An Austrian Perspective on the History of Economic Thought

14.1   The French laissez-faire school

John Stuart Mill’s conquest of British economics by his 1848 treatise, The Principles of Political Economy, succeeded in imposing a miasma upon British economics for at least a quarter-century. In some respects, indeed, the subjectivist (or, in its trivialized label, the ‘marginalist’) revolution against Mill, led abortively by Jevons in the 1870s, never really took hold in Great Britain. The Millian miasma imposed a vague and incoherent adhesion to the labour theory, or at best the cost-of-production theory, of value; to the methodology of positivism, tempered by a confused inductivism; to individualism, muddled by organicism; to a vague, tentative preference for the free market easily overridden by almost any objection, in particular the alleged ability of labour unions to win general wage increases as well as the supposed moral superiority of socialism. Politically, in short, Mill was cleverly positioned to be the patron saint of laissez-faire as well of virtually any and all attacks against it – in short, to be the philosopher of the British status quo as it existed or as it might become. At the same time, Mill became the modern liberal intellectual’s favourite straw-man champion of laissez-faire, ever ready to make the most damaging concessions to his modern liberal opponents. In that way, the modern liberal intellectual can sound the triumphal note: ‘But even Mill admits...’ and thus expect to win the day by the invocation of authority alone.

In monetary and banking affairs, indeed, Mill was the guru for precisely the status quo as imposed by the Peel Act of 1844 and continuing until World War I: that is, a broad commitment to hard money in the form of the gold standard, but cleverly and fundamentally vitiated by a Bank of England monopoly control of a fractional-reserve banking system that could readily inflate money and credit within that allegedly sound system.

Although of all countries, British economics in the nineteenth century (and down through World War II) managed to accrue the greatest prestige, it was not able to exercise total hegemony over economics abroad. In France, in particular, the legacy of J.B. Say led, in dramatic contrast, to a subjective utility and consistent laissez-faire tradition that managed to retain dominance over French economics for nearly a century. We have seen that French laissez-faire economics was established in the Restoration period after 1815 by a brilliant group of young economists and social theorists inspired by J.B. Say, and headed by Charles Dunoyer and by Say’s son-in-law Charles Comte. Although Comte died in middle age, Dunoyer lived long enough to write his three-volume magnum opus, De la liberté du Travail {On the Freedom of Labour), (1845), and to preside over the founding, in 1842, of the leading Société d’Économie Politique (The Society of Political Economy), which would meet monthly for decades, as well as its scholarly journal, the Journal des Économistes, which had been launched a few months before the society. From then until World War I, an admirable and productive cadre of economists staffed the main French academic posts, edited and wrote for numerous scholarly journals, formed associations and conferences, and wrote and lectured indefatigably on behalf of harmony of interests and general prosperity through free markets, free trade, and laissez-faire. It is remarkable that at least three generations of French economists were schooled in, and carried on and developed, this laissez-faire tradition. Despite generations of changing fashions and enormous temptations from the side of statism and special privilege, French economists, for nearly a century, stuck to their guns and remained stalwart champions of laissez-faire and enemies of state intervention and special privilege.

Here we might pay special attention to the men who collaborated on the first encyclopedia of economics, an excellent two-volume work, Dictionnaire d’Économie Politique (Paris: Guillaumin, 1852–53), co-edited and published by Gilbert Guillaumin (1801–64), an indefatigable publisher of countless French economic and laissez-faire works during the nineteenth century. The co-editor Charles Coquelin (1805–52), himself a major contributor to the dictionary, unfortunately died shortly before publication. The dictionary went through four printings. Another leading light of the dictionary, and founding secretary of the Société d’Économie Politique, was Joseph Garnier (Clément Joseph Garnier, 1813–81), for some years editor-in-chief of the Journal des Économistes, and author of several highly successful textbook treatises in economics including: Élements d’économie politique (1845 – many editions), and Éléments des Finances (1858 – many editions).

French laissez-faire economists pioneered, not only encyclopedias of economics, but also the study of the history of the discipline. The first history of economic thought was the Histoire de l’économie politique en Europe (1837, 4th edition, 1860, English translation, History of Political Economy in Europe 1880), by Jérome-Adolphe Blanqui (1798–1854), who studied political economy under Say, and succeeded him as professor. Blanqui was also for many years editor-in-chief of the Journal des Économistes. Joseph Garnier had been Blanqui’s student. Blanqui, in turn, was the son-in-law of Michel Chevalier (1806–79). An engineer and Saint-Simonian socialist in his youth, Chevalier became a laissez-faire liberal, becoming professor of political economy at the Collège de France, and publishing the three-volume Cours d’Économie Politique (1842–50). Chevalier was also a statesman, negotiating the famous fee trade treaty with England (England being represented by the great Richard Cobden) in 1860, a high-water mark of the free trade and free market movement in nineteenth century Europe. Another prominent student of Chevalier was Henri (Joseph Léon) Baudrillart (1821–92), who went on to teach political economy at the Collège de France, and whose Manuel d’Économie Politique was published in 1857, and went into numerous editions.

Another prominent economist was the Pole Louis Wolowski (1810–76), a brother-in-law of Michel Chevalier. Born in Warsaw, Wolowski emigrated to France in 1834, founding and editing for many years the Revue de législation et jurisprudence. Possessor of a doctorate of law and another in political economy, Wolowski was to become a banker, statesman and professor as well as being associated for many years with the Journal des Économistes. Wolowski’s nephew, Émile Levasseur (1828–1911) became a prominent economic historian and successor to Baudrillart at the Collège de France. Levasseur published a well-known work on the Histoire des classes ouvrières en France (History of the Working Classes in France) (1859) and, in 1867, published a Précis d’Économie Politique, which went into many editions. Wolowski and Levasseur, it should be noted, wrote a scintillating joint article in defence of property rights, on ‘Property’, for Lalor’s three-volume Cyclopedia of Political Science, published in the United States in 1884.

A worthy successor to Jérome-Adolphe Blanqui as historian of economic thought in the French laissez-faire school was Maurice Block (1816–1901). Born in Berlin but emigrating to France, Block worked in the statistical department of the ministry of agriculture, industry and trade. By his 40s, Block was a full-time editor and writer in economics. For 44 years, from 1856 virtually until his death, Block served as editor of the Annuaire d’économie politique et de la statistique (Annual of Economics and Statistics), as well as editor of the Dictionnaire générale de la Politique (from 1862 and later years), and the Dictionnaire de I’Administration Française (1855 and later years), and also wrote several important books on the theory of statistics, on socialism, on French finances, and a Petit manuel d’économie politique, published in 1873 and going into many editions. An erudite and indefatigable scholar, Maurice Block served for over 40 years as a reporter on all economic writings in Europe for the Journal des Économistes, capping his career with a great two-volume history of economic thought, Le progrès de la science économique depuis Adam Smith (1890). In his Progrès, Block praised the new Austrian school, and denounced the historicism and opposition to economic law of the German historical school.

Three generations of Says also took a prominent part in the French movement of laissez-faire economics. Jean-Baptiste’s only son Horace-Émile Say (1794–1860) was merchant for a time in the United States and especially in Brazil, and served as a commercial judge and a councillor of state during the period of the Second Republic, 1859–61. Horace Say wrote a book on the history of commercial relations between France and Brazil. Horace’s son, Jean-Baptiste Léon Say (1826–96), became a prominent statesman devoted to free trade and laissez-faire. Léon Say wrote many articles for the Journal des Économistes, he was the owner of the laissez-faire-oriented Journal des Debats, and he was the minister of finance from 1872 to 1879, and again in 1882. He was also president of the French Senate in 1882. Léon Say concluded a preliminary free trade treaty with England in 1880, and successfully opposed the introduction of an income tax.

One of the last of the fiery and uncompromising free market and anti-interventionists of the French school was Yves Guyot (1843–1928), a prolific writer who also served as city councillor of Paris (1876–85) and minister of public works (1889–92). Guyot succeeded the venerable Gustave de Molinari after he stepped down as editor of the Journal des Économistes in 1909.

So dominant was the laissez-faire school in France during the nineteenth century that its teaching permeated the popular culture. Popular writers, journalists and novelists expounded on the harmony of interests, and on the mutual benefit and the general prosperity brought about by the free market. Thus no more lucid and inspiring an economic primer and paean to the workings of the free market has ever been written than the lectures to French workers, formed into the Handbook of Social Economy: Or the Workers’ ABC, written by the popular novelist Edmond About (1828–85).1

Indeed, the very lucidity and popularity of the French writers was turned against them by the British classical economists, generally dense and obscure writers, who could turn their very elegance of style against the French, and denounce them for superficiality of thought and scholarship. This tradition has been redoubled by modern historians, whose intense hostility to the French writers’ political conclusions reinforces their brusque dismissal. In particular, modern historians unfairly dismiss the French writers as mere popularizers, lacking theoretical depth.

14.2   Frédéric Bastiat: the central figure

Particularly suffering from historical neglect is the most famous of the French laissez-faire economists, Claude Frédéric Bastiat (1801–50), to whom the two-volume Dictionnaire d’Économie Politique (1852) was respectfully and affectionately dedicated. Bastiat was indeed a lucid and superb writer, whose brilliant and witty essays and fables to this day are remarkable and devastating demolitions of protectionism and of all forms of government subsidy and control. He was a truly scintillating advocate of an untrammelled free market. Frétéric Bastiat’s justly famous ‘Petition of the Candlemakers’ is still anthologized in books of economic readings; in this satiric petition to the French parliament, the candlemakers’ trade association petitions the government to protect their industry, which employs many thousands of men, from the unfair, unjust, invasive competition of a foreign light source: the sun. Bastiat’s candlemakers petition the government to shut out the sunlight all over France – a protective device that would give employment to many millions of worthy French candlemakers.

Bastiat’s fable of the broken window also brilliantly refuted Keynesianism nearly a century before its birth. Here, he outlines three levels of economic analysis. A mischievous boy hurls a rock at a plate glass store window, and breaks the glass. As a crowd gathers round, the first-level analysis, common sense, comments on the event. Common sense deplores the destruction of property in breaking the window, and sympathizes with the storekeeper for having to spend his money repairing the window. But then, says Bastiat, comes the second-level, sophisticated analyst or what we might call a proto-Keynesian. The Keynesian says: oh, but you people don’t realize that the breaking of the window is really an economic blessing. For, in having to repair the window, the storekeeper invigorates the economy by his spending, and gives welcome employment to glaziers and their workers. Destruction of property, by compelling spending, therefore stimulates the economy and has an invigorating ‘multiplier effect’ on production and employment.

But then in steps Bastiat, the third-level analyst, and points out the grievous fallacy in the destructionist proto-Keynesian position. The alleged sophisticated critic, says Bastiat, concentrates on ‘what is seen’ and neglects ‘what is not seen’. The sophisticate sees that the storekeeper must give employment to glaziers by spending money to repair his window. But what he doesn’t see is the storekeepers’s opportunity foregone. If he did not have to spend the money on repairing the window, he could had added to his capital, and to everyone’s standard of living, and thereby employed people in the act of advancing, rather than merely trying to sustain, the current stock of capital. Or, the storekeeper might have spent the money on his own consumption, employing people in that form of production.

In this way, the ‘economist’, Bastiat’s third-level observer, vindicates common sense and refutes the apologia for destruction of the pseudo-sophisticate. He considers what is not seen as well as what is seen. Bastiat, the economist, is the truly sophisticated analyst.2

Frédéric Bastiat was also a perceptive political, or politico-economic, theorist. Attacking statism as a growing parasitic burden upon producers in the market, he defined the state as ‘the great fiction by which everyone tries to live off everyone else’. And in his work on The Law (1850), Bastiat insisted that law and government must be strictly limited to defending the persons, the liberty, and the property of people against violence; any going beyond that role would be destructive of liberty and prosperity.

While often praised as a gifted popularizer, Bastiat has been systematically derided and undervalued as a theorist. Criticizing the classical Smithian distinction between ‘productive’ labour (on material goods) and ‘unproductive’ labour (in producing immaterial services), Bastiat made an important contribution to economic theory by pointing out that all goods, including material ones, are productive and are valued precisely because they produce immaterial services. Exchange, he pointed out, consists of the mutually beneficial trade of such services. In emphasizing the centrality of immaterial services in production and consumption, Bastiat built on J.B. Say’s insistence that all market resources were ‘productive’, and that income to productive factors were payments for that productivity. Bastiat also built upon Charles Dunoyer’s thesis in his Nouveau traité d’économie social (New Treatise on Social Economy) (1830) that ‘value is measured by services rendered, and that products exchange according to the quality of services stored in them’.3

Perhaps most important, in stark contrast to the Smith-Ricardo classical school’s exclusive emphasis on production, and neglect of the goal of economic endeavours – consumption, Bastiat proclaimed once again the continental emphasis on consumption as the goal and hence the determinant of economic activity. Bastiat’s own oft-repeated triad: ‘Wants, Efforts, Satisfactions’ summed it up: wants are the goal of economic activity, giving rise to efforts, and eventually yielding satisfactions. Furthermore, Bastiat noted that human wants are unlimited, and hierarchically ordered by individuals in their scales of value.4

Bastiat’s concentration on exchange, and on analysis of exchange, was also a highly important contribution, especially in contrast to the British classicists’ focus on production of material wealth. It was the emphasis on exchange that led Bastiat and the French school to stress the ways in which the free market leads to a smooth and harmonious organization of the economy. Hence the importance of laissez-faire.5

Frédéric Bastiat was born in 1801 in Bayonne, in south-western France, the son of a landowner and prominent merchant in the Spanish trade. Orphaned at the age of nine, Bastiat entered his uncle’s business firm in 1818; when, seven years later, he inherited his grandfather’s landed estate, Bastiat left the firm and became a gentleman farmer. But his interests were neither in trade nor in agriculture, but in the study of political economy. Fluent in English, Italian and Spanish, Bastiat steeped himself in all the extant economic literature in these languages. Apart from an unsuccessful attempt to establish an insurance firm in Portugal in the early 1840s, as well as being a member of the district council and his undemanding service as a country judge, Bastiat spent two decades in quiet study and reflection on economic problems. He was most heavily influenced by J.B. Say, partially by Adam Smith, by Destutt de Tracy, and particularly by the great four-volume laissez-faire libertarian work of Charles Comte, A Treatise on Legislation (1827). Indeed, as a teenager, Bastiat had been a subscriber to Comte and Dunoyer’s journal, Le Censeur, and he was to become a friend and colleague of Dunoyer’s in the struggle for free trade.

Bastiat entered the economic literature with a sparkling attack on protectionism in France and England in the Journal des Économistes in late 1844, an article which created a sensational impact. Bastiat followed this up with another article in the Journal, in early 1845, denouncing socialism and the concept of a ‘right to labour’. During the few years he had left on earth, Bastiat poured forth a stream of lucid and influential writings. His two-volume Economic Sophisms (1845), a collection of witty essays on protectionism and government controls, sold out quickly, going into several editions, and was swiftly translated into English, Spanish, Italian and German. During the same year, Bastiat published Cobden et la Ligue, his tribute to Cobden and the Anti-Corn Law League: a history of the League that included the principal speeches and articles by Cobden, Bright, and other stalwarts of the League.

After setting up a free trade association in Bordeaux in 1846, Bastiat moved to Paris, where he stepped up his literary efforts and organized a national association for free trade. He became the secretary-general of the national association, as well as editor-in-chief of Le Libre-Échange (Free Trade), the periodical of the French free trade association. Even though in frail health, Bastiat also participated in the revolution of 1848, being elected to the constituent and then the legislative assembly, where he served from 1848 until his death.

Bastiat’s final political service has been undervalued by most historians. While generally voting in the minority in the assembly as a stalwart of individual liberty and laissez-faire, Bastiat was highly influential as vice-president (and often acting president) of the assembly’s finance committee. There he fought tirelessly for lower government spending, lower taxes, sound money, and free trade. While he fought ardently in opposition to socialist and communist schemes, Bastiat elected to sit on the Left, as a proponent of laissez-faire and the republic, and as an opponent of protectionism, absolute monarchy, and a warlike foreign policy. As a consistent civil libertarian, Bastiat also fought against the jailing of socialists, the outlawry of peaceful trade unionism, or the declaration of martial law. Bastiat also made his mark by at least partially converting the man who would become the president of the provisional republic in 1848, the eminent poet and orator Alphonse Marie Louis Lamartine (1790–1869) from his previous socialism to (an admittedly inconsistent) laissez-faire position.6

Bastiat died young in 1850, leaving his two-volume theoretical magnum opus, Economic Harmonies, only partially published; the remainder was published posthumously. It was a fitting memorial to Bastiat that his friend Michel Chevalier, the man whom he had converted to free trade and laissez-faire, should have been the one to conclude, with Richard Cobden, the great free trade Anglo-French treaty of 1860.

Bastiat met Cobden on his first trip to England in the summer of 1845, and for the remainder of Bastiat’s life the two men were close friends and frequent correspondents, visiting each other frequently. The two influenced each other greatly, Bastiat providing Cobden with broader theoretical insights in his devotion to free trade, and the latter inspiring Bastiat to organize a movement in France similar to the Anti-Corn Law League. In particular, Cobden took from Bastiat a devotion to natural law and natural rights; an emphasis on the harmony of individuals, groups, and nations through the mutual benefits of the free market; and a staunch opposition to war and an interventionist foreign policy, and a devotion to international peace. The two also shared a consistent devotion to laissez-faire devoid of the numerous hesitancies and qualifications imposed by the classical economists, or of the gloomy Ricardian hostility to landlords or to land rent.7

14.3   The influence of Bastiat in Europe

Inspired by Bastiat’s organizing and by his theories, free trade associations rapidly established themselves in various countries in Europe. Belgium formed a free trade association shortly after France, and the Belgian group stayed in constant correspondence with Bastiat and his Libre-Échange. Former minister Charles de Brouckère, burgomaster of Brussels, was president of the Belgian association. In Italy an association for free trade established the journal Contemporaneo in the Autumn of 1846, and printed a statement hailing the French free trade association. While the statement praised the Anti-Corn Law League, it also lauded the French association as more all-encompassing in its free-market position: ‘the British Association has declared war against only one of the evils in its own country [tariffs and the Corn laws], while the French Association has adopted a more general plan that encompasses the entire human race. It wishes to induce all nations to fraternize, and to invite everyone to the banquet of production and consumption.’8

One of the prominent signers of the Italian statement was Professor Raffaele Busacca, a vigorous defender of free trade and a prolific writer on statistical, historical and theoretical subjects in economics.

A particularly important follower and admirer of Frédéric Bastiat was the man who became the unquestioned leader and dominant force in economic theory and policy in nineteenth century Italy. He was the Sicilian-born Francesco Ferrara (1810–1900), a stalwart advocate of laissez-faire, professor of political economy at the University of Turin, and the teacher and mentor of most Italian economists of the next generation. Ferrara also played an important political role in the unification of Italy and was at one time minister of finance of the new nation. In addition, Ferrara was an eminent historian of economic thought, to which he contributed the editorship of the first two series of the multi-volume translation, Biblioteca dell’Economista (Turin, 1850–69), and especially his two-volume Esame storico-critico di economisti e dottrine economiche (1889–92). For many years, Ferrara was professor at the University of Turin, and there trained many prominent Italian economists. In addition to Bastiat, upon whom he lavished 100 pages in his great Esame, Ferrara particularly hailed the works, of Say, Dunoyer and Chevalier.

Ferrara’s theoretical contributions, like Bastiat’s, have been systematically underweighted by harsh modern, anti-laissez-faire critics who, as in the case of Bastiat, find it difficult to believe that anyone who is ardently and consistently in favour of laissez-faire could possibly be an important scholar and economic theorist. Thus, Ferrara’s ‘cost-of-reproduction’ theory of value, often dismissed as a clumsy rewrite of Ricardian ‘cost-of-production’, has recently been shown instead to be a partial anticipation of subjective, marginal utility theory.9

For several decades Francesco Ferrara’s exchange-oriented and laissez-faire economics held sway among Italian economists. In the 1870s, however, the interconnected statist trends of protectionism and of the German historical school, as well as outright socialism, began to infest Italian economics. Ferrara valiantly combated the new trends. A formal split occurred in 1874, when the younger statists, centred in Padua, formed the Association for the Development of Economic Studies, publishing a journal which soon become the Giornale degli Economisti. On the other hand, the Ferraristas, centred in Florence, formed the Adam Smith Society, and published the weekly L’Econotnista. While outnumbered, the Ferrara group produced some notable younger disciples, including Domenico Berardi, who published a critique of government intervention in 1882 and a book on money 30 years later; A. Bertolini, who wrote a critique of socialism in 1889; and Fontanelli, who wrote a critique of unions and strikes. In particular, we might mention Tulio Martello of Bologna, known as the last of the Ferraristas. With the characteristic half-sneer which he tended to reserve for ardent partisans of laissez-faire, Schumpeter wrote of Martello’s challenging call for polymetallism as the path of complete monetary freedom in La Moneta (1883), that ‘the value of which is but slightly impaired by some liberalist vagaries on free coinage’.10

While seemingly battling a rear-guard action against overwhelming odds, Ferrara and his school actually hung on long enough to turn the tide, by influencing the new ‘army of marginalist-liberalists’ led by Maffeo Pantaleoni. The group seized control of the dominant economic journal (the Giornale degli Economisti) in 1890, and was to remain dominant for years thereafter.11

Sweden was a country heavily influenced by Bastiat, who became the major authority in Swedish economics and politics. A young Swede, Johan August Gripenstedt (d. 1874), met Bastiat on a trip to France, and was deeply influenced for the rest of his life by the French laissez-faire leader. Gripenstedt became the greatest of the economic liberals in Sweden during the 1860s and 1870s, as well as the most influential politician in Sweden. By 1870, Gripenstedt, almost single-handed, had managed to eliminate all import and export prohibitions in Sweden, to abolish all export duties, to reduce tariffs on manufactured goods, and to bring about free trade in agricultural products.

Shortly after Gripenstedt’s death, his followers and disciples formed the Stockholm Economic Society in 1877, dedicated to the principles of Bastiat and Gripenstedt. Some of the leading members were: Johan Walter Arnberg, director of the Bank of Sweden, who warned of the dangers of socialism stemming from businessmen’s demands for government subsidies; G.K. Hamilton, professor of economics at the University of Lund, so dedicated to Frédéric Bastiat that he named his son ‘Bastiat’ in 1865; A.O. Wallenberg, founder of the Stockholm Euskilda Bank; and Johan Henrik Palme, leading banker, dedicated to free trade.

Two prominent laissez-faire political leaders in the Economic Society should be mentioned. One was Axel Gustafsson Bennich, director-general of the customs, and right-hand man of Gripenstedt. Bennich was an indefatigable and joyous battler for free trade and laissez-faire throughout his long life. Another was the president of the Stockholm Economic Society, Carl Freidrich Waern, a Gothenburg merchant who became minister of finance and head of the board of trade. Waern resigned from the latter post because he refused to sign a law mandating protection of young timber in the forests, a measure he denounced as an egregious invasion of the rights of private property.

As was true of laissez-faire thinkers and activists in England and France, Swedish libertarians were split on what to do about banking. Central banker Johan Arnberg and economist Hans Forssell favoured the central Bank of Sweden as a means of abolishing all private bank notes, which they considered inflationary and pernicious. On the other hand, banker A.O. Wallenberg championed free banking.

By the mid-1880s, however, in Sweden as in the rest of Europe, statism began to make a successful comeback and gradually to become dominant. Protectionists began to infiltrate the Economic Society by the mid-1880s, and Sweden adopted a protective tariff system in 1888. In 1893, the symbol of protectionist triumph came with a protectionist being chosen president of the former central nucleus of free trade, the Stockholm Economic Society. During the 1880s, too, despite the bitter attacks of Forssell and other founding stalwarts, the society began to champion social welfare and other Kathedersozialist (‘socialism of the chair’) policies. In this way, Swedish economic theory and policy shifted, during the decade, from its original French laissez-faire orientation toward the German historical school and its ‘monarchical socialism’. This sharp change was greatly facilitated by German being made the dominant foreign language in the Swedish public schools in 1878.12

But even in Prussia, a free trade party was established during the late 1840s dedicated to Bastiat’s principles. The Prussian free trade movement was led by John Prince Smith (1809–74), son of an English father and German mother, who corresponded frequently with Bastiat. In one letter Prince Smith wrote to Bastiat:

The friends to whom I have shown your book [Economic Harmonies] are enthusiastic about it. I promise you that it will be read eagerly by our best thinkers... We hope to establish a formal league among the democratic parties and the free traders... ‘Bring Bastiat here’, a leader of the democrats said to me, ‘and I promise to lead 10,000 men in a procession to celebrate his visit to our capital’.13

John Prince Smith was born in London in 1809, the son of a barrister. On the death of his father, he began working at the age of 13 for a London mercantile firm.14 Later he turned to journalism, travelling to his mother’s country, and in 1831 became a teacher of English and French at a gymnasium in the port of Elbing in East Prussia. Learning economics in Germany, Prince Smith, by the 1830s, began writing articles on behalf of the free market, and vigorously defended seven professors who had been fired in 1837 from the University of Gottingen for protesting the despotic revocation of the liberal Hanoverian constitution. His ensuing difficulties with the Prussian educational administration led Prince Smith to leave his teaching post in 1840 and turn to full-time journalism.

Prince Smith not only came out generally for the free market, but also began a vigorous and consistent anti-war and anti-militarist stand, which brought him to advocate the elimination of the Prussian state’s bulwark, the standing army, and its replacement by a far cheaper and popularly controlled citizens’ militia.

In 1843, Prince Smith launched his lifelong crusade for freedom of trade, putting it in a historical and sociological context reminiscent of the writings of Comte and Dunoyer. Furthermore, Prince Smith made clear that for him ‘free trade’ meant not simply absence of international trade barriers but also an absolute free market at home, with the state confined only to police protection.15

In 1846, Prince Smith, joined by several associates, sent an address to Robert Peel, in which they congratulated the British prime minister for his outstanding achievement in repealing the Corn Laws. Peel’s gracious and highly principled reply caused a sensation in Prussia, and Prince Smith was inspired by the response to found, in December of that year, the German Free Trade Union.16 The union, consisting of business leaders and scholars, held its first, organizing meeting the following March in the hall of the Berlin Stock Exchange. The great majority of the 200 attendees were businessmen.

For the rest of his life, John Prince Smith led the way in Germany in agitating for free markets and free trade. In 1860, he founded the Economic Society as the successor to the Free Trade Union. His home in Berlin (he had married the daughter of a wealthy Berlin banker) became a salon for liberal Prussian politicians, some of whom formed the Progressive Party. In 1858, Prince Smith helped found the annual congress of German economists, which was dedicated to laissez-faire until its final meeting in 1885. At the congress, Prince Smith delivered papers attacking usury laws, criticizing patents, and denouncing irredeemable paper money. In 1863, Prince Smith helped found and co-edited the Quarterly Journal for Economy, Politics, and Cultural History (Vierteljahrschrift für Volkwirtschaft, Politik, und Kulturgeschichte), along with the ultra-individualist Julius Faucher (1820–78), Prince Smith’s closest collaborator. The Quarterly Journal soon became ‘the chief theoretical organ of classical liberalism in Germany’,17 and continued in existence for 30 years. Fluent in French, Prince Smith contributed to the French Journal des Économistes, and he also helped organize, and wrote for, a Concise Dictionary of Economics (Handwörter-buch der Volkwirtschaftslehre, 1866), modelled after the French laissez-faire Dictionnaire d’Économie Politique.

During the 1870s and 1880s, laissez-faire views in Prussia and Germany were swiftly replaced by the dominance of the German historical school, statism, and ‘socialism of the chair’. This radical change was greatly fostered by the political triumph of Bismarck and Prussian militarism over classical liberalism, and the union of the bulk of the German nation under the Prussian domination of ‘blood and iron’.

The high point of the European free trade movement came early, at a famous international congress of economists, organized by the Belgian free trade association at Brussels, from 16–18 September 1847. Inspired by the Anti-Corn Law League victory and the Bastiat movement, and by a triumphal 14 month-long European tour by Cobden in 1846–47, the congress met to decide the free trade question. Presided over by the Belgian de Brouckère, the congress consisted of 170 delegates from 12 countries, and included publicists, manufacturers, agriculturists, merchants and statesmen, as well as economists. While Bastiat was unable to attend, de Brouckère, in his opening address, hailed Bastiat as the ‘zealous apostle of our doctrines’. Particularly active at the congress was the French delegation, especially Louis Wolowski, Charles Dunoyer, Jérome-Adolphe Blanqui and Joseph Garnier; also active was John Prince Smith, head of the Prussian delegation. Other prominent attendees were Colonel Thomas Perronet Thompson, of the English parliament, and James Wilson, editor of The Economist.

While a small contingent of protectionists spoke at the congress, they were swamped by the free traders, who passed a resounding declaration for freedom of trade. Unfortunately, plans for further meetings of the congress were broken up by the Revolution of 1848, which delivered a grave setback to the movement for economic freedom in Europe, from which it took some years to recover. After a brief Indian Summer of the 1860s, the laissez-faire movement for free markets, free trade and international peace, began in the 1870s and 1880s to give way, tragically, to a Europe of protectionism, militarism, welfare states, compulsory cartels and warring international power blocs. Nationalist and statist economics, an industrial recrudescence of commercial mercantilism, began to dominate Europe.

14.4   Gustave de Molinari, first anarcho-capitalist

Of all the leading libertarian French economists of the mid- and late nineteenth centuries, the most unusual was the Belgian-born Gustave de Molinari (1819–1912). Born in Liege, the son of a Belgian physician and a baron who had been an officer in the Napoleonic army, Molinari spent most of his life in France, where he became a prolific and indefatigable author and editor in lifelong support of pure laissez-faire, of international peace, and in determined and intrasigent opposition to all forms of statism, governmental control and militarism. In contrast to British soft-core utilitarianism on public policy, Molinari was an unflinching champion of freedom and natural law.

Coming to Paris, the cultural and political centre of the French-speaking world, at the age of 21 in 1840, Molinari joined the Société d’Économie Politique on its inception in 1842, and became the secretary of Bastiat’s association for free trade when it was formed in Paris in 1846. He soon became one of the editors of the association’s periodical, Libre-Échange. Molinari quickly began to publish widely in the free trade and free market press in Paris, becoming an editor of the Journal des Économistes in 1847. He published his first of many books in 1846, Études Economiques: sur VOrganisation de la Liberté industrielle et I’abolition de I’esclavage (Economic Studies: on the Organizaton of Liberty and the Abolition of Slavery).

The young Molinari, however, hit the laissez-faire-oriented Société d’Économie Politique like a thunderclap in 1849, with his most famous and original work. He delivered a paper expounding, for the first time in history, a pure and consistent laissez-faire, to the point of calling for free and unhampered competition in what are generally called uniquely ‘public’ services: in particular, the sphere of police and judicial protection of person and private property. If free competition is better and more efficient in supplying all other goods and services, Molinari reasoned, why not for this last bastion, police and judicial protection – a view that over a century later would come to be called ‘anarcho-capitalism’.

Molinari first set forth his view in the Journal des Économistes, the periodical of the Société, in February 1849.18 This article was quickly expanded into book form, Les Soirées de la Rue Saint-Lazare, a series of fictional dialogues between three protagonists: the conservative (advocate of high tariffs and state monopoly privilege); the socialist; and the economist (clearly himself). The final, or eleventh, Soirée elaborated further on how his concept of free market protective services could work in practice.19

A meeting of the Société d’Économie Politique in the Autumn of 1849 was devoted to Molinari’s radically new theory as expounded in the Soiries. After Molinari had presented the essence of his proposal in a paper, the assembled libertarian dignitaries engaged in a discussion. Apparently the new theory threw them, because unfortunately no one dealt with the essence of the new doctrine. Charles Coquelin and Frédéric Bastiat could only fulminate that no competition anywhere can exist without a back-up by the supreme authority of the state (Coquelin), and that the force needed to guarantee justice and security can only be imposed by a ‘supreme power’, (Bastiat). Both engaged in pure assertion without argument, and both here chose to ignore what they knew full well in all other contexts: that this ‘supreme power’ had scarcely proved to be a reliable guarantor of private property in the past or present (to say nothing, alas, of the future).

Of all the leading libertarian minds assembled, only Charles Dunoyer deigned to try to rebut Molinari’s argument. He deplored that Molinari had been carried away by the ‘illusions of logic’, and maintained that ‘competition between governmental companies is chimerical, because it leads to violent battles’. Apart from ignoring the truly violent battles that have always occurred between states in our existing ‘international anarchy’, Dunoyer failed to grapple with the very real incentives that would exist in an anarcho-capitalist world for defence companies to engage in treaties, contracts and arbitrations.20 Instead, Dunoyer proposed to rely on the ‘competition’ of political parties within a representative government – hardly a satisfactory solution to the problem of social conflict from a libertarian, anti-statist point of view. Dunoyer also opined that it was most prudent to leave force in the hands of the state, ‘where civilization has put it’ – this from one of the great founders of the conquest theory of the state!

Unfortunately, except for these few remarks, the libertarian economists assembled failed to deal with Molinari’s thesis, their discussion largely criticizing Molinari for allegedly going too far in attacking all use of the power of eminent domain by the state.21

Particularly interesting was the general treatment of the maverick Molinari by his fellow French laissez-faire libertarian economists. Even though he persisted in advocating his anarcho-capitalist or free market protection views for many decades (e.g. in his Les Lois Naturelles de I’Économie Politique, 1887), Molinari was scarcely treated as a pariah for his heretical views. On the contrary, he was treated as he indeed was: the logical culmination of their own laissez-faire views which they respected even though they could not fully agree. On the death of Joseph Garnier in 1881, Molinari became the editor of the Journal des Économistes, a post which he occupied until his ninetieth year in 1909.22 Molinari only backtracked on his anarchistic views in his very late works, beginning in his Esquisse de Vorganisation politique et économique de société future (1899). Here he retreated to the idea of a single monopoly defence and protection company, which service would be contracted out by the central state to a single private corporation.23

How Molinari was considered by his colleagues may be seen from the footnote by Joseph Garnier, the editor of the Journal, on introducing Molinari’s first revolutionary article in 1849. Garnier noted:

Although this article may appear Utopian in its conclusions, we nevertheless believe that we should publish it in order to attract the attention of economists and journalists to a question which has hitherto been treated in only a desultory manner and which should, nevertheless, in our day and age, be approached with greater precision. So many people exaggerate the nature and prerogatives of government that it has become useful to formulate strictly the boundaries outside of which the intervention of authority becomes anarchical and tyrannical rather than protective and profitable.24

Fifty-five years later, at the appearance of the first English translation of Molinari’s work, his fellow-octogenarian, the laissez-faire attorney and economist, Frédéric Passy (1822–1912), wrote a moving tribute to his old friend and colleague Molinari. He wrote of his ‘esteem and admiration for the character and talent’ of the man ‘who is the doyen of our... liberal economists – of the men with whom, though, alas! few in number, I have been happy to stand side-by-side during more than half a century’. Passy went on to state that these liberal principles had been proclaimed by Cobden, Gladstone and Bright in England, and by Turgot, Say, Chevalier and Bastiat in France. ‘And my belief grows yearly stronger that, but for these principles, the societies of the present would be without wealth, peace, material greatness, or moral dignity.’ Molinari, Passy added, ‘has maintained these principles from his youth’, from his Soire’e de la Rue St. Lazare during the 1848 Revolution, though lectures and writings, to his editorship of the Journal des Économistes, where ‘month-by-month the important Review of which he is editor-in-chief repeats them in a fresh guise’. And finally, Molinari’s books, where: ‘annually, so to speak, a further book, as distinguished for clearness of grasp as for admirable literary style, goes out to testify to the constancy of his convictions no less than to the unimpaired vigour of his mental outlook and the virile serenity of his green old age.’25

14.5   Vilfredo Pareto, pessimistic follower of Molinari

One prominent person rarely associated by scholars with the Bastiat-Ferrara laissez-faire school was the eminent sociologist and economic theorist, Vilfredo Federico Damaso Pareto (1848–1923). Pareto was born in Paris into a noble Genoan family. His father, the Marchese Raffaelle Pareto, a hydraulic engineer, had fled Italy as a republican and supporter of Mazzini. The senior Pareto returned to Italy in the mid-1850s and gained a high rank in the Italian civil service. The young Pareto studied at the Turin Polytechnic where he earned a graduate engineering degree in 1869; his graduate thesis was on the fundamental principle of equilibrium in solid bodies. As we shall see in a later volume, Pareto’s thesis led him to the idea that equilibrium in mechanics is the proper paradigm for investigation into economics and the social sciences.26 After graduation, Pareto became a director of the Florence branch of the Rome Railway Company, and in a few years he became managing director of a Florence firm manufacturing iron and iron products.

Pareto soon plunged into political writing, taking a fiery stand in favour of laissez-faire and against all forms of government intervention, defending personal and economic freedom, and attacking plutocratic subsidies and privileges to business with equal fervour to his denunciations of social legislation or proletarian socialist forms of intervention. Pareto was one of the founders of the Adam Smith Society in Italy, and also ran unsuccessfully for Parliament twice during the early 1880s.

Heavily influenced by Molinari, Pareto’s writings came to the latter’s attention in 1887. Molinari then invited Pareto to submit articles to the Journal des fcconomistes. Pareto met the French liberals, and formed a friendship with Yves Guyot, who was to be Molinari’s successor as editor of the Journal and who was to write Molinari’s obituary in 1912. Shortly after getting in touch with Molinari, Pareto’s mother died, and he was able to give up his manufacturing post, become a consulting engineer, get married, and retire to his villa in 1890 to devote the rest of his life to writing, scholarship, and the social sciences. Freed of his business duties, Pareto plunged into a one-man crusade against the state and statism, and formed a close friendship with the laissez-faire neoclassical marginalist economist Maffeo Pantaleoni (1857–1924), who drew Pareto into technical economic theory. Having become a Walrasian under Pantaleoni’s tutelage, Pareto succeeded Léon Walras as professor of political economy at the University of Lausanne. Pareto continued at Lausanne, also teaching sociology, until 1907, when he fell ill, and retired to a villa on Lake Geneva, where he continued to study and write until his death.

Pareto’s shift into technical neoclassical theory did not for a moment abate his ardent battle for freedom and against all forms of statism, including militarism. An idea of his trenchant laissez-faire liberalism can be gained from his article on ‘Socialism and Freedom’ published in 1891:

So we can group socialists and protectionists under the name of restrictionists, whilst those who want to base the distribution of wealth solely on free competition can be called liberationists...

Thus restrictionists are divided into two types: socialists, who through the intervention of the state, wish to change the distribution of wealth in favour of the less rich; and the others, who, even if they are sometimes not completely conscious of what they are doing, favour the rich – these are the supporters of commercial protectionism and social organisation of a military type. We owe to Spencer the demonstration of the close analogy of these two types of protectionism. This similarity between protectionism and socialism was very well understood by the English liberals of the school of Cobden and that of John Bright and was clarified in the writings of Bastiat.27

Pareto’s writings, furthermore, are studded with appreciative and often lengthy quotes from Molinari. Thus, in the same article on ‘Socialism and Freedom’, Pareto praises Molinari for advancing a unique and bold system that ‘proceed(s) towards the conquest of freedom, using all the knowledge that is offered by modern science’.

In his ‘Introduction to Marx’s Capital’ in a book on Marxism (Marxisme et iconomie pure, 1893), Pareto was clearly influenced by the French libertarian Dunoyer-Comte concept of the ‘ruling class’ as whatever group controls the state. He ended the chapter with a lengthy and admiring quote from Molinari, who carried through this libertarian class doctrine. Pareto ended the Molinari quote with this sentence: ‘Everywhere the ruling classes have one thought – their own selfish interests – and they use the government to satisfy them.’28

Pareto’s first great treatise on economics, the Cours d’Économie Politique (1896), was heavily influenced by both Molinari and Herbert Spencer. In every polity, he points out, there is a minority ruling class exploiting the majority who are the ruled. Tariffs Pareto treats as an example of legal spoliation, plunder and theft. Pareto left no doubt that his objective was to eradicate all such legalized plunder. As Placido Bucolo points out, Pareto did not, as some analysts claim, adopt a Marxian view of class struggle in his Cours. Instead, he adopted the French libertarian class doctrine. Thus, Pareto says in the Cours:

the class struggle assumes two forms at all times. One consists in economic competition which, when it is free, produces the greatest ophelimity [utility]... [For] every class like every individual, even if it only acts to its own advantage, is indirectly useful to the others... The other form of class struggle is the one whereby every class does its utmost to seize power and make it an instrument to despoil the other classes.29

Laissez-faire liberalism had been a genuine mass movement in much of the nineteenth century: certainly in the United States and Great Britain, and partially in France, Italy, Germany, and throughout western Europe. Much of the time in the latter half of the century, the socialist idea was considered less of a threat to liberty, by classical liberals such as Pareto and Spencer, than the existing system of militarist and warlike statism dominated by privileged businessmen and landlords, the system to which Pareto would give the vivid and contemptuous name, ‘pluto-democracy’. By the turn of the century, however, it was becoming clear to laissez-faire liberals that the masses had been captivated by socialism, and that socialism would pose an even greater threat to freedom and free markets than had the older, neomercantilist, plutodemocratic system.

Laissez-faire liberals throughout Europe had been gloriously optimistic during most of the nineteenth century. It was obvious that liberty provided the most rational, the most prosperous, system, the system most attuned to human nature, the system that works for the harmony and peace of all peoples and nations. Surely, the centuries-long shift from statism to freedom, from ‘status to contract’ and from the ‘military to the industrial’ that had brought about the Industrial Revolution and immense improvement for the human race, was destined to continue and expand, ever onward and upward. Surely, freedom and the world market were bound to expand forever, and the state gradually to wither away.

The comeback, first, of aggressive business statism in the 1870s, followed by expanding mass support for socialism in the 1890s, however, put a rude end to the ingrained optimism of laissez-faire liberals. The perceptive laissez-faire thinkers saw that the twentieth century would bring the shades of night, and put an end to the great civilization – the realm of progress and freedom -that had been the product of nineteenth century liberalism. Pessimism and despair began to grip the slowly vanishing breed of laissez-faire liberals, and understandably so. They foresaw the growth everywhere of statism, tyranny, collectivism, massive wars, and social and economic decline.

Each of the aging laissez-faire liberals reacted to this momentous and fateful new trend in his own way. Spencer continued to fight on to the end, placing greater emphasis on what he considered the main threat of socialism as against the business statism that he had previously combated. Pareto’s path was to change radically into a stance of bitter cynicism. The world, he concluded as he saw the inexorable decline of libertarian ideas and movements, is governed not by reason but by irrationality, and it now became Pareto’s role to analyse and chronicle those irrationalities. Thus, in an article in 1901, Pareto notes that everywhere in Europe, both socialism and nationalism-imperialism are on the increase, and that classical liberalism is being ground down between them: ‘all over Europe the Liberal party is disappearing, as are the moderate parties... The extremists stand face to face: on one side socialism, the great rising religion of our age; on the other side, the old religions, nationalism and imperialism.’30

Faced with the failure of his hopes and with the looming statist hell of the twentieth century, Vilfredo Pareto, in the words of his perceptive biographer S.E. Finer, decided to ‘retreat to Galapogos’, a remote island that, in the argot of Pareto’s day, served as a metaphor and a vantage point for a totally detached analysis and critique of the folly looming around him.31 The final push for Pareto on the road to ‘Galapogos’ came in 1902, when the Italian Socialist Party abandoned its opposition to the protectionist policy of the ‘bourgeois’ statist government. The two long-standing enemies of laissez-faire liberalism had now joined forces! From that point on, Pareto’s retreat to a detached and aristocratic Olympian bitterness was complete.32

The first book of Pareto’s in which the new pessimistic stance becomes dominant is his Les Systemes Socialistes (2 vols, 1901–2). But his newly detached stance did not at all mean that he had abandoned his libertarian ideals or his method of social analysis. Indeed, Finer writes of Pareto that Molinari was ‘a man whom [he] admired till his dying day’.33 Thus Pareto writes bitterly of how in society, robbery through government is far easier, and hence more attractive, than hard work for the acquisition of wealth. As Pareto mordantly wrote, in a passage that anticipated such twentieth century libertarian theorists as Franz Oppenheimer and Albert Jay Nock:

Social movements usually follow the line of least resistance. While the direct production of economic goods is often very hard, taking possession of those goods produced by others is very easy. This facility has greatly increased from the moment when deprivation became possible through the law and not contrary to it. [Italics Pareto’s.] To save, a man must have certain control over himself. Tilling a field to produce grain is hard work. Waiting in the corner of a wood to rob a passer-by is dangerous. On the other hand, going to vote is much easier and if it means that all those who are unadaptable, incapable and idle will be able to obtain board and lodging by it, they will hurry to do so.34

Pareto unfortunately championed a positivist methodology in keeping with his reliance on the model of physics and mechanics. But this was more than offset by his supplying us a deathless anecdote in a brilliant defence of natural economic law as against the ‘anti-economists’ of the German historical school. It is an anecdote that Ludwig von Mises liked to relate in his seminar:

Once, during a speech which he was making at a statistical congress in Bern, Pareto spoke of ‘natural economic laws,’ whereupon [Gustav] Schmoller, who was present, said that there was no such thing. Pareto said nothing, but smiled and bowed. Afterward he asked Schmoller, through one of his neighbors, whether he was well acquainted with Bern. When Schmoller said yes, Pareto asked him again whether he knew of an inn where one could eat for nothing. The elegant Schmoller is supposed to have looked half pityingly and half disdainfully at the modestly dressed Pareto – although he was known to be well off – and to have answered that there were plenty of cheap restaurants, but that one had to pay something everywhere. At which Pareto said: ‘So there are natural laws of political economy!’35

14.6   Academic convert in Germany: Karl Heinrich Rau

While John Prince Smith and his colleagues were battling valiantly for laissez-faire in the court of business and public opinion, the most prominent academic economist in Germany was becoming a highly influential convert to the cause. Karl Heinrich Rau (1792–1870) was the most important academic economist in Germany in the first half of the nineteenth century, and perhaps down to his death in 1870. Rau was born in Erlangen, a Protestant town in northern Bavaria, and his father was Lutheran pastor and professor of theology at the university there. Graduating from Erlangen in 1812, Rau taught at secondary school, and in 1818 became professor of political economy at the University of Giessen. Four years later, Rau became professor of political economy at the University of Heidelberg and held that post until his death nearly half a century later. In addition to being a widely liked and influential teacher, Rau played an active and influential role in the government of Baden, indeed helping to shape the outlook of Baden officialdom for 50 years.

In addition to being a long-time consultant to the Baden government, Rau became a court councillor upon accession to the chair at Heidelberg, and became a privy councillor at Baden in 1845. Several times, Rau served in the Baden Diet, and in 1848 was elected a member of the Frankfurt Parliament.

Trained in German cameralism, Rau, for the first two decades of his lengthy career, was a temporizing moderate in his views, attempting to balance the Smithian system of natural liberty with cameralism, deductive theory with a compendium of facts and statistics. A cautious moderate, Rau was leery of abolishing the guilds, and defended an organicist view of the state as against Adam Smith.

On the other hand, as time went on, Rau became increasingly laissez-faire liberal and less and less statist. The beginning of this gradual but accelerating conversion came in the early 1820s; in 1819–20, Rau translated the six-volume treatise of the moderate Smithian Heinrich Friedrich von Storch, a Baltic German teaching in Russia and writing in French. Rau’s German translation of Storch’s Cours d’économie politique was published in three volumes.

Particularly important, however, was Rau’s multi-volume textbook on economics, the Lehrbuch der politischen Oekonomie. The first volume of the Lehrbuch was published in 1826, and the second in 1828. The Lehrbuch promptly became the standard economics text in Germany, going through eight editions in Rau’s lifetime, with a ninth edition of Volume I published six years after Rau’s death. Moreover, Rau’s Lehrbuch was translated into no less than eight languages!36

Rau’s increasingly classical liberal views were reflected in the successive editions of the Lehrbuch. Still more were they reflected in the pages of the economic journal, the Archiv der politischen Oekonomie und Polizeiwissenschaft, which Rau founded in 1835.

The culmination of Karl Rau’s conversion to laissez-faire came at the height of libertarian economic opinion in Europe, in the years around 1847. In his address to the university community at Heidelberg in November 1847, Rau denounced state intervention as the creation of ever-increasing special privileges to the aid of selfish interest groups; state intervention, then, can only benefit one person or group at the expense of another. Moreover, government intervention, instead of curing social problems, creates many new problems of its own. Rau warned, in his Heidelberg address, of the liberties endangered by government planning and controls, and particularly warned of the spread of socialist and communist ‘fantasies’; in the absence of private property and private enterprise, only force could be used to induce people to work.37

14.7   The Scottish maverick: Henry Dunning Macleod

Henry Dunning Macleod (1821–1902) was an exuberant and prolific Scottish maverick who, in the teeth of the Millian monolith dominating Britain after 1848, never received his due from British economists or British academics.38 Macleod was born in Edinburgh, the son of a Scottish landowner, and studied mathematics at Trinity College, Cambridge, graduating in 1843. He became an attorney and was admitted to the bar six years later. Two years afterward, Macleod wrote a report on the administration of poor-relief in several Scottish parishes, and went on to establish the first poor-law union in Scotland. In 1854, Macleod was made a director of the Royal British Bank, and this immediately sparked a lifelong fascination with economics, and specifically with matters of money and banking.

Macleod wrote prolifically on monetary matters, his Theory and Practice of Banking (1855) becoming influential and going through five editions. Macleod took a firm gold standard and free banking position, unfortunately adopting also the banking school apologia for inflationary, fractional-reserve banking. Macleod was the one who introduced the term ‘Gresham’s law’ into economics, and also contributed an important analysis of the ways in which fractional-reserve bank credit operates, in particular how bank loans create deposits, which then function on the market as money substitutes in the same way as bank notes.

If Macleod had confined his economic work to money and banking, he might have earned considerable respect among British economists; although he differed from the mainstream in favouring free banking, his pro-gold standard and anti-bimetallist views, as well as his banking school orientation, were close enough to the reigning orthodoxy to bring him the acclaim he deserved.39 But Macleod ran into a wall of opposition in Britain because he stood squarely against the British Smith-Ricardo-Mill labour theory of value and material concept of wealth. As a result, Macleod’s dream of becoming a professor never materialized.

Inspired by Archbishop Whately, Macleod went back to the late eighteenth century and discovered the Abbé de Condillac, whom he exuberantly declared to have been the true founder of economics, in contrast to the labour theory and materialist doctrine of Adam Smith. Enthusiastically adopting the Whately concept of ‘catallactics’ as the genuine method of economics, Macleod argued that Condillac, with his focus on economics as the science of exchanges, rather than ‘wealth’, was the founder of the catallactic approach. Condillac, noted Macleod, like the Italian economists of the eighteenth century, ‘places the origin and source of value in the human mind, and not in labour, which is the ruin of English Economics’. Furthermore, Macleod asserted, Condillac was correct that exchange value stems from value conferred upon goods by consumers, so that value and demand derive solely from mental desires by consumers. Contrary to Smith and Ricardo who believed that the labour of producers confers value on products, ‘Value does not spring from the labour of the producer, but from the desire of the consumer’.40

Since value stems from subjective valuation by consumers, it follows, declared Macleod, that men engage in exchange precisely because each man values what he gains more than what he gives up, else he would not have embarked on the exchange. Hence, echoing scholastic and continental theorists from Jean Buridan onwards, both parties to any exchange must gain in value. Macleod went on, in the proto-Austrian spirit, to declare that anticipated market prices determine costs that will be incurred in production rather than the other way round:

It is indisputably true that things are not valuable because they are produced at great expense, but people spend much money in producing because they expect that others will give a great price to obtain them... Buyers do not give high prices because sellers have spent much money in producing, but sellers spend much money in producing because they hope to find buyers who will give more.41

As if Henry D. Macleod did not give enough offence to mainstream nineteenth and twentieth century economics, he capped his crimes by hailing the great libertarian and catallactician Frédéric Bastiat, whom he saluted as ‘the brightest genius who ever adorned the science of Economics’. Bastiat, Macleod declared, ‘plucked up by the roots the noxious fallacies which are the Economics of Adam Smith and Ricardo... He simply cleared away the stupendous chaos and confusion and mass of contradictions of Adam Smith...’42

In his revolutionary work of 1871 which brought marginalism and at least a semi-Austrian position to England, W. Stanley Jevons issued a cry from the heart against the ‘noxious influence’ of the stifling authority of John Stuart Mill over economics in England. Ever eager to find and rediscover neglected forerunners, Jevons hailed Bastiat and Macleod as well as Senior, Cairnes and others. Unfortunately, as is evidenced by his treatment at the hands of the New Palgrave, Macleod’s reputation clearly needs to be resuscitated once again.43

14.8   Plutology: Hearn and Donisthorpe

Another forerunner and contemporary hailed by the revolutionary marginalist Stanley Jevons was the Irish-Australian economist, William Edward Hearn (1826–88). Born in County Cavan, Ireland, Hearn was one of the last students of the great Whatelyite economists at Trinity College, Dublin, entering in 1842 and graduating four years later. There he learned an economics very different from the dominant Millian school in Britain, an economics steeped in subjective utility theory and a catallactic focus upon exchange. Made the first professor of Greek at the new Queen’s College, Galway in Ireland at the age of 23, Hearn received an appointment five years later, in 1854, as professor of modern history, logic and political economy as well as temporary professor of classics at the new University of Melbourne, Australia. In a country otherwise devoid of economists, Hearn had little incentive to pursue economic studies; he became dean of the law faculty and chancellor of the university. Most of his scholarship was devoted to such diverse subjects as the condition of Ireland, the government of England, the theory of legal rights and duties, and a study of the Aryan household, on all of which he published books issued in London as well as Melbourne. Hearn also served as a member of the legislative council of the state of Victoria and as leader of the Victoria House.

Hearn wrote only one book in economics from his eyrie in Australia, but it proved highly influential in England. Plutology, or the Theory of the Efforts to Satisfy Human Wants, was published in Melbourne in 1863 and reprinted in London the following year.44 ‘Plutology’ was a term that Hearn adopted from the French laissez-faire economist J.G. Courcelle-Seneuil (1813–92), in his Traité théorique et pratique d’économie politique (1858) to mean a pure science of economics, a scientific analysis of human action. There are, indeed, hints in Hearn that he sought a broad science of human action going beyond even the limits of catallactics, or exchange.45

Hearn’s Plutology was patterned after Bastiat. Like Bastiat, Hearn provided a Harmonielehre, demonstrating the ‘unfailing rule’ that the pursuit of self-interest produces a flow of services on the market in the ‘order of their social importance’. Like Bastiat, Hearn began with a chapter on human wants, the satisfaction of which is central to the economic system. Human wants, Hearn pointed out, are hierarchically ordered, with the most intense wants satisfied first, and with the value of each want diminishing as the supply of goods to fulfil that want increases. In short, Hearn came very close to a full-fledged theory of diminishing marginal utility. Since each party to every exchange gains from the transaction, this means that each person gains more than he gives up – so that there is an inequality of value, and a mutual gain, in every exchange.

The value of every good, showed Hearn, is determined by the interaction of its utility with its degree of scarcity. Demand and supply thereby interact to determine price, and competition will tend to bring prices down to the minimum cost of production of each product. Thus Providence, through competition, brings about a beneficent social order, a natural harmony, through the free market economy.

In all these doctrines, Hearn anticipated the imminent advent of the Austrian School of economics, as well as echoing and building upon the best utility/scarcity/harmony-mutual benefit analyses of continental economics. Also anticipating the Austrian School, and building upon Turgot and various nineteenth century French and British writers including John Rae, was Hearn’s analysis of entrepreneurship. The entrepreneur contracts with labour and ‘capital’ (i.e. lenders) at a fixed price, attains full title to the eventual output, and then bears the profit or loss incurred by eventual sale to the particular entrepreneur at the next stage of production.

Hearn also showed that capital accumulation increases the amount of capital relative to the supply of labour, and therefore raises the productivity of labour, as well as standards of living in the economy. He saw that capital could accumulate, and therefore living standards could increase in the economy, without limit. In addition, Hearn generalized the law of diminishing returns, expanding it from land to all factors of production, being careful to assume a given technology and supplies of natural resources.

A champion of free trade, William Hearn called for the removal of Catholic disabilities in Britain, the freeing of the Irish wool trade, the abolition of usury laws and entail, and the removal of all restrictions on transactions in land. Opposing government intervention, Hearn declared that government’s only function is to preserve order and enforce contracts, and to leave all other matters to individual interest.

Hearn’s Plutology was used as an economics text in Australia for six decades until 1924 – indeed it was virtually the only work on economics published in Australia until the 1920s. While the book went unnoticed upon its publication in London in 1864, it soon drew high praise from several economists, especially Jevons, who hailed it as the best and most advanced work on economics to date. Jevons featured Plutology prominently in his path-breaking Theory of Political Economy (1871). Apart from these citations, however, Hearn’s work gave rise to only one plutological disciple. The attorney and mine-owner Wordsworth Donisthorpe (1847-?) published his Principles of Plutology (London: Williams & Norgate, 1876), which apparently was mentioned by no economic work from that day until the publication of the New Palgrave in 1987, either in the literature of the time or in any of the histories or surveys of economic thought. While scarcely an earth-shattering work, Donisthorpe’s 206-page book certainly did not deserve to sink without trace.46

Most of Principles of Plutology was devoted to ground-clearing methodology, discussion of definitions, and attacks on plutology’s great methodological rival, ‘political economy’. But yet there was much valuable substantive discussion in Donisthorpe, a lucid writer who admirably wanted to forge a scientific economics that would clearly distinguish between analysis and ethical or political advocacy. Denning plutology as the purely scientific investigation of the uniformity or relations between values, Donisthorpe went on to point out that values are all relative; and that these values, including the value of money, vary continually and unpredictably, in contrast to units such as weights which remain fixed and unvarying. There are different intensities of wants, and different degrees of utility, and the interaction of these utilities and relative scarcities determine values.

In a proto-Austrian manner, Donisthorpe also distinguished between directly useful and indirectly useful goods, and showed how the latter had varying degrees of remoteness from the pleasure-giving stage of goods; in short, Donisthorpe engaged in a sophisticated analysis of the time-structure of production. He also had a pioneering analysis of the influence of substitutes and complements (‘co-elements’) upon values. While Donisthorpe’s discussion of demand curves (i.e. schedules), supply, and price was interesting but hopelessly confused (e.g. he denied that an increased desire of consumers for a product would raise their demand for the product), he did present a remarkably clear foreshadowing of Philip Wicksteed’s insight of four decades later that witholding the stock of a product by suppliers really amounts to the suppliers’ ‘reservation demand’ for that product. Thus Donisthorpe:

In the first place sellers and buyers are not two classes, but one class... To refuse a certain price for an article is to give that price for it. A proprietor who refuses to sell a horse for fifty guineas virtually gives fifty guineas for the horse in the hope of getting more for him another day, or else because he obtains more gratification from the horse than from fifty guineas. Proprietors who do not sell must be regarded as virtually buyers of their own goods.47

Perhaps from disappointment at the reception of his book, Wordsworth Donisthorpe, like Hearn before him, abandoned economic theory and plutology from then on, and spent the next two decades battling on behalf of libertarianism and individualism in law and political philosophy.48

14.9   Bastiat and laissez-faire in America

Frédéric Bastiat’s writings found a receptive climate in laissez-faire-oriented United States. This was particularly true of the distinguished political and social scientist Francis Lieber (1800–72), a young Prussian scholar who had fled a central Europe inhospitable to German nationalism. In 1835, Lieber succeeded the Jeffersonian Thomas Cooper as professor of political economy and history at the University of South Carolina. Lieber’s two-volume Manual of Political Ethics (1838–39) was a comprehensive defence of the absolute rights of private property, as well as its corollary, the right of free exchange of that property. ‘Man yearns’, said Lieber, ‘to see his individuality represented and reflected in the acts of his exertions – in property’. Property, noted Lieber, existed before society and the state, and the state’s function is to defend property rights, the unrestricted right of exchange, accumulations, and bequest, from attack. The role of the independent judiciary, an institution created in the United States, was to be guardian over private property, and to do so by applying the common law, ‘a body of rules of action grown up spontaneously and independently of direct legislative or executive action’.

In 1856, Lieber acquired the chair of history and political science (formerly chair of political economy and history), at Columbia University in New York City. In his inaugural address at Columbia, Lieber delivered a paean to free exchange, which is fundamental to civilized life.

Lieber happily taught political economy from the text of Say’s Treatise, and argued that economics teaches the idea of ‘the natural, simple and uninterrupted state of things in which man is allowed to apply his means as best he thinks’. So devoted was Lieber to freedom of trade that he believed that the time would soon come when nations would include free trade in their bills of rights. Indeed, Lieber wrote the introduction to the first English translation of Bastiat’s Sophisms of Political Economy in 1848. That translation had been made by Lieber’s friend, Louisa Cheves McCord (1810–79), daughter of the former head of the Bank of the United States Langdon Cheves, and wife of Colonel David McCord, a protégé of Thomas Cooper and a South Carolina banker, planter, attorney and newspaper publisher. A devoted admirer of Bastiat, Mrs McCord also wrote journal articles denouncing socialism and communism.

But the two outstanding followers of Frédéric Bastiat in the United States were Francis Amasa Walker (1799–1875)49 and his close friend and younger New Englander, the Rev. Arthur Latham Perry (1830–1905). Amasa Walker was the son of a blacksmith, who soon rose to become a successful shoe manufacturer in Boston as well as a railroad promoter. His earliest economic interest was in money and banking, where he became an ardent Jacksonian. Even though a bank director, Walker endorsed the currency principle, and fervently advocated 100 per cent gold money, with bank notes banned from going beyond the specie in the vaults of the banks. In addition, most notes, especially small denominations, were to be gradually eliminated. Bank credit, Walker pointed out, creates inflation and boom-bust cycles, as the banks face an outflow of gold abroad and are forced to contract their credit and bank notes. Walker also realized that gold discoveries need not create crises and panic, since the gold could make possible a more rapid achievement of 100 per cent specie money.

Amasa Walker retired from industrial activity in 1840, at the age of 41, and from then on devoted himself to economics and to political activity. He lectured on economics at Oberlin and Amherst, and from 1853 to 1860 was an examiner in political economy at Harvard. Walker wrote a number of essays for the New York financial organ, Merchants’ Magazine, and in 1857 published a book on money and banking, The Nature and Uses of Money. He also served in the Massachusetts legislature and as secretary of the state of Massachusetts.

Walker, by then a lecturer at Amherst College, published, at the end of the Civil War, a scintillating general treatise on economics, The Science of Wealth: A Manual of Political Economy (Boston: Little, Brown, 1866), which incorporated his monetary views into a general treatise on laissez-faire. The book was immensely popular, at home and abroad, going into eight editions in the next eight years.

Walker’s money and banking views were the centrepiece of his book. He took the rare position of advocating a system of free banking within a firm matrix of legally required 100 per cent reserve.50 Walker wrote:

Much has been said... of the desirableness of free banking. Of the propriety and rightfulness of allowing any person who chooses to carry on banking, as freely as farming or any other branch of business, there can be no doubt. But it is not, and can never be, expedient or right to authorize by law the universal manufacture of currency...[When] only notes equivalent to certificates of so much coin are issued, banking may be as free as brokerage. The only thing to be secured would be that no issues should be made except upon specie in hand.51

In his general economics, Walker emphasized catallactic analysis, and employed the concepts of wealth and value squarely in the Bastiat tradition. In fact, Walker heaped a great deal of praise on Bastiat’s theory of value, and proceeded to include several pages of quotes and examples from Bastiat’s Harmonies. In addition, Walker continued in the French tradition of stressing the entrepreneur as a force in production very different from that of the pure capitalist.52

But unquestionably the outstanding disciple of Bastiat in the United States was Arthur Latham Perry. Perry, a graduate of Williams College in 1852, almost immediately accepted the position in which he would spend the bulk of his life teaching history, political economy, and German at his alma mater. Perry had ben introduced to Bastiat’s works by his friend Amasa Walker, and he reported that ‘I had scarcely read a dozen pages in that remarkable book [Bastiat’s Harmonies of Political Economy] when the Field of the Science, in all its outlines and landmarks, lay before my mind just as it does today [1883],.. from that time Political Economy has been to me a new science; and that I experience then and thereafter a sense of having found something...’53

In the Spring of 1864, Perry wrote a series of articles on ‘Papers on Political Economy’ for the Springfield Republican, which set forth Perry’s Bastiat-derived viewpoint on political economy. The proper focus of economic theory, he declared, was value, and value is determined by the mutual services exchanged in any transaction. The crucial axiom and focus of economic analysis, added Perry, is that men exert effort in order to satisfy desires, and trade is a mutual exchange of services to bring about those satisfactions. Both parties gain from every exchange, else they would not engage in the transaction. Workers, Perry pointed out, could only gain if more capital is employed in hiring them, which would increase wage rates per worker.

Encouraged by Walker, Perry expanded his articles into a textbook, published the following year. Elements of Political Economy, later called Political Economy, became by far the most successful economic textbook in the country, going through no less than 22 editions in 30 years. In his text, Perry not only paid tribute to Bastiat, but also hailed Macleod, and adopted the Macleod vision of the history of economic thought – saluting Condillac, Whately, Bastiat and Macleod as leaders of the correct services, catallactic, or what Perry called the ‘All Sales’ school.54 Engaging in a detailed and sophisticated analysis of exchange and its preconditions in values and the division of labour, Perry went beyond Bastiat to purge economics totally of the vague and materialistic Smithian concept of ‘wealth’ and to focus instead completely on exchange.55

Although he did not use the term ‘entrepreneur’, Perry’s concentration on value and exchange as a human activity led him to treat the businessman as an active forecasting entrepreneur rather than a robotic participant in a static general equilibrium. Thus: ‘your man of business must be a man of brains. The field of production is no dead level of sluggish uniformity like the billowy and heavy sea’; instead, the occupation ‘requires foresight, wise courage, and a power of adaptation to varying circumstances’.56

True to his focus on the great mutual benefits of exchange, Arthur Perry lauded free exchange and denounced all restrictions and limitations upon that process. Thus Perry points out that

... anybody can know that what is rendered in an exchange is thought less of on the whole than what is received. The slightest introspection tells any man that. As this must always be true of each of the parties to any exchange,... each is glad to part with something for the sake of receiving something else... A very little introspection will inform any person, that were this higher estimate wanting in the mind of either of the two parties, the trade would not take place at all... Hence no law or encouragement is needed to induce any persons to trade; trade is natural, as any person can see who stops to ask himself why he has made a given trade; and on the other hand, any law or artificial obstacle that hinders two persons from trading who would otherwise trade, not only interferes with a sacred right, but destroys an inevitable gain that would otherwise accrue to two persons alike.57

Perry particularly attacked such virulent interferences in free exchange as minimum wages, labour unions, usury laws, and paper money. While Perry, even more than Walker, failed to realize fully that bank deposits were as much part of the money supply as notes, he went even beyond Walker’s 100 per cent reserve proposal for paper money, to calling for the eradication of paper money completely, even if backed 100 per cent by specie. He believed, however, that bank credit and issue of deposits should be totally free within that matrix.

Perry was especially vehement in attacking protectionism, writing numerous articles and delivering hundreds of speeches on behalf of free trade and against protection. The protective tariff, Perry pointed out, was unsound economically; it violated property rights, and it violated the letter and spirit of the Ten Commandments. A protective tariff stole from the western farmer to establish privileges for a few manufacturers. Perry courageously withstood the pressure of powerful Williams alumni, headed by ironmonger George H. Ely, against his free trade teachings. After the assassination of his former student, lifelong friend, and fellow-member of the Cobden Club of Great Britain, President James A. Garfield, Perry took the highly unpopular step in New England of leaving the Republican Party as the ‘party of privilege’ and corruption, and joining the Democratic Party. Much admired by free trade statesmen, Perry was asked by President Cleveland to be his secretary of the Treasury.

Another laissez-faire stalwart, at least for the prime years of his life, was Perry’s friend and colleague who taught rhetoric at Williams, the Rev. John Bascom (1827–1911). During the 1850s and 1860s, Walker, Perry and Bascom made a formidable team in New England. Perry persuaded Bascom to write a book on economics, and Bascom’s Political Economy (1859) extolled the forces of production and competition in seeking profit and in thereby benefiting the commonwealth. Government’s only role is to protect the rights of private property, so that production can do its work. Bascom also pointed out that ‘monopoly’ can only be meaningfully defined as an exclusive grant of privilege by the government; otherwise all property could be called ‘monopoly’. Bascom also joined Walker in advocating 100 per cent specie reserves to bank notes.

Later, John Bascom became president of the University of Wisconsin, and succeeded Perry in the chair of history and political economy at Williams when the latter retired in the 1890s. Bascom must have become a severe trial to his old friend, however, because by the 1880s, Bascom had begun to abandon the cause and write books in the new statist discipline of ‘sociology’. Bascom now shifted drastically to call for the government privileging of labour unions, and for the abolition of the ‘excess’ of individualism. Bascom had now come to believe that the only danger from socialism and collectivism was ‘unreasonable resistance to [this] organic force which is pushing into our lives’. ‘Growth’ [i.e. collectivism], Bascom smugly concluded, ‘must have its way’.58 Clearly, John Bascom had rapidly made his peace with the new intellectual current that swept Europe and the United States in the 1880s and 1890s.

One of the most unusual – and most advanced – of the American admirers of Frédéric Bastiat was the Boston merchant Charles Holt Carroll (1799–1890). A staunch adherent of free trade and laissez-faire, Carroll, in articles in mercantile and financial magazines from 1855 until 1879, concentrated on questions of money and banking. In essence, Charles Carroll was the last Jacksonian, continuing to argue the ultra-hard money cause long past the tremendous setback it received during the Civil War, when greenbackism and the national banking act necessarily led sound money men to concentrate on sheer return to the gold standard. Moreover, Carroll was not content to advocate 100 per cent banking; he perceptively and consistently urged 100 per cent banking for demand deposits as well as notes. Carroll, indeed, was particularly clear in demonstrating that bank demand deposits mainly arise from the extension of loans by the banks. He also pointed out the fallacy of the Smithian ‘real bills’ justification for fractional-reserve banking. Furthermore, Carroll realized that central banking, epitomized by the Bank of England, allows far more room for the expansion of fractional reserve and ‘fictitious’ money than would a system of free banking. But in addition, Carroll went beyond most hard-money advocates by calling for the elimination of such potentially dangerous currency names as ‘the dollar’ (which give the illusion that these units are goods-in-themselves), and their replacement as the currency unit by regular, ordinary-language definitions of weight in gold, e.g. in numbers of troy ounces. For international currencies, that is, for currencies not redeemable in a common metal, Carroll worked out the essence of the purchasing-power-parity theory for the underlying determination of exchange rates on the world market.59

14.10   Decline of laissez-faire thought

By the latter decades of the nineteenth century, laissez-faire, in economic thought and in social and political influence, was in decline throughout Europe and the United States. Pareto was scarcely the only laissez-faire thinker in despair. Spearheaded by the welfare-warfare state developed in Prussia, academics and politicians alike scorned the ‘old fashioned’ tenets of laissez-faire and embraced the seemingly modern and ‘progressive’ advance of statism, state planning and welfare state measures. American academics, trained in Germany, the home of the Ph.D., came back from Europe singing the praises of the ‘organic’ Big State, scorned the idea of economic law and the market economy, and advocated class ‘harmony’ through Big Government. It is scarcely a coincidence that this new modern Big Government was desperately in need of academics, scientists, journalists and other opinion-moulding intellectuals, first, to engineer the consent of the public to the new dispensation of statism, and second, to participate in staffing, regulating, and legislating for the new planned economy. In short, the new dispensation meant a huge increase in monetary demand (by the state) for the services of pro-statist intellectuals, an important fact which did not go unnoticed among the ranks of the new progressive intelligentsia.

Throughout Europe, small associations of academics and businessmen dedicated to laissez-faire were replaced by larger organizations of mainly academics dedicated to professionalism and the promotion of their academic-economic gild. Not coincidentally, the new organizations were often explicitly statist and devoted to eradicating laissez-faire. Richard T. Ely, German-educated academic empire-builder devoted to institutionalism, statism, and Christian socialism, was the main founder of the American Economic Association, specifically excluding laissez-faire economists such as William Graham Sumner and Perry who had formed a political economy club; after this exclusionist policy was later rejected by Ely’s colleagues as too extreme, Ely resigned from the AEA in a huff, and was only reconciled in later years.

Whereas laissez-faire thought was in decline, the tyranny of the British classical model, re-established by Mill in 1848, was ripe for collapse. The precedents for replacement of the classical model had already been worked out by past economists: by the scholastics, Cantillon, Turgot, and Say and the nineteenth century French; by Whately, the Trinity College, Dublin school, and Longfield and Senior, in Britain and Ireland. The next great advance in economic thought was the overthrow of the classical Ricardian paradigm, and the arrival of the subjectivist revolution (generally mis-labelled the marginalist revolution) beginning in the 1870s. The famous marginalist triad of Jevons, Walras and Menger and the Austrian School has been fortunately dehomegenized in recent years, inspired by the classic article of William Jaffé two decades ago,60 and it is now clear that the revolution against the classical school paradigm went far beyond emphasis on the marginal unit of a good or service, especially in the hands of Carl Menger and his followers. But that is the stuff of another volume.

14.11   Notes

• 1About’s Handbook went into many editions. See the English translation, Handbook of Social Economy, or the Worker’s ABC (London: Strahan &Co., 1872).
• 2A century later, Bastiat’s broken window fallacy served as the inspiration and centrepiece of Henry Hazlitt’s excellent and best-selling economic primer, Economics in One Lesson (New York: Harper & Bros, 1946).
• 3Dean Russell, Frédéric Bastiat: Ideas and Influence (Irvington-on-Hudson: Foundation for Economic Education, 1965), p. 20.
• 4See Joseph T. Salemo, ‘The Neglect of the French Liberal School in Anglo-American Economics: A Critique of Received Explanations’, The Review of Austrian Economics, 2 (1988), p. 127.
• 5See the sensitive appreciation of this aspect of Bastiat’s contribution in Israel M. Kirzner, The Economic Point of View (Princeton, NJ: D. Van Nostrand, 1960), pp. 82–4.
• 6On the trials and tribulations which the laissez-faire liberals had with the Revolution of 1848, which generally had an unfavourable effect on the laissez-faire movement, see David M. Hart, ‘Gustave de Molinari and the Anti-Statist Liberal Tradition, Part I’, The Journal of Libertarian Studies, V (Summer 1981), pp. 273–6.
• 7For Cobden’s encomiums to Bastiat, see Russell, op. cit., note 3, pp. 73–4,
• 8Ibid., p. 90.
• 9Thus Piero Barucci writes that Ferrara’s value theory ‘was meant to be a critical reply to Ricardo’s labor theory of value, in which Ferrara did not see any element of subjectiveness. With his reproduction cost he intended to work out a theory of value which took into account both the element of cost and that of utility of goods. The value of a good would be, in this way, the comparison between the utility attributed by a subject to the good itself and the cost he thinks he would have to incur to reproduce the good. Indeed, this theory emphasized the fact of the utility of goods’. Piero Barucci, ‘The Spread of Marginalism in Italy, 1871–1890’, in R.D.C. Black, A.W. Coats, and C.D.W. Goodwin (eds), The Marginal Revolution in Economics: Interpretation and Evaluation (Durham, NC: Duke University Press, 1973), p. 260. Also see the important article by Salerno, op. cit., note 4, p. 121. And see ibid, p. 144n. 10, and F. Caffè, ‘Ferrara, Francesco’, The New Palgrave: Dictionary of Economics (London: Macmillan, 1987), II p. 302.
• 10J.A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), p. 1081.
• 11See Barucci, op. cit., note 9, p. 264. Achille Loria, the leading Italian socialist and historicist of this period, noted that Ferrara and his school lauded Bastiat, considered Ricardo and Stuart Mill as dangerous and sophistical theorists and abhorred the German economists as ‘advocates of interventionism and socialism’. Although a fervent opponent of everything Ferrara stood for, Loria was perceptive – and gracious – enough to refer to Ferrara as ‘the greatest Italian economist of the nineteenth century’ and ‘without doubt the greatest genius of which the economic science of our country boasts’. Salerno, op. cit., note 4, p. 144n8. Also see ibid., pp. 121–2.
• 12In Norway, we know that a popular treatise on economics was inspired by Bastiat. (H. Lehmann, Velstandslaere, 1874.) On the Swedish Economic Society, see Eli F. Heckscher, ‘A Summary of Economic Thought in Sweden, 1875–1950’, The Scandinavian Economic History Review, 1 (1953), pp. 105–25.
• 13Russell, op. cit., note 3, p. 91.
• 14It is perhaps significant that Prince Smith’s father, John Prince Smith, Senior, wrote tracts in favour of natural law and free trade, for example, Elements of the Science of Money (1813). See Donald G. Rohr, The Origins of Social Liberalism in Germany (Chicago: University of Chicago Press, 1963), pp. 85ff.
• 15‘Prince Smith used the term “free trade” in a wide sense, as in his assertion... that “to the state free trade assigns no other task than just this: the production of security”.’ Ralph Raico, ‘John Prince Smith and the German Free Trade Movement’, in W. Block and L. Rockwell (eds.), Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard (Auburn, Ala.: The Ludwig von Mises Institute, 1988), p. 349n.8.
• 16See W.O. Henderson, ‘Prince Smith and Free Trade in Germany’, Economic History Review, 2nd ser., 2 (1950), p. 297, rprt. in W.O. Henderson, Britain and Industrial Europe, 1750–1870 (Liverpool, 1954).
• 17Raico, op. cit., note 15, p. 346. On the near-individualist anarchism of Julius Faucher, see Andrew R. Carlson, Anarchism in Germany, Vol. I: The Early Movement (Metuchen, NJ: The Scarecrow Press, 1972), pp. 65–6.
• 18Gustave de Molinari, ‘De la production de la securité’, Journal des Économistes, XXV (Feb. 1849), pp. 277–90. Translated as Gustave de Molinari, The Production of Security (trans. J. McCulloch, New York: Center for Libertarian Studies, May 1977).
• 19See the complete translation of the eleventh soire’e in ‘Appendix’, David M. Hart, ‘Gustave de Molinari and the Anti-statist Liberal Tradition, Part 111’, The Journal of Libertarian Studies, VI (Winter 1982), pp. 88–102.
• 20See Murray N. Rothbard, For a New Liberty: the Libertarian Manifesto (1973, rev. ed., New York: Libertarian Review Foundation, 1985). For an appreciative discussion of Molinari and of the concept of total privatization of protection from crime, see Bruce L. Benson, ‘Guns for Protection and Other Private Sector Responses to the Fear of Rising Crime’, in D. Kates (ed.), Firearms and Violence: Issues of Public Policy (San Francisco: Pacific Institute for Public Policy Research, 1984), pp. 346–56. Also see Benson, The Enterprise of Law (San Francisco: Pacific Institute, 1990).
• 21For the discussion around Molinari’s thesis, see the Journal des Économistes, XXIV (15 October 1849), pp. 315–6. For more on a summary of the discussion, see Murray N. Rothbard, ‘Preface’, Molinari, op. cit., note 18, pp. i-iii.
• 22Molinari lived in Belgium during the decade of the 1850s. He returned to Belgium upon the coup d’etat of Louis Napoleon in December 1851, which precipitated Bonaparte’s despotism in France. With the aid of his friend Charles de Brouckére, Molinari was appointed professor of political economy at the Belgian Royal Museum of Industry in Brussels, and at the Higher Institute of Commerce in Antwerp. His lectures at the museum formed the basis of Molinari’s major theoretical work, his Cours d’Économie Politique (2 vols, Paris, 1863). Molinari continued to write articles and reviews for the Journal des Économistes during his Belgian years, also founding the Économiste belge in 1855, an even more frankly radical journal which he continued to edit for another 13 years. Molinari returned to Paris in 1860, becoming editor-in-chief of the laissez-faire journal, the Journal des Débats, from 1871 to 1876.
• 23This book was unfortunately the only one of Molinari’s works to be translated into English, as The Society of Tomorrow (New York: G.P. Putnam’s Sons, 1904). On Molinari’s retreat in his later years, and for an elaboration of his views in general, see David M. Hart, ‘Gustave de Molinari and the Antistatist Liberal Tradition, Part II’, The Journal of Libertarian Studies, V (Autumn 1981), pp. 399–5434.
• 24Molinari, op. cit., note 18, pp. 1–2.
• 25Frédéric Passy, ‘Prefatory Letter’, in Molinari, op. cit., note 23, pp. xxviii-xxix. A prolific author on economics himself, Passy was at one point president of the Société d’Économie Politique, as well as a member of the French Chamber of Deputies, 1881–88. Passy was a co-founder of the International Peace League in 1867, and, for his work on behalf of peace and international arbitration, was awarded the Nobel Peace Prize in 1901.
• 26Pareto’s role in the development of mathematical neoclassical general equilibrium theory will be treated in a later volume; the present section deals with his political economy. See however, on the Pareto-Croce debate on positivism vs praxeology as the proper economic method, Murray N. Rothbard, Individualism and the Philosophy of the Social Sciences (San Francisco: Cato Institute, 1979), pp. 54–6.
• 27In P. Bucolo (ed), The Other Pareto (London: Scolar Press, 1980), p. 44.
• 28From Molinari’s Précis d’économie politique et de la moral (1893), in Bucolo, op. cit., note 27, p. 68.
• 29Quoted in ibid., p. 144.
• 30Ibid., p. 141.
• 31See the illuminating article by S.E. Finer, ‘Pareto and Pluto-Democracy: the Retreat to Galapogos’, American Political Science Review, 62 (1968), pp. 440–50. Even more important is Finer’s introduction to Vilfredo Pareto, Sociological Writings (ed. S.E. Finer, London: Pall Mall Press, 1966).
• 32See Bucolo, op. cit., note 27, p. 166.
• 33Finer, in Pareto, op. cit., note 31, p. 18.
• 34Bucolo, op. cit., note 27, pp. 149–50.
• 35Theo Suranyi-Unger, Economics in the Twentieth Century (New York: W.W. Norton, 1931), p. 128. My own translation from Pareto’s quoted sentence.
• 36More specifically, eight editions appeared of Volume I, on theory, in Rau’s lifetime, as well as five editions of Volume II, on economic policy, and five editions of Volume III, on public finance, beginning in 1832. A sixth posthumous edition of Volume III was revised by Rau’s ex-student, also from Erlangen, Professor Adolph Wagner. Wagner also rewrote and published the ninth edition of Volume I in 1876. See Keith Tribe, Governing Economy: The Reformation of German Economic Discourse 1750–1840 (Cambridge: Cambridge University Press, 1988), p. 183 and 183n.
• 37See Donald G. Rohr, The Origins of Social Liberalism in Germany (Chicago: University of Chicago Press, 1963), pp. 78–84. Also see H.C. Recktenwald, ‘Rau, Karl Heinrich’, The New Palgrave, op. cit., note 9, IV, p. 96.
• 38This is true of his current treatment by British academics as well, as witness the sustained sneer that permeates the article by Murray Milgate and Alastair Levy, “Henry Dunning Macleod,” The New Palgrave, op. cit., note 9, III, pp. 268–9.
• 39For an appreciative discussion of Macleod by a modern pro-gold standard, banking school French theorist, see Charles Rist, History of Monetary and Credit Theory (1940, New York; A.M. Kelley, 1966), pp. 73, 102, 203, 205, 261.
• 40Salerno, op. cit., note 9, pp. 130–1. Also see, Murray N. Rothbard, ‘Catallactics’, New Palgrave, op. cit., note 9, II, p. 377.
• 41Salerno, op. cit., note 9, p. 131. See Henry Dunning Macleod, The Elements of Political Economy (London: Longman, Brown, 1857), pp. 98–100, 111, 127. Also see Macleod, The History of Economics (New York: G.P. Putnam’s, 1896); and idem., A Dictionary of Political Economy, Vol. I (London, 1863).
• 42Salerno, op. cit., note 9, p. 132.
• 43W. Stanley Jevons, The Theory of Political Economy (Baltimore: Penguin Books, 1970), pp. 57, 261. Also see Israel M. Kirzner, The Economic Point of View (New York: D. Van Nostrand, 1960), pp. 73, 202–3.
• 44J.A. LaNauze writes of the Hearn work that ‘It was an innovation in English political economy to begin a treatise with a chapter on human wants, and to make the satisfaction of wants a central theme... But his is an innovation only in English writing. The prominence which Hearn gives to wants is simply a reflection of his reading from French literature. His chapter is in places almost a transcription from Bastiat’s Harmonies, and his sub-title echoes Bastiat’s frequently repeated phrase, “Wants, Efforts, Satisfactions!’” J.A. LaNauze, Political Economy in Australia (Carlton, Australia: Melbourne University Press, 1949), pp. 56–8. See also the discussion of Hearn in Salerno, op. cit., note 9, pp. 125–9.
• 45Kirzner, op. cit., note 43, pp. 202n7, 212n2.
• 46Williams & Norgate was an important publisher of the day, the publisher of Herbert Spencer’s works and of the philosophic journal Mind. This is not surprising in view of the libertarian individualist philosophy common to both Donisthorpe and Spencer.
• 47Wordsworth Donisthorpe, Principles of Plutology (London: Williams & Norgate, 1876), p. 132. Also see Peter Newman, ‘Donisthorpe, Wordsworth’, New Palgrave, op. cit., note 9,1, pp. 916–7.
• 48On Donisthorpe as libertarian, see W.H. Greenleaf, The British Political Tradition, Vol. II, The Ideological Heritage (London: Methuen, 1983), pp. 277–80.
• 49Not to be confused with his son and namesake, a moderate statist who was to become first president of the American Economic Association. (Francis Amasa Walker, 1840^97.)
• 50Walker, squarely in the American tradition, insisted, as against the British currency school, that bank deposits were fully as much part of the money supply as bank notes. And yet, oddly and inconsistently, he failed to include deposits in his 100 per cent reform proposal, asserting unconvincingly that restriction of notes to their equivalent in specie would exert a sufficient check on the creation of deposits.
• 51Amasa Walker, The Science of Wealth (3rd ed., Boston: Little, Brown, 1867), p. 230–31.
• 52Ibid., pp. 9–13; also see Salerno, op. cit., note 9, pp. 133–5.
• 53Arthur Latham Perry, Political Economy (1883, 21st ed„ New York: Scribner, 1892), p. ix.
• 54Despite his devotion to Walker for leading him to Bastiat, and despite his being one of those laissez-faire economists to whom Perry dedicated his book, Perry privately reproved Walker for ‘being too much in bondage to Adam Smith’. See Sidney Fine, Laissez-faire and the General-Welfare State (Ann Arbor: University of Michigan Press, 1956), p. 52nl6.
• 55For an appreciation of Perry’s contribution, see Kirzner, op. cit., note 43, pp. 75–7.
• 56Joseph Dorfman, The Economic Mind in American Civilization (New York: Viking Press, 1949), III, p. 57.
• 57Perry, op. cit., note 53, pp. 102–3.
• 58Dorfman, op. cit., note 56, III, pp. 178–9.
• 59For the collected writings of Charles H. Carroll, see Charles Holt Carroll, Organization of Debt into Currency (E. Simmons, ed., Princeton: Van Nostrand, 1964).
• 60William Jaffé, ‘Menger, Jevons and Walras De-Homogenized’, Economic Inquiry, 14 (Dec. 1976), pp. 511–24.