I have now to direct your attention to a remarkable doctrine of the economists, which was, as I shall show, the cause of Smith's work.

They defined productive labour to be labour which left a profit after all expenses were defrayed. They maintained that agricultural is the only form of productive labour, i.e., that leaves a profit; and that profit they termed produit net, and held to be the only revenue of the State.

They alleged that in commerce it is always an exchange of equal values, and, therefore, that there is no profit on either side.

They admitted that manufactured articles are of greater value than the raw material, but they said that that increased value only replaced the maintenance of the workmen; and so that, upon the whole, there was no increase of value or of national wealth.

They maintained, therefore, that the agriculturists are the only class of productive labourers, and that all others are sterile or unproductive; and that as the whole revenue of the State consisted of the produit net of land, that all taxation should be laid on the rent of land.

From these doctrines they drew the astounding conclusion, that neither commerce nor manufactures can enrich a nation.

While, therefore, the doctrine before the economists was that what one side gained in an exchange the other side lost, they alleged that in an exchange neither side gains.

Now, the economists deserve this praise at least: in all their reasonings they strictly defined their terms, and there was no possibility of mistaking their meaning.

When they stigmatised all classes, except the agriculturists, as sterile and unproductive, it aroused a most powerful reaction against them ; and when the consequence of their doctrine, that in an exchange neither side gains, led to the paradoxical conclusion that neither commerce nor manufactures can enrich a nation, so contrary to the plainest facts of history, a host of writers in all countries rose up against them, and men of intelligence began to inquire whether it is true that in an exchange neither side gains.

It was these doctrines which were the real origin of Smith's "Wealth of Nations."

It has, indeed, been said that Smith taught at Glasgow the same doctrines that he afterwards published in his work. But not a line of Smith's teaching is in existence. It may possibly be true that he advocated freedom of trade at Glasgow, but there were numbers of other writers who did the same.

In 1763 Smith travelled abroad as tutor to the young Duke of Buccleuch, and became acquainted with the economists, at Paris, then in the height of their fame. In 1766 he returned to Kirkcaldy, his native place, and spent ten years in the composition of his work, which was published in 1776. Thus you see that it is quite erroneous to suppose that Smith was either the founder of political economy or the originator of free-trade. The code of the economists was published in 1759, of which free-trade was a cardinal principle. Smith's work was not published till 1776.

In the same year Condillac, the well-known metaphysician, published a work entitled "Le Commerce et le Gouvernement" written on much the same plan, and with the very same object as Smith, namely, to prove that in an exchange both sides gain; but his proof is not very satisfactory. Smith alone proved, by irrefragable reasoning, which, of course, is far too long and intricate to explain here, that in commerce both sides gain, and, of course, as the necessary consequence, that commerce and manufactures both enrich a nation, and therefore that those who engage in them are productive labourers.

Perhaps you may think that the doctrine is so plain that it needs no proof; but that is far from being the case. At the time Smith proved it, it was a perfect paradox, contrary to the universal opinion of centuries. It is now the very corner-stone of economics, and it made a complete change in the policy of nations, because the doctrine formerly held was the cause of commercial wars for centuries, while Smith's doctrine showed that every nation is interested in the prosperity of its neighbours.

And that is one of Smith's titles to immortal fame.

He does not call his work a treatise on Political Economy : he entitles it "An Inquiry into the Nature and Causes of the Wealth of Nations." But most unfortunately he never gives throughout the whole course of it any clear idea of what he means by wealth.

But in the early part he speaks of the real wealth of a country as being the "annual produce of land and labour."

We have now to examine whether such a definition can be accepted as the basis of economics as a great science.

In the first place, it is to be observed that he has omitted the quality of exchangeability from the definition which the economists expressly insisted upon.

Now, it is perfectly obvious that the mere definition of wealth as the "annual produce of land and labour" cannot be accepted as a suitable definition of the term, because, if it were so, every useless work done would be wealth. If one were to build a pyramid on the top of Ben Nevis, would that be wealth? The simplest form of the "produce of land and labour" are children's mud pies. So that if we accept that definition simply, the way to augment the wealth of the country would be to set all the dirty children in it diligently to make mud pies.

The medium price of an acre of land near the Bank of England or the Royal Exchange is about a million sterling. Is not that land wealth? And how is that land itself the "produce of land and labour?"

Further on, Smith classes the natural and acquired abilities of the inhabitants as fixed capital, and he treats labour as a vendible commodity, and has a long discussion on the price of labour or wages. Now, how are the "natural and acquired abilities" of the people the "annual produce of land and labour?" And how is labour itself the "annual produce of land and labour?" Thus, you see that Smith has already broken away from the dogma of the economists, who carefully excluded labour from the term wealth.

After, for several hundred pages, filling the minds of his readers that wealth is simply the produce of land and labour, he admits that unless a thing is exchangeable it is not wealth. Thus, after all, he admits that exchangeability is the real essence and principle of wealth.

Further on, under the term "circulating capital," he enumerates bank notes and bills of exchange. Now, bank notes and bills of exchange are credit; they are mere rights of action. Thus you see that Smith expressly includes credit under the term "wealth," which was what the economists expressly denied.

Now, how are bank notes and bills of exchange - mere rights of action - the "annual produce of land and labour?"

You will thus see that Smith extended the domain of economics: while the economists restricted it to the commerce of the material products of the earth, Smith extended it to include the commerce of labour, which he has discussed at great length. He also admitted that bank notes and bills of exchange are capital, but he never gave any exposition of the great scientific principles and mechanism of the general system of credit. He also says that the object of his work is to investigate the principles which regulate the exchangeable value of commodities.

Thus, you see, that the subject matter of Smith's first two books is, in reality, a treatise on commerce, or the theory of value . and his editor, McCulloch, says in his note, this science might be called the science of Values.

Condillac, who published his work in the same year, calls his first book "Le Commerce: or, the Principles of Economic Science."

Forbonnais, who was an eminent contemporary of the economists, published the best treatise on commerce of his day, and he calls it "Economic Principles."

Thus all contemporary writers perfectly well understood that though the economists bent their efforts to free commerce from its impediments, economics itself is the science of commerce or exchanges.

No doubt Smith did immense service to economics by demonstrating that in commerce both sides gain, and by extending its domain; but the fatal defect of his work is that the former part is entirely founded upon labour and materiality as being the essence of wealth, and the latter half adopts exchangeability pure and simple. It is also totally wanting in unity of principle and consistency of doctrine. As has been said, it is wanting in backbone.