precedence over the other. Perhaps it is easy to overestimate the credit due to Smith for the balance which his own thinking maintained between the two methods. Perhaps the very fact that each was semi-defined, semi-conscious, in his own mind. detracts from his individual merit for the resulting sanity of his thinking. The fact remains, however, that, while Smith’s analysis compares with the work of later economists, according to either program, merely as a beginning compares with a relatively finished product, yet it also appears in the same comparison like a great architectural design in contrast with elaborately finished parts of a structure not yet assembled in a completed building.
In other words, the deductive and the historical methods were not alternatives in Smith’s system. They were partners. The historical or inductive method was appealed to so frankly that no one who goes back to Smith as a path-maker in economics can consistently disparage the historical factor of the method which he used. The deductive method was employed with equal frankness, but in the general plan of his argument the interdependence of the inductive and the deductive steps in the formation of conclusion was preserved in a way that forms a
highly creditable approach to satisfaction of those canons of proof which John Stuart Mill formulated almost a century later. That is, Smith realized the necessity of deriving principles, to be used deductively from inductive generalizations of previous experience. In this general form, his science was therefore more catholic and more convincing than that of his successors who obviously overworked the one or the other element of proof, and in either case left the proof limping from the weakness of the neglected support. In subsequent economic theory the illustrations have been many and conspicuous, on the one hand of a-priori use of generalizations not supported by a sufficient induction, and on the other hand of historical data-collecting which became virtually an end unto itself, because not carried to a completeness that afforded credible generalizations.
Speaking in the rough, there is only one source from which to derive principles of human conduct. That source is historical induction. Of course, this proposition extends the term
“historical” beyond its ordinary meaning. Everything is past, and thus “historical,” as soon as it has occurred, and thus made itself material for reflection. The present has become the past while the observer adjusts his attention to it. In this sense inductions from experience are the only positive source for generalizations of valid principles. Book III of The Wealth of Nations is, in the first instance, an attempt to show why wealth has increased in different ratios in different nations. This particular inquiry, strictly limited, is merely a question of the world’s financial bookkeeping. Strict limitation of the inquiry to this phase, however, would be arbitrary, as the world’s bookkeeping, and the activities which it records, are essential to the world’s higher activities. Next above the significance of the passage, as a study of the growth of wealth, is its significance as a theorem in methodology. It throws its weight on the side of the claim that the world’s experience, as a whole, is the source of the world’s science;
not merely that part of the world’s experience which consists chiefly of introspection of the mind’s grinding upon itself, with neglect of the objective experience which furnishes the proper grist for the mind.
It is worth notice, too, that in this book Smith again incidentally recognizes the institutional or volitional factor, as a variant in the operation of what he regarded as the “natural”
economic factors. Thus:
Had human institutions, therefore, never disturbed the natural force of things, the progressive wealth and increase of the towns would, in every political society, be consequential, and in proportion to the improvement and cultivation of the territory or country.109
The whole of Book III, indeed, from our present point of view, is notable for these two primary reasons: first, it appeals to the historical method of establishing economic principles;
second, it appeals to social occurrences to explain variations in the action of economic forces. If these two principles had been allowed their share of influence since Adam Smith, there would have been little room for divergent schools of economic theory, and scarcely an appreciable demand for the differentiation of sociologists. It is not very extravagant hyperbole to say that the whole methodology of social science is an elaboration of the
implications of these two principles.
Even in this strictly economic investigation, however, reflections occur which show that Smith was closely related by affinity with the modern theoretical and practical movements toward placing society on a frankly telic basis. For example, in discussing the reasons why entail justified itself in one state of society and not in another, he says:
When great landed estates were a sort of principalities, entails might not be unreasonable. Like what are called the fundamental laws of some monarchies, they might frequently hinder the security of thousands from being endangered by the caprice or extravagance of one man. But in the present state of Europe, when small as well as great estates derive their security from the laws of their country, nothing can be more completely absurd. They are founded upon the most absurd of all suppositions, the supposition that every successive generation of men have not an equal right to the earth, and to all that it possesses; but that the property of the present generation should be restrained and regulated according to the fancy of those who died perhaps five hundred years ago.110
This chapter is also a brief of the whole economic and social argument against slavery as a method of production. It is also in effect a demonstration of the fallacy of laissez faire as a general principle or universal precept. It shows that legislation may either kill or cure according to circumstances, and according to the fitness of the legislation. For example, speaking of the impossibility of securing the highest state of cultivation without the security of the farmer’s tenure, Smith says:
In England, therefore, the security of the tenant is equal to that of the proprietor Those laws and customs so favourable to the yeomanry have perhaps contributed more to the present grandeur of England than all their boasted regulations of commerce taken together.111
Perhaps the most important element in this portion of The Wealth of Nations, from our point of view, is the cumulative argument that laws and institutions make or mar economic as well as more general prosperity. If the ocular proof had not meanwhile been furnished, it would have been incredible that social theory could fall from the high level of Adam Smith’s outlook to the pitiable shallowness of the laissez-faire theory. Because certain types of interest did not want the government to perform certain types of actions, formulas of temporary policy were gravely promoted to the rank of inflexible principles, to the effect that government violates the fundamental order of society if it modifies economic action at all.
The humor of the situation was in the fact that the very people who most zealously fed the altar-fires of this superstition had first taken elaborate precautions to build up around their own interests the most rigid system of legal safeguards that had ever surrounded vested right since the strictest period of the Roman law.