I. The Transforming of Instinctive into Conscious Impulses

Thus at the very dawn of conscious thinking on economic matters you see these opposite and conflicting thoughts arise in manifold directions. We may now go on and observe the entry of a most influential theory of political economy, one that had an extraordinarily powerful influence on legislation, and a powerful influence too on the thoughts of economists themselves. I mean the theory of Adam Smith, who placed before himself this question above all: “How should we bring about a social structure such as to develop, in the best possible way, the welfare of the individual and at the same time the welfare of the community?” I will here emphasize one characteristic point. Adam Smith arrived at the idea that an entirely individualistic development of economic life is the best thing possible. He took his start from the idea that goods, the commodities we buy and sell—constituting after all the very substance of the national economy—are in effect the result of human labor. We may put it this way. Whenever we buy a thing, the thing we buy has come into existence through the performance of human labor. The piece of goods, the commodity is, as it were, crystallized human labor. And Adam Smith thought: Just because this was the foundation of economic life, prosperity will best be brought about if we do not hinder people through any kind of legislation from producing freely. The individual will do the best for the community if he does the best for himself. Roughly speaking, this is Adam Smith's idea: We shall do the very best for all mankind if we do the very best for ourselves, for then we shall best be able to deliver the goods. It will be best both for the individual and mankind to arrange the economic life in an individualistic way and not to erect hindrances by legislation or the like.