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Thomas Jefferson's Free-Market Economics

Mises Daily: Tuesday, November 29, 2011 by

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[An Austrian Perspective on the History of Economic Thought, vol. 2, Classical Economics (1995)]

Thomas Jefferson reading by candlelight
"The ideologues — Cabanis, DuPont, Volney, Say, and de Tracy — all sent Jefferson their manuscripts and received encouragement in return."

The leadership of the French Smithians was quickly gained by Jean-Baptiste Say, when the first edition of his great Traité d'Économie Politique was published in 1803. Say was born in Lyons to a Huguenot family of textile merchants, and he spent most of his early life in Geneva, and then in London, where he became a commercial apprentice. Finally, he returned to Paris as an employee of a life insurance company, and the young Say quickly became a leader of the laissez-faire group of philosophes in France. In 1794, Say became the first editor of the major journal of this group, La Décade Philosophique. A champion not only of laissez-faire but also of the burgeoning industrielisme of the Industrial Revolution, Say was hostile to the absurdly proagricultural physiocracy.

The Décade group called themselves the "ideologists," later sneeringly dubbed by Napoleon the "ideologues." Their concept of "ideology" simply meant the discipline studying all forms of human action, a study meant to be a respecter of individuals and their interaction rather than a positivistic or scientistic manipulating of people as mere fodder for social engineering. The ideologues were inspired by the views and the analysis of the late Condillac. Their leader in physiological psychology was Dr. Pierre Jean George Cabanis (1757–1808), who worked closely with other biologists and psychologists at the École de Midécine. Their leader in the social sciences was the wealthy aristocrat Antonie Louis Claude Destutt, Comte de Tracy (1754–1836).[1] Destutt de Tracy originated the concept of "ideology," which he presented in the first volume (1801) of his five-volume Éléments d'idéologie (1801–15).

De Tracy first set forth his economic views in his Commentary on Montesquieu, in 1807, which remained in manuscript due to its boldly liberal views. In the Commentary, de Tracy attacks hereditary monarchy and one-man rule, and defends reason and the concept of universal natural rights. He begins by refuting Montesquieu's definition of freedom as "willing what one ought" to the far more libertarian definition of liberty as the ability to will and do what one pleased. In the Commentary, de Tracy gives primacy to economics in political life, since the main purpose of society is to satisfy, in the course of exchange, man's material needs and enjoyments. Commerce, de Tracy hails as "the source of all human good," and he also lauds the advance of the division of labor as a source of increasing production, with none of the complaints about "alienation" raised by Adam Smith. He also stressed the fact that "in every act of commerce, every exchange of merchandise, both parties benefit or possess something of greater value than what they sell." Freedom of domestic trade is, therefore, just as important as free trade among nations.

But, de Tracy lamented, in this idyll of free exchange and commerce, and of increasing productivity, comes a blight: government. Taxes, he pointed out, "are always attacks on private property, and are used for positively wasteful, unproductive expenditure." At best, all government expenditures are a necessary evil, and most, "such as public works, could be better performed by private individuals." De Tracy bitterly opposed government creation of and tampering with currency. Debasements are, simply, "robbery," and paper money is the creation of a commodity worth only the paper on which it is printed. De Tracy also attacked public debts, and called for a specie, preferably a silver, standard.

The fourth volume of de Tracy's Elements, the Traité de la volonté (Treatise on the Will), was, despite its title, de Tracy's treatise on economics. He had now arrived at economics as part of his grand system. Completed by the end of 1811, the Traité was finally published at the overthrow of Napoleon in 1815, and it incorporated and built upon the insights of the Commentary on Montesquieu. Following his friend and colleague J.B. Say, de Tracy now heavily emphasized the entrepreneur as the crucial figure in the production of wealth. De Tracy has been sometimes called a labor theory of value theorist, but "labor" was instead upheld as highly productive as compared to land. Furthermore, "labor" for de Tracy was largely the work of the entrepreneur in saving and investing the fruits of previous labor. The entrepreneur, he pointed out, saves capital, employs other individuals, and produces a utility beyond the original value of his capital. Only the capitalist saves part of what he earns to reinvest it and produce new wealth. Dramatically, de Tracy concluded: "Industrial entrepreneurs are really the heart of the body politic, and their capital is its blood."

Furthermore, all classes have a joint interest in the operations of the free market. There is no such thing, de Tracy keenly pointed out, as "unpropertied classes," for, as Emmet Kennedy paraphrases him, "all men have at least their most precious of all properties, their faculties, and the poor have as much interest in preserving their property as do the rich."[2] At the heart of de Tracy's central emphasis on property rights was thus the fundamental right of every man in his own person and faculties. Abolition of private property, he warned, would only result in an "equality of misery" by abolishing personal effort. Moreover, while there are no fixed classes in the free market, and every man is both a consumer and a proprietor and can be a capitalist if he saves, there is no reason to expect equality of income, since men differ widely in abilities and talents.

De Tracy's analysis of government intervention was the same as in his Commentary. All government expenditures are unproductive, even when necessary, and all embody living off the income of the producers and are therefore parasitic in nature. The best encouragement government can give to industry is to "let it alone," and the best government is the most parsimonious.

On money, de Tracy took a firm hard-money position. He lamented that the names of coins are no longer simple units of weight of gold or silver. Debasement of coins he saw clearly as theft, and paper money as theft on a grand scale. Paper money, indeed, is simply a gradual and hidden series of successive debasements of the money standard. The destructive effects of inflation were analyzed, and privileged monopoly banks were attacked as "radically vicious" institutions.

While following J.B. Say in his emphasis on the entrepreneur, de Tracy anticipated his friend in rejecting the use of mathematics or statistics in social science. As early as 1791, de Tracy was writing that much of reality and human action is simply not quantifiable, and warned against the "charlatan" application of statistics to the social sciences. He attached the use of mathematics in his Mémoire sur la faculté de penser (Memoir on the faculty of thought) (1798), and in 1805 broke with his late friend Condorcet's stress on the importance of "social mathematics." Perhaps influenced by Say's Traité two years earlier, de Tracy stated that the proper method in the social sciences is not mathematical equations but the drawing forth, or deduction, of the implicit properties contained in basic "original" or axiomatic truths — in short, the method of praxeology. To de Tracy, the fundamental true axiom is that "man is a sensitive being," from which truths can be obtained through observation and deduction, not through mathematics. For de Tracy, this "science of human understanding" is the basic foundation for all the human sciences.

Thomas Jefferson (1743–1826) had been a friend and admirer of the philosophes and ideologues since the 1780s when he served as minister to France. When the ideologues achieved some political power in the consular years of Napoleon, Jefferson was made a member of the "brain trust" Institut National in 1801. The ideologues — Cabanis, DuPont, Volney, Say, and de Tracy — all sent Jefferson their manuscripts and received encouragement in return. After he finished the Commentary on Montesquieu, de Tracy sent the manuscript to Jefferson and asked him to have it translated into English. Jefferson enthusiastically translated some of it himself, and then had the translation finished and published by the Philadelphia newspaper publisher William Duane. In this way, the Commentary appeared in English (1811), eight years before it could be published in France. When Jefferson sent the published translation to de Tracy, the delighted philosopher was inspired to finish his Traité de la volonté and sent it quickly to Jefferson, urging him to translate that volume.

Jefferson was highly enthusiastic about the Traité. Even though he himself had done much to prepare the way for war with Great Britain in 1812, Jefferson was disillusioned by the public debt, high taxation, government spending, flood of paper money, and burgeoning of privileged bank monopolies that accompanied the war. He had concluded that his beloved Democratic-Republican Party had actually adopted the economic policies of the despised Hamiltonian federalists, and de Tracy's bitter attack on these policies prodded Jefferson to try to get the Traité translated into English. Jefferson gave the new manuscript to Duane again, but the latter went bankrupt, and Jefferson then revised the faulty English translation Duane had commissioned. Finally, the translation was published as the Treatise on Political Economy, in 1818.[3]

Former President John Adams, whose ultra-hard-money and 100 percent-specie-banking views were close to Jefferson's, hailed the de Tracy Treatise as the best book on economics yet published. He particularly lauded de Tracy's chapter on money as advocating "the sentiments that I have entertained all my lifetime." Adams added that

banks have done more injury to the religion, morality, tranquility, prosperity, and even wealth of the nation, than they … ever will do good.

Our whole banking system, I ever abhorred, I continue to abhor, and shall die abhorring … every bank of discount, every bank by which interest is to be paid or profit of any kind made by the deponent, is downright corruption.

As early as 1790, Thomas Jefferson had hailed The Wealth of Nations as the best book in political economy, along with the work of Turgot. His friend Bishop James Madison (1749–1812), who was president of William & Mary College for 35 years, was the first professor of political economy in the United States. A libertarian who had emphasized early that "we were born free," Bishop Madison had used the Wealth of Nations as his textbook. Now, in his preface to de Tracy's Treatise, Thomas Jefferson expressed the "hearty prayer" that the book would become the basic American text in political economy. For a while William & Mary College adopted de Tracy's Treatise under Jefferson's prodding, but this status did not last long. Soon Say's Treatise surpassed de Tracy in the race for popularity in the United States.

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The calamitous "panic" of 1819 confirmed Jefferson in his stern hard-money views on banking. In November of that year, he elaborated a remedial proposal for the depression which he characteristically asked his friend William C. Rives to introduce to the Virginia legislature without disclosing his authorship. The goal of the plan was stated bluntly: "The eternal suppression of bank paper." The proposal was to reduce the circulating medium gradually to the pure specie level; the state government was to compel the complete withdrawal of bank notes in five years, one-fifth of the notes to be called and redeemed in specie each year. Furthermore, Virginia would make it a high offence for any bank to pass or accept the bank notes of any other states. Those banks who balked at the plan would have their charters forfeited or else be forced to redeem all their notes in specie immediately. In conclusion, Jefferson declared that no government, state or federal, should have the power of establishing a bank; instead, the circulation of money should consist solely of specie.

Notes

[1] We should also mention as prominent in the ideologue group the historian Constantin François Chasseboeuf, Comte de Volney (1757–1820).

[2] Emmet Kennedy, Destutt De Tracy and the Origins of "Ideology" (Philadelphia: American Philosophical Society, 1978), p. 199.

[3] It might be noted that de Tracy's intermediary in the negotiations with Jefferson on the translation was their mutual friend, the last of the physiocrats, DuPont de Nemours, who had emigrated to Wilmington, Delaware in 1815 to found his famous gunpowder manufacturing dynasty.