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NOTE Forerunners of the Austrian School: The French Liberal School

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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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Dominance and a very broad intellectual influence throughout the world and how it quickly lost that dominance,

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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

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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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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,

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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, 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,

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and Anne Robert-Jacques Turgot, who was a minister in the French government and attempted to implement the physiocratic view that you can have an absolute but beneficent despot 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, and someone who has been unfairly neglected in the economics, in the history of economic thought,

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and Thought, 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.

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But if you read his great treatise on political economy, which was published in 1803,

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You'll note the influences of Cantillon, not so much Kondiak, but also Turgot.

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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, meaning he wrote his treatise on political economy as one volume in a multi-volume set that was labeled a treatise on the will, 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 to get French citizenship

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and then left to become the French ambassador to the Vatican.

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He was assassinated.

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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,

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A few months after he assumed that position. Another reason why you have to stay away from government.

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And 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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Cherbouillet wrote a number of treatises. He was a Swiss, a French extraction.

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Jerome Adolphe Blanqui. 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 were no university chairs in economics. 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, and also of another French economist, Paul Wolowski.

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And Chevalier concluded the first free trade agreement with Great Britain.

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Did I miss Bastiat? 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,

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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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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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The Austrian, Maurice Bloch, was one of the first French economists to recognize the importance of marginal utility. 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 the pure theory against the German, British and French historical schools.

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German Historical Schools. In fact, he was fighting against the German Historical School at the same time Menger was, 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. Then of course we have the first anarcho-capitalist who also was a Belgian, Gustav de Molinari,

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who became, after Garnier, the editor of the Journal des Economistes,

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I 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 might also mention that there 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, population and the modern state.

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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.

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But he foresaw much of what the public choice people have rediscovered about the state.

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Though he was probably one of the, he began to retreat from the hardcore positions.

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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 and he thought that the French needed to find export markets and to compete with the Germans and the 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 on morality, on the morality of competition, on socialism, protectionism, the psychology of prostitution, financial crises and economic theory, 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 were 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 instituted in 1831, and it was held towards the end of his life by Say,

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then when he died by Rossi, then by Chevalier, and then by Leroy Bouillieu.

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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.

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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.

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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, and as I'll show you in a moment,

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it was extremely important, it was pretty independent of government.

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It was set up so that the people that were involved were the ones that made the selection

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of who was to become a member of the Academy.

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It was enormously prestigious, and many, many economists,

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or many, many younger would-be economists, sought entrance into the Institute.

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And the way you gained entrance was to write, to participate in essay contests,

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for which you were paid if you were one of the winners.

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And after winning a number of these contests, okay, they were held annually,

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You were given the right to communicate with the other members, and that communication was an oral presentation,

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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,

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were very high, enough to sustain the essay writers, to sustain their livelihood, while they tried to become members of the institute.

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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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It was edited successively by Garnier, Molinari, Dio.

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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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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 editors, and the library also edited it, which is William, 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.

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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 completely privately or almost completely privately.

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Okay, let me just give you some of the, put some faces to the names that I've given you,

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because these guys are pretty interesting looking.

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But first, the main influence, the person that Murray Rothbard considered to be

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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, so we don't know exactly what happened.

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He was being 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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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, who was one of the main influences.

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This is Anne Robert Jacques Turgeau, who teased a lot and bullied a lot at school because of his first name.

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And so he called himself A.R.J. Turgeau and wrote down all the books.

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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. 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 for the last few years of his life 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 Chauvelier, who was a 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 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

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to be on a par with Marshall's treatise and with Clark's,

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John Bates Clarke's great distribution of wealth, which was an Austrian treatise, or quasi-Austrian treatise.

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That is something that was influenced by them.

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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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You don't know that, you wouldn't figure that out from the way the textbooks in the history of thought are written.

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The French liberal school is portrayed as a clannish, insulated, inward-looking group that had no influence outside France,

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

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Gustave Cassell, who was one of the first general equilibrium theorists, though his theory was not as mathematical as that of Walroth and Pareto,

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He got his view of the general interaction of supply and demand in 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 interest in capital theory was 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,

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which Menger held and which was what Boehm-Bawerk considered the best up to his own theory.

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Menger himself 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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The Alfredo 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, Molinari was a man he admired until his dying day.

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Mafio Pantaleone 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.

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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 liberal school fortunes 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, 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, 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, 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, he went through every single one,

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and he said what is common to all is collectivist property, 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 and the means of production,

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which is the definition that 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.

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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 Cadillactic tradition here, started by Amasa Walker.

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and carried on by William Latham Perry. 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 Latham Perry was the leading American economist and textbook writer from the third quarter of the 19th century.

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Textbook went through many, many editions.

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This is Pareto, who some people say later in his life became a fascist, that's not true.

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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 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 Pantolioni, just coming from a meeting with his consulieri.

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The cameraman was later, the guy took his pictures later, floating in the Po River.

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But in any case, great liberal.

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And this is Luigi Inaudi, who became finance minister in Italy after the war,

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and became the president of the Italian Republic after the war.

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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.

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

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Actually, let me just put up a few quotations from different members of the school, which gives you a flavor of their passion for liberty and of the depth of understanding of the market.

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Now, this was written in 1817 by the Stute de Tracy to society as purely and solely a continual series of exchanges.

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

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And this is his own emphasis.

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Commerce is the whole of society.

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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 the social division of labor is the core of society.

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When civilists agree to execute any labor whatsoever in common,

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whether to defend ourselves against an enemy or even to make a bridge or a road,

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is because each of us prefers the particular utility, which will result to him from it,

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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,

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composes the general good 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

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should be taxing here and subsidizing there, Rothbard says, what's wrong with that?

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All society is one large externality, the fact that we cooperate together.

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We cooperate in competition.

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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?

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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, but 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 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, it must be clearly understood that this word is used here to designate a universal, incontestable fact, 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. The perpetual law of personal interest is to quiet the needs, or more generally the desires, through satisfaction.

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It's very, very Mangerian.

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

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This is the method of Rothbard, the method of Mises, the method of Menger, 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.

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

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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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Contract, State will always act through means of force, imposing its services and determining

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the services people must pay in return 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, what sorts

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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, precisely because government action implies

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Why is resorting to force, and this is the waffling, such actions must be essentially limited to maintaining order, security and justice, okay?

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Well, the point is that the government is resorting to force, so you have something over and above society that is siphoning, forcibly siphoning resources from it, diminishing society and causing it to become more disorderly.

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Bastiat couldn't solve that problem, how to get around that.

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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.

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They both started off with the wants of human beings.

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The Ensemble of these wands 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 innovation.

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

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and others, is by deduction of this law, which in its development becomes the law of final degree of utility of Jevons or the marginal utility of Carl Menger,

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that one is able to explain why what is rare is dear, 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, 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, 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 Dior, the last French liberal economist.

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He fought against every form of state intervention, this is the obituary that Jede wrote, Charles Jede, the head of the Moscow Commons, wrote for Yves Guillaume.

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He fought against every form of state intervention, such as compulsory vaccination, it's heroic, 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, he was the foremost lieutenant of Josephine Butler in heroic, the leader of the prostitutes fighting for legalization, 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,

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than temperance, virtue, sobriety, respectability under the regime of state regulation or state force and terror.

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State in position of morality, is what he's saying.

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He was against this.

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He, again, was a great and dignified man.

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He wasn't in favor of all of these things, as Gide is somehow implying.

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He just realized that you couldn't impose morality.

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As for morals, he would not admit they could exist except as the natural product of liberty.

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Well, you could force a prisoner to do certain things that the rest of us might say are right.

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They are right. You can keep somebody in prison and force them to do certain things. That's hardly the choice of a moral agent.

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This was the obituary for Yves Guillot, who was the French Minister of Public Works and the editor of the Journal des Economistes and the last of the French Liberal Economists.

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Okay, given their longevity, 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 Tragot, 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 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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Finally, the school's intransigent opposition not only to socialism but to almost any form of government intervention into the economy 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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So, given that, now all of these explanations were given after World War II, okay, 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, something else must have happened, must have been something else that caused this, the entire French school to be poured down, what Murray Rothbard used to like to refer to as

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What began the decline was a strategic error by the school itself, 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 was always under attack intellectually, but was always able to defend itself.

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Charles Gede, the enemy of the school, wrote, quote,

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Religious beliefs, revolutionary unrest, material interests, philosophic speculations,

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

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French government, to establish chairs of political economy in the law faculty because

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they felt that France was a second-rate nation.

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All other nations had university courses in economics.

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and Chevalier made the following plea. He said,

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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,

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and the other restricted to a special class of functionaries attached to the school of works.

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There were a few tactical schools, which the French school also dominated,

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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.

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Everywhere else, whether in Europe or America, each university has at least one chair of political economy.

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

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Now, what they did in 1963, 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 in political economy. 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 into law faculties.

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Because, and I'm quoting Dury, 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 1871, 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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and that all students be obliged to take the course.

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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.

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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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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 aggregation de 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,

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devoted exclusively to Roman and French law.

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And then you had to take a competitive examination.

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Not one of the liberal candidates was an aggregate, meaning more than a doctor this three extra years.

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And only two or three were doctors of law.

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And only in rare instances were the doctors of law allowed to hold chairs in law faculties.

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So who did most of the new chairs go to?

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They went to lawyers.

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Do lawyers like economics? No. In fact, as Charles Gide, the leading law faculty economist, pointed out,

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00:49:07.160 --> 00:49:14.160
and I'm quoting him, their legal studies, above all in Roman law, had familiarized them with the German-Romanist literature.

376
00:49:14.160 --> 00:49:16.160
Now he's talking about the law faculty economist.

377
00:49:16.160 --> 00:49:22.160
And especially with the historical perspective of jurisprudence, of which Savigny was the most famous representative.

378
00:49:22.160 --> 00:49:31.160
They were therefore naturally inclined to consult German economic literature and disposed to understand and approve of the same historic method applied to economics.

379
00:49:31.160 --> 00:49:43.160
Moreover, a young man who has studied law seriously for ten years, you're not going to give up this view that the lawyer is all-powerful, that law-making is what makes society.

380
00:49:43.160 --> 00:50:11.160
A lawyer will not be apt to relish the doctrine of laissez-faire. It is necessarily antipathetic to his modes of thought. In all times and in all countries, but perhaps more distinctly in the history of France and elsewhere, the lawyers have been the natural supporters of the government, and even in a certain sense, the founders of the modern state.

381
00:50:13.160 --> 00:50:23.160
The new professors of economics in the faculty of law were thus drawn by their intellectual training and even by their profession into a path opposite that of a liberal school.

382
00:50:23.160 --> 00:50:32.160
So overnight you had historicists, interventionists, social democrats, school of economists growing up.

383
00:50:32.160 --> 00:50:37.160
This is unprecedented in the history of economic thought.

384
00:50:37.160 --> 00:50:52.160
In other words, there was a paradigm shift. It wasn't brought about purely intellectually, it was brought about by a shift in resources, in property.

385
00:50:52.160 --> 00:51:04.160
So Gide went on, the majority of the economists in the faculties of law must be considered as interventionists to about the same degree as German professors who used to be called socialists of the chair.

386
00:51:04.160 --> 00:51:14.160
So in other words, they immediately became socialistic to the same extent as their German historicist mentors, okay?

387
00:51:14.160 --> 00:51:18.160
This is one of the most remarkable episodes in doctrinal history, okay?

388
00:51:18.160 --> 00:51:25.160
Almost fully grown from the brow of Zeus, as it were, the school emerges in France, okay?

389
00:51:25.160 --> 00:51:35.160
and it was all caused by the strategic error of the liberal school in pushing for government financing of economic education.

390
00:51:35.160 --> 00:51:40.160
So what happened? Now this is why the liberal school has been forgotten.

391
00:51:40.160 --> 00:51:49.160
The first, almost immediately, lawyers like to write and they began publishing on economics.

392
00:51:49.160 --> 00:51:57.160
The first economics professor to publish was Paul Covez, who was a Paris law faculty member.

393
00:51:57.160 --> 00:52:12.160
He published two volumes of his lectures, and in it he denied the existence of natural laws in economics and advocated Friedrich List's system of protectionism.

394
00:52:12.160 --> 00:52:24.160
The liberal school was livid. They responded to the challenge with vehement attacks on the work in their journal des Economistes, and they supposedly even tried to have the author removed from his chair.

395
00:52:24.160 --> 00:52:34.160
In 1883, Gilles, who became the internationally recognized leader of the law faculty economist, published his famous Principles of Economics.

396
00:52:34.160 --> 00:52:42.160
went through more than 20 editions in France, and went through many editions in the United States, which was translated into English three times.

397
00:52:42.160 --> 00:52:49.160
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?

398
00:52:49.160 --> 00:52:53.160
You're going to get a view of the school that is extremely distorted.

399
00:52:53.160 --> 00:53:02.160
He was generally sympathetic to the German historical school, Gide was, and let me just find my pointer here.

400
00:53:02.160 --> 00:53:05.160
I'll show you his picture.

401
00:53:15.160 --> 00:53:18.160
That's the evil Charles Gide.

402
00:53:23.160 --> 00:53:27.160
As I said, sympathetic to the German Historical School,

403
00:53:27.160 --> 00:53:37.160
He was eclectic in the sense that he did accept the legitimacy of the deductive method, but didn't think that it would result in universally valid laws.

404
00:53:37.160 --> 00:53:44.160
Basically, that's the view of the British classical school, which also was opposed to the French liberal school.

405
00:53:44.160 --> 00:53:49.160
In important areas of policy, he did diverge radically from liberal school.

406
00:53:49.160 --> 00:54:06.160
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 calls solidarism, or a system of cooperative production.

407
00:54:06.160 --> 00:54:10.160
He founded the Cooperative Society and the Society of Christian Socialists.

408
00:54:10.160 --> 00:54:23.160
Needsless to say, liberal economists were aghast at Gide's political-economic doctrines and activities, and they succeeded, fortunately, in denying him the election to the Institute.

409
00:54:23.160 --> 00:54:25.160
They still control the Institute de France.

410
00:54:25.160 --> 00:54:37.160
Gide struck back by founding a professional journal in 1887, The Review of Political Economy, which included among its editors and contributors all the economists of the law faculty.

411
00:54:37.160 --> 00:54:52.160
The Journal was, quote, the organ of the professors of economics and the faculties of law, which avowed the program of reaction against the doctrines of the optimist liberal school and the propagation of foreign, especially German, economic schools.

412
00:54:52.160 --> 00:54:55.160
So the whole point was to propagate German historicism in France.

413
00:54:55.160 --> 00:55:02.160
So this was the Pandora's box that was opened by the liberal school itself in petitioning the government for economic education.

414
00:55:02.160 --> 00:55:03.160
Education.

415
00:55:03.160 --> 00:55:09.480
Now, they began calling themselves the New School, as opposed to the, and they began

416
00:55:09.480 --> 00:55:14.240
calling it the Liberal School, not the Liberal School, but either the Orthodox School or

417
00:55:14.240 --> 00:55:19.160
the Optimist School, meaning that they were cockeyed optimists, that there weren't really

418
00:55:19.160 --> 00:55:22.160
harmonies between human beings in a market society.

419
00:55:22.160 --> 00:55:26.280
Okay, through the New School, the founding of the Review and the unprecedented international

420
00:55:26.280 --> 00:55:29.920
call for papers, which they put out a call to the German economists and everyone else

421
00:55:29.920 --> 00:55:37.280
for Papers, represented what they called a work of hygienic cleansing, dusting energetically

422
00:55:37.280 --> 00:55:42.620
morph-eaten economic furniture, opening wide the doors and windows to freshen the musty

423
00:55:42.620 --> 00:55:47.120
atmosphere and introducing a flood of sunshine and pure air from the four corners of the

424
00:55:47.120 --> 00:55:48.120
world.

425
00:55:48.120 --> 00:55:54.560
What they're saying is the liberal school was a closed insular provincial group who

426
00:55:54.560 --> 00:55:58.640
defended orthodoxy and would not allow ideas from the rest of the world in, which was not

427
00:55:58.640 --> 00:55:59.640
true.

428
00:55:59.640 --> 00:56:05.640
So they were opening up France to the movements, the economic movement, and the rest of the world.

429
00:56:05.640 --> 00:56:09.640
The liberal school interpreted the events much differently.

430
00:56:09.640 --> 00:56:18.640
From their perspective, the new journal was an ill-considered and really a dilettante-ish endeavor

431
00:56:18.640 --> 00:56:25.640
to transplant German historicist ideas into an inhospitable French intellectual environment.

432
00:56:25.640 --> 00:56:37.640
And very interestingly, writing in 1893, the German-born Maurice Bloch, we talked about, the French-Austrian, who was a naturalized French citizen, he remarked as follows,

433
00:56:37.640 --> 00:56:47.640
Monsieur 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.

434
00:56:47.640 --> 00:56:59.640
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?

435
00:56:59.640 --> 00:57:03.640
Then I pity them, they will labor in vain, and they never really became historicists.

436
00:57:03.640 --> 00:57:14.640
He points out something else Block does. He says, M. Jied's speaks like a catator socialist, that is a German socialist of the chair.

437
00:57:14.640 --> 00:57:22.640
And yet, one cannot know their doctrines well if he does not know the language, and the more so because the doctrines are constantly being modified.

438
00:57:22.640 --> 00:57:30.640
Most of the French, these people have gone to school for ten years to learn Roman and French law.

439
00:57:30.640 --> 00:57:38.140
French law, they didn't have time to study German, they didn't know German, but yet they were introducing, trying to introduce their doctors into France.

440
00:57:38.140 --> 00:57:47.040
All right, so these rancorous relations between the two schools existed up until World War I.

441
00:57:47.040 --> 00:57:53.940
The French school became, the new school, so-called new school, became more and more powerful.

442
00:57:53.940 --> 00:58:08.940
In fact, Gide boasted in 1907, okay, now he was writing many articles in American and English journals by this time, okay, in the Quarterly Journal of Economics and other journals.

443
00:58:08.940 --> 00:58:13.940
He boasted, the law faculties have almost a monopoly of economic teaching by 1907.

444
00:58:13.940 --> 00:58:31.940
Political economy or its cognate studies, including finance, rural economy, labor legislation, are taught by about 40 professors, all of them anti-liberal school, to about 8,000 students, all of them future barristers, magistrates, civil servants, deputies, or professors.

445
00:58:31.940 --> 00:58:35.940
Well, the paradigm shifted.

446
00:58:35.940 --> 00:58:39.940
The property, to use a Marxian term,

447
00:58:39.940 --> 00:58:43.940
the property relation, because the property relation shifted,

448
00:58:43.940 --> 00:58:47.940
because tremendous amount of resources

449
00:58:47.940 --> 00:58:51.940
and a tremendous institutional structure

450
00:58:51.940 --> 00:58:55.940
was given, in effect, to this alternative school.

451
00:58:55.940 --> 00:58:59.940
Now, let me, since I'm running out of time here,

452
00:58:59.940 --> 00:59:19.940
Explain how things more or less wound up, or how the view of the liberal school as being insignificant, as being simply popularizers, as being mean, insular, uncomprehending of new doctrines and so on.

453
00:59:19.940 --> 00:59:24.940
How that gained currency in the United States and in Great Britain.

454
00:59:24.940 --> 00:59:25.940
Britain.

455
00:59:25.940 --> 00:59:30.540
There's much to be said on this, let me just say very simply, in Great Britain, keep in

456
00:59:30.540 --> 00:59:38.260
mind that even after Jevons wrote in the 1870s, he didn't really found the school.

457
00:59:38.260 --> 00:59:39.260
There was H.D.

458
00:59:39.260 --> 00:59:45.120
McLeod, who I said was a follower of Bastiat, who Jevons praised, but he was eccentric and

459
00:59:45.120 --> 00:59:49.020
did not have an academic position.

460
00:59:49.020 --> 00:59:52.740
Hearn was in Australia, another follower of Bastiat.

461
00:59:52.740 --> 00:59:56.900
Jevons left only one individual who really developed his thought as well as the Austrian

462
00:59:56.900 --> 01:00:01.660
thought, Philip Wickstede. Wickstede was a great economist, but also did not have an

463
01:00:01.660 --> 01:00:08.700
academic position. So between 1870 and 1890, classical school was collapsing, the British

464
01:00:08.700 --> 01:00:12.740
classical school, and they had been enemies of liberal school. And even though Jevons

465
01:00:12.740 --> 01:00:19.900
tried to rehabilitate the French liberal school, he was unable to do so, mainly because a British

466
01:00:19.900 --> 01:00:30.900
When the British historical school grew up, the most famous representative was Cliff Leslie, there was also John Kells Ingram and a few others.

467
01:00:30.900 --> 01:00:40.900
So during that 20-year period between when Jevons wrote and when Marshall published his great Principles of Economics in 1890,

468
01:00:40.900 --> 01:00:48.900
not great in the sense that most people think it's great, I don't, during that time the historical school came to dominate

469
01:00:48.900 --> 01:00:53.900
And they hated the French Liberal School even more than they hated the British Classical School, which they had destroyed.

470
01:00:53.900 --> 01:01:02.900
Because at least the British Classical School admitted that, well, economic laws aren't eternally valid, eternally and universally valid.

471
01:01:02.900 --> 01:01:04.900
Whereas the French School said the exact opposite.

472
01:01:04.900 --> 01:01:07.900
So they were even more opposed to the French Liberal School.

473
01:01:07.900 --> 01:01:11.900
So the French Liberal School already had a bad press in Great Britain.

474
01:01:11.900 --> 01:01:14.900
Then when Marshall did take over, what did he do?

475
01:01:14.900 --> 01:01:17.900
He downgraded the French Liberal School.

476
01:01:17.900 --> 01:01:31.900
of the Austrian Liberal School. He tried to combine a little marginal utility theory from the Austrians integrated into the Ricardian Mill paradigm and tried to rehabilitate Ricardo and Mill.

477
01:01:31.900 --> 01:01:45.900
In fact, Marshall said things like the following. Marshall argued that the French and German economists, and he was referring to the Austrians here as well as the French liberals,

478
01:01:45.900 --> 01:01:50.700
quote, on the whole, had not done nearly so much good work as the English.

479
01:01:50.700 --> 01:01:57.700
He also dismissively characterized Bastiat as, quote, a lucid writer but not a profound thinker, unquote,

480
01:01:57.700 --> 01:02:01.700
and denigrated the laissez-faire implications of Bastiat's welfare analysis,

481
01:02:01.700 --> 01:02:07.900
meaning that when anyone exchanges, both people are better off and therefore society is better off.

482
01:02:07.900 --> 01:02:13.800
He characterized this as, quote, the extravagant doctrine that the natural organization of society,

483
01:02:13.800 --> 01:02:18.800
under the influence of competition is the best, not only that can be practically affected,

484
01:02:18.800 --> 01:02:20.800
but even that can be theoretically conceived.

485
01:02:20.800 --> 01:02:24.800
Okay, well that's our welfare theory.

486
01:02:24.800 --> 01:02:29.800
Whenever people exchange freely, both, at least ex ante, gain.

487
01:02:29.800 --> 01:02:34.800
And we cannot conceive of a society in which that occurs.

488
01:02:34.800 --> 01:02:37.800
Another form of society in which that would also occur.

489
01:02:37.800 --> 01:02:42.800
So Marshall is completely wrong in claiming that the doctrine is extravagant.

490
01:02:42.800 --> 01:02:46.800
In any case, so Marshall himself downgraded the French liberal school.

491
01:02:46.800 --> 01:02:55.800
The situation in the United States very quickly also turned out to be developing in an anti-liberal direction,

492
01:02:55.800 --> 01:03:06.800
despite the fact that, as I pointed out, the main post-Civil War school of American economists was the American catallactic tradition,

493
01:03:06.800 --> 01:03:10.800
which was based on, say, Bastiat and the Stute de Tracy.

494
01:03:10.800 --> 01:03:28.800
The Stute de Tracy was Jefferson's favorite economist. He supervised the translation of his treatise on political economy, as well as also having later Say's treatise translated into English.

495
01:03:28.800 --> 01:03:35.800
In fact, Say's book was used as college text up until the 1880s in the United States.

496
01:03:35.800 --> 01:03:47.800
But despite that, what happened is that in the 1870s, again this was a negative thing, economics became professionalized.

497
01:03:47.800 --> 01:03:53.800
Two chairs in economics were established, independent chairs were established at Yale and Harvard.

498
01:03:53.800 --> 01:03:56.800
Before that, economics was part of moral philosophy.

499
01:03:56.800 --> 01:04:25.800
The people who got those chairs, I won't go into a lot of detail, were basically William Graham Sumner, who was a great guy, but he was also a follower of the British Classical School, a guy named Henry Dunbar, and another individual who was also anti-liberal and pro-British Classical School.

500
01:04:25.800 --> 01:04:40.800
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.

501
01:04:40.800 --> 01:04:47.800
Frank Taussig was one, Arthur T. Hadley was another, J. Lawrence Laughlin was the third.

502
01:04:47.800 --> 01:04:57.800
Hadley became the president of Yale University, wrote a textbook, basically intending just to update Mills' principles of economics.

503
01:04:57.800 --> 01:05:02.800
He criticized Bastiat as an example of the type of individualist who is, quote,

504
01:05:02.800 --> 01:05:06.800
prone to assume that private property would necessarily be managed in the public interest

505
01:05:06.800 --> 01:05:13.800
and is in danger of treating the increase of such property as a good in itself instead of a means to the public good.

506
01:05:13.800 --> 01:05:20.160
and he also marginalized Bastiat as quote the brilliant French economist whose economic harmonies are sometimes as

507
01:05:20.520 --> 01:05:27.120
overstrained as the economic antinomies of socialists like Proudhon. So he thought of himself as a moderate

508
01:05:27.440 --> 01:05:31.040
rejecting the extreme liberals and the extreme socialists.

509
01:05:31.600 --> 01:05:39.400
Taussig was an enormously influential teacher, writer and editor. He edited the Quarterly Journal of Economics from 1896 to 1935.

510
01:05:39.400 --> 01:05:48.400
In 1935, he taught at Harvard and his PhD students were like a who's who of American economics in the first part of the 20th century.

511
01:05:48.400 --> 01:05:51.400
Jacob Beiner, Frankie Graham, James Angel.

512
01:05:51.400 --> 01:05:59.400
And he was described as, quote, the first and last follower of the classical tradition of Ricardo and John Stuart Mill.

513
01:05:59.400 --> 01:06:05.400
Again, he was a part of the Ricardo-Mill paradigm and sought to update it and hated the liberal school.

514
01:06:05.400 --> 01:06:13.400
because it had destroyed the cost of production theory of the Ricardian School.

515
01:06:13.400 --> 01:06:21.400
He also took into account the criticisms of the German historical school, as many of these new classical people did.

516
01:06:21.400 --> 01:06:31.400
They said, well, the old British classicals didn't go far enough in taking into account the historical nature of economic laws.

517
01:06:31.400 --> 01:06:37.400
And they absorbed the anti-liberal feeling from Germany also.

518
01:06:37.400 --> 01:06:43.400
In fact, Taussig had studied in Germany.

519
01:06:43.400 --> 01:06:49.400
And last was Loughlin, who was the head of the University of Chicago's economics department.

520
01:06:49.400 --> 01:06:53.400
And he founded, he was the founding editor of the JPE.

521
01:06:53.400 --> 01:06:57.400
He was a follower of Mill and thought that John Cairns was the soundest theoretical guide.

522
01:06:57.400 --> 01:07:07.400
John E. Cairns, supposedly the last of the British Classicals, wrote a long article attacking Bastiat as not being value free.

523
01:07:07.400 --> 01:07:13.400
So these were the people that dominated American economics.

524
01:07:13.400 --> 01:07:24.400
What happened in the 1880s, you had a new school arising consisting of historicists who all studied in Germany, Richard T. Ely, E. R. Seligman, and so on.

525
01:07:24.400 --> 01:07:33.400
and so on, these people were even more anti-liberal than the new classical people that had the chairs.

526
01:07:33.400 --> 01:07:39.400
And what they did was that in the 1880s they started the American Economic Association

527
01:07:39.400 --> 01:07:57.400
Association, and in it they, let's see, I want to read a quote of the mission of the American Economic Association.

528
01:07:57.400 --> 01:08:06.400
Basically it was to introduce historical economics into the United States and also to press for government interventions to improve public welfare.

529
01:08:06.400 --> 01:08:11.400
In fact, they kept out for a few years, they kept out William Graham Sumner.

530
01:08:11.400 --> 01:08:16.400
They wouldn't allow the people they considered to be orthodox economists in.

531
01:08:16.400 --> 01:08:23.400
But eventually, that all changed.

532
01:08:23.400 --> 01:08:32.400
By 1887, there was a rapprochement between the classicals in the United States and these German-trained historical economists.

533
01:08:32.400 --> 01:08:40.400
And what you got was a combination of sort of Marchalian classicism with a little bit of historicism. It wasn't real historicism.

534
01:08:40.400 --> 01:08:46.400
And to make a long story short, there was no room for the liberal school.

535
01:08:46.400 --> 01:09:01.400
Now, the last part of the lecture which is designed to just talk a little bit about the literature that reached the United States

536
01:09:01.400 --> 01:09:05.400
was translated into English from French.

537
01:09:05.400 --> 01:09:11.400
Basically, most American and English economists did not speak French,

538
01:09:11.400 --> 01:09:18.400
but after the Marginal Revolution, many, many countries were involved in developing economic theories.

539
01:09:18.400 --> 01:09:25.400
Understandably, American and British economists were eager to keep abreast of the latest scientific developments

540
01:09:25.400 --> 01:09:31.400
Translations and Innovations, emanating from the continent, especially Germany and Austria, but also France.

541
01:09:31.400 --> 01:09:38.400
Since they lack fluency in foreign languages, they basically depended on translations of important foreign books,

542
01:09:38.400 --> 01:09:44.400
as well as publications in professional journals of survey articles by foreign authors that did speak English,

543
01:09:44.400 --> 01:09:47.400
and other communications by continental economists.

544
01:09:47.400 --> 01:09:53.400
Well, who became the main correspondent in France, in the United States?

545
01:09:53.400 --> 01:10:01.400
Charles Gide wrote a number of articles attacking and distorting the doctrines of the liberal school.

546
01:10:03.400 --> 01:10:09.400
One of the first books to be translated into English after the Marginal Revolution was one by Luigi Casa,

547
01:10:10.400 --> 01:10:16.400
who was a German, rather an Italian follower of the French Historicist School,

548
01:10:16.400 --> 01:10:46.400
and sort of a mixture of moderate historicists who also liked Ricardo and in it he downgraded in this book which was entitled An Introduction to the Study of Political Economy, it was translated into English in 1880 and he downgraded the French because they exalted the French liberals because they exalted the French economist J.B. Sey, Charles de Noyes,

549
01:10:46.400 --> 01:10:52.000
and Michel Chaboyer, while they denied Ricardo's merits and belittled Mills.

550
01:10:52.000 --> 01:10:55.400
Actually, he's talking about the Italian Liberal School, so there's a fight in Italy also.

551
01:10:55.400 --> 01:11:05.400
Now, Ferrara, who was the head of the Italian Liberal School, harshly attacked the importation of these German ideas into Italy,

552
01:11:05.400 --> 01:11:15.400
and he charged Casa with the crimes of Germanism and liberticide, killing liberty and being a pro-German.

553
01:11:15.400 --> 01:11:21.400
But anyway, so Costa was bitter, and in his book he attacked both the Italian and French liberal economists.

554
01:11:21.400 --> 01:11:30.400
Then the second book that was of note, that was translated into English, was by the Belgian Emile de Lavallee.

555
01:11:30.400 --> 01:11:36.400
It was a primer on economics, translated in 1884, called The Elements of Political Economy, that was its title.

556
01:11:36.400 --> 01:11:42.400
And it featured an introduction and a supplementary chapter by Frank Towson, one of the leading American economists.

557
01:11:42.400 --> 01:11:58.400
and in it he praised the book as being moderate in 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.

558
01:11:58.400 --> 01:12:06.400
He also referred to the school, Taussig did, of Lavallee as a moderate school.

559
01:12:06.400 --> 01:12:16.400
Lavallee, like most German writers and unlike most French writers, is not a decided adherent of the laissez-faire principle.

560
01:12:16.400 --> 01:12:21.400
So that was the second book. Again, there was a tax on the liberal school.

561
01:12:21.400 --> 01:12:31.400
Two more books really form the lasting impression in American and British economics of the liberal school.

562
01:12:31.400 --> 01:12:36.400
Now, the first was the French textbook by Charles Gide, The Principles of Political Economy.

563
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It was reviewed by J.B. Clark, who at the time had some historicist leanings.

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He later became a mangarian.

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And when he reviewed it, he lavished unreserved praise on the book,

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characterized it as a comprehensive expression of that liberal movement in French economic thought.

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Liberal meaning, not orthodox.

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You point out a relationship between Jede's and Jevons' theories of value and the affiliation of Jede's theory of production with Boehm-Bawerk's theory.

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In other words, he was showing Jede to be sort of a modernist who was trying to develop economics along marginal utility lines.

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The third edition of Gide's book was translated into English in 1891 and it was introduced by the influential British scholar James Boner.

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He also praised Gide as having an emphasis on the need of impartiality and freedom from prejudice, which is exactly the opposite of what Gide actually did.

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He used his book as a way to batter the reputation of the French liberal school.

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As I mentioned, this book was re-translated twice more, once in English, once in 1905, then again in 1924.

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That's how popular it was in the United States.

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In it, Gide criticized the French school in the following terms, the liberal school.

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He devoted a section to it in which he alleged liberal economists deny with some haughtiness

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that they constitute a school and, quote, claim to represent the science itself, unquote.

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Gide sums up the very simple doctrine of the liberal school as follows.

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Human societies are governed by natural laws which we could not alter one jot even if we

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We wish, 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."

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In other words, he claimed that the liberal school was pan-glossian, that we live in the best of all possible worlds.

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Then, even more damaging to the reputation of the French liberal school in the English-speaking countries was the History of Thought book,

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which was written by Gide and his fellow law faculty economist, Charles Reiss,

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who later became a friend of Mises and a defender of the gold standard.

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But at that period, he was a law faculty economist and a bit of a historicist.

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It was first published in France in 1909 and the second French edition was translated into English in 1915.

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It was called The History of Economic Doctrines from the Time of the Physiocrats to the Present Day.

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The seventh French edition appeared in 1947 and a second English edition appeared, which was newly retranslated, appeared in 1948.

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The book was actually used in American universities until the 1960s. In fact, my father actually had a copy of it, used it in his history of thought class.

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I don't have to go into much more detail except to say that according to Eugène Riess, the authors, they no longer call the liberal school,

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The school soon abandoned the task of scientific investigation and developed a propensity to use economic discourse to rationalize the ethical postulate that social interest is simply the sum of the individual interests, all of which converge in a harmonious whole.

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Well, they didn't give you any theory, though, to back this up.

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The French school had a very profound theory, as we saw with Tracy,

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about how exchange leads to a situation in which you have mutual benefits to all parties,

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you have benefits to overall society, and so on.

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And that, in fact, exchange and commerce are the core of society.

597
01:16:40.700 --> 01:16:43.700
They didn't give any of that theory at all.

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01:16:43.700 --> 01:16:51.700
They basically grouped together the later liberal economists as Mill's successors, the successors of John Stuart Mill.

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01:16:51.700 --> 01:16:59.700
So that all they needed to do then was to give you Bastiat's, they just went over Bastiat as being the prime liberal economist.

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They didn't give you any of the later innovations that the French liberal school had come up with.

601
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So that was disingenuous to call the later liberal school after Bastiat simply the successors of Mill.

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They hated John Stuart Mill, they hated his doctrines. They may have hated him too, he was kind of weird.

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Let me sum up. The liberal school had some works translated into English during this period, but they were all on specific topics like

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Guillot wrote on socialistic and economic prejudices, Levesseur wrote on the American workmen, Leroy Bouillieu wrote on the modern state and on collectivism and so on.

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and in those treatments they occasionally made snide remarks against the liberal, against the school of the law faculty, economists, but taken out of context it seemed as if they were simply a nasty orthodox bunch that were striking back at this modern school that was attempting to develop economics and that they were fighting a rearguard action, but very interestingly

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Finally, even Gede's co-author, after Gede died, he didn't leave his school.

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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.

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But if you read it, it's basically an updating of Ricardo and Mill.

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There's not even that much historicism in it. It's an awful book.

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Rees admits this. He says 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.

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It was really just a mess, a muddle of different ideas thrown together.

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The death of Gide closes the chapter in the history of economic and social thought in France.

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Reiss himself became a Volrasian and an ardent promoter of the mathematical method.

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01:19:06.700 --> 01:19:16.700
Now, one criticism of the liberal schools was that they rejected mathematical economics.

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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.

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That was used against them in the U.S.

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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.

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So that shouldn't be held against the French liberal school.

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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,

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the influence of the French-Italian liberal school survived World War II.

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Louis Baudin, who was one of the founding members of the Mont Pelerin Society, published a lengthy treatise,

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Attempting to do what Mises did earlier, integrate value theory and monetary theory.

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He went about it in a different way, but in any case it was reviewed in the AER.

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01:20:13.700 --> 01:20:18.700
The reviewer concluded that the book represents a prodigious effort of research, reading and reflection

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and is an admirably balanced work in the best French tradition.

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As I mentioned, Luigi Arnaudi was perhaps the most famous descendant of a liberal school.

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01:20:27.700 --> 01:20:30.700
He wrote 30 books on economics, founding member of the Mont Pelerin Society.

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01:20:30.700 --> 01:20:34.700
After World War II, he served as governor of the Bank of Italy and as president of Italy.

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President of Italy, and Constantino Bresciani Caroni also emerged out of the Italian liberal tradition in 1931.

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01:20:42.100 --> 01:20:46.900
He wrote today what is acknowledged to be the best work on the German hyperinflation.

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01:20:46.900 --> 01:20:52.000
He contributed two influential articles on the theory of saving and Austrian business cycle theory.

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01:20:52.000 --> 01:21:00.500
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.

633
01:21:00.500 --> 01:21:05.300
So the liberal school lived on, and it lives on today here.

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The school that smeared, attacked, distorted it, has been long dead.

635
01:21:13.700 --> 01:21:19.740
So my purpose then was to show that, two things.

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One, that a school must have some sort of institutional infrastructure.

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Not only that, to flourish, it must be private.

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01:21:33.880 --> 01:21:40.880
And secondly, paradigms change, and I think this is a more general point, when, not just

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from pure intellectual factors, but as a result of a change in resources and property.

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01:21:50.080 --> 01:21:55.580
The divergence of resources away from a relative divergence, away from the French liberal school

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towards the so-called new school, caused a sea change in the way the sea was moving in France.

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01:22:06.500 --> 01:22:11.900
What's interesting, Joe Stromberg mentioned this to me the other day, and I was thinking the same terms,

643
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and this is really his point, when Thomas Cocoon's book was published in 1962, it wasn't really noticed,

644
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But in 1970, now Kuhn talked about how scientific revolutions occur.

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When people began talking about it in the 1970s, when the second edition came out, I think in 1970,

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they focused on the intellectual aspects of it.

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No one talked about how paradigms shift as a result of a change in resources.

648
01:22:44.660 --> 01:22:50.660
And I think this is the next step in developing Kuhn's analysis.

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We have five minutes. Thank you.