History of Economic ThoughtBoise State University

Fall 2015Prof. D. Allen Dalton

The French Liberal School

The Historical Background• The Rise and Fall of Physiocracy– Short-lived nature of influence; preference for

Monarchy

• Turgot and the Six Edicts– Failed attempts at reform

• The French Revolution– The terror and treatment of “les economistes”

• The Rise of Napoleon• The Restoration of 1815 (Bourbons)• The Revolution of July 1830 (Louis Philippe)• 1848 Revolution and the Second Republic

The French Liberal School

• Tradition of Cantillon, Physiocracy, Turgot, Condillac

• Early members distanced selves from tradition because of republican opposition to Ancien Regime

• Claim to write “as expositors of Smith” while criticizing and extending Smith

• Subjective utility, entrepreneurial, radical laissez-faire tradition

Major Figures

• Jean-Baptiste Say (1767-1832)

• Destutt de Tracy (1754-1836)

• Frederic Bastiat (1801-1850)

• Charles Comte (1782-1837) and Charles Dunoyer (1786-1862)

• Gustave de Molinari (1819-1912)

Jean-Baptiste SayJean-Baptiste Say (1767-1832)– born Lyons, family of Huguenot

textile merchants– early years in Geneva and London– insurance business, 1787– ardent Republican during

Revolution; served in French army 1792 to repel allied armies from France

– central figure among idéologues, editor of journal La Décade philosophique 1794-1800

Jean-Baptiste SayJean-Baptiste Say (1767-1832)– Nominated to finance section of

Tribunate, 1799– Treatise on Political Economy

(1803)– 1804, Napoleon ousts Say from

Tribunate; moves to Pas-de-Clais and becomes cotton manufacturer

– 1812, retires and returns to Paris– 1814, with fall of Napoleon,

publishes 2nd edition of Treatise

Jean-Baptiste SayJean-Baptiste Say (1767-1832)– Catechism of Political Economy

(1815)– Lecturer; l’Athénée Royale, 1816-

1819– 1819, Chair of Industrial Economy,

Conservatoire National des Arts et Metiers

– Letters to Mr. Malthus (1821)– Cours complet d’économie

politique pratique (six volumes, 1828-9)

– 1831, appointed Chair of Political Economy, Collège de France

Jean-Baptiste Say• Contributions of Jean-Baptiste Say– Methodology and value-freedom of economics• Science capable of establishing absolute truth

concerning interactions among descriptive facts• Science is to better society; teach the public

– Utility as source of value; prices as reflections of “degrees of estimations” of value

– Productiveness of all factors in creating immaterial services of greater value

Jean-Baptiste Say• Contributions of Jean-Baptiste Say– Entrepreneur (enterpriser) center of productive

process

– Profit as return to entrepreneur, not capitalist; interest as return to capitalist

– Production process in time

– Demand/supply theory of monetary value; hard money (full convertibility) advocate

– Government spending as consumption; taxation as burden on production of values

– Say’s Law of Markets

Say’s Influence

• Kept alive French tradition

• Radicalized the Smithian free-trade position

• Advocate of Industrialism

• Treatise is leading textbook in American universities through the Civil War

• Focused French Liberal School on “public education”

Antoine Louis Claude Destutt, Comte de Tracy (1754-1836)

• Leader of idéologues– ideology: science of ideas

and human action (on human will and its effects)

– inspired by Condillac (primacy of experience and empiricism); worked closely with biologists, psychologists

• Éléments d’idéologie (1810-1815, five volumes)

Destutt de Tracy (1754-1836)• Economic Writings

– Commentary on Montesquieu (1807)– Fourth volume of Elements completed by 1811 Traité

de la volonté (Treatise on the Will), published in Jefferson’s American translation as A Treatise on Political Economy (1817)• Jefferson encourages adoption; soon surpassed by Say’s

Treatise

• Centrality of Entrepreneur– Saving, employment of labor, producer of utility

beyond value of original capital– Centrality of property in one’s own faculties (faculties

central to “industry”)

Charles Comte (1782-1837) and Charles Dunoyer (1786-1862)

• Theorie des Industrialisme– Industrialisme (classless society)– Liberal Class Analysis/Historical Theory

• Producers and Non-producers– Workers, entrepreneurs, etc. versus politicians,

government officials, subsidized businessmen, and recipients of state privileges

• Extension of free markets will eventually dissolve ruling classes– “replacement of government of men with the

administration of things” and “withering away of the state”

Frederic Bastiat (1801-1850)• Born Bayonne, southwestern

France; Son of prominent merchant in Spanish trade

• Orphaned at age 9, entered father’s business firm in 1818

• Upon death of grandfather in 1825, retires to become gentleman farmer

• Studies economics; becomes disciple of Say, Tracy, Comte

• Proponent of Free Trade

Frederic Bastiat (1801-1850)

• Founder of French Free Trade Association (1846), editor of periodical Le Libre-Échange– Influential in the formation of free

trade associations throughout Europe – Sweden, Prussia, Italy

• Political career– Elected to constituent and

legislative assemblies of 1848 Revolution

– Served as vice-president of assembly’s finance committee

– Free trade and civil liberties

Frederic Bastiat (1801-1850)• Function of economists to inform the

public of the true principles of wealth and commerce

• Primarily known for scathing and humorous demolition of protectionist and socialist ideas

• “The Influence of English and French Tariffs” Journal des Economistes (Oct. 1844)

• “A Petition” (Petition of the Candlemakers) (1845)

• Economic Sophisms (1845)• The Law (1850)• unfinished Economic Harmonies

(1850)

Frederic Bastiat (1801-1850)

• Theoretical contributions– All goods are valued because they

produce immaterial services– Human wants are unlimited and

ordered hierarchically by individuals in a scale of values

– Exchange is the mutually beneficial transfer of services; exchange is a transfer of unequally valued services (people “move up” their value scales through exchange)

– All resources used in production are productive and income payments to factors are payments for productivity

Gustave de Molinari (1819-1912)

• Born in Liège, Belgium; son of Belgian physician – officer in Napoleon’s army

• Paris (1840) to become journalist

• Secretary, French Free Trade Association at founding (1846)

• Follows Bastiat as editor of Journal des Economistes (1847) and popularizer of French Liberal School views

Gustave de Molinari (1819-1912)

• “De la production de la sécurité,” Journal des Economistes (Feb. 1849)– First “free-market anarchist”– Argues that competitive market production of

security is superior to monopoly government production

• Expanded as Les Soirées de la Rue Saint-Lazare (1849)– fictional dialogue between

• Conservative (high tariffs and state monopoly privileges)• Socialist• Economist (Molinari)

The “External” French School

• Francesco Ferrara (1810-1900)– Professor of political economy,

University of Turin (Italy)– Two-volume History of thought

(Esame storico-critico di economisti e dottrine economiche, 1899-92) gives special place to Say, Dunoyer, and Bastiat

– Influences Maffeo Pantaleoni (first Italian marginalist)

The “External” French School

• Vilfredo Pareto (1848-1923)– Co-founder with Ferrara of Adam

Smith Society in Italy– Ideology influenced by Comte/Dunoyer

class analysis, Herbert Spencer and Molinari’s radical laissez-faire

– Cours d’Économie Politique (1896)– Pantaleoni converts to Pareto to

general equilibrium economics – Successor to Leon Walras as

professor of political economy at Lausanne

The “External” French School • Henry Dunning Macleod (1821-1902)– Born Edinburgh; studies mathematics at

Cambridge (1843); admitted to law, 1849– Director of Royal Scottish Bank, 1854-– Theory and Practice of Banking (1855)

• introduces term “Gresham’s Law”• contributes analysis of deposit creation through

bank credit expansion– Vigorous opposition to J.S. Mill’s Ricardian

revival prevents professorial career• Views Condillac as founder of economics; wrote of

Bastiat: “the brightest genius who ever adorned the science of Economics.”

American Followers of Bastiat • Amasa Walker (1799-1875)– Successful Boston shoe manufacturer and

bank director, retires at age 41; lecturer at Oberlin and Amherst, 1853-1860; examiner in political economy at Harvard

– The Nature and Uses of Money (1857)– The Science of Wealth: A Manual of Political

Economy (1866)• Laissez-faire, free banking under legal 100%

reserves; endorses Currency principle and argues for credit-induced business cycles

• Subjective theory of value

American Followers of Bastiat • Rev. Arthur Latham Perry (1830-1905)– Professor of political economy and history

Williams College (Massachusetts)– Friend of Amasa Walker who introduces him

to Bastiat– Elements of Political Economy (1865); later,

simply Political Economy, most successful textbook of the latter half of the 19th century• 22 editions in 30 years to 1895• Viewed economics as the science of exchange,

rather than the science of wealth; provided detailed, sophisticated analysis of exchange upon subjectivist grounds

Evaluating the French Liberals

• Focus of School on “public education”• Popular writings come to overshadow

theoretical contributions; later historians view contributions as minimal– Later historians confuse clarity with shallowness; in

contrast to the convolutions of much of British Classical economic writing – which supposedly reflects deep understanding

– Popular support and “domination of universities”• Leaders of a declining view (natural rights

classical liberalism v. British utilitarianism and the Historical Schools)