After the disaster of Sedan and the Paris Commune

Napoleon Ill’s defeat at Sedan in 1870 cruelly highlighted France’s relative eco­nomic and demographic weakness, calling for stronger public intervention to counter the downturn in population growth, agriculture and industry.

DOI: 10.4324/9780429202407-8 Ferry (1832-1893) presented free trade as a factor of economic weakening that fostered external dependence.

The return to protectionism was precipitated by the fall in agricultural and industrial prices, a fall that opponents of free trade explained as a result of the reduction in transport costs favouring exports from new countries.

Controversies about the Freycinet plan

The Franco-Prussian war left France considerably poorer, due to the high military expenses incurred and the indemnity paid to Germany after the Treaty of Frank­furt.^[124] From the mid-1870s onwards, France underwent a severe depression result­ing from an export industry crisis caused by the loss of foreign markets coupled with an agricultural crisis due to importations of foreign cereals and meat.

Charles de Freycinet (1828-1923), then Minister of Public Works, implemented a government plan of 6 billion francs (for a GDP of 20 billion) to support final demand and improve industrial and agricultural competitiveness by reducing trans­port costs. The State financed significant extension of the railway network (from 24,000 to 40,000 km) and improvement of waterways and ports, and at the same time bought up many secondary railway companies unable to continue operating their licensed lines. Two issues were involved: the measurement of the utility of the railways and the question of their organisation.

To promote his plan, Freycinet used similar arguments to those put forward by Jean-Baptiste Say to support the development of waterways in the early nineteenth century. When presenting his project to the National Assembly, he stated:

From a commercial viewpoint, the real benefit of railways is the savings they make on transport.

(Journal officiel, 15 March 1878, 2906) Nevertheless, the benefits of railways are far greater for the community than for the operator: they come from the reduction of costs enjoyed by users. In this respect, one should note that, like Jean-Baptiste Say and Claude-Louis Navier earlier, Freycinet overestimated the utility of communication routes, since a num­ber of passengers and goods transported by the railways would not have used the road in their absence and only used the railway because of its low price. The many engineers who discussed the Freycinet plan - including Alfred Picard (1844-1913), Henri Varroy (1826-1883), Jules de la Gournerie (1814-1883) and Armand Considere (1841-1914) - used the Dupuit method (see Chapter 5), con­cluding that Freycinet considerably overestimated the utility of such an extension of the rail network.

The Freycinet plan had its supporters. Considere (1892), for instance, insisted on the indirect benefits of such an extension, referring to what could be called exter­nal effects, such as the expansion of trade, agriculture and industry due to lower transport costs. Clement Colson (1853-1939), on the other hand, downplayed their importance (1890): to him it would be a mistake to include in the utility estimate the total gains which the new enterprises, prompted by the improvement of com­munications, bring about. One loses sight, he wrote, of the fact that this labour and capital would have been employed elsewhere, if the infrastructure had not been built, perhaps in a less lucrative way but certainly not unproductively.

for a work facilitating transportation to be a fruitful use of capital, it is by no means necessary that it be revenue-producing.... To determine whether [a road] is a useful enterprise or not, what must be ascertained is whether the value of the services which the public obtains from it is greater than, equal to, or less than the expense which it involves. The question of whether those who benefit from these services are charged for them remains absolutely independent.

(Colson 1890, 809)

In a nutshell, one must refer back to Dupuit. The expansion of the railways opened up two further questions. Should the State take over the networks of private com­panies? Should it manage them directly as a public service or should it grant them as concessions to private companies? The organisation of the railways was indeed unclear. The law of 1842 had entrusted the operation of the network to private com­panies, but the length of the concessions - from 27 to 34 years - was short and, on their expiry, the State had to directly take over the operation, while compensating the companies for their equipment. The network was thus divided among twenty­eight companies whose financial capacity was too weak to withstand economic fluctuations.

During the Second Empire, the concession system was radically redesigned. The operation was entrusted for a period of 99 years to six major companies, which had a regional monopoly but had to comply with more restrictive specifi­cations: they had to bear the cost of building new routes and to charge regulated fares, set by the State. In return, the government backed the bonds issued by the companies and gradually secured a minimum return for shareholders on the funds advanced.

Despite these advantages, the companies were reluctant to open new routes. The government conceded local lines to secondary companies, which encountered dif­ficulties in the 1870s. The State had to buy up a number of lines, resulting in confu­sion and waste.

as for the State operating these vast enterprises, there is no way it can be done; the State would necessarily operate in a worse way, more expensively and more authoritatively than the current companies. The public, on its side, would be unreasonably demanding and would want to be transported for nothing. This would soon lead to a considerable loss of revenue, increased bureaucracy, and the employees would soon become electoral agents. Exploi­tation by the State is political waste.

(Garnier, in Societe d’Economie Politique 1880, 476)

Political economy in French higher education

Although French economists played an important role in political life and intellec­tual debates, by 1870 they had not succeeded in introducing political economy into the French university system, and its teaching had developed on the fringes. Chairs in economics had been created in some institutions (College de France, Conserva­toire National des Arts et Metiers, Ecole Nationale des Ponts et Chaussees) and had been occupied by liberals, in the wake of Jean-Baptiste Say (see Chapter 3). The situation changed progressively after 1870. The teaching of political economy was introduced in the Ecole Libre des Sciences Politiques, in several engineering schools - notably the Ecole Polytechnique and the Ecole des Mines de Paris - and in the law faculties. But the liberals did not benefit much from this movement, as their influence began to fade away.

In this general climate, the Ecole Libre des Sciences Politiques appeared to be an exception.

Liberals had long sought to introduce political economy into law faculties but met with resistance from jurists who believed that teaching should educate legal practitioners, not jurisconsults or scholars. As early as 1864, Victor Duruy (1811­1894) had established a chair of political economy in the Paris Law Faculty that was unique in France at the time; to avoid offending the law professors’ corporat­ism, he appointed Anselme Batbie (1828-1887), a specialist of public law and a liberal Orleanist who had rallied to the Empire. In his course, Batbie took up Say’s ideas and plan, which suited both jurists and liberal economists. Following his election to the National Assembly, Batbie was replaced by the jurist Gustave Emile Boissonade (1825-1910) in 1871, then by Paul Cauwes in 1873. Inspired by the analyses of the German historical school, Cauwes challenged certain principles of political economy that liberals held as fundamental. Above all, he criticised free trade as being detrimental to employment in France because of high production costs. He advocated a system of rational protection which would develop the pro­ductive forces in a harmonious way, guarantee national independence and increase productive employment for the benefit of national labour. This protection would make it possible to obtain a “better balanced” production while avoiding the dis­advantages of industrial or maritime monopolies (Cauwes 1879, t. 2). He naturally supported Meline’s customs policy. Thus, from the outset, the teaching of political economy in law faculties broke with the liberal tradition.

Finally, in 1877, a course of political economy was officially established in all law faculties. At first, the teaching was done by law professors who had lit­tle knowledge of economics. To them, the role of economics was to explain the rationale for property rights, to study their desirable extensions and necessary restrictions. Progressively, however, the situation changed. The study of law was reorganised: in 1895, the doctorate in economics was created, and a year later, a “Sciences economiques” section was opened in the “agregation des facultes de droit”. The first four examinations were presided over by a professor of criminal law, but from 1906 onwards, a professor of economics was finally appointed to chair the jury.

Meanwhile, the economists of the law faculties founded a journal in 1887, the Revue d’economie politique. The new journal was thus in competition with the Journal des economistes: the latter was reluctant to publish the contributions of this new generation of professors and the intention of Charles Gide (1847-1932) had precisely been to establish an independent journal that would provide an opportunity for his colleagues to publish the results of their research. He cleverly opened up the editorial board to professors who were close to liberal ideas and included as contributors professors who taught at foreign universities, such as Leon Walras.

The implementation of economics in engineering schools similarly had to face many obstacles. At the Ecole des Mines de Paris, teaching was entrusted to Emile Cheysson, then to Maurice Bellom (1865-1919), both followers of Le Play who took up the themes of social Christianity. At the Ecole Polytechnique, the course was taught by a socialist reformist, Eugene Fourniere (1857-1914). But the French tradition of teaching economics in engineering schools did not really take shape until Clement Colson was appointed to the chair of the Ecole des Ponts et Chaussees in 1892 and then to the Ecole Polytechnique in 1914. Cheysson and Colson were former students of the Ecole Polytechnique. They were both familiar with Walras’ work but were equally critical of the approach of pure political economy. Cheysson argued that:

political economy cannot claim to be an exact science.... In spite of ingen­ious attempts, the rigorous procedures of algebraic calculation have proved sterile in their application [to economic phenomena, since]... equations are powerless to embrace all the data.

(Cheysson 1882, 359)

Political economy was viewed as a moral science, whose method relies on obser­vation. Like Cheysson, Colson considered economics to be a moral science, but rejected the idea that the observation of facts alone could be sufficient. To achieve knowledge of economic phenomena, it is essential to use observation and deduc­tion simultaneously. His position on the use of mathematics gradually changed. In the first edition of his Cours d’economie politique, he regarded the use of math­ematics in economics as a mere “amusement” (1901, t. 1, 20), while his stance was more nuanced in a later edition (1915): admittedly, in political economy, the use of mathematical formulae cannot be considered, even in pure economics, as the normal method. The problem was not human freedom, because reasoning on the totality of individuals allows us to use the law of large numbers. The problem lay in the complexity of the elements to be considered and the difficulty in describing exactly the impact of some individuals on others.

In the end, as long as simple problems are involved, mathematical demonstra­tions can just as easily be delivered in common language. However, the use of math­ematics seemed to him not only useful but necessary in the case of interdependence:

economic phenomena are by nature well-suited to being put into equations, because they are phenomena with interdependent relationships, rather than cause and effect, relationships which are easy to represent by formulae in which one or another quantity can be considered indifferently as an inde­pendent variable. The existence of general equations of economic equilib­rium has been proved, and it has been shown that, when a certain number of men face a certain number of goods, their relations are subordinated to a suf­ficient number of conditions to determine all the operations done on the mar­ket. However, from these general notions, it is difficult to draw conclusions that are precise enough to really increase our understanding of phenomena.

(Colson 1901, t.1, 143)

Further on in his Cours, his analysis of the determination of the wage rate and the interest rate illustrated this idea. Both variables are interdependent, and therefore, in order to analyse their determination, one must write a system of equations that depicts the functioning of both the labour market and the capital market. This is what he tried to do in a note (1901, t.1, 366-7), although not entirely convincingly.

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