Elements of Pure Economics

Léon Walras

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781134560028
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Elements of Pure Economics was one of the most influential works in the history of economics, and the single most important contribution to the marginal revolution. Walras' theory of general equilibrium remains one of the cornerstones of economic theory more than 100 years after it was first published.

PART 1

Object and Divisions of Political and Social Economy

Lesson 1

DEFINITIONS OF POLITICAL ECONOMY ADAM SMITH; J. B. SAY

1. In beginning a course or treatise on political economy, the first step is to define the science, setting forth its object, divisions, nature and scope. I have no thought of evading this obligation; but I must point out that it takes longer and is more difficult to fulfil than one might suppose. A satisfactory definition of political economy is still wanting. Of all the definitions proposed thus far, not one has met with the general and final assent which is the mark of established scientific truths. I shall quote and criticize the most significant of these definitions, and I shall endeavour to present my own. In performing this task, I shall find occasion to bring in certain names, titles of books and dates that should be known.

2. Quesnay and his disciples form the first important group of economists. Having a common doctrine they constitute a school. They themselves call their doctrine Physiocracy, that is to say, the natural government of society; and for this reason they are known today as Physiocrats. Besides Quesnay, who wrote the Tableau économique (1758), the principal Physiocrats are Mercier de la Rivière, author of L’ordre naturel et essentiel des sociétés politiques (1767), Dupont de Nemours, author of Physiocratie ou constitution naturelle du gouvernement le plus avantageux au genre humain (1767–1768), the Abbé Baudeau, and Le Trosne. Turgot belongs to a separate category. It is evident from the titles of their books that the Physiocrats enlarged instead of narrowing the scope of the science. The theory of the natural government of society is not so much political economy as it is social science. Thus the term Physiocracy implies too wide a definition.

3. Adam Smith in his Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776, made the first attempt to organize the subject matter of political economy as a distinct branch of study, and he did this with remarkable success. It was not, however, until he came to the introduction to Book IV of the Wealth of Nations, where he treats “Of Systems of Political Economy”, that it occurred to him to frame a definition of the science. And this is the definition he gives there:

Political economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign.^[1]

This definition, coming from the reputed “father of political economy”, deserves careful consideration, especially since he set it down not at the beginning but well on towards the middle of his Inquiry, when he had presumably acquired a complete grasp of his subject. There are two important observations that I should like to make in this connection.

4. To provide a plentiful revenue for the people and to supply the State with a sufficient income are incontestably most worthy aims. If political economy helps to achieve this double purpose, it renders a signal service. But it seems to me that this is not, strictly speaking, the object of a science. Indeed the distinguishing characteristic of a science is the complete indifference to consequences, good or bad, with which it carries on the pursuit of pure truth. Thus when the geometer states that an equilateral triangle is at the same time equiangular and when the astronomer states that the planets move in an elliptical orbit at one of the foci of which is the sun, they are making statements which are scientific in the strict sense of the term. It is possible that the first of these two truths, like all the other truths of geometry, may yield results of inestimable value to carpentry, stone cutting, and to every type of architecture or construction; it is possible that the second and the whole body of astronomical truths may be of the greatest service to navigation; still neither the carpenter, nor the mason, nor the architect, nor the navigator, nor even those who work out the theories of carpentry, stone cutting, architecture, or navigation are scientists or creators of science strictly speaking. Now the two lines of action of which Adam Smith speaks are analogous, not to those of the geometer and the astronomer, but to those of the architect and the navigator. Thus if political economy were simply what Adam Smith said it was, and nothing else, it would certainly be a very interesting subject, but it would not be a science in the narrow sense of the term. It must be pointed out that political economy is not quite what Adam Smith thought. The primary concern of the economist is not to provide a plentiful revenue for the people or to supply the State with an adequate income, but to pursue and master purely scientific truths. That is precisely what economists do when they assert, for example, that the value of a thing tends to increase as the quantity demanded increases or as the quantity supplied decreases, and that this value tends to diminish under contrary conditions; that the rate of interest declines in a progressive economy; that a tax levied on ground rent falls exclusively on the land-owner without affecting the prices of the products of the land. In making statements such as these, economists are working in a pure science. Adam Smith did something of this sort himself. His disciples, Malthus and Ricardo, did more—the former in his Essay on the Principles of Population (1798) and the latter in his Principles of Political Economy and Taxation (1817). Hence Adam Smith’s definition is incomplete, because it fails to mention the aim of political economy considered as a science strictly speaking. Indeed, to say that the object of political economy is to provide a plentiful revenue and to supply the State with an adequate income is like saying that the object of geometry is to build strong houses and that the aim of astronomy is to navigate the high seas in safety. This, in short, is to define a science in terms of its applications.

5. My first observation on Adam Smith’s definition had to do with the object of the science. Now I have another, no less important observation to make concerning the nature of the science.

To provide an income for the people and to supply the State with a sufficient revenue are two operations of equal importance and delicacy, but very distinct in character. The first operation consists in placing agriculture, industry and trade in such and such determinate conditions. According as these conditions are favourable or unfavourable, the agricultural, industrial and commercial output will be abundant or scanty. It has been observed, for example, that in times gone by, industry languished and stagnated under a system of guilds, trade regulations and price fixing. It is evident today that under the opposite system of freedom of enterprise and freedom of trade, industry grows and prospers. Say what we will about the shortcomings of the earlier situation and the merits of the present order, our judgement is founded solely on considerations of material advantage; justice does not come in question one way or the other. The problem of supplying the State with sufficient revenue is an entirely different matter. In fact, this operation consists in deducting from individual incomes the amounts necessary to make up the community income. This takes place under good or bad conditions. The character of these conditions is determined not only by the sufficiency or insufficiency of the State’s revenue, but also by the fairness or unfairness with which individuals are treated. They are treated fairly if each contributes his proportional share, and unfairly if some are sacrificed while others are given special privileges. Thus in the past some classes were exempt from taxation, while certain other classes bore the entire burden. Today such a system is considered flagrantly unjust. Thus the aim in procuring a plentiful revenue for the people is practical expediency, whereas in supplying the State with a sufficient revenue the aim is equity. Practical expediency and fairness, or material well-being and justice, are two very different orders of consideration.^[2] Adam Smith ought to have stressed this difference by saying, for example, that the aim of political economy is to set forth first the conditions for the production of a plentiful social income and second the conditions for an equitable division of this income between individuals and the State. Such a definition would have been an improvement, but it would still pass by the really scientific aspect of political economy.^[a]

6. Jean Baptiste Say, the most illustrious of the immediate successors of Adam Smith, said of his predecessor’s definition, “I prefer to say that the aim of political economy is to show the ways in which wealth is produced, distributed and consumed.”^[3] Say’s work, the first edition of which appeared in 1803 while the second, banned by Consular censorship, was not published until after the fall of the First Empire, is entitled Traité d’économie politique, ou simple exposition de la manière dont se forment, se distribuent et se consomment les richesses.^[4] This definition and the time-honoured divisions of the subject which it sets up have been widely approved and generally adopted by economists. They may be regarded as classic. I venture, however, to reject them for the very reasons that have contributed to their success.

7. It is evident at a glance that J. B. Say’s definition is not only different from Adam Smith’s, but, from a certain point of view, is its exact opposite. According to Adam Smith’s view, the whole of political economy is an art rather than a science (§4); while, according to Say, it is entirely a natural science. From Say’s definition it would seem that the production, distribution, and consumption of wealth take place, if not spontaneously, at least in a manner somehow independent of the will of man, and as though political economy consisted entirely of a simple exposition of this manner of production, distribution and consumption.

What has proved so pleasing and at the same time so misleading to economists in this definition is precisely its characterization of the whole of political economy as a natural science pure and simple. Such a point of view was particularly useful to them in their controversy with the socialists. Every proposal to reorganize production, every proposal to redistribute property was rejected a priori and practically without discussion, not on the grounds that such plans were contrary to economic well-being or to social justice, but simply because they were artificial arrangements designed to replace what was natural. Moreover, this naturalistic viewpoint had been taken over from the Physiocrats by J. B. Say and was inspired by the formula, laissez-faire, laissez-passer, which summarizes the Physiocratic doctrine relating to industry and trade. Such an attitude led Proudhon to hurl the epithet fatalistic at this school of economists. To appreciate fully the incredible lengths to which they carried their conclusions, one should read certain articles in the Dictionnaire de l’économie politique, such as those of Charles Coquelin on “Concurrence”, “Economie politique” and “Industrie” or André Cochut’s article on “Morale”.^[5] There are very revealing passages in these articles.

Unfortunately, convenient as this point of view is, it is mistaken. If men were nothing more than a superior species of animal, like bees that live and work together instinctively, then, to be sure, the description and explanation of social phenomena in general and of the production, distribution and consumption of wealth in particular would be a natural science. Indeed, it would be a branch of natural history, viz. the natural history of man, a sequel to the natural history of bees. But this is not the case at all. Man is a creature endowed with reason and freedom, and possessed of a capacity for initiative and progress. In the production and distribution of wealth, and generally in all matters pertaining to social organization, man has the choice between better and worse and tends more and more to choose the better part. Thus man has progressed from a system of guilds, trade regulations and price fixing to a system of freedom of industry and trade, i.e. to a system of laisser-faire, laisser-passer; he has progressed from slavery to serfdom and from serfdom to the wage system. The superiority of the later forms of organization over the earlier forms lies not in their greater naturalness (both old and new are artificial, the newer forms more so than the old, since they came into existence only by supplanting the old); but rather in their closer conformity with material well-being and justice. The proof of such conformity is the only justification for adhering to a policy of laisser-faire, laisser-passer. Moreover, socialistic forms of organization should be rejected if it can indeed be shown that they are inconsistent with material well-being and justice.

8. J. B. Say’s definition is therefore inaccurate and inferior to Adam Smith’s which was only incomplete. I contend, furthermore, that the divisions of the subject that follow from Say’s definition are purely empirical. Though the theory of property and the theory of taxation are simply two aspects of one and the same theory of the distribution of wealth in human society, the first representing this society as composed of separate individuals and the second representing it as a collectivity in the shape of the State, and though both the theory of property and the theory of taxation are so intimately dependent on ethical principles, yet Say separates the two, throwing the theory of property in with the theory of production, and the theory of taxation in with the theory of consumption, treating both from an exclusively economic point of view. On the other hand, the theory of value in exchange, which bears so clearly the mark of a natural science, is included by Say in his theory of distribution. Say’s disciples, it is true, have taken his arbitrary categories none too seriously, and with no less arbitrariness some classify the theory of value in exchange under the theory of production while others classify the theory of property under the theory of distribution. This is the sort of political economy which is being fashioned and taught today. Is that not reason enough to hold that the structure is cracked and the façade deceptive and that in such a case it is the right and the primary duty of the economist carefully to formulate a philosophy of his science?

9. Even though some of Say’s students dimly perceived the defectiveness of his definition, they did nothing to remedy it.

Adolphe Blanqui has written:

In Germany and France economists have gone furthest outside the true field which today is generally assigned to political economy. Some have attempted to make it a universal science; others have tried to confine it to narrow, trivial limits. The present conflict in France between these two opposite schools turns upon the question whether political economy should be considered as an explanation of what is or as a programme of what ought to be. In other words, is political economy a natural science or a moral science? In our...