Was Bastiat a Forerunner of Menger and the Austrian School?

    

Carl Menger and Eugen Böhm-Bawerk, the preeminent economic theorists of the early Austrian school, were both dismissive of Bastiat's writings in economic theory. Menger harshly rejected Bastiat's theory of land rent for "the violence done to goods in general, and land in particular."[30] Summing up his scathing critique of Bastiat's theory of interest, Böhm-Bawerk concluded, "Bastiat's explanation reveals the fact that he has been misled into a number of incredibly gross errors."[31] Furthermore, both Menger and Böhm-Bawerk considered Bastiat's general value theory, to use Böhm-Bawerk's words, "quite erroneous."[32]

If we focus only on the details of value and price theory, then we may agree with Menger, Böhm-Bawerk, and later Austrians such as Mises[33] and Hayek[34] that Bastiat's theoretical endeavors did not amount to much. However, if we broaden our criteria to include the pre-analytic vision of the economic process, Bastiat's contributions are seen in a much different light.

Bastiat's brilliant insights into the overall operation of the economic process on the one hand and the evident flaws in his core value and price theory on the other make it a challenging task to fairly evaluate Bastiat as an economic theorist. In his fine essay reassessing Bastiat's theoretical treatise, Economic Harmonies, David Hart eases this task by clearly describing this contradiction. Bastiat, Hart points out, made significant advances beyond classical economics by formulating economics as a science of human action whose main focus is the nexus of voluntary exchanges, the ultimate end of which is the satisfaction of the wants of consumers. Although Bastiat completely reoriented economics away from a study of wealth and its producers to an investigation of human action, interpersonal exchange, and consumer sovereignty, Hart recognizes that Bastiat's value theory proper was shallow and defective and his price theory was missing in action. Thus the first volume of Harmonies does not even contain a chapter on price, jumping directly from a chapter on value to one on wealth.[35] In fact the word price appears less than 20 times in the first volume compared to more than 100 times each for the terms value and want-satisfaction.

In this comment I will indicate how some of Bastiat's ideas anticipated and indeed may have influenced Menger's pathbreaking theory of the economic process.

To begin with, Bastiat identified the subject of political economy as human beings and their actions in striving to satisfy their wants:

According to Bastiat, part of man's natural constitution is "constant concern ... to lessen the ratio of effort to result ... to do more with less," that is, to minimize the effort he expends in achieving a given satisfaction.[37] Given the tremendous diversity of human skills and natural resources, man therefore naturally grasps that he can spare himself effort in satisfying his wants by exchanging services with others.[38] By giving rise to and intensifying the division of labor, exchange becomes institutionalized as the great common means for mutually satisfying everyone's wants and desires. Thus economics becomes the science of exchange:

Having identified the subject of economics as man and defined its scope as the phenomena related to exchange, Bastiat addressed the question of why man the consumer deserves priority over man the producer. He argued that satisfactions "are the result of the whole mechanism" that causally links wants to means and means to the end achieved. He also points out that the French word consommation—which French economists took over to designate consumption—in its original etymology was synonymous with end or achievement" Given the connotation of materiality associated with consumption, Bastiat preferred to apply the term satisfaction to all wants and desires because it better expressed the goal of the economic process. As Bastiat wrote: "But satisfaction being the goal, the end of all efforts . . . [it is] the final consummation of economic phenomena. . . ."[40]

Bastiat brought the law of cause and effect to bear in describing the economic process. Human wants, efforts, and satisfactions, which Bastiat repeatedly identified as the essence of economic phenomena, are related as links in a causal chain. This causal process begins in the realm of the subjective and personal, proceeds through the objective external world, and terminates back in the subjective, personal realm.[41] Bastiat brilliantly summed up this process:

In sum Bastiat placed man and his actions in striving to satisfy his wants under exchange and division of labor at the center of economic theory. He utilized the law of cause and effect to clearly depict how the want-satisfaction process operates across and binds together the subjective and objective realms. Finally, Bastiat demonstrated that man qua consumer reigned supreme in the activation and consummation of the economic process.

In the remaining space I will briefly indicate how these three themes resound in Menger's reconstruction of economic theory.[43]

Echoing Bastiat, Menger affirmed that man and his wants are the primary focus of economic theory. Thus the following dictums appear in notes Menger wrote in preparing his Principles: "Man himself is the beginning and the end of every economy"; and "Our science is the theory of a human being's ability to deal with his wants."[44] Menger also appropriated Bastiat's oft-repeated aphorism "want, effort, satisfaction" and reformulated it as a triad of causally linked phenomena: "ends-means-realization/man-external-world-subsistence/wants-goods-satisfaction."[45]

Menger, like Bastiat, also viewed causality as an essential category of economic theory. In the opening sentences of his Principles, he wrote: "All things are subject to the law of cause and effect. This great principle knows no exception...."[46] Menger deployed this law to argue, as did Bastiat, that subjective states of want and satisfaction were links in the same causal chain that necessarily included objective states of the world:

Following Bastiat, Menger recognized that the middle link in the causal structure of economic relationships in practice involved exchange under the social division of labor.[48] He therefore defined economic theory catallactically as "the investigation of the causal connections between economic phenomena involving products and the corresponding agents of production" for the purpose of establishing a realistic and unified price theory which explains the exchanges and prices of all consumer goods and factors of production on the same principles.[49]

Finally, we note that Menger elaborated the middle term in his adaptation of Bastiat's causal chain, "wants, goods, satisfaction," into what he called "the causal connections between goods" or the "orders of goods." In doing so he identified the consumer as the motive force of all economic activity. Hence, "goods of the lowest order" are consumer goods which directly cause satisfaction of consumer wants. Factors of production on the other hand are "goods of higher order" having only "an indirect causal connection with human needs."[50] All production aims therefore at the transformation of goods of higher order into goods of the lowest order. Here it may be pertinent to mention Hayek's remark that Menger's "careful initial investigation of the causal relationship between human needs and the means for their satisfaction ... is typical of the particular attention which ... the Austrian School has always given to the technical structure of production."[51] This leads to interesting speculation concerning to what extent Bastiat inspired Austrian production structure analysis. While this may be straining a bit, there is compelling evidence that Bastiat's vision of the economic process contained essential elements of Menger's approach to economic theory. Whether this is just a coincidence or the result of Bastiat's influence on Menger is an important question for future research.

[30.] Carl Menger, Principles of Economics, trans. James Dingwall and Bert F. Hoselitz (Auburn, AL: Mises Institute 2007), p. 166.

[31.] Eugen von Böhm-Bawerk, Capital and Interest: Volume I, History and Critique of Interest Theories, trans. George D. Huncke and Hans F. Sennholz (South Holland IL: Libertarian Press 1959), p. 194.

[32.] Menger, p. 308; Böhm-Bawerk, p. 191.

[33.] Ludwig von Mises, Liberalism in the Classical Tradition, trans. Ralph Raico, 3d ed. (Irvington-on-Hudson, NY:Foundation for Economic Education, and San Francisco: Cobden Press), p. 197. "His teachings are obselete today" in Liberty Fund's edition, Ludwig von Mises, Liberalism: The Classical Tradition, trans. Ralph Raico, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005).<https://oll.libertyfund.org/titles/1463#Mises_0842_513>.

[34.] F. A. Hayek, Introduction in Frederic Bastiat, Selected Essays in Political Economy, ed. George B. de Huszar, trans. Seymour Cain (Irvington-on-Hudson, NY: Foundation for Economic Education, 1995), p. ix. <https://oll.libertyfund.org/titles/956#lf0181_head_003>.

[35.] Frederic Bastiat, Economic Harmonies, ed. George B. de Huszar, trans.W. Hayden Boyers (Irvington-on-Hudson, NY: Foundation for Economic Education, Inc., 1964). OLL online version: <https://oll.libertyfund.org/titles/79>.

[36.] Bastiat, Harmonies, pp. 25, 44, 54, 60.

[37.] Ibid., p. 332

[38.] Ibid., pp. 31, 67-72.

[39.] Ibid., pp. 31, 59-60.

[40.] Ibid., p. 57.

[41.] Ibid., pp. 26-32.

[42.] Ibid., pp. 101-02.

[43.] Menger, Principles.

[44.] Quoted in Kiichiro Yagi, "Menger's Grundsatze in the Making," History of Political Economy 25 (Winter 1993): 720-21.

[45.] Quoted in ibid., p. 704.

[46.] Menger, p. 51.

[47.] Ibid., pp. 51-52.

[48.] Ibid., pp. 226-85.

[49.] Ibid., p. 49.

[50.] Ibid., p. 56.

[51.] F.A. Hayek, "Carl Menger (1840-1921)," in The Fortunes of Liberalism: Essays on Austrian Economics and the Ideal of Freedom, vol. 4, The Collected Works of F.A. Hayek, Peter G. Klein, ed. (Chicago: University of Chicago Press, 1992), p. 70.