Contrasting views on state intervention

As seen above, the debates between French liberal economists revealed a much greater diversity of ideas than one might have expected. Another field in which this diversity can be observed is the question of public intervention.

How far should the state intervene?

As before, no consensus emerged within the liberal group on the limits to be set for public intervention: a remarkable continuum of positions was expressed, rang­ing from frank hostility to public intervention - the position of libertarians, to use a modern word - to more moderate views granting the State extensive functions. But what bound all the economists in the liberal group was a fundamental rejec­tion of arbitrary and authoritarian State intervention, seen as a relic of the Ancient Regime.

Within the liberal group, there were, of course, several advocates of a mini­mal State, who can probably be traced back to Benjamin Constant’s analyses, in which the minimal state has only two prerogatives: to prevent internal disorder and to repel foreign invasions. Unsurprisingly, these were Frederic Bastiat and Gustave de Molinari (and Leroy-Beaulieu and Garnier, to a lesser extent). If one adheres, as they did, to a conception of property based on natural rights, and to the natural harmony of individual interests, then the room for public intervention is necessarily restricted: regulating markets would disturb individual incentives, and modifying the distribution of wealth would be contrary to natural justice. The notion of general interest is also meaningless for them: only individual inter­est prevails:^[50] and if there is no general interest, no public expenditure can be made in its name. In addition, public administration is subject to two types of failure: malevolent behaviour on the part of civil servants and an inescapable lack of incentives and accountability, which makes government action systematically less effective than that of the private sector.

in the interest of the consumers of this intangible commodity, the production of security must remain subject to the law of free competition. From which it follows: That no government should have the right to prevent another gov­ernment from establishing itself concurrently with it, or to oblige the con­sumers of security to turn exclusively to it for this commodity.

(Molinari 1849, 279)

It should be noted that Molinari’s thinking on the privatisation of security was later qualified.

We are anti-interventionists [sic]... but we are not anarchists, like M. Proudhon and his school. We believe that the government meddles in many things it should not... and we would like to reduce its intervention to what is strictly necessary; but we do not intend to suppress it.

(Molinari and Passy 1859, 22)

Dunoyer even considered the State as the most important producer of immaterial capital (consisting of knowledge, virtue, good habits and safety), which are at least as important as material capital in increasing the wealth and well-being of society (Faccarello 2010). It would thus also be an overstatement to confuse a hard line, bordering on libertarianism, with what was more generally thought of the State in the liberal group: these authors represented a minority view, while the majority admitted broader functions for the State, as did Smith and Say, regarding education or public works (Potier 2023).

It nevertheless comes as no surprise to read that the poverty issue (“la question sociale”)^[51] did not have to be dealt with by the State either: no social policy could solve the problem of poverty, either through the right to work or the use of assis­tance. Since inequalities originate in individual causes (unequal individual facul­ties, insufficient effort, immoral or irrational behaviour), it would be illusory to think that public intervention could solve them. Worse still, misery even has moral virtues, as poverty plays a powerful role as a deterrent (Luciani 1991).

In the best social organisation, poverty, like inequality, is to a certain extent inevitable and, like it, is an aspect of social progress.

thing that there are inferior places in society into which families that behave badly are exposed to fall, and from which they can only get out by dint of behaving well. This dreadful hell is poverty.

(Dunoyer 1842, 136)

Individual charity can help the poor by creating personal links between them and their benefactor, which can enhance their morality and sense of responsibility: but institutional charity, which automatically and blindly helps people, is counter­productive and thus to be banned. The only remedy to the social question that could be provided by the State is the extension of competition and economic freedom, which are the only means of improving the living conditions of the poor by lower­ing consumer prices and enabling them to improve their condition, in particular through the deregulation of professions.

A broader view of the state’s involvement was developed by other liberal econo­mists, largely inspired by Rossi’s ideas, which were close to those of the Doctri­naires. Rossi raised the question:

whether, in the social interest, freedom is better than rule, or rule better than freedom; whether it is better for production that each person should be able to employ the forces he has and apply them as he sees fit, that each should be able to produce such results as he sees fit, or whether it is better to increase or restrain certain forces, to favour certain results, and to exclude others.

(Rossi 1840-41, I, 216)

In his Cours de droit constitutionnel, Rossi developed a conception of the State that was quite different from that of Benjamin Constant. To Rossi, “the State is a moral entity, a complex entity certainly, but a real one, for there is a set of obli­gations and rights that belong only to society”. He continued by noting that “the State is the effective realisation of a fundamental idea... it is the creation of a moral individuality, sui generis,...

(1) The first approach was developed mainly by engineers in the liberal group, especially Michel Chevalier and Jules Dupuit. Both considered that the notion of general interest (“utilite publique” in Dupuit) was not meaningless and that it should be taken into account, without dogmatism, when evaluating the relevance of public intervention. Chevalier stated that the exercise of individual interest alone could not maximise the production of wealth (“puissance productive”). Admit­tedly, one can count on the producers’ desire to enrich themselves to activate tech­nical progress, but to avoid underinvestment, three other essential factors cannot be left to individual interest alone: communication routes, credit institutions and professional education. In these three areas, Chevalier assumed a different position from the majority view: “communication routes and public works are now State issues [“affaires d’etat”]. This is why governments, instead of standing aside, must actively intervene. It is not a right, it is a duty”. With this qualification: “govern­ment intervention in public works must not, however, be a monopoly. Nothing could be better than to call upon the forces and capital of private industry to con­tribute to them” (Chevalier 1844, 11-12).

(2) Other economists, such as Wolowski, Cherbuliez and the historian, geog­rapher and economist Emile Levasseur (1828-1911) went further in their call for broader State intervention. Their reasoning was not based on a utilitarian principle as in Dupuit or Chevalier: they identified the existence of “social needs” that only the State can satisfy, insofar as they escape the sole action of individuals. They highlighted externalities and identified education, for example, as a merit good - Cherbuliez making the assumption of “a certain degree of ignorance that excludes the desire to learn” (Cherbuliez 1858, 197). The extension of the functions of the State was therefore justified, well beyond its sovereign functions: merit goods (health, education, poverty, fundamental research) fall naturally within the State’s remit. These positions were obviously in the minority and rather badly regarded by other liberals, who accused them of leaning towards interventionism.

Public finance issues

Controversies about public intervention were confined to these general discus­sions. They also dealt with one area in particular: taxation. This was a pressing issue: criticisms of the existing tax system - inherited from the Ancient Regime and considered archaic and underperforming - were multiplying and the liberal economists wanted to consider ways to modernise or reform it. The International Tax Congress held in Lausanne in 1860 was a culmination in this respect, since all the most eminent economists attended and compared their views on taxation.

In this field, liberal economists in general followed in the footsteps of Smith rather than Say. They based their analysis on the maxims of the Scottish economist - which can be summarised as the need for citizens to contribute accord­ing to their ability to pay, predictability, non-arbitrariness and effectiveness. Many of them nevertheless adopted the theory of the minimal State from Say, justifying the lightest possible taxation, but were not influenced by his argument for pro­gressive taxation (Silvant 2010b): the principle of moderation in public expenses, and therefore tax moderation, was shared by all, from those most hostile to pub­lic intervention (Dunoyer, Molinari, Garnier) to those most favourable (Chevalier, Wolowski). Another point of consensus was about the choice of the best type of taxation: French liberals as a whole considered indirect taxes as unethical, harmful and costly to collect, and called for their replacement with direct taxation, even if they did not underestimate the immense practical difficulties involved when replacing a tax that has become invisible over time.

However, the debate remained open on the type of tax scale - proportional or progressive - to be adopted, as well as the base to be chosen (capital or revenue). Unsurprisingly, most liberals were in favour of proportional taxation (Passy, Thiers, Dunoyer, Puynode, Baudrillart, Leroy-Beaulieu), on the grounds that it ensures both economic efficiency, since it does not distort the rational choices of indi­viduals, and natural justice, since it does not alter the hierarchy of social positions (Silvant 2010b; Le Van-Lemesle 2006). In contrast, progressive taxation, which the socialists were accused of wanting to introduce, was widely criticised for being confiscatory, unfair and particularly disincentive.

Some authors, nevertheless, defended the principle of progressivity (Silvant 2010b; Delalande 2014). Three of them are of particular interest. Garnier in the first place, considering that tax was above all the counterpart of a service ren­dered by the State, proposed to determine the contribution to be paid by each individual according to the benefits they derived from it. Since the richest peo­ple receive a more than proportional benefit from the services provided by the state, it is then legitimate to introduce “progressionnalite”, or progressive propor­tionality (1846), as he called it - that is, low progressivity, already described by Rossi. Clemence-Auguste Royer (1830-1902), in the second place,^[52] developed a singular theory of taxation, which enabled her to win - ex cequo with Proudhon and ahead of Walras - the prize of the Canton of Vaud for her Theorie de l’impot ou la dime sociale (Paris: Guillaumin, 1862), a title which obviously referred to Vauban’s Dixme royale. Her theory adopted Condorcet’s and John Stuart Mill’s theory of equal sacrifice: even if the State is viewed as responsible for inequali­ties and their reproduction, the role of taxation should not be to compensate for these inequalities but to enable each individual to make an equivalent sacrifice, which is only possible through progressivity. In the third place, the most original contribution was probably that of Gustave Fauveau (Silvant 2010a), who was an occasional contributor to the Journal des economistes. His 1864 book, Conside­rations mathematiques sur la theorie de l’impot, produced a singular mathemati­cal analysis, in which he tried to determine what type of tax should be imposed, depending on different assumptions about the nature of public intervention and the distribution of tax levies, that is, by calculating what the optimal tax should be by adopting the benefit approach or the capacity approach. According to the benefit principle, the State is compared to an insurance company^[53] that insures against insecurity (for the purposes of the analysis). The tax is thus calculated as an insurance premium, taking into account the probability of being a victim of theft and the amount to be insured. His calculation showed that the tax must be progressive if the risk incurred by the richest increases with their wealth. He also formalised the notion of moral sacrifice, using Bernoulli’s hypothesis of dimin­ishing marginal utility of income, and arrived at the result that taxes should be proportional (Fauveau 1864).

Liberal economists showed a growing interest in tax issues and more generally in public finance after 1850. The subject started to occupy growing chapters in textbooks, then entire volumes, and even became the subject of specific courses, illustrating a trend towards greater autonomy of the discipline (Le Van-Lemesle 2006). Three authors distinguished themselves in this field: Garnier, Courcelle- Seneuil and Leroy-Beaulieu, developing an increasingly detailed descriptive and normative analysis of how to allocate expenditure and raise financial resources for the State. They can be credited with the development of a new knowledge, mainly made available to a new administrative and political elite, which it had become urgent to train better after the French military defeat against Germany in 1871 (Le Van-Lemesle 2004).

While the influence of the liberal group had reached its peak after 1848, the 1870s undoubtedly marked the beginning of its decline. As they moved away from the founding classical thought, notably that of Say, the liberals slowly shifted from a theoretical and descriptive economics to a dogmatic corpus with less analytical value. After 1880, a generation of authors, marked by diversity and an abundance of ideas, progressively disappeared, and the group narrowed down to its most orthodox members, leaving aside those whose thought deviated too much from the doctrine.

At the same time, the government established chairs of political economy in the law faculties in 1877. These chairs were attributed to proponents of the historical method. A new journal, the Revue d’economiepolitique, was created in 1887 under the impetus of Charles Gide, threatening the quasi-monopoly of the Journal des economistes and attracting a younger and more dynamic generation of authors, who had new ideas and were receptive to historical or socialist thought, more in tune with their time.

Although the French liberal school was influential and esteemed in its time, it was subsequently forgotten in the history of economic thought, probably because of both disdain for the “pot-au-feu” aspect of their discussions, and the complexity of bringing out outstanding figures within the movement. Currents such as Aus­trian libertarianism or the school of Public Choice would, much later, bring some of their more anti-statist analyses up to date.