I will now relate the circumstances which gave rise to a sect of illustrious philosophers who founded economics as a science.

In 1721, John Law's theory of paper money had been tried in France, and produced that terrible catastrophe which you all know by the name of the Mississippi scheme.

And here I may make a few passing remarks upon Law. It is too often the custom to regard him as a mere rogue and swindler and charlatan, but that is a most profound error. He was the ablest and most profound financier of his age. When France was in the lowest depths of misery at the death of Louis XIV., he addressed a series of fifteen letters on credit and banking to the Regent Orleans, which show an infinitely greater knowledge of the subject that any other writer of his day possessed.

In 1718 he was allowed to found the Bank of Paris, and in three years he had restored the country to such a state of prosperity that foreign nations sent ambassadors to congratulate the Regent.

With regard to the principles of mere credit he was perfectly sound. But he saw that the powers of credit are limited, and he conceived the unfortunate idea of issuing a paper money based upon land beyond the limit of credit. He maintained that if an inconvertible paper money were issued upon land to the amount of twenty years' purchase, it would maintain a par value with specie. He had previously brought his plan before the Scotch Parliament, in 1705, but they, with a wise instinct, rejected it. Having, however, achieved such marvellous success with his bank, he was allowed and urged to carry out his scheme of paper money, with the result so well known.

In speaking of Law, then, you must always remember that his exposition of banking and credit and his scheme of paper money are two totally distinct things. Nor was his scheme of paper money a mere swindle, as is so often thought; on the contrary, it is founded on a definite theory which he has fully explained. Unfortunately the theory is entirely erroneous, and it is quite easy to show that the consequences must necessarily have resulted from it.

His ideas are so far from being dead and gone that they have plenty of believers at the present day. The Bank of England is partly founded on Lawism. The fifteen millions of notes which the Bank is allowed to issue against public securities is an example of pure Lawism. The first increases of the National Debt were all loans from the Bank, which was on each occasion allowed to issue an increased amount of notes to an equal extent. If that principle had been carried out to the present day, we should have had a National Debt of eight hundred millions, and also eight hundred millions of notes, which I need hardly say would have landed us in as great a catastrophe as the Mississippi scheme.

Many eminent bankers at the present day advocate the issue of notes on public securities. Let me assure them that they are true disciples of Law. This was tried on a large scale in America in 1837-8-9, and the result was that in 1839 every bank in America stopped payment. The fact is that issuing notes upon land and upon public securities are identically the same in principle; and if only pushed far enough lead to the same results.

Let us now, however, resume the thread of our discourse. The Mississippi catastrophe first turned the attention of Turgot, then a very young man, to economics, but that was far from being the only circumstance. It is scarcely possible to realise the picture of the misery of the French people, given by contemporary writers, from the effect of the wars of Louis XIV., the grinding system of taxation, and the feudal privileges. Each province was a separate jurisdiction fenced round with custom-houses, so that there was no freedom of internal commerce: the minutest process of every manufacture was regulated by law; and on the slightest infraction of these regulations the manufactures were destroyed by the Government inspectors. The greater part of the world was sunk in slavery, and the slightest disrespect of the ecclesiastical authorities was punished with breaking on the wheel.

It was in 1750 that a sect of illustrious philosophers, Turgot, Quesnay, and many others directed their attention to these things and they maintained that there is a science of natural right, and that the misery they saw around them was caused by the violation of this natural right. They maintained that there is a science of the relations of men towards the State, towards each other, and towards property. In 1759 they published a code of doctrine in which they declared that freedom of person, freedom of opinion, and freedom of commerce or exchange, are the natural rights of mankind, and they also declared the fallacy of the doctrine of the balance of trade. This science they termed political economy.

It was the economists then who first declared that there is a science of political economy, and not merely advocated freedom of trade as a beneficial thing, but proclaimed it as the natural right of mankind. It was they who devised the expression, "production, distribution, and consumption of wealth," and I must ask your earnest attention to the meaning of that expression as explained by its originators.

They defined the term "wealth" to be the material products of the earth which are brought into commerce and exchanged, and those only. The products which the owners consumed themselves they termed Biens; those only which they exchanged away they termed Richesses.

Hence, as the ancients did, the founders of economics in modern times held that exchangeability is the essence of wealth as ft technical term. But they restricted it to material products. They refused to admit that labour and credit are wealth, because they said that to do that would be to admit that wealth can be created out of nothing, and they constantly repeated ex nihilo nihil fit. They therefore held that the earth is the sole source of wealth.

Now, it is contrary to the laws of natural philosophy to admit that exchangeability is the principle of wealth, and then to restrict it to material products. Bacon repeatedly points out that when you have once settled upon the principle or quality which is the basis of a science, you must search for and include all quantities whatever, however diverse their forms may be, which contain that quality, and as labour and credit are both exchangeable, it is contrary to the laws of natural philosophy to exclude them from the term wealth.

I will now explain the meaning of the expressions "Production," "'Distribution," and "Consumption" of wealth.

They defined Production to be the obtaining the raw produce from the earth and bringing it into commerce and offering it for sale.

But this raw produce is seldom fit for immediate use; it has to undergo several intermediate processes of manufacture and transport before it is brought to the person who ultimately purchases it.

All the persons engaged in these intermediate processes they termed Distributors.

The person who finally purchased the finishsd product for use and enjoyment, and took it out of commerce, they termed the Consommateur; because consommer in French means to complete or terminate, and the purchaser is the person who completes the transaction.

The whole transaction - the bringing the produce into commerce, the various changes of form and place it underwent, and its final purchase for use, or consommation - the economists termed Commerce or Exchange.

An exchange, however, may take place between two parties; and distribution was often used as equivalent to consommation. Consequently, "production, distribution, and consumption," "production and distribution," "production and consumption," were all equivalent expressions, and never meant anything else, as explained by the economists, than Commerce or Exchange.

Production and consumption never meant anything but supply and demand, and supply and demand constitute commerce or exchange.

Thus the expression "production, distribution, and consumption" is one and indivisible, and it must not be separated into its component parts.

Now, this is the whole point in the contest between the modern schools of economists - considering that these two expressions, "production, distribution, and consumption" of wealth, and Commerce or Exchange, were absolutely equivalent at their first use, which is the better conception for the science at the present day, in its enlarged state.

Even supposing that the term "wealth" is to be restricted to material things, a difficulty arises with respect to the first expression. The land itself is a saleable commodity; and how are we to speak of the "production, distribution, and consumption," of land? whereas it is quite usual to speak of the "supply and demand" of land. Thus, even if wealth were restricted to material things, the second expression is wider and more intelligible.

In fact, the first expression imposes a cast-iron limit on the subject, and it was intended to do so - there is no expansiveness on it; while the second expression is expansive, and includes all commerce in its widest extent.

The first economists were highly cultivated men, and had wide and philosophical views, but they had no practical experience of commerce. While, therefore, they perceived the national advantage of freeing commerce from all restraint, they never made any attempt to exhibit its actual mechanism.

They refused to admit that credit is wealth, but many other contemporary writers did.

The first writer in modern times who agreed with Demosthenes in designating credit as wealth, was that acute metaphysician Bishop Berkeley. In his "Querist" he has many searching queries on economics; one is "Whether power to command the industry of others (i.e., credit) be not real wealth?" So all mercantile writers, contemporary with the economists, seeing that credit has exactly the same purchasing power as money, expressly class credit as wealth. So Junius says, "Private credit is wealth."