List of Famous Economist of the World

List of some of the most famous economist of the world:- 1. Jean Baptiste Say 2. James Mill 3. Lord Lauderdale 4. John Rae 5. Karl Heinrich Rau 6. John Ramsay Mcculloch 7. Henry Charles Carey 8. Hermann 9. Frederic Bastiat.

Famous Economist # 1. Jean Baptiste Say (1767-1832):

Jean Baptiste Say was a follower of the classical tradition built by Smith, Mai thus and Ricardo. J.B.Say made his own contributions to economic thought. He was the founder of the French classical school. Say came across Adam Smith’s “Wealth of Nations” by chance and the book had a profound influence on him.

He says that, “When we read this work, we feel that previous to Smith there was no such thing as political economy”. Say interpreted the work of Adam Smith. It would be unfair to regard Say as a mere popularize of Smith’s ideas. Of course, he was a true disciple of Smith. Say carefully reconsidered and reviewed the ideas of his master with discrimination.

He developed some of them and emphasised others. According to Say, “The work of Smith is only a confused assemblage of the soundest principles of Political Economy…. his book is a vast chaos of just ideas, jumbled with positive knowledge”. J.B. Say tried to popularize the ideas of Smith by presenting them in a lucid and orderly manner.

Nature and Scope of Political Economy:

Since Smith presented a confused idea about political economy, it became Say’s mission to put an end to the vast chaos, to bring order and method into the statement of economic principles and also to make the doctrine popular. He had a clear idea about the nature and scope of political economy.

According to him, political economy is a study of the laws which govern wealth. He divided the subject of economics into three main divisions-production, distribution and consumption. In the field of distribution, Say said that national income would be distributed in the form of rent, wages and profits. Say believed that the functions of an undertaker were different from those of a capitalist.

He described the undertaker as an entrepreneur. This term has found a permanent place in the science of economics. By defining the political economy in such a lucid and simple language, he was equally successful in rendering the subject more popular and even to this day he is read with pleasure.

Say was in favour of inductive method. He argued that methods similar to those used in natural science might be followed in Political Economy. He regarded political economy as a purely theoretical and descriptive science.

The role of economists, according to him, was to observe, to analyse and to describe and not to give advice. He emphasised that this subject was not a practical art and that its principles depended upon nature. Thus he regarded political economy as a positive science.

Say rejected the tradition of considering economics as a political art. In this connection, he differed from Smith, his master. Smith was a scientist cum reformer. But Say was a pure scientist. He treated economics as social physics. He thought that economics like Physics was an exact science based upon universal laws, and believed that the laws of economics were of universal application.

Doctrine of Immaterial Products:

Smith recognised land to be a productive factor while he regarded doctors, judges, advocates, artists as unproductive. Say protested against this concept and said that nature co-operated with man not only in agriculture but everywhere. According to Say, services of a doctor cannot be called unproductive. Its production consisted in saying it and its consumption in hearing it. It has been consumed simultaneously with its production.

Similarly the consumption of a song by an artist will coincide with its production. No doubt, these may linger on in memory, but these will have no exchangeable value once the moment of production is passed. Since they are incapable of accumulation they cannot increase the national wealth. On this point, Say comes quite close to Smith.

In the system as envisaged by Say, the entrepreneur is the most productive of all the factors of production, since he organises all the factors of production so that they may serve the consumers. The entrepreneur gets added bonus in the form of profits. There is no element of exploitation and the economic system works automatically.

According to Say, the production of material objects does not imply their creation. Production only means the mere transformation of matter – creation of utilities “a furthering of that capacity of responding to our needs and of satisfying our wants which is possessed by commodities; and all work is productive which achieves this result, whether it be industry, commerce or agriculture”.

Value:

Say’s theory of value was an improvement over the classical theory of value. He was not convinced about the labour theory of value. Say gave importance to utility. He defined utility as the inherent quality of commodities to satisfy human wants and therefore, it is utility that determines value. Thus he developed a psychological theory of value based on utility.

Law of Markets:

Say’s ‘Law of Markets’ has found a permanent place for him among the galaxy of economists. The Law of Markets is considered to be the greatest contribution of Say to economic thought. J.B. Say enunciated the proposition that “supply creates its own demand”. Through this law, Say wanted to disprove the belief that general over-production and unemployment were common occurrences.

In Say’s words, “It is production which creates markets for goods. A product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value”. The law is applicable to a barter economy where goods are ultimately sold for goods. Every good brought to the market is a demand for some other goods. Work is unpleasant and no one will work to make a product unless he wants to exchange it for some other product.

Therefore, the very act of supplying goods implies a demand for them. In such a situation there cannot be general overproduction because supply of goods will not exceed demand as a whole. But a particular good may be overproduced because the producer incorrectly estimates the quantity of the product which others want. But this is a temporary phenomenon for the excess production of particular product can be corrected in time by reducing its production.

James Mill supported Say’s Law in these words “Consumption coexists with production and production is the cause, and the sole cause of demand. It never furnished supply without furnishing demand, both to an equal extent………….. whatever the amount of annual demand”. Thus supply creates its own demand and there cannot be general overproduction and hence general unemployment.

Assumptions:

1. The size of the market is not incapable of expansion. It is as wide as the magnitude of products offered in exchange.

2. Say’s Law is based on the assumption of laissez faire policy as government interference will come in conflict with the automatic and self-adjusting mechanism of the economy.

3. Income is spent partly on consumption and partly on investment.

4. All savings are automatically invested and the equality between savings and investment is brought about by interest rate flexibility.

Criticisms:

Say’s Law has been criticised severely.

1. Keynes does not agree with Say that since supply creates its own demand, there cannot be overproduction. Keynes points out that in the capitalist society wealth is unequally distributed between the rich and the poor. Marginal propensity to consume of the rich is low and that of poor is high, but the poor have little wealth. This results in deficiency in aggregate demand leading to overproduction and unemployment.

2. Say assumes that whatever is earned is automatically spent. But a part of the income may be saved resulting in a leakage from income-expenditure flows. This renders the law inoperative.

3. Say believed that rate of interest was the equilibrating force between saving and investment, but for Keynes changes in the level of income bring about equilibrium between saving and investment.

4. It has rightly been said that, “Say’s Law does not hold in reality, every depression is a proof to the contrary”. If this law was correct, then the periods of rising incomes, employment and output will not be followed by periods of falling incomes, employment and output.

5. The fundamental fallacy in Say’s Law is that partial equilibrium has been extended to the economy as a whole.

6. Say believed in the automatic working of the economy. But the Great Depression reduced Say’s glass house to pieces. Therefore, to keep the vehicle of the economy on set lines, government intervention is a must.

7. Say presumed the existence of perfect competition, but in real world of ours what we have, is imperfect competition both in the factor market and commodity market. Perfect competition is only a myth.

8. Sometimes Say’s Law is defended in the excuse of long run equilibrium stating that in the long run total demand tends to be equal to total supply. But as Keynes remarks, “in the long run we are all dead, why worry?”

9. Say’s Law considers money only as a device for overcoming the difficulties of barter. But Keynes gave a major role to money in determining output and employment in the economy.

Implications of Say’s law of markets:

1. ‘Supply creates its own demand’ implies that there can be no general unemployment and no general over-production.

2. According to this law, it will be profitable to have wide markets for; they will increase the demand for goods and raise their prices.

3. Say’s Law became the basis for laissez faire policy. It implies automatic adjustment of the economy and hence there is no need for state interference. On this basis Say asserted that, “the very best of all plans of finance is to spend little and the best of all taxes is that which is least in amount”.

4. Everyone is interested in the prosperity of everyone else. It is foolish to divide the nation into producers and consumers, everyone is both. Further, in a nation, all occupations should flourish together.

5. Say’s Law is an essence of free trade doctrine. He asserts that import is not detrimental to home production or industry because what is bought from abroad is purchased only with home products. Thus a market is created.

6. Say was interested in the development of industry. By ruling out the possibility of crisis of over-production, he wanted to avoid everything that might prove unfavorable to the extension of industry.

Conclusion:

J.B. Say holds an important place in the history of economic thought. In the words of Haney, “He was not Smith or Ricardo; but he was no mere popularize…The history of political economy would have been different without J.B. Say”. He was sincere in his efforts for transmitting the ideas of his master Adam Smith to the French people. He has left an indelible impression upon the French Political Economy.

Famous Economist # 2. James Mill (1773-1836):

James Mill was born in 1773. He was the father of the famous economist John Stuart Mill. James Mill earned reputation as a philosopher, economist, utilitarian and historian. He was educated at the University of Edinburgh. He came to London in 1802 and became an editor of the Literary Journal and the Saint James Chronicle. He was a follower of Bentham, the leader of the philosophical radicals.

Economic Views:

According to James Mill, the study of political economy raises four inquiries:

(a) The laws regulating production;

(b) The laws relating distribution

(c) The laws governing the exchange of commodities and

(d) The laws which regulate consumption.

Wages and Population:

He believed that wages depend upon the ratio between population and capital. In his words, “Other things remaining the same, if the ratio which the capital and population bear to one another remains the same, wages will remain the same; if the ratio which capital bears to population increases, wages will rise; if the ratio which population bears to capital increases, wages will fall”. Accepting wage fund theory, Malthusian theory of population and the Ricardian theory of distribution, he concluded that, “the grand practical problem was to find the means of limiting the number of births”.

Value:

Agreeing with the classical economists, Mill tried to revise Labour Theory of Value by emphasizing that capital was only accumulated labour, and profit was a reward for hoarded labour. He admitted that capital was one of the factors which determine the exchange value of a commodity. He examined the old example of wine the value of which increased when it was left in the cellar.

The people who had taken this example wanted to weaken the Ricardian Theory of value; but Mill wrote “Time does nothing. How, then can it create values?” He believed that when people said that time had increased the value of a commodity, a certain portion of capital had been spent over it. He, therefore, concluded that if the value of the wine increased by one-tenth, it clearly meant that one-tenth more of labour had been expended upon it. This was a great absurdity.

Famous Economist # 3. Lord Lauderdale:

He was born in Scotland and entered Parliament in 1780. He succeeded to Scottish peerage in 1789 and was elected a representative Scot’s peer in 1790. On the economic side, he opposed Smith’s economic system in a fundamental way.

While accepting his individualistic point of view he took the ‘Wealth of Nations’ to task on the ground that it confused public and private wealth. His contribution to economic literature is to be found in his book whose title is “An Inquiry into the Nature and Origin of Public Wealth and into the Means and Causes of its Increase”. It was published in 1804.

(i) Distinction Between Wealth and Riches:

At the very outset, he emphasizes the importance of defining both the terms ‘wealth’ and ‘riches’ and stresses the distinction between the two. Thus he consistently uses the word ‘wealth’ when the appropriate adjective is ‘public’, whereas in speaking of the individual, he uses the word ‘riches’. He further states that all previous writers confused the individual and national wealth and thereby were led to a mistaken idea that whatever increases the ‘riches’ of an individual will increase public ‘wealth’.

He particularly criticizes the views of Adam Smith contained in the passage dealing with the accumulation of capital wherein he says that, As the capital of an individual can be increased only by what he saves from his annual revenue or his annual gains, so the capital of a society who compose it, can be increased only in the same manner.

As against this, Lauderdale thinks that far from being possible to identify the capital (or wealth) of society with the sum total of the capital (or riches) of all the individuals, they are indeed fundamentally opposed. Coming to the sources of wealth and the means of augmenting it, Lauderdale concludes that wealth can be increased only by the means which produce it, namely, production by land, labour and capital.

(ii) Theory of Value:

Value, according to Lauderdale, may be conferred on any commodity if two conditions are satisfied, firstly, the commodity, as being useful or delightful to man, should be an object of his desire; and secondly, the commodity should exist in a degree of scarcity.

Thus, if the demand remains the same the value will increase with scarcity and diminish with abundance. But if the individual’s ‘riches’ are increased by scarcity there must be an opposition between the public wealth and private riches and, as noted above, the increase of the two will depend on different causes.

Thus, while the community is interested in abundance of commodities to increase its ‘wealth’, the individual, who possesses them, is interested in their scarcity to get an increase in the evaluation of his ‘riches’. While discussing the four causes which lead to variations in value, viz., diminution and increase of quantity and diminution and increase of demand, Lauderdale anticipates what is now called the principle of elasticity of demand.

(iii) Functions of Capital:

Lauderdale is also notable for his analysis of the function of capital in the production of wealth. He says that land, labour and capital are three original sources of wealth though they will contribute in different proportions depending upon the different stages of development. Regarding the function of capital he criticizes the views of Adam Smith to the effect that the profit of stock is paid out of the value added by the workmen to the raw material.

On this view capital would not be an original source of revenue since profit would be only a transfer from the pocket of the labourer into that of the proprietor of stock. Lauderdale, however, argues that the profit which capital receives is not a simple transfer of this nature, but it arises from its own independent services, i.e., “from its supplanting a portion of labour which would otherwise be performed by the hand of man; or from its performing a portion of labour which is beyond the reach of the personal exertion of man to accomplish”.

For example, if a man with a spade can do the work of 50 persons using their nails this portion of capital invested in the spade supplants the necessity of 49 people, who are thereby rendered superfluous and the return or profit on this capital arises from this displacement of labour.

Famous Economist # 4. John Rae:

John Rae (1786-1873) is an American writer though originally Scotch immigrant first to Canada and later to U.S.A. His book was published in 1834 under the title of ‘Statement of Some New Principles on the Subject of Political Economy, Exposing the Fallacies of the System of Free Trade, and of Some Other Doctrines Maintained in the Wealth of Nations’.

In large measure he also is critical of the foundations on which Adam Smith builds, and in particular of two assumptions; firstly, that the national wealth can be increased by the accumulation of private wealth, and, secondly, that there is a natural harmony between private and national interests. He argues that individuals in general increase their capital by acquiring a larger portion of the common funds. One grows rich while another grows poor; but while one man may add house to house and farm to farm the national capital itself may remain but little changed.

In a significant passage, Rae says that “As the individuals seem generally to grow rich by grasping a larger and larger portion of the wealth already in existence, nations do so by the production of wealth that did not previously exist. The two processes differ in this, that the one is an acquisition, the other a creation. “From this, he is led to give greater importance to invention in his scheme of things.

Invention can alone be said to create and therefore it is an essential element in the process of an increase of national wealth. He agrees with the views of Lauderdale in general regarding the difference between the public and individual interests which are not always identical. He, however, differs from Lauderdale in that he does not consider this difference in the wealth itself but one in the causes giving rise to individual and national wealth.

Rae also criticizes Smith’s statement of division of labour who thought that the encouragement of invention was one of the consequences of the division of labour. Rae, however, holds that division of labour springs from invention (rather than the reverse) and is, therefore, the effect rather than the cause of increased productivity.

Knowledge and discoveries mean the multiplication of instruments and tools which it will be wasteful for all men to possess since a bulk of them may lie idle. Thus, division of labour is dependent on the progress of invention and is not a cause but the result of progress.

In harmony with the above ideas Rae is led to a reasoned refutation of the doctrine of laissez- faire, to a plea for enlightened government interference. Since individual and national interests are not always in harmony and men are united in large societies it is the function of the legislature to achieve the public good.

The legislature should act but act cautiously and Rae thinks that it should use the weapons of premiums, bounties and duties to achieve the national interest of the country. He much favours the ‘infant industry argument’ in so far as protection is concerned.

According to him, it would be better if the necessary cost of the scheme is borne by the whole community rather than by a single individual since the prosperity of the industry will be in the national interest. Legislation should also promote intelligence and invention and prevent dissipation of the community’s funds abroad.

Famous Economist # 5. Karl Heinrich Rau:

Karl Heinrich Rau (1792 -1870), Professor of Political Economy at the University of Heidelberg for about fifty years, was the author of ‘Handbook of Political Economy’ (1826 -1837); a standard text book. Rau believed that economics was one thing and the art of administering economic policy was quite a different matter and there need not be a connection between the two. Economic policy will depend upon national needs and local variations.

Hence in his theory he followed Adam smith and J.B. Say, but on practical issues he stood for the extension of the functions of the State. Political Policy and expediency is more important than economic theory, so if the two clash, the latter must be subordinated to the former. In Rau’s work, the mixture of Classicism and Kameralism is very evident.

Famous Economist # 6. John Ramsay Mcculloch (1789-1864):

McCulloch was born at Whithorn in 1789 and he was educated at the University of Edinburgh. He was a great follower of Adam Smith and Ricardo and restated their ideas in more lucid and unqualified terms. In 1825, he published his own “Principles of Political Economy” and in 1828 he joined the University of London as Professor of Political Economy. McCulloch was a great economist and statistician. He collected statistical dictionaries, wrote numerous essays and monographs, and a biography of David Ricardo. He was completely dominated by English classicism.

Wage Fund Theory:

McCulloch was an ardent supporter of the wage-fund theory. Though he accepted most of the principles of Smith, he differed from Smith in the classification of labour into productive and unproductive groups. On this he was more a follower of Say than Smith. To him, manufacturers could produce utility and not matter.

He gave an example in this connection – “Place us on the banks of river or in an orchard; and we shall infallibly perish either of thirst or hunger, if we do not, by an effort of industry, raise the matter to our lips or pluck the fruit of parent tree”.

He held that, if the agriculturists labour in growing corn was productive he could not understand why the work of household servant who turned the corn into eatable product was not productive. Even if no new matter was produced these works also were productive.

He defined wages as “a compensation paid to the labour in return for the exertion of his physical powers, or of his skill or ingenuity”. He, therefore, concluded that wages would necessarily vary in accordance with the severity of the type of labour to be performed, and the degree of skill required for its actual performance.

Labour Theory:

He distinguished between real value and exchange value and held that they ought to be equal to one another. The value should be determined by the value of labour expended in the commodity but this should be greater than the real value and the difference was exacted by the capitalist as profit.

Even in this attempt McCulloch could not explain the surplus in any other way than as a mere profit. Although McCulloch helped to clarify certain established doctrines, yet it ‘resulted in an indiscriminate mixture of ideas which shows a complete misunderstanding of Ricardo’s real problem………….. His statements on value are eclectic”.

Famous Economist # 7. Henry Charles Carey (1793-1879):

Henry Charles Carey was an American and son of a publisher. Carey did not possess much analytical faculty and his observation of facts was also weak. He wrote 13 volumes and 57 pamphlets. His Chief works are – Principles of Political Economy (1837-40).The Past, the Present and the Future (1848). The Harmony of Interests, Agricultural, Manufacturing and Commercial (1851), and Principles of Social Science (1857-60).

Philosophy:

Carey was an optimist. He witnessed an era of rapid expansion and vast opportunities. His optimism provided him with a belief in the absurdity of diminishing returns from agriculture and dangers of over population.

He believed that the future of man was bright and there was no danger of over population. God would guide man to limit the procreation within desired limits. Increasing population was accompanied by economic progress and with passage of time man’s control over nature increases and therefore, there is no reason to be pessimistic.

When additional lands are brought under cultivation, labour’s productivity increases and economy progresses. Carey believed in “Universal Law of Nature” and it eliminated the conflict of class interest. He also maintained that nature and human intellect would see to it that population does not increase beyond the desired limit.

Method:

Carey praised and condemned the deductive and mathematical methods. While giving regard to use and accuracy of facts, he relies on intuition. He also thought that the laws of social sciences and physical sciences are the same. Laws of social sciences are based upon mind and intelligence which are manifestations of matter governed by natural laws.

Value and Distribution:

Carey considered value as the centre of a system of Harmony. According to him, value is determined by the amount of labour required for the production or reproduction of a commodity. He regards value as a measure of nature’s power over man and believed that value is caused by the obstacles to production.

In his system, control of man over nature increases and so there is an ever decreasing resistance of nature to man’s efforts in creating values. As labour productivity increases cost of production falls. This is present both in agriculture and industry. Carey believed that labour alone is the cause of value and it depended upon the quantity and quality of labour.

Rent:

Carey’s views on rent are interesting. He first agreed with Ricardo that best lands are cultivated first. But later on, he rejected Ricardian theory of Rent and pointed out that man cultivated poor soils as they were clear and ready for cultivation.

With the increase in population, man started cultivating better and best lands. Carey identified land with capital. Farmer is like a capitalist. He did not agree with Ricardo that rent is paid for the original and indestructible powers of the soil. Carey’s criticism of Ricardian theory made the later economists explore the entire field and make the necessary correction in the Ricardian theory.

Carey’s doctrine spelt an inherent harmony between different classes. In Ricardian theory, rent increased at the cost of profit while wages remained stable. To Carey, the share of both increases though the relative share changes in favour of labour. Thus a new distribution is effected—the proportion to labour goes up and that of capital is relatively reduced.

Profits:

Carey considered profit as the return for the capitalist for the use of capital. He defined capital as the compensation for the use of capital-the accumulated labour of the past, while wages were obtained by present labour. It was the reward for time, attention, talent and sacrifice of convenience, comfort and health. Profit was paid for the use of things and wage was paid for the services of men.

Capital:

Carey defined capital as “all articles possessing exchange value”. He pointed out that capital was scarce and labour was unproductive. When investment increases, the share of labour diminishes. If the machine is perfect, the share of capitalist will be small. He believed that the condition of labour will be improving and the reward of the capitalist will increase in a diminishing ratio in the future progress of the society.

Quality of Labour:

Carey admitted that the quality of labour differed from country to country. He observed that the main cause of low wages in India was that workers did a small quantity of useful work. Capital should grow along with the growth of population. The efficiency of labourers will increase with an increase in the reward for labour.

Population:

Carey was not worried about increasing population because every addition to population brings both a consumer and a producer. When population increases, capital would increase, business and employment opportunities would be created. Carey criticised the two ratios, given by Malthus. He challenged the contention of Malthus that while man increases in geometrical progression, food supplies increase in an arithmetical progression.

He said that if the descendants of Adam and Eve had doubled in every 25 years, they would not have found a room for standing on earth. He believed that if population remained stagnant, misery and vice prevailed, while abundance and prosperity were accompanied by a rapid increase in population. Further, owing to the cultivation of land, animals are destroyed and the carbonic acid which is important for the growth of vegetables would be deficient.

Therefore, to furnish the necessary amount of carbonic acid, population should increase. Carey also puts forth that with the growth of civilisation, the rate of growth of population goes on declining. He has also argued that the increase in population means increase of wealth because greater the number of inhabitants, the greater the division of labour.

Carey has also objected the conclusions of Malthus that, when people wage war against one another, they waste their time, destroy capital and do not produce food grains; when population increases rapidly, food supply also increases rapidly.

People are miserable and poor not on account of large population but on account of their own misconduct and idleness. Thus Carey was oscillating between two extremes, sometimes discarding Malthusian doctrine and sometimes supporting it.

Taxes:

Carey divided taxes into four types:

Specific tax imposed on each individual; tax on capital, tax on commodities and income tax. He considered the specific tax to be unjust and unequal because a person with large wealth and another with small income were to pay the same amount. He considered income tax justifiable as tax is paid according to their income. He opposed the maintenance of large armies and colonies.

Protection:

Carey advocated protective tariff but believes generally in laissez-faire. A peculiar feature of Carey’s system was his combination of a doctrine of domestic laissez-faire with protectionism. Carey was a strong protectionist.

He began as a free trader but turned into a vigorous advocate of protection. Protection brings consumer and producer together. It leads to harmony of interests and the establishment of peace in society. His theory of protection was based on two considerations; first, the benefit of association, and second, returning to the soil whatever has been taken from it.

Carey was undoubtedly a great economist. He believed in associationism and man’s control over nature. His method of study was a mixture of deductive, inductive and statistical methods. He had criticised the law of diminishing returns and the principle of population, the two pillars of classicism. His optimism was of the extreme type and did not find much support.

His analysis lacked coherence and system and his ideas were full of inconsistencies. In the field of economic ideas, he has demonstrated a “restrictive emphasis upon theory” and it is this technical deficiency that has affected his reputation. In-spite of these defects, no doubt, he is an important figure in the development of economic doctrine.

Famous Economist # 8. Hermann:

Friedrich Bendikt Wilhelm von Hermann (1795-1868), commonly called the German Ricardo, was professor at the University of Munich and later served the Government in various capacities. He published numerous pamphlets on politics, economics and statistics. He did valuable work as a statistician. As an economist his chief title to fame is ‘Investigations in Political Economy’ (1832).

Hermann declared himself a follower of Adam Smith and quoted him liberally. But on certain issues he showed his disagreement with Smith and the Classicists. He did not believe in the identity of individual interest with general interest. Nor did he believe that the rent of land is different in nature from the return on other factors of production.

Like Rau and Say, he recognized the entrepreneur as a distinct factor in production and made a neat distinction between interest and profit. He rejected the Classical Wages Fund theory. For him the real demand for labour did not arise in the employer’s enterprise, but in the consumer’s demand.

Famous Economist # 9. Frederic Bastiat (1801-1850):

Frederic Bastiat, French economist and publicist, was attracted by the writings of J.B. Say and the Free Trade Movement of the Manchester School in his early years. He became an ardent liberal himself and spent his life and fortune in popularizing his ideas. Possessed of a brilliant journalistic style, his writings had popular appeal and he became the leader of the French anti-socialist group of economists. His main books are ‘Sophisms of Protection’ (1846) and Economic Harmony (1850).

Economic Ideas:

Bastiat was an optimist like Carey. According to him, pessimism was the great source of evil. The sombre prophecies of pessimisms have destroyed all belief in ‘natural’ laws and in the spontaneous organisation of society, and men had been driven to seek for better fortune in artificial organisation.

The main stress of Bastiat was on the natural harmony of economic interest. He was of the opinion that the principles of liberty and property endanger social harmony, and the free working of these two assures constant improvement of everything. He was a staunch advocate of free trade. To him the policy of protection was immoral as it allowed more profits to one manufacturer at the cost of others. He attacked both protection and socialism as they represented an unnatural organisation of human society.

(i) Theory of Value:

According to Bastiat, value is represented not by labour spent, but by labour saved (saved to the purchaser). It represented the labour saved into a valuable service. His was thus a labour theory of value, but put in a juxtaposed manner. To Bastiat “Service becomes the essence of value”. He considered the law of value as something basic and central to economic theory and was therefore much elated over his own discovery of this new conception of value.

He believed that he had discovered the final truth here and that all other theories of value were nothing but special cases of his theory. For example, a buyer would have to spend more labour if he wanted to get diamonds than water. The seller of diamonds, therefore, provides a greater service and diamonds fetch more value.

According to Bastiat, others were groping for the explanation of value in terms of utility, scarcity, cost of production, etc. Bastiat claimed that his “decision is favourable to every one of them, for they have all seen some aspect of the truth; error being on the other side of shield.”

Further, according to Bastiat, there are two kinds of utility; or rather he divides the total utility of the product into two layers:

(i) The first layer is that of gratuitous utility provided by nature, free of cost. No payment need be made for it in the market, and therefore, it does not carry any value;

(ii) The second layer is the ‘onerous’ utility resulting from toil and effort.

This must be paid for in the market and it is this which constitutes the market value of a good. It should be realized that Bastiat’s concept of value almost comes near ‘labour cost’ theory of value; but, his concept of ‘service’ in the value is not at all clear. The concept of service implies a benefit which need not be there.

Moreover, there are many values which are in the nature of ‘exactions’ and exploitation rather than in the nature of service. It would be difficult to account for capital appreciation in Bastiat’s framework of value. It will be equally difficult to see how land rent could be covered by his framework, if we look at the situation from the society’s point of view. The real difficulty in Bastiat’s theory of value is that the concept of ‘service’ is a fluid one.

(ii) Theory of Distribution:

Being an optimist, Bastiat criticised Ricardian Theory of distribution. Regarding rent, Bastiat held the view that it is only a payment made for the past services of the landlord such as reclaiming the land, constructing fences, drainage and fertilizing the soil, etc., and it is not a payment for the original and indestructible powers of the soil.

According to him, the rent of land would register a fall, as it was only a return for past services rendered, and with the passage of time, the services lost its value. Regarding wages, Bastiat was very optimistic. According to him, the wages increased continually because production became easier and easier and greater in amount.

Hence labour’s share was naturally greater. He believed that with the progress of industry, the gap between the workers and capitalists would become smaller and the workers would have a fair chance of becoming capitalists themselves.

Regarding interest, Bastiat held the view that it is a payment for postponement of consumption by capitalist. He believed that the rate of interest declined with a larger investment of capital. He contended that though the share of the capitalist declined relatively, he received a greater one absolutely, on account of the growth of capital.

His theory of distribution advocated complete absence of clash between the worker and the capitalist. The teachings of Ricardo and Malthus, according to him, implied antagonism of interests. Under the concept of laissez – faire and the region of liberty, there would be complete harmony of all legitimate interests.

(iii) Population:

Bastiat did not entirely agree with the opinion of Malthus on the problem of population. He criticised that Malthus had kept his attention largely on the dark side. Distinguishing between the physiological capacity of human being for reproduction and actual reproduction, he contended that man was endowed with foresight; hence, would halt the increasing trend of population.

Stating that population could not increase beyond limit, he observed, “If we put a thousand mice in a cage with only enough food to keep them alive from day to day, their number, despite their well-known fertility, could never exceed a thousand, or if it did, there would be privation and suffering both of which tend to decrease the number”.

Using the phrase “means of existence” for “means of subsistence”, Bastiat said that population tended to keep at the level of means of existence. Except for the differences in the terminologies used by Bastiat tinged with optimism, his idea on population is more or less similar to that of Malthus.

(iv) Free Trade and Lassiez-Faire:

Bastiat stood for ‘Free Trade’ and ‘Lassiez-faire’ doctrine. He believed that there was all-round harmony in nature’s scheme of things, in social laws and in the class interests of different members of the society. Moreover, he believed in the subordination of producer to consumer. According to him “Political Economy should be studied from the consumer’s standpoint”.

He preferred free trade to protection; though protection may be good from producer’s point of view, it should be discarded from the consumer’s point of view. His famous “The petition of the candle makers” is a satire against those producers who seek protection for their industries at the cost of consumers. The producers of these goods face an ‘unfair competition’ from sun’s light which is admitted free to houses through doors and windows. If its importation is checked the producers of candles and other products wound benefit.

The manufacturers of candles and other such articles petition to the Legislative Body as follows: “What we pray for is, that it may please you to pass a law ordering the shutting up of all windows, skylights, dormer-windows, outside and inside shutters, curtains, blinds, bull’s eyes – in a word, of all openings, holes, chinks, clefts, and fissures, by or through which the light of the sun is allowed to enter houses, to the prejudice of the meritorious of manufacturers with which we flatter ourselves we have accommodated our country….” Though this is humorous, it contains an element of truth.

In production, make your choice, but be logical, “for as long as you exclude, as you do, coal, iron, corn, foreign fabrics, in proportion as their price approximates to zero, what inconsistency would it be to admit the light of the sun, the price of which is already at zero during the entire day”.

Bastiat’s support for laissez – faire within the economy is also based upon his belief in harmony and need to give full freedom to exchange mechanism for the benefit of the customer. Government functions should be limited to the maintenance of order, security and justice and not interfere with the working of the economy.

(v) Evaluation:

Bastiat may be criticised on grounds of unrealistic nature of his analysis. He was fond of presenting his findings in the form of dogmatic truths. He has ignored the tactics to which producers and traders resort in their efforts to exploit the consumer. Market mechanism is not a perfect one. To say that value is determined by the “service” rendered by the seller to the purchaser is stating only a half-truth.

To assert that cost of production continuously falls even in agricultural production may at the most hold true when new lands are being colonised. There are several inconsistencies and gaps in his theories. He failed to make any serious influence on the French economy. His ideas were mostly shallow and showed complete disregard for the facts of contemporary industrial life.

The ideas propounded by Bastiat were similar to that of Carey and as such he was accused of plagiarism. No doubt, he was an excellent economic journalist; but he was no theorist. Several of his views and analysis started with a big bang; but ended with a whimper.

In the words of Schumpeter, Bastiat’s case “is simply the case of the bather who enjoys himself in the shallows and then goes beyond his depth and drowns”. His attack on protection and socialism presented his negative and destructive side. However, he was the first to give the law of solidarity a position of great honour in political economy which aims at the strengthening of social justice.