Observations on Bastiat’s Theory of Value

     

For many years I have been a great admirer of Frédéric Bastiat. I have also become an admirer of David Hart and should like to express my gratitude here publicly. Indeed, Dr. Hart deserves recognition for dedicating many years to studying the life and work of Frédéric Bastiat, and the scholarship he has produced is worthy of great praise. Through this research, Dr. Hart has turned himself into today's foremost expert on Bastiat and mid-19thcentury French political economy.[52] Bastiat's Collected Works have become a monument of scholarship, worthy of the great Frenchman and of his ideas. The initiator of this project, the late Jacques de Guenin, who dedicated his retirement years to promoting Bastiat's legacy in France and in the world, can rest in peace.

Turning now to my subject, I should state from the outset that I have long considered Bastiat to be an eminent theoretician. Eighteen years ago, on the occasion of his 200th birthday, I made this case on the pages of the Quarterly Journal of Austrian Economics, stressing four of his major contributions.[53] First, Bastiat rightly placed more emphasis on the distinction "harmonious vs. antagonistic social relations" than on the later-fashionable distinction "equilibrium vs. disequilibrium." Second, he understood that the concepts property and appropriation are fundamental for economic analysis, whereas the concepts value, utility, and price are derived. In other words, property and appropriation are not only political but also analytical categories. Third, Bastiat pioneered a value theory which, despite all its flaws and imprecisions, excelled in two respects: it was a praxeological value theory, and it was complemented by a theory of gratuitous economic goods. Fourth, Bastiat was the very first author who, however dimly, understood that the conclusions of political economy relied on a special class of causal relations, namely, counterfactual laws. Each human action entails consequences which not only "are seen" but which are also bound up with counterfactual consequences that "are not seen." In his words:

Today I am more convinced than ever that Bastiat's theoretical contributions stand out and deserve utmost attention from present-day economists. In what follows, I will follow up on my 2001 piece by commenting in some more detail on Bastiat's theory of value before concluding with a few comments on David Hart's lead article.

Bastiat famously argued that each and every instance of market exchange is an exchange of human services, and he defined value as the exchange ratio between human services rendered. Many critics have pointed out that this thesis suffered from ambiguity in the meaning of services and from a complete lack of any element of marginal value.[54] These shortcomings are real. However, they seem to have drawn the readers' attention away from the main point – from the elephant in the room, so to say – which is that value is ontologically bound up with exchange.

This is a dramatic departure from the value-theoretical conceptions of Adam Smith and the classical economists. In their eyes, value was a quality of economic goods that the latter obtained as a consequence of production. We can neglect here the differences between the conceptions of Smith, Say, Ricardo, and Marx. It does not matter whether labor was the only cause of the value in economic goods or whether other cost factors played a role as well. The salient point is that their value did not spring from choice and exchange but from costs of production. Goods could have value even if they were never exchanged. From that point of view, market exchanges were "based on" the values resulting from production. Market-exchange ratios were some sort of mutual recognition of the values that were being traded, but these values existed independently of the decisions of the market participants to actually perform an exchange.

Bastiat's conception was very different. In his eyes the value of a good is not a quality or substance inherent in that good but a relation of that good with other goods, a relation that comes into being through – and only through – market exchange. Value does not only come to be expressed through market exchanges. It is existentially bound up with the latter. It comes into being only through market exchanges.

Bastiat seems to have been the first proponent of an exchange theory of value. Intriguingly, his revision of classical value theory foreshadowed Ludwig von Mises's revision of Menger's theory of subjective value, which led Mises to espouse what could be called a "choice-based" theory of subjective value, very much in analogy with Bastiat's contribution in 1850.

Menger (2007 [1871], 115) had defined the subjective value of an economic good as the "significance," or "importance," that such a good has for an acting person because of its scarcity. But what was the meaning of these terms? Which were the causes of scarcity? What caused the different degrees of subjective value? Forty years later Mises clarified Menger's definition by pointing out that subjective-value judgments are existentially tied to human choices. In his words:

Even though Mises and Bastiat did not talk about the same phenomenon – the word value had a very different meaning in each theorist's  conception – the analogy between their contributions is striking. Both authors define value as resulting from human choices. Mises focused on choice in general and thus on subjective value. Bastiat focused on the specific case of the choice to exchange and thus market-exchange ratios. But in both cases, value is caused by choice and not merely acknowledged by the decision-makers.

The social and political consequences of these seemingly innocuous theoretical niceties are tremendous, as Mises would show in the context of the socialist-calculation debate and in opposing the chartalist (state-orign) approach in monetary theory. Bastiat did not have the time to think through all the implications of his exchange theory of value. He died an early death, exhausted from six years of relentless writing and public speaking, leaving his magnum opus incomplete. But he had devised highly original conceptions, most notably in value theory, which anticipated later developments in economics. It is true that Bastiat's achievements still have yet to make it into today's mainstream historiography of economic thought, but this is a problem for the latter, not for Bastiat.

In conclusion, let me offer a few thoughts on Dr. Hart's lead article. I happen to agree with most of his points and disagree mainly with his assessment of Bastiat's value theory, a criticism which in my eyes is too negative and which prompted me to focus on this area in my present communication. I also do not agree with Dr. Hart on a couple of secondary points. For example, I do not think that Bastiat's use of Crusoe economics and of ceteris paribus conditions is original. Robinson Crusoe had inspired the classical economists (and Marx criticized Ricardo for it, see Tabb 1999, 26-30, and footnote 12 on 209), and the earliest use of the ceteris paribus conditional that I am aware of is in St. Thomas Aquinas's Summa contra gentiles. (Dr. Hart has written a brilliant little note on the history of the ceteris paribus conditional.)

Similarly, I do not think it is warranted to ascribe to Bastiat the view that "society is just [my emphasis] a set of interlocking exchanges." Finally, even if Bastiat held the notion that one state intervention tends to lead to further state interventions, this would not have been an original conception, since this view was already clearly expressed and explained in Condillac's Commerce and Government.

[52.]   In the French language, the best presentation of 19th-century French liberalism and political economy is in Philippe Nemo and Jean Petitot, 2006, second part, pp. 205-553, especially chapter 10 (authored by the late Michel Leter) on the School of Paris.

[53.]   See Hülsmann 2001. At the time, three other authors made the same case, though not with quite the same arguments: Gérard Bramoullé 2001, Georges Lane 2001, and Mark Thornton 2001. Hülsmann 2008 was written about the same time but published only much later.

[54.]   Bastiat's value theory is also often criticised for postulating an equality of value of the services that are exchanged. I do not think this criticism is warranted, see Hülsmann 2001, 61, footnote 7.

[55.]   Mises 1981 [1924], 51f. For discussions of Mises's contribution to the theory of subjective value and of the central place of that theory in his social philosophy, see Hülsmann 2003, 2007, 2012.