Classical English Political Economy

The classical English political economy from the mid-17th century to the early 1830s, which elaborated the basic contents of the capitalist relations of production and their internal connection, was the economic thought reflecting the interests and demands of the rising bourgeoisie, and the immediate theoretical source of the Marxist political economy. Its chief representatives were William Petty (1623–1687), Adam Smith (1723–1790), and David Ricardo (1772–1823).

This period was a time of rapid growth of capitalism in Britain. On the one hand, British manufacture transitioned to mechanical industry. With the rapid increase of economic strength, the rising bourgeoisie gradually became the ruling class of society. On the other hand, the economic sphere of society was still bound by the shackles of the remnants of the feudal system and the prevailing physiocracy and mercantilism to large extent. Therefore, the contradiction between the bourgeoisie and the feudal forces still occupied the main sphere of social and political life, thus concealing the contradiction between the bourgeoisie and the proletariat, making it not become the principal contradiction of society at that time. Such characteristics of the epoch deeply stamped the classical English political economy in the service of the rising bourgeoisie deeply with the imprint of the epoch. Firstly, it criticized physiocracy and mercantilism which attached importance to the study of the sphere of circulation and commercial capital; secondly, it highlighted the part played by the production process and its status in the process of valorization of value and attached importance to the study of the sphere of production and industrial capital; thirdly, it had a positive affirmation and elaboration of the part played by the proletariat in the commodity economic production, thus revealing the part played by labor in the process of creation of value in a relatively objective way; fourthly, in terms of moral notions and legal norms, the economic questions were elaborated from the notion that man is selfish by his very nature, while the “altruistic” nature of the production for the market in the commodity economy was attached importance to; fifthly, it attached importance to the independence and autonomy of enterprises and the part played by “invisible hand” of the commodity economy.

William Petty was the founder of the classical English political economy. Petty’s economic works are mainly A Treatise of Taxes and Contributions (1662), Political Arithmetic (1690), Verbum Sapienti (1691), Political Anatomy of Ireland (written in 1674, published in 1691), Quantulumcunque Concerning Money (written in 1682, published in 1695), etc. In the modern times, he was the first to propose the value theory of labor, holding that “labor is the father of wealth” and “land is the mother of wealth”. On the basis of the value theory of labor, he considered the categories of wages, rent, interest, etc., and regarded rent as the basic form of surplus-value.

Any type of economic act requires moral concepts and legal norms corresponding to it. As an outstanding representative of classical political economy and the founder of the theoretical system of the classical English political economy, Adam Smith was well aware of this. He first elaborated The Theory of Moral Sentiments (1759), and later published An Inquiry into the Nature and Causes of the Wealth of Nations (referred to as The Wealth of Nations, The Causes of Wealth) (1776), which provided the rising bourgeoisie with the conceptual protection and economic laws for engaging in economic activity. At that time, “moral sentiments” expressed man’s capacity for making judgments and restraining self-interest. The Theory of Moral Sentiments elaborated ethical thoughts aimed at the happiness of citizens and discussed a series of concepts like prudence, self-command, charity, justice, benevolence, conscience, responsibility, virtue, habit and utility by starting out from human feeling and compassion, and advocated “altruistic” “egoism”, thus reveal the moral basis on which the human society depends for its sustenance and harmonious development as well as a general moral code that human actions ought to follow.

If The Theory of Moral Sentiments dealt with the “moral man”, The Wealth of Nations dealt with the “economic man”. On the basis of the doctrine of economic liberalism and taking national wealth as its object of inquiry, The Wealth of Nations comprehensively elaborated the nature of national wealth and the reasons for its development and change in terms of economic philosophy, theory of market mechanism, theory of free trade, and the functions of the State. It was the first masterpiece to systematically elaborate the theory and policies of classical economic liberalism. The Wealth of Nations criticized the conception of wealth of mercantilism and physiocracy. Mercantilism held that gold and silver, i.e., money, was the sole form of wealth, and that the amount of gold and silver or money owned was the standard to measure the degree of the wealth of a nation; physiocracy held that the wealth of a society is the agricultural product produced from the land, and that agriculture is the true source of the wealth. The Wealth of Nations pointed out that wealth is the total amount of commodities produced by a nation, and that the source of wealth is the labor in all sectors. The Wealth of Nations quite systematically dealt with the fundamental principles of the labor theory of value, emphasizing that labor is the source of wealth, and that the increase in the wealth of a nation mainly relies on two methods, i.e., raising the productive power of labor and increasing the number of workers in production; it elaborated the regulatory part played by the “invisible hand” on the factors of production, and held that the flow of the factors of production is completely subject to an invisible, intangible force, namely the market price mechanism It pointed out that in the capitalist society there is the proletariat, the bourgeoisie and the landlord class, that the basic forms of their income are wages, profit and rent. Smith regarded profit and rent as a kind of deduction from the value created by the labor of workers, i.e., an income gained by capitalists and landlords without labor. However, Smith regarded labor only as a means of wealth creation without carrying it through in the sphere of measuring whether the distribution is just or not, thus turned a blind eye to the phenomenon of social injustice that the workers do not appropriate the wealth created by them. Therefore, Smith did not reveal the root cause of the property gained by capitalists and landlords without labor.

David Ricardo was the perfecter of the classical English political economy. His main work of economics was On the Principles of Political Economy and Taxation (1817). Ricardo established a system of economic theory based on the labor theory of value. He inherited the scientific factors in Smith’s theory, upheld the principle that the value of commodities was determined by the labor spent in production, and from this principle he studied the relation between the three kinds of income, wages, profit and rent. He put forth that the labor that determines the value is socially necessary labor, and that it is not only the living labor but also the labor invested in the means of production that determines the value of commodities. He held that all value originated from labor and was distributed among the three classes of workers, capitalists, and landlords: wages were determined by the value of the means of life that the laborer requires for the maintenance of himself and his descendants, profit was the excess over wages, and the rent was the excess over wages and profit. Here, Ricardo essentially regarded profit as part of the commodity value created by the workers beyond the wages, and rent as a derivative form of profit, a part of the profit appropriated by the landlord, thus revealing the opposition between wages and profit, and between profit and rent, and the opposition and contradiction between the proletariat and the bourgeoisie, and between the bourgeoisie and the landlord class. Like Smith, he advocated economic liberalism and elaborated the doctrine of comparative costs on the basis of Smith’s theory of free trade and international trade. However, Ricardo regarded the capitalist system as eternally immutable, and he only paid attention to the quantitative relations of economic categories, and there are defects of metaphysics in methodology. Therefore, he could not illustrate the exchange between capital and labor and that capitals of equal size yield equal profits on the basis of the law of value. These two puzzles eventually led to the disintegration of the Ricardian theoretical system.

The disintegration of the Ricardian theoretical system was also inextricably linked with the great controversy from 1820s to 1830s and the class struggle between capital and labor. Marx has analyzed the economic root cause of the emergence of vulgar economy (the contradiction of capitalist production), as well as its class root (class struggle), its theoretical root cause (the economic doctrine of utopian socialism is its externally opposite form and the vulgar factor is its internally opposite form) and its immediate and actual root cause (the great controversy of 1830 led to the disintegration of the Ricardian system), and outlined the law of historical development of bourgeois political economy that the classical political economy necessarily transforms into vulgar economy, pointing out: “With the year 1830 came the decisive crisis. In France and in England the bourgeoisie had conquered political power. Thenceforth, the class struggle, practically as well as theoretically, took on more and more outspoken and threatening forms. It sounded the knell of scientific bourgeois economy. It was thenceforth no longer a question, whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. In place of disinterested inquirers, there were hired prize fighters; in place of genuine scientific research, the bad conscience and the evil intent of apologetic.” Thus, it accelerated “the historical process of the decline and vulgarization of the bourgeois political economy.” The one set flocked to the banner of Bastiat, the most superficial and therefore the most adequate representative of the apologetic of vulgar economy, denied the contradiction between the proletariat and the bourgeoisie, and its representative figure was also Carey; the other followed John Stuart Mill, acknowledged the contradiction between the proletariat and the bourgeoisie, but tried to reconcile the political economy of capital with the demands of the proletariat, which could no longer be ignored at this time, and its representative figure was also Senior.

Classical English political economy is one of the sources of Marx’s political economy. Marx’s theory of value was established on the basis of a critical inheritance from classical political economy. Classical British economists pioneered the shift of theoretical examination from the sphere of circulation to the sphere of production, which laid the foundation of the labor theory of value; Smith had already recognized the two factors of a commodity and put forth the view that value is created by labor; Ricardo recognized that what determines the magnitude of value of a commodity is not the amount of labor actually spent in its production, but the amount of socially necessary labor. However, the labor theory of value of the classical English political economy was very incomplete and inconsistent. It was incapable of revealing the essential attribute of commodities and differentiating the twofold character of labor. Therefore, it could not answer the question of what kind of labor creates value; it could not clearly explain the inner connection between value and exchange-value, and confused value with the price of production; if the essence of value is not grasped, value can merely be comprehended as a tool for interpreting the price of commodities. As a result, confusions and errors appeared in major theoretical issues such as the quality of value, the quantity of value, and the forms of appearance of value. Marx has critically changed the classical English political economy, assimilated the positive results of Adam Smith’s and David Ricardo’s labor theory of value, established the scientific labor theory of value, on the basis of which he further founded the theory of surplus-value.