Market and price theory: from an emancipating to a despotic market

In early nineteenth-century Europe, the debate on industrialism^[205] would tear econo­mists apart. For some, breaking with the Smithian tradition, the extension of the logic of market coordination to a large part of social activities necessarily gives pri­ority to a “natural” and decentralised harmonisation of the interests of agents.

In this debate, Sismondi plays a unique role, which originated in Richesse com- merciale. Passing on the encompassing vision of Smith, he defends an aprioristic and quasi-Ricardian approach to economic theory while insisting on the absolute necessity of linking this catallactic approach to economics as ethics within the framework of its integration into a historical analysis of the development of institu­tions as guarantor of individual freedom.^[206] He refuses to consider political economy as an exclusive science of wealth, a mere chrematistics.

Like most British and Continental economists of his time, Sismondi intended to “modernise” and adapt the encompassing approach of his revered master Smith to the need of the fast-evolving British and Continental economies. Hence, the matrix of the Wealth of Nations always remained for Sismondi the ultimate reference in political economy. Sismondi’s formative years (1800-1816) and early publications (1803) bear testimony of this towering influence. In opposition to the path sub­sequently followed by Ricardo and what Sismondi calls “the chrematistics of the English School”, Sismondi refused point blank to be dragged into this direction.

Using an approach to prices borrowed from Nicolas-Franςois Canard’s Princi­pes d’economie politique (1801), Sismondi abandons Smith’s theory of prices in favour of a theory based largely on the dual idea of supply and demand (Bridel 2014, 2021). Hence, in Richesse commerciale, his concept of market is a social mechanism which frees the economic agents from the status economy of the Ancien Regime. In what is for Sismondi an exchange economy based on a contractual pro­cedure guaranteeing - through competition - a low degree of asymmetry in the relative strength of the trading bodies, the market determines the distribution of sur­plus between the various participants in the production process. This competitive mechanism guarantees the conformity of the consumer’s interest (a class which, according to Sismondi, encompasses “the universality of agents”) with the national interest: “the national interest is the same as the consumer interest” (1803, 177). The society that Sismondi describes in Richesse commerciale is not structured by the conflict between capital and labour, but between producer and consumer. The idea that competition can take place at the expense of wages is not yet central.

In an industrial economy (a concept which appears in 1817 in “Political Econ­omy” and reaches its theoretical peak in Nouveaux principes), the market becomes an asymmetric mechanism which, through the despotism exercised by a minority of owners of capital, enslaves the majority of agents whom he defines for the first time as proletarians (thus inaugurating the divorce between labour and property). From his initial idea in 1803 of an ideal competitive market mechanism between agents of equivalent strength, in the space of fourteen years, Sismondi was among the very first to express reservations about the efficiency and stability of coordi­nation by prices in an industrial society characterised by imperfect competition between unequal agents.

Hence, distancing himself from Smith in the realm of price theory, Sismondi was nevertheless convinced that a simple and straightforward adoption of a price coordination mechanism was not only unjust (Smith would have agreed) but also largely inefficient. In contrast to Ricardo’s Principles, in his Nouveauxprincipes Sismondi cast serious doubts on the co-ordinating abilities of the price mechanism within a system of natural liberty:

Let us beware of this dangerous equilibrium theory that re-establishes itself of its own accord!... Let us beware of believing that it does not matter on which side of a scale one puts or takes away a weight, because the other will quickly adjust itself!... It is true that a certain equilibrium will re-establish itself in the long run, but this will be by great suffering.

(1827, 412; 1991, 487)

In other words, and even before Ricardo’s declaration of independence of eco­nomic theory from political philosophy, doubts were already, and very seriously cast upon the self-adjusting abilities of decentralised market economies via a price system. When faced with the rapid evolution of the British industrial system, Sismondi began to denounce with increasing severity the intolerable brutality of a market system characterised by “une concurrence illimitee” (unlimited competi­tion) based on a wage system and a price mechanism unable to bring some sense of order (in particular intertemporal) to a largely anarchic and oppressive production system (Bridel 2021).

From liberator, the market has become enslaving through industrialism which reduces the wage earner to a status inferior to that of a subservient population. Despotism in the labour market has nothing to envy the multiple political tyran­nies with which history is replete. The potentially liberating virtues of the market are thus diverted by the industrialist system for the benefit of a minority. Sismondi does not hesitate to assert very strongly that, in the “English system”, in the labour market, “never more absolute power has been given to man over man, and never has it been exercised more harshly” (Etudes, 178). In addition, Sismondi clearly links this type of inequality with the resulting inequality in political status. A cer­tain degree of political and social equality cannot be achieved without a balance between the trading bodies on the markets.

For Sismondi, already considered by Smith as the least bad of the possible sys­tems, the concept of market and the socially and economically regulating virtues of a price mechanism were supposed to accomplish once in place exactly what Sismondi would quickly denounce as its most violently questionable characteris­tics. Where the exchange promoted equality and mutual recognition between men, each enjoying considerable civil liberty, production divides and distances them from each other. In the space of fourteen years, from liberating, the market, through the establishment of wages and unlimited competition, has become despotic. This unlimited freedom of industry “deprives [the workers] of work and food” (1838, 754). In terms recalling his writings of the years 1798-1803, it seems that, for Sismondi, the unlimited freedom of industry and the unconditional pursuit of wealth advocated by British economists destroy civil liberty which was, however, in the Italian Republics as in his beloved Republic of Geneva, at the very origin of the initial increase in wealth. Economic freedom should only be a means and not an end in itself.

Armed with an intellectual construction largely pre-dating Ricardo’s Principles (and despite frantic analytical efforts), Sismondi failed to convince the then nascent economic profession about the relevance of his approach.^[207] And his ultimate failure to invalidate the dominant price theory results probably from the fact that his cen­tral critical argument is not to be found in his political economy alone. The conclu­sions reached by Sismondi on the price system are no mean feat and run against what was (and still is) the dominant wisdom. For him, a market order is neither efficient, nor natural or spontaneous and political economy is not ethically neutral.

Unconstrained self-interest of each does not lead to the interest of all. If natural liberty and unlimited competition in industrial societies could, in principle, pro­duce plenty, Sismondi felt that in terms of what binds people together, it is likely to end up in failure for most individuals. Even if some adjusting properties could be attributed to the price system, the negative influence it would have on most agents’ liberty and happiness would turn it into a “deception by nature”. The acquisition of material wealth is not a substitute for moral behaviour and natural liberty, which may allow the greatest accumulation of material well-being, could hardly be seen as the right form of social organisation.

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