Utility, Natural Right and Liberalism

Public utility is at the origin of the laws and determines the interventions of the state. Dupuit refers to this principle on a great number of occasions, for example, to justify his position on patents, on free external trade or on the management of the means of communication.

Many liberals referred to natural rights to justify private property. “Property exists before the law; the law is in charge to have property respected everywhere it is formed” (Bastiat 1848: 186). Dupuit disagrees: “all the economists who tried to justify economic phenomena referring to equity and justice have been mistaken... Justice is not the prin­ciple of society... It is public utility, the public good, because it is for this purpose... that society is established” (Dupuit 1862 [2009]: 643).

A firm producing a means of communication between two cities must not be afraid of competitors because it enjoys “a de facto monopoly” (Dupuit, SEP 1853 [Dupuit 2009], I: 574). A newcomer would have to face many geographical, economic and financial obstacles. The first firm had chosen the most convenient route, and its possible competi­tor must content itself with a second best. The sums to be invested are considerable and, for this investment to be profitable, the newcomer must be able to attract an important part of the customers. But, owing to habits, this is unlikely. This is why, Dupuit con­cludes (1852-53 [2009], I: 520), “the new firm would have harmed the first one, and ruined its own shareholders... The means of communication, the construction and exploitation of which require considerable expenses, are necessarily monopolies”.

If the management is left to a private company, prices will be fixed so as to maximize its profits while the state can content itself with a lower fare, which will be enough to cover its costs. The high price demanded by a private firm would discourage a frac­tion of the potential customers and a great part of the utility they could have obtained from the means of communication would be lost. Which solution should be chosen? The answer, Dupuit states, lies in the principle of utility (1852-53 [2009], I: 452): “Any means of communication, which is a monopoly, must be exploited by the State; any means of communication open to competition must be exploited by privately owned firms”.

Dupuit brought solutions to a series of practical and theoretical questions raised either by the administration or the economists. He can be seen as one of the founders of modern microeconomics (Ekelund and Hebert 1999).

Alain Beraud

See also:

Maurice Allais (I); French classical political economy (II); Jean-Baptiste Say (I); Antoine-Augustin Cournot (I).