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NOTE 01. Forerunners of the Austrian School: The French Liberal School (video)

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Let me begin by pointing out that the French Liberal School were indeed really forerunners of the Austrian School of Economics.

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And there's much besides the intellectual contributions that contemporary Austrians can learn from the French Liberal School.

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In particular, I'm going to tell a story about how the French Liberal School achieved dominance in France

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and a very broad intellectual influence throughout the world and how it quickly lost that dominance which it had held for 75 years through a strategic mistake.

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But what's important is to note that the dominance itself and the factors that led to the undermining of the school had to do with resources and institutional infrastructure.

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It's very important to realize that paradigms don't just shift because people spontaneously change their mind.

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People do change their minds.

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But the flow of resources between different schools within a discipline has an extremely important influence on what schools come to dominate,

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as we saw after World War II with Keynesian economics.

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What I want to show you is that the dominance achieved by the French school was due to the fact that it had accumulated a private infrastructure.

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I'll talk about some of these institutions that were built up and that sustained the school, and they were mainly privately funded.

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It was only later on when the French economics profession or the French discipline of economics became professionalized that the resources shifted because the government began to fund, as we'll see, chairs of economics in the university.

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And when that began to happen, they obviously did not want to appoint the French liberal school members who were ardent opponents of both protectionism and any socialist interventions into the economy.

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So they had made a lot of enemies. But because they had their own private infrastructure, their intellectual message still reached the public.

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It was only when a school of historical economists, taking their cue from the German school, was put in place by the government in French universities in the 1870s, and given lavish funding by the government, that the French liberal school began to lose its hold.

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and it still existed until 1914 until World War I and then it disappeared from the scene.

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Okay, not completely but to a large extent.

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So let me begin by giving you a rundown very quickly of some of the personnel that were involved in the school.

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It's an incredibly long list. There were four generations of hardcore laissez-faire economists that were comprised by the school.

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Okay, the main influences on the school were Richard Cantillon, Kondiak, you'll have to bear with me on my pronunciation of French, I had four years of it, but many years ago, and Anne Robert-Jacques Turgot, who was a minister in the French government and attempted to implement

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The physiocratic view that you can have an absolute but beneficent death spot that puts in place laissez-faire policies.

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He was fired after a year, so we know that that doesn't work.

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The actual founder of the school was Jean-Baptiste Say, a brilliant man,

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and someone who has been unfairly neglected in the economics, in the history of economic thought

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and painted as a mere popularizer of Adam Smith on the continent.

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To some extent, he bears some of the blame because he did not want to acknowledge, for example, Turgot

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because Turgot was too tied in with the physiocrats or so, say, thought.

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So he played up Adam Smith as his mentor, but if you read his great treatise on political economy, which was published in 1803, you'll note the influences of Cantillon, not so much Condiac, but also Trago.

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The second generation was when the school really flowered.

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We had a radical liberal, Charles de Noyer, a favorite of Murray Rothbard's, who was even more hardcore than Say.

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There was also someone who was older than Say, but wrote his treatise after Say, who was a proto-praxeologist,

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Meaning, he wrote his treatise on political economy as one volume in a multi-volume set that was labeled a treatise on the will.

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That is, economics was the result of action directed by volition.

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And I highly recommend Tracy's treatise on economics.

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Pellegrino Luigi Eduardo Rossi was an Italian who then came to France for French citizenship

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and then left to become the French ambassador to the Vatican. He was assassinated, he became later on after being the French ambassador to the Vatican.

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He was later assassinated as the Minister of Interior of the Papal States, a few months after he assumed that position.

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Another reason why you have to stay away from government.

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Then let me just quickly go through a few more and I'll put some faces to these names in a moment.

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Chevalier wrote a number of treatises, he was a Swiss, a French extraction, Jerome Adolphe Blanqui,

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there was a lot of intermarriage among these economists.

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Most of them, as I'll show you, did not hold academic positions.

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There really was no, there were no university chairs in economics.

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It was all in medicine and law and letters, until the 1870s.

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And that's why it flourished, precisely because the Napoleonic Universities did not have the science of political economy.

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In fact, Napoleon was afraid of the science. He suppressed Say's book.

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And there was a number of others. One notable in the third generation was Michel Chevalier, who was a brother-in-law of Joseph Garnier, who we'll see as a central figure,

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and also of another French economist, Paul Wolowski, and Chevalier concluded the first free trade agreement with Great Britain.

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Yes, there he is. Okay, Bastiat obviously, Murray called him the central figure, Murray Rothbard in his history of economic thought called Bastiat the central figure.

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He wasn't the most sophisticated theoretically, though he knew the theory, but he was a great expositor of many of the doctrines of the school, and he did make some original contributions.

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And in fact, I take back the first thing I said, Guido and Mark have done more research on Bastiat

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It's beginning to look like he was more theoretically sophisticated than even many free market economists have given him credit for

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Joseph Garnier was the brother-in-law of Blanqui, but he most importantly co-founded the Society of Political Economy and was a long-term editor and one of the founding editors of the Journal des Economies.

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And I'll talk about some of these institutions and various publications and so on.

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All of these things were private. They weren't funded by university dollars.

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Many of these economists were also working in private industry and accumulated enough wealth to keep a vibrant movement going.

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Okay, the Austrian Maurice Bloch was one of the first French economists to recognize the importance of marginal utility.

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He gave it, he was the first one to name it in French, le moindre du sens, which means the least enjoyment.

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And he defended pure theory against the German, British and French historical schools.

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In fact, he was fighting against the German historical school at the same time Menger was.

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Even before Menger, he was writing against the German historical school.

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He was German, of German extraction, lived in France and could read German, okay?

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Then, of course, we have the first anarcho-capitalist who also was a Belgian,

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Gustave de Molinari, who became, after Garnier, the editor of the Journal des Economistes,

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might point out the first economist ever to win a Nobel Prize was a French liberal economist,

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Frederic Posse, he co-founded the International Peace League and he won the Nobel Peace Prize in 1901.

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That actually was the first economist to win a prize.

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It was a hardcore laissez-faire.

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And then there was finally the fourth and last generation.

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There was a financial statesman, Leon Say, who was Say's grandson.

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He was the Minister of Finance for a long period of time, and also became President of the French Senate.

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I'd also mention that he was a great system builder, who wrote a four-volume treatise on economic theory, Paul-Lioua Bouillieu,

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who wrote an enormous number of books. He was a system builder in the same sense as Mises and Rothbard and so on.

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He wrote on everything, labor economics, imperialism, public finance, distribution theory, collectivism,

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I highly recommend his book on the modern state, it is in English, and his book on collectivism is pretty good, but he foresaw much of what the public choice people have rediscovered about the state, though he began to retreat from the hardcore positions, in fact he was in favor of imperialism, he wasn't in the beginning, but then towards the end of his life he became discouraged when he saw a few business cycles that he couldn't explain,

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and he thought that the French needed to find export markets and to compete with the Germans and British in doing so.

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One of my favorite guys, Yves Gayot, the Paris City Councilor and French Minister of Public Works wrote many articles, pamphlets and books

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on morality, on the morality of competition, on socialism, protectionism, the psychology of prostitution, financial crises and economic theory.

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wasn't the deepest thinker, but was very well known throughout the world.

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Let me just mention the institutions very quickly, and then I'll come back.

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These are the institutions that were dominated by the French school.

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The Collège de France was a ceremonial chair in political economy.

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It was an institute in 1831, and it was held towards the end of his life by Say, then when he died by Rossi, then by Chabollier, and then by Leroy Bouillieu, okay?

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They held that in succession.

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Mainly, the Collège de France, as I said, was a ceremonial position.

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You were only obligated to give a lecture or two to the public a month, but it was very, very prestigious, so the French school dominated that.

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The Institut de France, which was the learned society, was founded by Colbert in 1666, and it was incorporated by Louis XIV in 1699,

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and it was reconstructed under the French Revolutionary Government.

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But there were six sections or academies, including the Academy of Moral and Political Sciences,

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and that was completely dominated by the liberal school for almost the entire 19th century.

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At any given time, there were eight members.

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And as I'll show you in a moment, it was extremely important, it was pretty independent of government, okay?

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It was set up so that the people that were involved were the ones that made the selection of who was to become a member of the Academy.

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It was enormously prestigious and many, many economists, or many, many younger would-be economists sought to, sought entrance into the Institute.

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And the way you gained entrance was to participate in essay contests which you were paid if you were one of the winners.

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And after winning a number of these contests that were held annually, you were given the right to communicate with the other members.

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Okay, and that communication was an oral presentation, which in a way was an interview for your being inducted into the Institute.

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The liberal icons were extremely shrewd, they made sure the prizes were very high, enough to sustain the essay writers, to sustain their livelihood,

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while they tried to become members of the Institute, so they built up a core of liberal economists that way.

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Then the Society of Political Economy was founded in 1842, the journal of the same year.

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It was the first economics journal in the world, the only one in France until 1875.

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As I said, it was edited successively by Garnier, Molinari, et al.

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There was an English counterpart to the economist called Economiste Francaise, French economist, which was edited by Leroy Bouillieu.

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He started it, he funded it, it was private.

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It was the most read financial and business journal in France.

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Finally, there was the Dictionary of Political Economy, it was published first in 1852-53 by the Librarie Guillemin,

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which was a private publishing firm that published almost all the economics books in France,

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and it was run by William Guillemin, who himself was an economist.

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It was actually run by two sisters, they were sort of the fronts,

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but the liberal economists themselves funded it.

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They later brought out a new dictionary, Political Economy, published in the 1890s.

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This was another way that they cultivated hardcore laissez-faire economists.

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They became editor and the library, DMN, also edited, which is William,

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also published the Journal des Economistes.

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So they used the young liberal economists who were vying to get into the Institute as editors to supplement their income, okay, so it was all done privately.

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This is an incredible and little known story about how a paradigm established itself and maintained itself, okay, completely privately or almost completely privately.

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Let me just give you some of the, put some faces to the names that I've given you, because these guys are pretty interesting looking.

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But first, the main influence, the person that Murray Rothbard considered to be the founder of all economics is Richard Kantian.

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You can't see the red there.

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Okay, we don't have a picture of Richard Kantian.

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We do know that his house burned down in 1734.

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Now that could be him running away and hiding, or that could be an arsonist.

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We're not sure, Mark knows more about the mystery.

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But there's no picture, but he was a great guy.

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He had a lot of debts.

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So we don't know exactly what happened.

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He was one of the wealthiest private individuals in the world.

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He made a lot of money quite inconsistently from investing in France during the bubble created by John Law's massive inflation.

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Actually, not inconsistently. I mean, he was a good economist.

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He realized that you sell at the top of the bubble, or you try to, and he got out with money, with a huge amount of wealth.

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Okay, now for some of the real pictures.

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Okay, now Chad, what do I do here?

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Hit the button, right, got it.

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Now the computer, okay.

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Okay, this was Kondiak,

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who was one of the main influences.

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This is Anne-Rover Jacques Turgeau, who teased a lot and bullied a lot at school because of his first name, and so he called himself A.R.J. Turgeau and wrote that in all the books.

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He's not a bad looking guy.

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This is the great Say. I like the hat in the first picture, that's why I sort of put that in there.

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That might catch on again, I don't know.

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I haven't seen it on Queer Eye for the Straight Guy, but in any case,

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that's a very dignified picture of Say, who by all accounts was a very dignified man.

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This was the great Bastiat, who I recently found out,

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For the last few years of his life, he was unable to speak because he had a throat disease but that just made him work more on his own and he turned out a tremendous number of pamphlets in just two years from 1848 to his death in 1850.

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This is Richel Chablier, who was the minister in the French government and concluded the first French Free Trade Agreement and was fairly hardcore laissez-faire.

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This is the great Gustave de Molinari, the first anarcho-capitalist, though I recently found out that he didn't like the name anarchist because it smacked too much of utopian socialist schemes.

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He liked the name of competing private governments or competing private governing associations.

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This was the first economist to ever win a Nobel Prize, Frederic Posse.

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He was a great peacenik, continually trying to ease tensions between nations and so on.

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and so on, and his international peace society was in fact international.

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This is the grandson of Say, Leon Say, great financial statesman.

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This is Paul Leroy Bouillieu, great system builder.

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Some economists at the time considered his four-volume treatise written in 1893 to be

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be on a par with Marshall's treatise and with Clarke's, John Bates Clarke's great distribution of wealth, which was an Austrian treatise, or quasi-Austrian treatise.

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Okay, that is something that was influenced by them. Let me mention now who they influenced.

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Not only did they dominate economics in France completely, but they had a very large international influence.

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Now you wouldn't have, you don't know that, you wouldn't figure that out from the way the text books in the history of thought are written.

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There are, the French liberal schools portray the clannish, insulated, inward looking group that had no influence outside France, but in fact that's certainly not true.

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They had a great international influence throughout the 19th century.

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Gustav Kassel, who was one of the first general equilibrium theorists, though his theory was

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not as mathematical as that of Volroth and Pareto, but in any case, do I have a pointer

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here?

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He got his view of the general interaction of supply, demand, and all markets from Say, and he explicitly says that.

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Knut Vixel, though he didn't like laissez-faire and criticized Bastiat and others, admitted that their interests in capital theory were representative of the best of the 19th century interest in capital theory.

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Boehm-Bawerk cites Bastiat and many other French liberals in his great critique of interest theories.

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He wasn't charitable to anyone, but he was respectful, and so he used some of the interest theories propounded by the school as representative of the best of those particular brands of theories.

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There's a number of different brands of theories.

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In fact, he used Say as the father of both productivity theory, which he hated, and the use theory of interest, which Menger held and which was what Boehm-Bawerk considered the best up to his own theory.

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Menger himself didn't particularly, wasn't directly influenced by them, but as we'll see, he was influenced through the German price theory tradition.

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We then had a great Italian liberal marginalist school, which is even less well known than the French liberal school.

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Its founder was an ardent follower of Bastiat, and he was really the founder of Italian economics as a movement.

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Vilfredo Pareto, even though he was a mathematical general equilibrium theorist, was an arch-liberal and a follower of Molinari in his political economy.

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And as one of his biographers has said, he admired Molinari, or Molinari was a man he admired until his dying day, okay.

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Mafio Pantolioni was a liberal marginalist and he influenced Pareto to read Molinari and to become interested in economics.

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Giovanni Montemartini, he was a famous public finance theorist and he followed Molinari.

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He believed that the state was just another enterprise that was attempting to maximize, in this case, its revenues and he had what we might say was a value-free view of this, he developed a theory of this, which, by the way, influenced James Buchanan.

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Finally, there was Augusto Graziani, who led a revival of the liberal school fortune suffered in Italy in the 1880s,

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but Graziani combined the best of the liberal school with the Austrian school, especially Boehm-Bawerk.

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He was a follower of Boehm-Bawerk and wrote a number of books and became a great laissez-faire Austrian economist.

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There were a number of German price theorists, beginning with Carl Rao, who wrote Rao's textbook,

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it was written in the 1820s or even earlier and went through numerous editions.

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It was based on Say's treatise.

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Herman, the same thing, his book was based on Say's treatise.

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Van Mangolt developed Say's Analysis of Entrepreneurship.

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and Scheffler was a very strong, Albert Scheffler was a very strong influence on Boehm-Bawerk

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and also on Mises, even though Mises doesn't mention it.

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Scheffler was the first one, he wrote a book called The Quintessence of Socialism.

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No one else up to that point, when he wrote this book in the 1860s, I believe, or early 1870s,

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had defined exactly what socialism was.

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And in a short book, Scheffler said, he took all these socialist programs, utopian socialists,

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He went through every single one, and he said what is common to all is collectivist property.

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That is, the ownership of the means of production by the state.

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No matter what they say about their program, that is the kernel of socialism.

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The abolition of private property in the means of production, which is the definition that

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Mises gives in his famous article.

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Though he doesn't mention Scheffler.

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Boehm-Bawerk does though, Boehm-Bawerk does, and I think there was also a British anti-classical tradition,

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one of the marginalist revolutionaries along with Menger was William Stanley Jevons.

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He praised Bastiat and many of the other economists in the French school.

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Macleod was a follower of Bastiat and Perry and a big influence on Jevons.

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William Hearn was the first Australian economist and completely followed the French school.

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Then we had something called the American Catallactic tradition here, started by Amasa Walker and carried on by William Latham Perry.

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This was a post-World War, excuse me, Civil War or excuse me again, post-War of Southern Independence movement.

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and William Nathan Perry was the leading American economist and textbook writer from the third quarter of the 19th century, textbook into many, many editions.

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Okay, let me just, again, just show you the, some names, faces to the names.

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What am I doing? Oh yeah, right. Okay, thank you.

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This is Pareto, who some people say later in his life became a fascist. That's not true. He always was a radical liberal.

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In the early days, the fascists took over. They were experimenting with different types of economies, and they were implementing laissez-faire policies,

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and Pareto agreed to Mussolini's request that he serve on an unofficial committee.

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The people that claim that Pareto was a fascist are people that no doubt follow Keynes or Frank Knight, who as I'll show you later in the week, were indeed fascists.

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This is Mafio Pantaleone just coming from a meeting with his consulieri.

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Cameron was later, the guy took his pictures later found floating in the Po River, but in any case, great liberal.

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And this is Luigi Inaudi, who became finance minister in Italy after the war and became the president of the Italian Republic after the war, okay?

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So the Italian liberal school had a long existence.

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He was a friend of Mises and also a founding member of the Mont Pelerin Society.

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I think that's the last one.

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Okay, this is the evil guy, we'll get to him later.

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Okay, given the influence that the school had...

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Oh, actually, let me just put up a few quotations from different members of the school,

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which gives you a flavor of their passion for liberty

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and of the depth of understanding of the market.

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Now, this was written in 1817 by the student Tracy.

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The society is purely and solely a continual series of exchanges.

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It is never anything else in any epoch of its duration,

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from its commencement the most unformed to its greatest perfection.

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And this is the greatest eulogy we can give to it, for exchange is an admirable transaction in which the two contracting parties always both gain, and this is his own emphasis.

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Commerce is the whole of society. It is equally true that an exchange is a transaction in which the two contracting parties both gain.

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Whenever I make an exchange freely and without constraint is because I desire the thing I receive more than that I give.

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And on the contrary, he with whom I bargain desires what I offer more than that which he renders me.

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I mean, this is anticipating Menger by over 50 years, this analysis of exchange.

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And it's anticipating Mises by even longer, the whole idea that commerce and social division of labor is the core of society.

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When civilists agree to execute any labor whatsoever in common, whether to defend ourselves against an enemy or even to make a bridge or road is because each of us prefers the particular utility which will result to him from it to what he would have been able to do for himself during the same time.

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This is the notion of opportunity cost.

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Remember he wrote a treatise on the will.

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So this is before Wieser and Boehm-Bawerk worked out the notion of opportunity cost in its most perfected form.

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It is this innumerable crowd of small particular advantages unceasingly arising, which composes the general good,

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and which produces at length the wonders of perfected society.

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This is Rothbard.

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When people say that there are externalities throughout the world, that the government should be taxing here and subsidizing there,

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What's wrong with that? All society is one large externality. The fact that we cooperate together.

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We cooperate in competition. We cooperate in voluntary organizations.

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The fact that Mark invests his money helps me because it raises my real wages.

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Well, should I have to pay him for that? No, these are these small advantages that grow up from a market society.

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and that was seen by Tracy.

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Finally, he says, when the public authorities, he's talking about price controls,

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when the public authorities impose universal price controls, I interpolated that.

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Then society ceases and universal brigandage begins.

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We may say in the strictest sense that society is dissolved

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where there is no longer any free exchanges.

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That's Mises.

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With universal price controls, you no longer have monetary calculation

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and there's an abolition in fact and not just as a metaphor of society.

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A few quotes by Bastiat.

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Self-interest is the mainspring of human nature.

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It must be clearly understood that this word is used here to designate a universal, incontestable fact

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resulting from the nature of man and not an adverse judgment as would be the word selfishness.

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So he distinguishes between the two.

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The perpetual longing of personal interest is to quiet the needs, or more generally the desires, through satisfaction.

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This is very, very mangarian.

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Economic law acts in accordance with the same principle whether they apply to the great masses of men, to two individuals,

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or even to an isolated individual constrained by circumstances to live in isolation.

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So in other words, Robinson Crusoe economics can yield us true laws about the economy.

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and then we can work up to the interaction of individuals, okay?

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This is the method of Rothbard, the method of Mises, the method of Menger, okay?

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And Bastiat has seen that it's the correct method and seized on it.

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Regarding the state, he says the state will always act through means of force, okay?

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He says always, even though he's not an anarchist, he realizes that, okay?

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He doesn't pretend it's some kind of a club or that people have formed some sort of social contract.

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The state will always act through means of force, imposing its services and determining the services people must pay in return,

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under the form of taxes, so taxes are coerced.

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The problem then boils down to this. This is where he waffles a little bit.

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What sorts of things do men have a right to impose on their fellow men by resorting to force?

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I have no right to compel anybody, whatever, to be religious, charitable, learned or industrious.

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But I have a right to compel him to be just.

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Precisely because government action implies resorting to force,

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and this is the waffling,

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such actions must be essentially limited to maintaining order, security and justice.

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Well, the point is that the government is resorting to force.

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So you have something over and above society

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that is forcibly siphoning resources from it,

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diminishing society and causing it to become more disorderly.

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Bastiat, couldn't solve that problem, how to get around that, two more, these are the later French liberals, Maurice Bloch, who was a French-Austrian,

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he says the French Liberal School bases economic science on the study of man living in society, striving to satisfy his material and immaterial wants,

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this brings together Menger and Bastiat, they both start off with the wants of human beings.

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The ensemble of these wants constitutes human nature, and it is from their reactions, the one upon the other, that economic laws proceed.

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The first of these laws is this, man tends to obtain the greatest possible result with the least effort.

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The second law is that man will make no effort to obtain that which will give him no material or moral satisfaction,

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that which is useless or disagreeable, which he cannot exchange with some useful object or first-service render.

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Now, it was said that the, and I'll talk about this in a moment, that the French school collapsed because it could not absorb any new, any innovations in economic theory, nor could it itself initiate such innovations.

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But it's clear that Block, read the rest of it, is by deduction from this law, which was stated by Bastiat and others,

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is by deducting this law, which in its development becomes the law of final degree of utility of Jevons

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or the marginal utility of Carl Menger, that one is able to explain why what is rare is dear

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and why that which is abundant is cheap.

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In other words, he completely accepts the law of marginal utility, or as he put it,

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la moindre justice, as being the explanation for the paradox of value.

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And he says, is not this also an eternal law?

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So the French school believed, unlike the English school, that economic laws, correctly deduced, were absolutely true.

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Whereas the English school believed that they were true, taking into account non-economic motives and what they called disturbing causes.

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Finally, one of my favorite quotes, this was written by a fierce enemy of the French liberal school,

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The leader of the law school economists, who hated the French liberal school and did everything he could to tear them down.

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And he's sarcastic here, but it points out the spirit and the passion of Yves Guillot, the last French liberal economist.

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He fought against every form of state intervention. This is the obituary that Gide wrote, Charles Gide, the head of the law school economist, wrote for Yves Guillot.

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He fought against every form of state intervention, such as compulsory vaccination, the regulation of prostitution, the prohibition of alcohol, the limitation in the number of drinking houses, the closing of gambling places, penalties against adulteration of foods, or against speculation.

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This is Walter Block.

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He was the foremost lieutenant of Josephine Butler, the leader of the prostitutes fighting for legalization.

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In heroic campaign in France against anti-prostitution laws, and even paid by six months in prison for the violence of his attacks against the Paris police, as Murray would say, heroic.

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The arguments which interventionists are wont to advance did not move him in the least, even when they were in support of morals.

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Yes, indeed, rather drunkenness, prostitution, ruin under the regime of liberty than temperance, virtue, sobriety, respectability under the regime of state regulation or state force and terror, state imposition of morality is what he's saying.

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The O was against this. The O, again, was a great and dignified man. He wasn't in favor of all of these things, as Jeanne is somehow implying.

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He just realized that you couldn't impose morality. As for morals, he would not admit they could exist except as the natural product of liberty.

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Well, you can force a prisoner to do certain things that the rest of us might say are right. You can keep somebody in prison and force them to do certain things.

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That's hardly the choice of a moral agent.

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And this was the obituary for Yves Guillot,

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who was the French Minister of Public Works

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and the editor of the Journal des Economistes

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and the last of the French Liberal Economists.

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Okay, given their longevity,

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And given the whole interlocking infrastructure of institutions, privately funded, that they had developed over time, what happened?

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Why was the French liberal school forgotten in the history of economic thought?

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Well, there's a number of answers were given to this by some great historians of thought including Joseph Schumpeter, Peter Greenwagon, who has written on forgo, and others.

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And the answer they came up with, I was not satisfied with, that's what got me interested in this school, and I wrote my first article in response to that.

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Basically what they said were the following. There were three reasons, according to them, why the school collapsed.

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First, the leaders of the school, succeeding its founder J.B. Say, produced brilliant expositions of received doctrine, the doctrine they got from Say,

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The School failed to participate in the development and dissemination of marginalist ideas during the three decades of doctrinal ferment leading up to World War I.

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Between 1871, when Menger and Jevons wrote their treatises on marginal utility, allegedly the French paid no attention whatsoever to it.

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Well, this is just an out and out falsehood, okay, if not lie, because as we saw Maurice Bloch himself, one of the leading French economists, liberal economists, accepted marginal utility.

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And if you look through the four-volume treatise by Léon Bouillieu, who was the leading system builder in France, he has two long chapters on Menger and Jevons.

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And he has some criticisms here and there, but he accepts their law of marginal utility.

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And in fact the French economist said this is the final piece in the puzzle.

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So, this finishes, or this completes Say's system. Say and Bastiat who said that human wants are the foundation of all economic activity.

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Finally, the schools' intransigent opposition not only to socialism, but to almost any form of government intervention into the economy,

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led critics to dismiss the school as little more than apologists for extreme laissez-faire liberalism.

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This reinforced the image of liberal economists as mere expositors and pamphleteers who were relevant to any account of the development of pure economic theory in the 19th century.

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All of these explanations were given after World War II.

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But given that in the 19th century we saw all the people that they influenced, all the important economists that were influenced by the French school.

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Something else must have happened, must have been something else that caused the entire French school to be poured down,

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what Murray Rothbard used to like to refer to as the Orwellian memory hole.

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And in fact it was something else.

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What began to decline was a strategic error by the school itself,

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A contradiction to their principle of not getting the state involved in education.

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First of all, let me point out that the school is always under attack intellectually, but was always able to defend itself.

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Charles G., the enemy of the school, wrote,

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Religious beliefs, revolutionary unrest, material interests, philosophic speculations, all apparently combined to work against the liberal school.

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Since its birth, so to say, the liberal school had been obliged to combat the conservatives of the old regime, the socialists and the protectionists.

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So intellectually, they were always under attack. That's not what drove them down.

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Unfortunately, beginning in the early, actually in the late 1850s, the school began to push the government, the French government,

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to establish chairs of political economy in the law faculty because they felt that France was a second-rate nation.

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All other nations had university courses in economics and Chaboyer made the following plea.

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He said, we know that France is of all countries of Europe or of Christendom, that in which political economy is the least taught.

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There are but two professorships, the one public, that of the Collège de France, and the other restricted to a special class of functionaries attached to the school of works.

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There were a few technical schools, which the French school also dominated, the Higher School of Commerce and Business, the School of Roads and Bridges, there were low-level economics courses taught there, all manned by the French school, okay?

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Everywhere else, whether in Europe or America, each university has at least one chair of political economy, this will be found equally in Russia and in England, in Prussia and in Spain.

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The Little Kingdom of Portugal supports three professors of political economy.

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So, now why is Chevalier suddenly pushing the government to fund chairs?

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He's doing that because he feels that with chairs in the university,

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the liberal school will get more prestige and be able to fight socialism and protectionism better.

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So, he's going against principle,

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Trying to use means that the principles of the liberal school would not countenance.

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Now, what they did in 1863, they approached the Minister of Public Instruction, who was a moderate liberal and liked the liberal school, Victor Duret, and hated the socialists.

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They asked him to create these chairs of political economy.

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He instituted the first one in 1863 in the law faculty in Paris, but the government wouldn't give him funds to put the chairs in all of the various universities.

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In fact, Dury said that this was his most important reform of legal education, because they put them in the law faculties, because, and I'm quoting Dury,

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It introduced an academic discipline that would help inoculate young men against the dangerous utopian dreams that had attracted so many in 1848.

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In other words, during the revolution of 1848 and the disorders when the socialists and communards, no, just the socialists, that was 1870, when the socialists attempted to take over in Paris.

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Unfortunately, Durie opened Pandora's box, because Durie was dismissed in 1869.

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And after he was dismissed, of course, someone who was not sympathetic to liberal school was put in place as Minister of Public Education.

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And in March 1877, the government decreed that political economy be taught in each of the 13 law faculties in France,

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So, the liberal school thinking, well, we're the only economists in France. As soon as this took effect, they were ecstatic. They even began to name who was going to get what position.

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Unfortunately, something they overlooked, possibly because they were not familiar with the university bureaucracy.

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What they overlooked was that university statutes dictated that any chair in a law faculty could only be filled by what was called an aggregate en droit.

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This degree of an aggregation de droit, which was something of law, I don't know how exactly to translate it, but it's even beyond the doctor of law.

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It took two to three years of study beyond the doctorate of law devoted exclusively to Roman and French law.

373
00:48:36.540 --> 00:48:40.540
And then you had to take a competitive examination.

374
00:48:40.540 --> 00:48:46.540
Not one of the liberal candidates was an aggregate, meaning more than a doctor for the next three years.

375
00:48:46.540 --> 00:48:49.540
And only two or three were doctors of law.

376
00:48:49.540 --> 00:48:53.540
And only in rare instances were the doctors of law allowed to hold chairs in law faculties.

377
00:48:53.540 --> 00:48:56.540
So who did most of the new chairs go to?

378
00:48:56.540 --> 00:48:58.540
They went to lawyers.

379
00:48:58.540 --> 00:49:01.540
Do lawyers like economics? No.

380
00:49:01.540 --> 00:49:09.540
In fact, as Charles Gide, the leading law faculty economist, pointed out,

381
00:49:09.540 --> 00:49:15.540
and I'm quoting him, their legal studies, above all in Roman law, had familiarized them with the German-Romanist literature.

382
00:49:15.540 --> 00:49:17.540
Now, he's talking about the law faculty economists.

383
00:49:17.540 --> 00:49:24.540
And especially with the historical perspective of jurisprudence, of which Savigny was the most famous representative.

384
00:49:24.540 --> 00:49:37.540
They were therefore naturally inclined to consult German economic literature, and disposed to understand and approve of the same historic method applied to economics. Moreover, a young man who has studied law seriously for ten years,

385
00:49:37.540 --> 00:49:49.540
you're not going to give up this view that the lawyer is all-powerful, that law-making is what makes society, and in fact, he will be little apt to accept the principle of the liberal school,

386
00:49:49.540 --> 00:49:55.340
which maintains the fewer the laws, the better, and that to have no laws whatever were best of all.

387
00:49:55.340 --> 00:49:58.340
A lawyer will not be apt to relish the doctrine of laissez-faire.

388
00:49:58.340 --> 00:50:01.240
It is necessarily antipathetic to his modes of thought.

389
00:50:01.240 --> 00:50:06.340
In all times and in all countries, but perhaps more distinctly in the history of France than elsewhere,

390
00:50:06.340 --> 00:50:12.940
the lawyers have been the natural supporters of the government, and even in a certain sense, the founders of the modern state.

391
00:50:12.940 --> 00:50:15.840
Now, Gide is all in favor of this.

392
00:50:15.840 --> 00:50:20.640
The new professors of economics in the faculty of law were thus drawn by their intellectual training

393
00:50:20.640 --> 00:50:25.340
and even by their profession into a path opposite that of a liberal school.

394
00:50:25.340 --> 00:50:36.140
So overnight you had historicist, interventionist, social democratic, school of economists growing up.

395
00:50:36.140 --> 00:50:39.740
This is unprecedented in the history of economic thought.

396
00:50:39.740 --> 00:50:43.140
In other words, there was a paradigm shift.

397
00:50:43.140 --> 00:50:50.340
wasn't brought about purely intellectually, it was brought about by a shift in resources, in property, okay?

398
00:50:54.140 --> 00:50:59.140
So, Gide went on, the majority of the economists in the faculties of law must be considered as interventionists,

399
00:50:59.140 --> 00:51:05.640
to about the same degree as German professors who used to be called socialists of the chair.

400
00:51:05.640 --> 00:51:15.640
So in other words, they immediately became socialistic to the same extent as their German historicist mentors, okay?

401
00:51:15.640 --> 00:51:19.640
This is one of the most remarkable episodes in doctrinal history, okay?

402
00:51:19.640 --> 00:51:26.640
Almost fully grown from the brow of Zeus, as it were, the school emerges in France, okay?

403
00:51:26.640 --> 00:51:36.640
And it was all caused by the strategic error of the liberal school in pushing for government financing of economic education.

404
00:51:36.640 --> 00:51:41.640
So what happened? Now this is why the liberal school has been forgotten.

405
00:51:41.640 --> 00:51:50.640
The first, almost immediately, lawyers liked to write and they began publishing on economics.

406
00:51:50.640 --> 00:51:58.640
The first economics professor to publish was Paul Covez, who was a Paris law faculty member.

407
00:51:58.640 --> 00:52:07.640
He published two volumes of his lectures, and in it he denied the existence of natural laws in economics

408
00:52:07.640 --> 00:52:13.640
and advocated Friedrich List's system of protectionism.

409
00:52:13.640 --> 00:52:16.640
The liberal school was livid.

410
00:52:16.640 --> 00:52:21.940
They responded to the challenge with vehement attacks on the work in their journal Des Economistes

411
00:52:21.940 --> 00:52:27.340
and they supposedly even tried to have the author removed from his chair.

412
00:52:27.340 --> 00:52:34.140
In 1883, Gilles, who became the internationally recognized leader of the law faculty economist,

413
00:52:34.140 --> 00:52:39.840
published his famous Principles of Economics, went through more than 20 editions in France

414
00:52:39.840 --> 00:52:44.940
and went through many editions in the United States, translated to English, three times.

415
00:52:44.940 --> 00:52:50.940
Now, this is a man who hates a liberal school, so what is he going to say to English and American economists in the translation?

416
00:52:50.940 --> 00:52:56.940
You're going to get a view of the school that is extremely distorted.

417
00:52:56.940 --> 00:53:04.940
He was generally sympathetic to the German historical school, Gide was, and let me just find my pointer here.

418
00:53:04.940 --> 00:53:10.940
I'll show you his picture.

419
00:53:10.940 --> 00:53:25.940
Okay, that's the evil Charles Gide.

420
00:53:25.940 --> 00:53:32.940
As I said, sympathetic to the German Historical School, he was eclectic in the sense that

421
00:53:32.940 --> 00:53:38.940
he did accept legitimacy of the deductive method, but didn't think that it would result in universally valid laws.

422
00:53:38.940 --> 00:53:45.940
Basically, that's the view of the British classical school, which also was opposed to the French liberal school.

423
00:53:45.940 --> 00:53:50.940
In important areas of policy, he did diverge radically from liberal school.

424
00:53:50.940 --> 00:54:07.940
He questioned the legitimacy of private property and land, supported an income tax, and looked forward to the suppression of competition and the wage system by something that he called solidarism, or a system of cooperative production.

425
00:54:07.940 --> 00:54:11.940
He founded the Cooperative Society and the Society of Christian Socialists.

426
00:54:11.940 --> 00:54:18.940
Needless to say, liberal economists were aghast at Gide's political-economic doctrines and activities,

427
00:54:18.940 --> 00:54:23.940
and they succeeded, fortunately, in denying him the election to the Institute.

428
00:54:23.940 --> 00:54:26.940
They still control the Institute de France.

429
00:54:26.940 --> 00:54:33.940
Gide struck back by founding a professional journal in 1887, The Review of Political Economy,

430
00:54:33.940 --> 00:54:38.580
Economy, which included among its editors and contributors all the economists of the

431
00:54:38.580 --> 00:54:39.580
law faculty.

432
00:54:39.580 --> 00:54:41.740
So it was very, very prestigious.

433
00:54:41.740 --> 00:54:46.180
The journal was, quote, the organ of the professors of economics and the faculties of law, which

434
00:54:46.180 --> 00:54:50.860
avowed the program of reaction against the doctrines of the optimist liberal school and

435
00:54:50.860 --> 00:54:53.940
the propagation of foreign, especially German, economic schools.

436
00:54:53.940 --> 00:54:57.140
So the whole point was to propagate German historicism in France.

437
00:54:57.140 --> 00:55:02.000
So this was a Pandora's box that was opened by the liberal school itself in petitioning

438
00:55:02.000 --> 00:55:26.840
The New School, the Orthodox School, the Optimist School, the Founding of the Review and the

439
00:55:26.840 --> 00:55:32.840
The unprecedented international call for papers, which they put out a call to German economists and everyone else for papers,

440
00:55:32.840 --> 00:55:40.840
represented what they called a work of hygienic cleansing, dusting energetically morph-eaten economic furniture,

441
00:55:40.840 --> 00:55:48.840
opening wide the doors and windows to freshen the musty atmosphere and introducing a flood of sunshine and pure air from the four corners of the world.

442
00:55:48.840 --> 00:56:00.840
What they're saying is the liberal school was a closed, insular, provincial group who defended orthodoxy and would not allow ideas from the rest of the world in, which was not true.

443
00:56:00.840 --> 00:56:06.840
So they were opening up France to the movements, the economic movement, and the rest of the world.

444
00:56:06.840 --> 00:56:10.840
The liberal school interpreted the events much differently.

445
00:56:10.840 --> 00:56:27.840
From their perspective, the new journal was an ill-considered and really a dilettante endeavor to transplant German historicist ideas into an inhospitable French intellectual environment.

446
00:56:27.840 --> 00:56:38.840
And very interestingly, writing in 1893, the German-born Maurice Block we talked about, the French-Austrian, who was a naturalized French citizen, he remarked as follows.

447
00:56:38.840 --> 00:56:49.840
Mr. Gide and his colleagues founded their own review, but they had trouble in sustaining it and called foreign economists to their aid, especially German writers.

448
00:56:49.840 --> 00:57:01.840
Do they really imagine that it will suffice to read from time to time a fragment of Schmoller, of Brontano, or of others of that shade of thought in order to penetrate the spirit of men so different from themselves?

449
00:57:01.840 --> 00:57:05.840
Then I pity them, they will labor in vain, and they never really became historicists.

450
00:57:05.840 --> 00:57:09.840
He points out something else Block does. He says,

451
00:57:09.840 --> 00:57:15.840
M. Jied's, M. Jied's, speaks like a catator socialist, that is the German socialist of the chair,

452
00:57:15.840 --> 00:57:20.840
and yet one cannot know their doctrines well if he does not know the language,

453
00:57:20.840 --> 00:57:23.840
and the more so because the doctrines are constantly being modified.

454
00:57:23.840 --> 00:57:32.840
Most of the French, these people have gone to school for ten years to learn, you know, Roman and French law.

455
00:57:32.840 --> 00:57:35.840
They didn't have time to study German. They didn't know German.

456
00:57:35.840 --> 00:57:39.840
But yet they were trying to introduce their doctors into France.

457
00:57:39.840 --> 00:57:48.840
So these rancorous relations between the two schools existed up until World War I.

458
00:57:48.840 --> 00:57:55.840
The French school became, the new school, so-called new school, became more and more powerful.

459
00:57:55.840 --> 00:58:10.840
In fact, Gide boasted in 1907, now he was writing many articles in American and English journals by this time, in the quarterly journal of economics and other journals.

460
00:58:10.840 --> 00:58:15.840
He boasted, the law faculties have almost a monopoly of economic teaching by 1907.

461
00:58:15.840 --> 00:58:24.840
Political economy or its cognate studies including finance, rural economy, labor legislation are taught by about 40 professors, all of them anti-liberal school,

462
00:58:24.840 --> 00:58:35.840
to about 8,000 students, all of them future barristers, magistrates, civil servants, deputies or professors.

463
00:58:35.840 --> 00:58:38.840
Well, the paradigm shifted.

464
00:58:38.840 --> 00:58:44.840
The property, to use a Marxian term, the property relation, because the property relation shifted,

465
00:58:44.840 --> 00:58:52.840
because tremendous amount of resources and a tremendous institutional structure

466
00:58:52.840 --> 00:58:57.040
was given, in effect, to this alternative school.

467
00:58:59.640 --> 00:59:07.840
Now, let me, since I'm running out of time here, explain how things more or less wound up,

468
00:59:09.040 --> 00:59:14.440
or how the view of the liberal school as being insignificant, as being simply popularizers,

469
00:59:14.440 --> 00:59:22.240
as being mean, insular, uncomprehending, of new doctrines and so on.

470
00:59:22.240 --> 00:59:28.240
and how that gained currency in the United States and in Great Britain, okay?

471
00:59:28.240 --> 00:59:39.240
There's much to be said on this. Let me just say very simply, in Great Britain, keep in mind that even after Jevons wrote in the 1870s, he didn't really found a school.

472
00:59:39.240 --> 00:59:50.240
There was H.D. MacLeod, who I said was a follower of Bastiat, who Jevons praised, but he was eccentric and did not have an academic position.

473
00:59:50.240 --> 00:59:53.240
Hearn was in Australia, another follower of Bastiat.

474
00:59:53.240 --> 00:59:59.240
Jevons left only one individual who really developed his thought as well as the Austrian thought, Philip Whitsteed.

475
00:59:59.240 --> 01:00:04.240
Whitsteed was a great economist but also did not have an academic position.

476
01:00:04.240 --> 01:00:13.240
So between 1870 and 1890, classical school was collapsing, the British classical school, and they had been enemies of liberal school.

477
01:00:13.240 --> 01:00:18.240
And even though Jevons tried to rehabilitate the French liberal school, he was unable to do so.

478
01:00:18.240 --> 01:00:24.240
Mainly because a British historical school grew up.

479
01:00:24.240 --> 01:00:28.240
The most famous representative was Cliff Leslie.

480
01:00:28.240 --> 01:00:32.240
There was also John Kells Ingram and a few others.

481
01:00:32.240 --> 01:00:42.240
So during that 20-year period between when Jevons wrote and when Marshall published his great Principles of Economics in 1899,

482
01:00:42.240 --> 01:00:46.240
not great in the sense that most people think it's great, I don't,

483
01:00:46.240 --> 01:00:56.240
During that time, the historical school came to dominate, and they hated the French liberal school even more than they hated the British classical school, which they had destroyed.

484
01:00:56.240 --> 01:01:07.240
Because at least the British classical school admitted that, well, economic laws aren't eternally valid, eternally and universally valid, whereas the French school said the exact opposite.

485
01:01:07.240 --> 01:01:14.240
So they were even more opposed to the French liberal school. So the French liberal school already had a bad press in Great Britain.

486
01:01:14.240 --> 01:01:20.240
Then when Marshall did take over, what did he do? He downgraded the French liberal school.

487
01:01:20.240 --> 01:01:33.240
He tried to combine a little more utility theory from the Austrians with, or integrated into the Ricardian-Mille paradigm and tried to rehabilitate Ricardo and Mill.

488
01:01:33.240 --> 01:01:36.240
In fact, Marshall said things like the following.

489
01:01:36.240 --> 01:01:47.240
Marshall argued that the French and German economists, and he was referring to the Austrians here, as well as the French liberals,

490
01:01:47.240 --> 01:01:51.240
quote, on the whole had not done nearly so much good work as the English.

491
01:01:51.240 --> 01:01:58.240
He also specifically characterized Bastiat as, quote, a lucid writer but not a profound thinker, unquote,

492
01:01:58.240 --> 01:02:03.240
and denigrated the laissez-faire implications of Bastiat's welfare analysis,

493
01:02:03.240 --> 01:02:08.240
Meaning that when anyone exchanges, both people are better off and therefore society is better off.

494
01:02:08.240 --> 01:02:15.240
He characterized this as, quote, the extravagant doctrine that the natural organization of society,

495
01:02:15.240 --> 01:02:18.240
under the influence of competition, is the best.

496
01:02:18.240 --> 01:02:22.240
Not only that can be practically effective, but even that can be theoretically conceived.

497
01:02:22.240 --> 01:02:26.240
Okay, well that's our welfare theory.

498
01:02:26.240 --> 01:02:31.240
Whenever people exchange freely, both, at least ex ante, gain.

499
01:02:31.240 --> 01:02:39.240
And we cannot conceive of a society in which that occurs, another form of society in which that would also occur.

500
01:02:39.240 --> 01:02:44.240
So Marshall is completely wrong in claiming that the doctrine is extravagant.

501
01:02:44.240 --> 01:02:48.240
In any case, so Marshall himself downgraded the French liberal school.

502
01:02:48.240 --> 01:02:57.240
The situation in the United States very quickly also turned out to be developing in an anti-liberal direction,

503
01:02:57.240 --> 01:03:05.040
tradition, despite the fact that, as I pointed out, the main post-Civil War school of American

504
01:03:05.040 --> 01:03:12.380
economists was the American catallactic tradition, which was based on Say, Bastiat, and Dostout

505
01:03:12.380 --> 01:03:13.380
de Tracy.

506
01:03:13.380 --> 01:03:17.400
In fact, Dostout de Tracy was Jefferson's favorite economist.

507
01:03:17.400 --> 01:03:25.960
He supervised the translation of his treatise on political economy as well as also having

508
01:03:25.960 --> 01:03:31.560
later Say's treatise translated into English.

509
01:03:31.560 --> 01:03:39.460
So in fact, Say's book was used as a college text up until the 1880s in the United States.

510
01:03:39.460 --> 01:03:45.960
But despite that, what happened is that in the 1870s,

511
01:03:45.960 --> 01:03:51.160
again, this was a negative thing, economics became professionalized.

512
01:03:51.160 --> 01:03:56.060
Two chairs in economics were established, independent chairs were established at Yale and Harvard.

513
01:03:56.060 --> 01:03:59.060
Before that, economics was part of moral philosophy.

514
01:04:02.060 --> 01:04:09.060
The people who got those chairs, open to a lot of detail, were basically William Graham Sumner,

515
01:04:09.060 --> 01:04:14.160
who was a great guy, but was also a follower of the British Classical School,

516
01:04:14.160 --> 01:04:28.160
a guy named Henry Dunbar and another individual who's also anti-liberal and pro-British classical school.

517
01:04:28.160 --> 01:04:42.160
They taught and raised up three great theorists who dominated the teaching of economics in the latter part of the 19th century into the 1920s.

518
01:04:42.160 --> 01:04:49.960
Frank Taussig was one, Arthur T. Hadley was another, J. Lawrence Loughlin was the third, okay?

519
01:04:49.960 --> 01:04:59.960
Hadley became the president of Yale University, wrote a textbook, basically intending just to update Mills' principles of economics, okay?

520
01:04:59.960 --> 01:05:08.560
Criticized Bastiat as an example of the type of individualist who is, quote, prone to assume that private property would necessarily be managed in the public interest

521
01:05:08.560 --> 01:05:15.560
and is in danger of treating the increase of such property as a good in itself instead of a means to the public good.

522
01:05:15.560 --> 01:05:18.060
And he also marginalized Bastiat as, quote,

523
01:05:18.060 --> 01:05:26.560
the brilliant French economist whose economic harmonies are sometimes as overstrained as the economic antinomies of socialists like Proudhon.

524
01:05:26.560 --> 01:05:33.060
So he thought of himself as a moderate, rejecting the extreme liberals and the extreme socialists.

525
01:05:33.060 --> 01:05:37.560
Taussig was an enormously influential teacher, writer and editor.

526
01:05:37.560 --> 01:05:42.040
He added to the Quarterly Journal of Economics from 1896 to 1935.

527
01:05:42.040 --> 01:05:48.560
He taught at Harvard and his PhD students were like a who's who of American economics

528
01:05:48.560 --> 01:05:54.480
in the first part of the 20th century, Jacob Beiner, Frankie Graham, James Angel.

529
01:05:54.480 --> 01:05:59.660
And he was described as, quote, the first and last, the follower of the classical tradition

530
01:05:59.660 --> 01:06:01.480
of Ricardo and John Stuart Mill.

531
01:06:01.480 --> 01:06:06.500
Again, he was a part of the Ricardo-Mill paradigm and sought to update it and hated the liberal

532
01:06:06.500 --> 01:06:14.500
and the German Historical School, because it had destroyed the cost of production theory of the Ricardian School.

533
01:06:14.500 --> 01:06:22.500
He also took into account the criticisms of the German Historical School, as many of these new classical people did.

534
01:06:22.500 --> 01:06:31.500
They said, well, the old British classicals didn't go far enough in taking into account the historical nature of economic laws.

535
01:06:31.500 --> 01:06:39.500
And they absorbed the anti-liberal feeling from Germany also.

536
01:06:39.500 --> 01:06:44.500
In fact, Powsig had studied in Germany.

537
01:06:44.500 --> 01:06:51.500
And last was Loughlin, who was the head of the University of Chicago's Economics Department,

538
01:06:51.500 --> 01:06:54.500
and he founded, he was the founding editor of the JPE.

539
01:06:54.500 --> 01:06:59.500
He was a follower of Mill and thought that John Cairns was the soundest theoretical guide.

540
01:06:59.500 --> 01:07:04.360
Guide, Cairns wrote a long article, John E. Cairns, supposedly the last of the British

541
01:07:04.360 --> 01:07:11.040
Classicals, wrote a long article attacking Bastiat as not being value free.

542
01:07:11.040 --> 01:07:16.300
So these were the people that dominated American economics.

543
01:07:16.300 --> 01:07:22.380
What happened in the 1880s, you had a new school arising consisting of historicists

544
01:07:22.380 --> 01:07:27.480
who all studied in Germany, Richard T. Ely, E. R. Sligman and so on.

545
01:07:27.480 --> 01:07:36.600
These people were even more anti-liberal than the new classical people that had the chairs.

546
01:07:36.600 --> 01:07:44.680
And what they did was in the 1880s they started the American Economic Association and in it

547
01:07:44.680 --> 01:07:59.820
They, let's see, I want to read a quote of the mission of the American Economic Association.

548
01:07:59.820 --> 01:08:05.040
Basically it was to introduce historical economics into the United States and also to press for

549
01:08:05.040 --> 01:08:08.600
government interventions to improve public welfare.

550
01:08:08.600 --> 01:08:13.020
In fact, they kept out for a few years, they kept out William Graham Sumner.

551
01:08:13.020 --> 01:08:19.020
they wouldn't allow the people they consider to be orthodox economists in, okay?

552
01:08:21.020 --> 01:08:34.020
But eventually, that all changed. By 1887, there was a rapprochement between the Classicals in the United States and these German-trained historical economists

553
01:08:34.020 --> 01:08:42.020
and what you got was a combination of sort of Marcellian classicism with a little bit of historicism. It wasn't real historicism.

554
01:08:42.020 --> 01:08:49.020
And to make a long story short, there was no room for the liberal school.

555
01:08:49.020 --> 01:09:07.020
Now, the last part of the lecture, which is designed to just talk a little bit about the literature that reached the United States, that was translated into English, from French.

556
01:09:07.020 --> 01:09:21.020
Basically, most American and English economists did not speak French, but after the Marginal Revolution, many, many countries were involved in developing an economic theory.

557
01:09:21.020 --> 01:09:33.020
Understandably, American and British economists were eager to keep abreast of the latest scientific developments and innovations emanating from the continent, especially Germany and Austria, but also France.

558
01:09:33.020 --> 01:09:49.020
Since they lack fluency in foreign languages, they basically depended on translations of important foreign books as well as publications in professional journals of survey articles by foreign authors that did speak English and other communications by continental economists.

559
01:09:49.020 --> 01:09:55.020
Well, who became the main correspondent in France in the United States?

560
01:09:55.020 --> 01:10:03.020
Charles Gide wrote a number of articles attacking and distorting the doctrines of the liberal school.

561
01:10:05.020 --> 01:10:11.020
One of the first books to be translated into English after the Marginal Revolution was one by Luigi Casa,

562
01:10:12.020 --> 01:10:18.020
who was a German, rather an Italian follower of the French Historicist School.

563
01:10:18.020 --> 01:10:28.020
School and sort of a mixture of moderate historicists who also liked Ricardo and in it he downgraded

564
01:10:28.020 --> 01:10:32.340
in this book which was entitled An Introduction to the Study of Political Economy, it was

565
01:10:32.340 --> 01:10:41.780
translated to English in 1880 and he downgraded the French because they exalted the French

566
01:10:41.780 --> 01:10:49.780
The French Liberals, because they exalted the French economist J.B. Say, Charles-Jean Dunoyet and Michel Chabollier

567
01:10:49.780 --> 01:10:53.780
while they denied Ricardo's merits and belittled Mills.

568
01:10:53.780 --> 01:10:57.780
Actually, he's talking about the Italian Liberal School, so there was a fight in Italy also.

569
01:10:57.780 --> 01:11:06.780
Now, Ferrara, who was the head of the Italian Liberal School, harshly attacked the importation of these German ideas into Italy

570
01:11:06.780 --> 01:11:16.780
and he charged Casa with the crimes of Germanism and liberticide, killing liberty and being a pro-German.

571
01:11:16.780 --> 01:11:22.780
But anyway, so Casa was bitter and in his book he attacked both the Italian and French liberal economists.

572
01:11:22.780 --> 01:11:32.780
Then the second book that was of note, that was translated to English, was by the Belgian Emile de Lavallee,

573
01:11:32.780 --> 01:11:38.380
It was a primer on economics, translated in 1884, called The Elements of Political Economy, that was its title,

574
01:11:38.380 --> 01:11:44.780
and it featured an introduction and a supplementary chapter by Frank Taussig, one of the leading American economists.

575
01:11:44.780 --> 01:11:58.780
And in it he praised the book as being moderate and tone and as having economic views that are in strong sympathy with those who declare themselves to have broken loose from what may be called the classic system.

576
01:11:58.780 --> 01:12:06.780
You also refer to the school, Taussig did, of Lavallee as a moderate school.

577
01:12:06.780 --> 01:12:15.780
He says, Lavallee, like most German writers and unlike most French writers, is not a decided adherent of the laissez-faire principle.

578
01:12:15.780 --> 01:12:22.780
So that was the second book. Again, there was a tax on the liberal school.

579
01:12:22.780 --> 01:12:33.280
Two more books really form the lasting impression in American and British economics of the liberal school.

580
01:12:33.280 --> 01:12:38.780
Now, the first was the French textbook by Charles G. The Principles of Political Economy.

581
01:12:38.780 --> 01:12:45.780
It was reviewed by J.B. Clark, who at the time had some historicist leanings. He later became a Mangarian.

582
01:12:45.780 --> 01:12:58.780
And when he reviewed it, he lavished unreserved praise on the book, characterized it as a comprehensive expression of that liberal movement in French economic thought, liberal meaning not orthodox, okay?

583
01:12:58.780 --> 01:13:09.780
He pointed out a relationship between Gide's and Jevons' theories of value and the affiliation of Gide's theory of production with von Bawerk's theory.

584
01:13:09.780 --> 01:13:18.780
from Boehm-Bawerk's theory. In other words, he was showing Gide to be sort of a modernist who was trying to develop economics along marginal utility lines, okay?

585
01:13:18.780 --> 01:13:29.780
The third edition of Gide's book was translated into English in 1891, and it was introduced by the influential British scholar James Boner,

586
01:13:29.780 --> 01:13:38.780
and he also praised Gide as having an emphasis on the need of impartiality and freedom from prejudice,

587
01:13:38.780 --> 01:13:41.580
which is exactly the opposite of what Gide actually did.

588
01:13:41.580 --> 01:13:47.280
He used his book as a way to batter the reputation of the French liberal school.

589
01:13:56.080 --> 01:14:04.780
As I mentioned, this book was re-translated twice more, once in English, once in 1905 and again in 1924.

590
01:14:04.780 --> 01:14:07.280
That's how popular it was in the United States.

591
01:14:08.780 --> 01:14:27.780
And in it, Gide criticized the French school in the following terms, the liberal school, he devoted a section to it in which he alleged liberal economists deny, with some haughtiness, that they constitute a school and, quote, claim to represent the science itself, unquote.

592
01:14:27.780 --> 01:14:30.780
Gide sums up the very simple doctrine of the liberal school as follows.

593
01:14:30.780 --> 01:14:45.780
and others. Human societies are governed by natural laws which we could not alter one jot, even if we wished, since they are not of our own making. Moreover, we have not the least interest in modifying them, even if we could, for they are good or at any rate the best possible."

594
01:14:45.780 --> 01:14:54.780
In other words, he claimed that the liberal school was Panglossian, that we live in the best of all possible worlds.

595
01:14:54.780 --> 01:15:24.780
Okay, then even more damaging to the reputation of the French Liberal School in English and the English-speaking countries was the History of Thought book, which was written by Gide and his fellow law faculty economist, Charles Reiss, who later became a friend of Mises and a defender of the gold standard, but at that period he was a law faculty economist and a bit of a historicist. It was first published in France in 1909 and the second French edition was translated into English in 1915.

596
01:15:24.780 --> 01:15:31.580
called The History of Economic Doctrines from the Time of the Physiocrats to the Present Day.

597
01:15:31.580 --> 01:15:37.680
The seventh French edition appeared in 1947 and a second English edition appeared,

598
01:15:37.680 --> 01:15:40.380
which was newly retranslated, appeared in 1948.

599
01:15:40.380 --> 01:15:44.580
The book was actually used in American universities until the 1960s.

600
01:15:44.580 --> 01:15:50.780
In fact, my father actually had a copy of it, used it in his history of thought class.

601
01:15:50.780 --> 01:15:54.680
I don't have to go into much more detail except to say that according to Eugène Riess,

602
01:15:54.680 --> 01:15:59.680
The authors, they no longer call the school the liberal school, they call it the optimist school.

603
01:15:59.680 --> 01:16:05.680
They claim that the school soon abandoned the task of scientific investigation

604
01:16:05.680 --> 01:16:10.680
and developed a propensity to use economic discourse to rationalize the ethical postulate

605
01:16:10.680 --> 01:16:16.680
that social interest is simply the sum of the individual interests, all of which converge in a harmonious whole.

606
01:16:16.680 --> 01:16:21.680
Well, they didn't give you any theory, though, to back this up.

607
01:16:21.680 --> 01:16:38.680
The French school had a very profound theory, as we saw with Tracy, about how exchange leads to a situation in which you have mutual benefits to all parties, you have benefits to overall society, and so on.

608
01:16:38.680 --> 01:16:44.680
And that, in fact, exchange and commerce are the core of society. They didn't give any of that theory at all.

609
01:16:44.680 --> 01:16:52.680
They basically grouped together the later liberal economists as Mill's successors, the successors of John Stuart Mill.

610
01:16:52.680 --> 01:17:00.680
So that all they needed to do then was to give you Bastiat's, Bastiat as being the prime liberal economist.

611
01:17:00.680 --> 01:17:07.680
They didn't give you any of the later innovations that the French liberal school had come up with.

612
01:17:07.680 --> 01:17:13.680
So that was disingenuous to call the later liberal school after Bastiat simply the successors of Mill.

613
01:17:13.680 --> 01:17:18.360
of Mill. They hated John Stuart Mill. They hated his doctrines. They may have hated him

614
01:17:18.360 --> 01:17:26.880
until he was kind of weird. Okay, let me sum up. Liberal school had some works translated

615
01:17:26.880 --> 01:17:32.040
into English during this period, but they were all on specific topics like Guillot wrote

616
01:17:32.040 --> 01:17:39.440
on socialistic and economic prejudices, Levesseur wrote on the American workmen, Leroy Bouillieu

617
01:17:39.440 --> 01:17:43.440
They wrote on the modern state and on collectivism and so on, okay?

618
01:17:45.440 --> 01:17:51.440
And in those treatments, they occasionally made sly remarks against the liberal,

619
01:17:51.440 --> 01:17:55.440
against the school of the law faculty, economists.

620
01:17:55.440 --> 01:18:00.440
But taken out of context, it seemed as if they were simply a nasty orthodox bunch

621
01:18:00.440 --> 01:18:06.440
that were striking back at this modern school that was attempting to develop economics

622
01:18:06.440 --> 01:18:10.240
They Were Fighting a Rear Guard Action

623
01:18:10.240 --> 01:18:19.440
But, very interestingly, even Jean's co-author, after Jean died, he didn't leave his school.

624
01:18:19.440 --> 01:18:26.740
If you look at his book, he has a little bit of supply and demand in it, he has a little bit of marginal utility in it, a smattering of marginal utility theory.

625
01:18:26.740 --> 01:18:32.240
But if you read it, it's basically an updating of Ricardo and Mill.

626
01:18:32.240 --> 01:18:34.840
There's not even that much historicism in it.

627
01:18:34.840 --> 01:18:40.340
It's an awful book. And Reiss admits this. He says,

628
01:18:40.340 --> 01:18:49.340
The value of Gide's treatise lay less in the originality of its economic doctrine than the open-mindedness with which it welcomed new methods and ideas.

629
01:18:49.340 --> 01:18:52.340
It was really just a mess, a muddle of different ideas thrown together.

630
01:18:52.340 --> 01:18:58.340
The death of Gide closes a chapter in the history of economic and social thought in France.

631
01:18:58.340 --> 01:19:06.340
Reiss himself became a Volrasian and an ardent promoter of the mathematical method.

632
01:19:08.340 --> 01:19:18.340
Now, one criticism of the liberal school was that they rejected mathematical economics.

633
01:19:18.340 --> 01:19:28.340
Leroy Bouillieu called the mathematical methods, quote, pure delusion and a hollow mockery that has no scientific foundation and is of no practical use, unquote.

634
01:19:28.340 --> 01:19:31.340
That was used against them in the U.S.

635
01:19:31.340 --> 01:19:39.340
But in fact, of course, the leading Austrian theorists who were welcome in the U.S., Menger and Boehm-Bawerk, felt the same way about math and said as much.

636
01:19:39.340 --> 01:19:42.340
So that shouldn't be held against the French liberal school.

637
01:19:42.340 --> 01:19:54.340
What's interesting is that while Gide's school died out, and I'll finish up here, it just died out abruptly when its founder died in the late 1920s.

638
01:19:54.340 --> 01:19:58.340
The influence of the French-Italian liberal school survived World War II.

639
01:19:58.340 --> 01:20:09.340
Louis Baudin, who was one of the founding members of the Mont Pelerin Society, published a lengthy treatise, attempting to do what Mises did earlier,

640
01:20:09.340 --> 01:20:12.340
of Integrated Value Theory and Monetary Theory.

641
01:20:12.340 --> 01:20:15.340
He went about it in a different way, but in any case it was reviewed in the AER.

642
01:20:15.340 --> 01:20:20.340
The reviewer concluded that the book represents a prodigious effort of research, reading and reflection

643
01:20:20.340 --> 01:20:23.340
and is an admirably balanced work in the best French tradition.

644
01:20:23.340 --> 01:20:29.340
As I mentioned, Luigi Arnaudi was perhaps the most famous descendant of a liberal school.

645
01:20:29.340 --> 01:20:32.340
He wrote 30 books in economics, founding member of the Mont Pelerin Society.

646
01:20:32.340 --> 01:20:37.340
After World War II, he served as governor of the Bank of Italy and as president of Italy.

647
01:20:37.340 --> 01:21:07.340
and Constantino Bresciani Caroni also emerged out of the Italian liberal tradition in 1931 he wrote today what is acknowledged to be the best work on the German hyperinflation he contributed two influential articles on the theory of saving and Austrian business cycle theory and after the war he became a founding member of the Mont Pelerin Society and a director of the International Bank for Reconstruction and Development and a minister of foreign trade. So the liberal school lived on and lives on today here.

648
01:21:07.340 --> 01:21:21.340
The school that smeared, attacked, distorted it, has been long dead, so my purpose then was to show that, two things.

649
01:21:21.340 --> 01:21:29.340
One, that a school must have some sort of institutional infrastructure.

650
01:21:29.340 --> 01:21:35.340
Not only that, to flourish, it must be private.

651
01:21:35.340 --> 01:21:51.340
And secondly, paradigms change, and I think this is a more general point, when, not just from pure intellectual factors, but as a result of a change in resources and property.

652
01:21:51.340 --> 01:22:07.340
The divergence of resources away from a relative divergence, away from the French liberal school towards the so-called new school, caused a sea change, a change in the way the sea was moving, in France.

653
01:22:07.340 --> 01:22:14.340
What's interesting, Joe Stromberg mentioned this to me the other day, and I was thinking the same terms, this is really his point.

654
01:22:14.340 --> 01:22:29.340
When Thomas Kuhn's book was published in 1962, it wasn't really noticed, but in 1970, Kuhn talked about how scientific revolutions occur.

655
01:22:29.340 --> 01:22:39.340
When people began talking about it in the 1970s, when the second edition came out, I think in 1970, they focused on the intellectual aspects of it.

656
01:22:39.340 --> 01:22:47.340
No one talked about how paradigms shift as a result of a change in resources.

657
01:22:47.340 --> 01:22:53.340
And I think this is the next step in developing Kuhn's analysis.

658
01:22:53.340 --> 01:22:56.340
I'll stop here and take any questions.

659
01:22:56.340 --> 01:23:02.340
Do we have five minutes? Thank you.

660
01:23:02.340 --> 01:23:06.340
We have five minutes for questions, comments.

661
01:23:06.340 --> 01:23:10.340
I have a question about a really very minor kind of a passing conversation.

662
01:23:10.340 --> 01:23:11.340
That's right.

663
01:23:11.340 --> 01:23:13.340
You're talking about, I think it was,

664
01:23:13.340 --> 01:23:14.340
Giovanni, Montmartre,

665
01:23:14.340 --> 01:23:15.340
Yes.

666
01:23:15.340 --> 01:23:16.340
a very important mechanic.

667
01:23:16.340 --> 01:23:17.340
Yes.

668
01:23:17.340 --> 01:23:20.340
It was my impression that Whistle, who I think also looked at,

669
01:23:20.340 --> 01:23:23.340
was also pretty influential at this kind of thinking.

670
01:23:23.340 --> 01:23:24.340
Yes.

671
01:23:24.340 --> 01:23:26.340
How do you compare the different contributions as well?

672
01:23:26.340 --> 01:23:30.340
I'm not enough of a public finance theorist.

673
01:23:30.340 --> 01:23:33.340
It's not my specialty to know.

674
01:23:33.340 --> 01:23:38.940
there are articles in which that is done in which the fact you can I think writes

675
01:23:38.940 --> 01:23:44.260
there's a paper where he writes on his influences both from the Vixel in the

676
01:23:44.260 --> 01:23:49.060
Swedes and from the Italians but he does point out that he's significantly

677
01:23:49.060 --> 01:23:54.340
influenced by by Italian public finance theorists I'm not enough to know I don't

678
01:23:54.340 --> 01:23:57.340
I don't know the nuances.

679
01:23:57.340 --> 01:24:01.340
Questions?

680
01:24:01.340 --> 01:24:02.340
Yeah, Mark?

681
01:24:02.340 --> 01:24:10.340
Joe, if you come across anything which indicates what the French liberals thought their demise came from,

682
01:24:10.340 --> 01:24:15.340
do they attribute it to their own mistake or do they attribute it to something else?

683
01:24:15.340 --> 01:24:22.340
No, they attribute it to a movement towards socialism and interventionism

684
01:24:22.340 --> 01:24:37.340
That they themselves, you know, cannot stop. In other words, they don't attribute it to, they do, nowhere in the literature, I don't read, I read French, but not fast enough to read through some of this stuff.

685
01:24:37.340 --> 01:24:47.340
But nowhere in what's been published in English, have any of them pointed out that, what Gide pointed, I mean, Gide is right in saying that we have 8,000 students now.

686
01:24:47.340 --> 01:24:56.340
Now, we had none before, now we have 8,000 students that are future judges, magistrates, various officials in the French government.

687
01:24:56.340 --> 01:25:01.340
He pointed, he did, but I think they resisted that notion.

688
01:25:01.340 --> 01:25:08.340
I think they had this notion that, well, it's the quality of arguments that will change intellectual debate.

689
01:25:08.340 --> 01:25:15.340
Also, at the end, they became very, very despairing over mass democracy.

690
01:25:15.340 --> 01:25:24.340
And in his book on the modern state, Louis Bouillieu, who, many of them were, you know, pro-French revolution, early French revolution,

691
01:25:24.340 --> 01:25:33.340
but he says something like, well, maybe the only type of state that can work in a large nation is a constitutional monarchy.

692
01:25:33.340 --> 01:25:42.340
And the monarchists were always trying to get him, he used to run for office and so on, trying to get him to join their party. He never would. He always stayed with the Republican Party.

693
01:25:42.340 --> 01:25:53.340
But the Republicans, the radical wing, were mass democrats. They kept wanting to increase the suffrage, and he was against that.

694
01:25:53.340 --> 01:26:03.340
He thought that sort of, the grand bourgeoisie, those who were upper middle class, should be the voters.

695
01:26:03.340 --> 01:26:07.340
I mean, he had an idea of a very narrow suffrage.

696
01:26:07.340 --> 01:26:09.340
Yes?

697
01:26:09.340 --> 01:26:19.340
One of the criticisms of the French liberal school was that they thought they were positively right and wouldn't change their theories and stuff like that.

698
01:26:19.340 --> 01:26:30.340
And that strikes me as a criticism that needs to be answered. How do they know they're right?

699
01:26:49.340 --> 01:26:59.340
So even Mises believed that there should be an interaction of independent minds checking one another's theories.

700
01:26:59.340 --> 01:27:01.340
And there was with the French school.

701
01:27:01.340 --> 01:27:09.340
There was a big debate when Molinari came out with his theory of anarcho-capitalism or of competing private governments.

702
01:27:09.340 --> 01:27:16.340
They allowed it, even though most of them were opposed to it, they allowed it to be aired in the Society of Political Economy

703
01:27:16.340 --> 01:27:25.340
and in the Journal of Economists, and they allowed both sides space to argue their points.

704
01:27:25.340 --> 01:27:27.340
It was really just Molinari on one side.

705
01:27:27.340 --> 01:27:31.340
And later on, there was debates over Menger and so on.

706
01:27:31.340 --> 01:27:33.340
So that was ongoing.

707
01:27:33.340 --> 01:27:40.340
That was what we might call a distortion or a caricature of the school,

708
01:27:40.340 --> 01:27:44.340
that they all held the same view rigidly and refused to change it.

709
01:27:44.340 --> 01:27:53.340
You can just see from Louis Bouillieu's works, from the 1860s onward, he lived until 1916, him changing his mind on various things.

710
01:27:53.340 --> 01:27:59.340
The same smear is made against the Austrians. How do you know you're right?

711
01:27:59.340 --> 01:28:03.340
Well, you can be certain about certain things without being infallible.

712
01:28:03.340 --> 01:28:08.340
There is certainty in the world. You know you're sitting on a chair there.

713
01:28:08.340 --> 01:28:13.580
That's not something that emerges from your imagination.

714
01:28:13.580 --> 01:28:14.580
You're sitting on a chair.

715
01:28:14.580 --> 01:28:15.860
There's certain things we can be certain of.

716
01:28:15.860 --> 01:28:17.900
We know that demand curves slope downwards and so on.

717
01:28:17.900 --> 01:28:21.380
And we're all certain that the time is up.

718
01:28:21.380 --> 01:28:22.380
Okay, thank you.