Thomas Jefferson's Free-Market Economics

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

"The
ideologues – Cabanis, DuPont, Volney, Say, and de Tracy –
all sent Jefferson their manuscripts and received encouragement
in return."

The leadership
of the French Smithians was quickly gained by Jean-Baptiste
Say
, when the first edition of his great Traité
d’Économie Politique

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Notes

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

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

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

Reprinted
from Mises.org.

Murray
N. Rothbard
(1926–1995) was dean of the Austrian School,
founder of modern libertarianism, and chief academic officer of
the Mises Institute. He was
also editor — with Lew Rockwell — of The
Rothbard-Rockwell Report
, and appointed Lew as his literary
executor. See
his books.

The
Best of Murray Rothbard

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