The liberals

The classical liberal strand continued in France for a long time after the marginal- ist revolution. Nevertheless, it showed some signs of decline after the 1870s. The generation of Chevalier, Garnier and Dunoyer struggled to find successors to equal them.

For the classical liberal economists, the idea that the utility of a good deter­mines its value and that utility decreases as the quantity consumed increases was hardly new, so that the theses exposed by Jevons, Menger and Walras, which were reported in the Journal des economistes, did not appear to be fundamentally path­breaking. It was precisely because they did not understand the significance of these new ideas that their influence slowly faded away.

Molinari and the old guard, faithful to tradition

Gustave de Molinari, who was the chief editor of the Journal des economistes after Garnier’s death, became a central figure in the liberal group during the last decades of the century. He tirelessly defended the old liberal doctrine, but he also put forward new proposals. Among the latter, his most original contribution was probably his analysis of the labour market, which he developed in Les bourses du travail (1893).

His starting point was a widespread observation: with the advent of the freedom of labour, the transformation of production technologies had led to an increase in labour productivity and an extraordinary rise in wealth, which had been very unequally distributed between the two main categories of producers - capitalists and workers.

was free by law to take his labour to the most advantageous market in the country, and even - though not always - abroad, but was he free in fact? Outside the narrow locality where he was born, did he know, could he know, on what markets his labour was needed, at what price and on what conditions?

(Molinari 1893, 116)

Thus, labour markets remained narrow markets where workers, under pressure to sell their labour for subsistence goods, were concentrated in small and isolated pockets of employment with few, if any, contractors and no real option to offer their labour elsewhere. In these circumstances, they were compelled to accept the condi­tions dictated by the entrepreneurs, however harsh they were. Molinari believed that the solution to this issue was to allow the creation of firms acting as interme­diaries between labour supply and demand which, by exploiting the opportunities for gain arising from incomplete information, would improve the efficiency of the market. He argued that they could reduce costs: because they have the specific function of recruiting workers and managing their work, they would be better able to select manpower and obtain it from where it was best and cheapest.

The expansion of product and capital markets triggered the creation of com­modity and stock exchanges that spread the information needed by traders and bankers. The enlargement of the labour market would have the same effects.

Molinari (1849) had a reputation as a hard-line liberal. He criticised not only government intervention in economic life but also the very nature of government authority. While many economists saw the development of cartels and trusts as a characteristic of the new stage of capitalism, Molinari argued that the expansion of markets strengthens competition. However, the production of public service was not affected by this development, as governments claimed a monopoly on it. The result was that public services remained underperforming, expensive and of poor quality. The remedy he proposed was to modify the organisation of government to make it comply with the natural laws of the production and distribution of services.

First, governments must abandon all the functions arbitrarily assigned to them, and bring education, worship, coinage and transportation within the domain of pri­vate business. However, it is necessary to go further and impose competition on the sovereign functions of the State, including the production of security, which implies recognising the right to secession. Between citizens and the government, there were at least two intermediaries: the municipality and the province. Under the existing arrangement, municipalities had no way of protecting themselves if the province charged too much for its services or if the services it provided were of poor quality.

The day will come... when political servitude will lose its raison d’etre and political freedom will be added to the bundle of other freedoms. Then governments will be nothing other than free insurance companies on life and property, established and organised like any other insurance company.

(Molinari 1884, 381)

Yves Guyot (1843-1928) replaced Molinari as the director of the Journal des econo- mistes in 1909. At the Societe d’economie politique, he embodied a combative liberalism (Wartelle 1998), characterised by an abundant production of substantive articles tinged with militancy. He took a stand, inter alia, against protectionism, colonialism, socialism and antisemitism, and in favour of Alfred Dreyfus. His cen­tral idea was that protectionism and colonialism go hand in hand, and inevitably lead to war. With his friend Arthur Raffalovich (1853-1921), he co-edited the Dic- tionnaire du commerce, de l’industrie et de la banque (1898-1901), which ran to over 3,000 pages.

Paul Leroy-Beaulieu, a new conception of liberalism

By rejecting the classical heritage, Paul Leroy-Beaulieu, followed by Alfred Jourdan (1823-1891) and Edmond Villey (1848-1924), developed a version of liberalism that was clearly distinct from that of Molinari. Instead, he followed a tradition of liberalism influenced by Saint-Simonianism, which was, in particular, defended by Michel Chevalier (Leroy-Beaulieu’s father-in-law).

The liberals were, in general, hostile to colonialism, but Leroy-Beaulieu (1874) broke with this tradition, certainly for political reasons. Defeated France had to recover its world standing by developing a colonial empire.

By exporting capital to areas controlled by the metropolis, higher interest rates would be obtained and the commodities produced could be exchanged for those of the homeland, with supply creating its own demand according to the law of mar­kets. The more French capital the colonies received, the more French goods they would consume. Their great utility would be to expand France’s trade by opening, at the same time, new sources of cheaper supplies and new larger outlets, these new economies being more dynamic. He concluded that the benefits are reciprocal, with significant sources of income for the colonies as well.

Leroy-Beaulieu made a radical break with tradition in his book on the distri­bution of wealth (Essai sur la repartition des richesses et sur la tendance a une moindre inegalite des conditions, 1881). On a theoretical level, his thesis was that all established doctrines in economics concerning the distribution of wealth - Ricardian rent theory, Malthus’s law of population, Turgot’s and Smith’s ideas - were to be discarded or, at least, revised. Empirically, he argued that modern society was evolving towards a reduced inequality of conditions: poverty, far from increasing as usually claimed, was actually decreasing. Any government action to foster this movement could only hinder and delay it.

His criticism of the classics, however, came from his questionable interpreta­tion of their analyses: he thought they wanted to predict the future evolution of the economy, and he consequently believed that he could oppose them with the facts, notably the rise in real wages which ran counter to Ricardian theory.

A final important contribution by Leroy-Beaulieu concerned the analysis of public finance, and more generally of the State. In his time, Smith had explained that the sovereign had three duties: protecting society against violence and aggres­sion from other nations; protecting every member of society against injustice; and creating and maintaining the institutions and public works that an individual or small group of individuals have no interest in creating and maintaining. Leroy- Beaulieu considered this last statement to be excessive, because it suggests that individuals cannot create anything without being driven by their material interests. In L’Etat moderne et ses fonctions (1890), Leroy-Beaulieu developed an original analysis: unlike other liberals, such as Villey or Jourdan, he relied on the notion of “common good”² and argued that “the State is entrusted with providing for the common needs of the nation, that is, those which cannot be adequately satisfied

2 The first Rossi Prize was awarded in 1881 by the Academie des sciences morales et politiques. Its subject was “the role of the State in the economic order”. The joint winners were Alfred Jourdan and Edmond Villey, who each presented an analysis that was in some points close to Leroy-Beaulieu’s developments. They each published their work under the eponymous title (Jourdan 1882; Villey 1882). However, they did not employ the notion of common good. For Villey (1882, 66), the common interest merges with the “well-understood interest” of each individual. The principle of subsidiarity applies: the State should only intervene as a last resort, if the initiative of individuals or private asso­ciations fails. In particular, Villey emphasised the cooperation and voluntary association of individu­als as an alternative to State intervention. Free association would even have a greater advantage, that of guaranteeing the satisfaction of individual interests:

The State must only engage... in any service as long as this service is of common interest and as long as private industry is really and indisputably unable to undertake it, at least with the guarantees which are indispensable for this service to fulfil its purpose. It is therefore up to the State, whose action is never more than subsidiary, to prove the necessity and, consequently, under individual initiative, and which require the absolute and prior participation of all citizens” (1890, 93). He stipulated that these common needs can only be sat­isfied by the action of the whole community: security, preservation against certain contagious diseases, the service of justice, but also the right to expropriate, which is a necessary prerequisite for the implementation of public works. On the other hand, the State must represent perpetual interests against the irresponsibility of pre­sent interests: when some individuals’ behaviour deteriorates the future condition of the nation, the State must intervene.^{[125] [126]}

In his 1890 book, he also described the progressive extension of the state’s functions and its two main causes: the rise of democracy and the weakening of traditional ties (especially religious and intergenerational). The “modern State”, as described by Leroy-Beaulieu, is endowed with very limited qualities: it often produces less efficiently, and with less responsibility, than private agents would. The cause is the people who are at the heart of the functioning of the State. Firstly, governments are often short-sighted, with the next election as their horizon, which leads them to take hardly rational decisions that are sometimes contrary to the long-term general interest. Secondly, civil servants and politicians often have a lower level of skills and knowledge than private sector agents, if not captured by the interests of lobbies and pressure groups who expect them to make decisions in their favour. In a nutshell: “The state is not the brain of society; it has no title, no ability, no mission to lead it and pave its way The expansion of its attributions

makes the control of its operations more difficult every day” (1890, 435-6).

At the turn of the twentieth century, French liberals appeared to be deeply divided between those, such as Molinari, who remained faithful to classical liber­alism and those, such as Leroy-Beaulieu, who departed from it. This second group quickly became dominant. However, the renewal of liberal thought was also to be found in the writings of Clement Colson.

3.