Adam Smith and his followers, and still more closely Ricardo, divided
their Political Economy into two parts: in the first they consider
the wealth of the nation without the "complication" of foreign trade,
_i.e._ they, in fact, contemplate no money or goods as going out or
coming in whatever. They then in separate chapters, forming a big
appendix, consider the effects of Foreign Trade as a series of
exchanges. They do not discuss even the payment of a lump sum of gold
to a victorious nation. Senior, in his _Handbook of Political
Economy_, has considered, first, the economy of the world conceived
as a solitary, island of small size in a world-covered sea; secondly,
he treats foreign trade by conceiving two such islands. There is no
better way of treating Political Economy than this; and it is well
for the beginner to conceive the solitary island with fifty (or a
limited number of) families only on it, and work through the ordinary
theorems (with figures) in this restricted case. Whatever is true of
the fifty families in a small island must be true for 5,000,000
families in a big island.

The facilities of modern communications have caused most countries to
differ in their circumstances materially from the conditions assumed
by Adam Smith and his successors as axioms. In the case of England,
owing to its numerous wealthy colonies, gigantic foreign trade, and
consequently world-over-spread capital, the circumstances are so
completely altered that many results of the grammar of Political
Economy no longer apply even in the rough to England. If Adam Smith
had been asked what would happen to England if the imports for one
year exceeded the exports by L150,000,000 sterling, he would have
given the same answer as his predecessors, who reckoned wealth in
gold and silver, or more probably he would have declined answer,