Policy, the dictionary tells us, is a course of action adopted as advantageous or expedient. Government policy then is a course of action adopted by a government; presumably it will be alleged to be advantageous and at least believed to be expedient. There is no such clear or ample definition of economic policy. Obviously it is a course of action and probably one directed to economic results; that is, the maximization or steadying of national income or a desired modification of its distribution. However, there are few courses of action which are directed to purely economic results and many of the results so designated really fall within the field of social welfare. There are also many policies directed to non-economic results which produce important economic by-products. The term economic policy tends to be extended to any course of action which affects economic institutions or relations or those which are customarily thought of as such even though the object may be merely general equity. We are left therefore with a field of action which is not precisely defined.

Most of the classical economists, and more particularly their lesser followers, saw political economy as the art of managing, or setting the basis for managing, an economy so as to maximize national income either as a total or per capita. In fact, however, few of them consistently and rigorously exclude non-economic considerations from their work. Of them all Adam Smith dealt with economic policy most easily because he never classified himself precisely in the pigeon-hole of political economy and felt free to give the judgment of a moral philosopher and man of the world on everything from the treatment of the American colonies to the relative virtues of claret and port. This older view of political economy was easy to accept against its historical background. The policies supported by the writers and practitioners of mercantilism had by the eighteenth century become so grossly uneconomic that they could be effectively attacked with fairly crude weapons.