A theory of self-interested action and the “liberte du commerce”
For our authors, a natural and optimal political order must rest upon the harmony that economic activities spontaneously create in a regime of “liberte du commerce”. Boisguilbert was the first to mark out this position at the end of the seventeenth century.
He argued that if one was to uncover an order within economic activity it was enough to consider the motivations of agents, which are nothing but the translation into economic life of the selfish conduct of men, a form of conduct generated by original sin and the fall of man: “each thinks of attaining his own personal interest to the highest degree and with the greatest possible ease”, he writes in 1705 in his first Factum de la France (Le Pesant de Boisguilbert 1695-1707 [1966]: 749). This order is characterised by what Boisguilbert calls “equilibrium” or “harmony”, that is, a situation in which a specific system of relative prices prevails: the “prix de proportion”. Also if, in Le Detail de la France (1695), he can emphasise “the harmony of the Republic, invisibly ruled by a superior power” (Le Pesant de Boisguilbert 1695-1707 [1966]: 621), this is because, in his opinion, this “superior power” consists of nothing other than free trade which forces people to be reasonable in markets and secure the realisation of these “prix de proportion”. The basic passion of cupidity is thus neutralised. By confronting each individual’s cupidity with the cupidity of all other people, competition eliminates socially harmful effects and enables one to obtain an orderly society, a harmony, as if each individual were motivated by charity.Boisguilbert’s ideas were of particular importance in the development of “philoso- phie economique” during the eighteenth century: Quesnay and Turgot developed them in various complementary ways. For example, the idea of a “maximising” behaviour based on interest was adopted and considered as natural.
In Boisguilbert this attitude was connected with the fall of man and embedded in his Augustinian Jansenist approach. After him, the religious point of departure faded away and was substituted: it was replaced by the sensationist explanation of the behaviour of individuals, with the same consequences however in favour of “liberte du commerce” - as it is obvious, for example, from Turgot’s writings. During the eighteenth century, the maximising behaviour of men was also metaphorically linked to the mathematical theory of “maximis et minimis” first developed by Pascal’s friend Pierre de Fermat (who died in 1665) and then by Gottfried Wilhelm Leibniz (1646-1716), and the image was so pervasive that even critiques of “philosophie economique” - Ferdinando Galiani (1728-1787), for example - referred to it. All these developments, together with some ideas taken from the theologian Nicolas Malebranche (1638-1715) and Leibniz (Steiner 2005 [2010]: ch. 8), led to the progressive emergence of a new kind of rationality and cost-benefit calculations, even at the practical level of engineers who, during the eighteenth century, built roads, canals and bridges.The efficiency of competition in markets is also forcefully asserted. Competition, it is stressed, allows the realisation of a system of equilibrium relative prices - Quesnay’s “bon prix”, Turgot’s “valeurs appreciatives”, or even Graslin’s labour values. The social link between individuals and the equilibrium structure of the economy is fundamentally grasped in real terms, leading, at the end of the period, to Turgot and Graslin’s respective theories of values. Money is however not unimportant. Prices are money prices: exchanges in markets are monetary and the flows of money between classes have to respect certain proportions to generate a state of “harmony”. Even for Turgot, who grasps value in terms of utility, value cannot be expressed as such: only the “valeur appreciative” (equilibrium relative price) can be known.
It is expressed, in an isolated transaction, by the quantity of the good against which a commodity is exchanged; or in general by each of the quantities of every other commodity against which it can be exchanged. Thanks to its intrinsic qualities, related to the requirements of the functions of measure of values and medium of exchange, one commodity detaches itself from the rest, and all the other commodities, by convention, express their value in terms of it, which therefore becomes the unique form of expression of value: money. What is basically unimportant are the quantity of (metallic) circulating money and absolute prices. For Boisguilbert and Turgot, for example - but the idea is also to be found in Quesnay and later in Say - the economy automatically generates the quantity of money it needs for transactions, by means of the circulation of bills of exchange or credit money.It is very certain... that the quantity [of money] does nothing for the opulence of a country in general...: [money] does not prevent those countries in possession of mines from being very impoverished. One man in that kind of country can spend two ecus a day and pass his life in greater difficulty than someone who, in Languedoc, has no more than six sols to support himself. One can indeed say that the richer a country is, the more it is capable of doing without specie, for there are then more people prepared to accept instead a piece of paper, called a bill of exchange.” (Le Pesant de Boisguilbert 1695-1707 [1966]: 617)
The quantity of circulating money is never the cause of an economic depression: that an economy “lacks money” is only an erroneous impression, the effect and not the cause of a crisis. Moreover, the interest rate is never considered as a monetary variable: it is a price determined between lenders and borrowers in the loanable funds market. These points run counter to the balance of trade doctrine. It is useless and absurd for the countries that do not possess mines to import precious metals through a surplus in foreign trade, because the quantity of money is irrelevant and does not impact on the interest rate.
A last important point must be stressed. While laissez-faire is an essential feature of “philosophie economique”, authors also insist in linking free trade at home to free foreign trade: “liberte du commerce” at home, they argue, can only stabilise the price of corn and generate a harmonious system of relative prices if it is supported by freedom in foreign exchanges. The importance of free foreign trade is first qualitative through its action on the expectations of economic agents: the size of the flows of imports or exports, and their possible balance or imbalance, are of almost no significance in this regard. This new view of foreign trade, initiated by Boisguilbert, naturally conflicts with the balance of trade doctrine. However, it also provided a solution to the problem caused by the material interests of different countries, contesting the political solutions traditionally advanced in the field. The material interests of nations, the authors stressed, can be peacefully harmonised provided the merchants are able to trade freely in international markets, pursuing their own private interests, thus establishing the conditions for economic prosperity and stability. This policy of external free trade was presented by Le Mercier de la Riviere or Guillaume-Franςois Le Trosne (1728-1780) as a political alternative to the policy of the “balance of powers in Europe” - considered as a source of disagreement and warfare between nations - whatever the attitude of the other countries.
The principle of fraternity of nations is not... only dictated by justice, but it is also in agreement with the interest of each nation, independently from the behaviour of the others. It should not simply be regarded as a beautiful moral idea, a worthy conception to be taught in schools of philosophy, but also as a practical maxim of government from which we can only detach ourselves to our own detriment. (Le Trosne 1777: 413-14)