Tuesday, January 5, 2016

Frederic Bastiat and Exchangeability by Henry Macleod 1896

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FREDERIC BASTIAT - Reaction against the Economics of Jean Baptiste Say and John Stuart Mill 1896

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For nearly half a century the Economics of J. B. Say reigned supreme in France, and when J. S. Mill introduced it, though with many divergences, into England in 1848, his work was saluted by his friends and an uncritical public with unbounded applause, and was supposed to have brought Economics to the highest state of perfection; and for many years it was supposed that it was as futile to criticize Mill as to criticize infallibility itself. Whatever Mill asserted was to be accepted without doubt or profane questioning.

But soon after the publication of Mill's work a reaction began in France, and has gone on increasing to the present time, and the most advanced Economists throughout the world have come to see that it is impossible to erect Economics into a positive and definite Science on the system of Say and Mill, and that this can only be done by reverting to the original conception of its founders—that it is the Science of Commerce or Exchanges, or the Theory of Value.

Frederic Bastiat, the brightest genius who ever adorned the science of Economics, was born in 1801, the son of a merchant at Bayonne. He was left an orphan at the age of nine, and was brought up under the care of his grandfather, who had a small estate at Mugron, in the department of the Landes. After being at college he was placed in his uncle's house of business at Bayonne, in his 19th year. At first he thought that the business of a merchant was purely mechanical, and could be picked up in a few months. But he was soon disabused, and found that the science of commerce was not mere routine, and that a merchant, besides his books and ledgers, ought to study the Laws of Economics.

Having succeeded to his grandfather's property of Mugron, and thereby having acquired a competence, he left commerce and devoted himself to study. He read Adam Smith and J. B. Say, for whom at that time he had a great admiration, and other Economists. He also devoted much attention to English and Italian literature, as well as philosophy. Thus, for several years his life passed away in deep study and peaceful meditation, and filled some departmental offices.

Bastiat had written a few minor articles shewing great ability, and containing many of the ideas he afterwards developed with such surpassing brilliancy, which appeared in the provincial journals: but it was in July, 1844, that his first article appeared in the Journal des Economistes which announced to the world that a great Economical writer had arisen.

We must pass over his inimitable Sophismes Economiques, also his strenuous efforts, in company with Michel Chevalier, to found a Free Trade league in France, in imitation of the Anti-Corn-Law League in England, because all we have to do with in this place is to ascertain what his views were of the nature and objects of the science of Economics. He began, as said above, by having a great admiration for J. B. Say, whose work was then the great standard work on Economics in France, and held the same position there as the Wealth of Nations did in England. But when he came to declare his own views as to the nature and objects of Economics, he entirely abandoned the system of J. B. Say, and reverted to the original conception of it as the Science of Commerce or Exchanges, or the Theory of Value.

In his Harmonies Economiques, under Besoins, Efforts, Satisfaction, he investigates the true limits and objects of the science of Economics. He determines that it is founded upon the wants of mankind, and their reciprocal services ministered to their reciprocal wants and desires.

"It is, in fact, this faculty given to man, and to man only, among all creatures, to labour for each other: it is this transmission of efforts, this exchange of services, with all their complicated and infinite combinations to which it gives rise through time and space: it is that precisely which constitutes Economic Science, shows its origin, and determines its limits. . . .

"To accomplish an effort, to satisfy the wants of another, is to render him a service. If a service is stipulated in return, there is an exchange of services: and as that is the most usual case, Political Economy may be defined as the Theory of Exchange.

"Whatever may be the degree of want of one of the contracting parties, or the intensity of the effort of the other, if the exchange is free, the two services exchanged are of equal value. Value consists, then, in the comparative appreciation of reciprocal services, and so one may say that Political Economy is the Theory of Value."

In the article on Value, Bastiat investigates the conception of Value, and shews that it is entirely founded on the mutual appreciation of services interchanged, and not upon labour.

"Thus the definition of the word Value, to be correct, should regard not only human efforts, but also those efforts exchanged or exchangeable. Exchange does more than state and measure values, it gives them existence. I do not say that it gives existence to the acts, or to the things which are exchanged, but it gives them the notion of Value.

"I say, then, that Value is the relation of two services exchanged.

"The idea of Value entered into the world the first time that a man said to his brother, 'Do this for me, and I will do that for you.' They came to an agreement: for then, for the first time, one could say the two services exchanged were equal in value.

"By means of exchange, we labour to provide food, clothing, shelter, light, to heal, to defend, instruct each other: thence reciprocal services. These services, we compare them, we discuss them, we value them: thence Value."

He shews that many circumstances affect Value, and points out the false origins which have been attributed to the word.

"Up till now, the principle of Value has been sought for in one of the circumstances which augment it or diminish it, materiality, durability, utility, scarcity, labour, difficulty of acquisition, judgment, &c.: a false direction impressed from the beginning on the science, because the accident which modifies the phenomenon is not the phenomenon. . . . Thus the principle of Value is for Smith in materiality [Smith has admitted that both Personal Qualities and Abstract Rights have Value] and durability, for Say in utility, for Ricardo in labour, for Senior in scarcity, for Storch in judgment, &c."

He then shows the confusion into which the science has been thrown by these contradictory conceptions, and shews that the only true source of Value is Exchangeability.

The natural consequence of this view is that all services which are exchanged are Economical elements, whatever their nature may be, whether material or immaterial: and that all labour is productive labour which produces any service which is wanted. Hence those persons who satisfy any of our mental desires, such as opera-singers, are included in that category. Bastiat then points out at great length the erroneous conclusions to which the doctrines of preceding Economists on the conception of Value, lead.

So again in Organisation Naturelle he says: "We should shut our eyes to the light if we refused to acknowledge that society cannot present such complicated transactions, in which the civil and penal laws have so little part, without obeying a wonderfully ingenious mechanism. This Mechanism is the object of Political Economy."

Thus Bastiat entirely emancipated himself from the evil influence of J. B. Say, whom he had admired so much at first. He plucked up by the roots the noxious fallacies which are the Economics of Adam Smith and Ricardo, that all Wealth is the produce of land and labour, and that labour is the cause of all Value, which are the doctrines upon which the Socialists found their systems.

He wrote a vast number of piquant and vivacious pamphlets assailing Protection and Socialism, and other false doctrines of Economics, then current. But unfortunately he did not live to construct a definite system of Economics on the fundamental ideas he had so lucidly expounded. After a short but brilliant career of six years he was cut off in the maturity of his powers, and in the very height of his reputation, in 1850.

Bastiat has been called the founder of the third school of Economics. But this is a misconception. He simply cleared away the stupendous chaos and confusion and mass of contradictions of Adam Smith and J. B. Say, and reverted to the unanimous doctrine of the ancients, of which he does not seem to have had any knowledge, that Exchangeability is the sole essence and principle of Wealth: and that Value is not a quality inherent in an object, but is simply the relation between any Economic Quantities which are exchanged: and that Economics is the science of Commerce or Exchanges, or the Theory of Value: a conclusion in which the most advanced Economists in the world are now agreed.

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