A History of Economic Doctrines / from the time of the physiocrats to the present day

by Charles Gide; Charles Rist

The extremely hypothetical character of the schemes now under consideration relieves us of the necessity of examining their organisation in any detail, although this question of the minutiæ is apparently one that strongly appeals to the creative instinct of these Utopians.

Of greater interest are the grounds on which they base their demand and the economic processes by means of which they hope to accomplish their aims. From this point of view the most interesting systems are those of Gossen and Walras. Gossen’s scheme is expounded in a curious volume entitled Entwickelung der Gesetze des menschlichen Verkehrs, and Walras’s is developed in a memorandum addressed by the author to the Vaudoise Society of Natural Sciences in 1880. Both works contain ideas from which the economist may learn a good deal, and both writers claim that the successful adoption of their schemes would enable the State to make an offer of free land to all citizens.

(a) Gossen’s book appeared in 1853.[1213] It is a curious coincidence that the French Bastiat, the American Carey, and the German Gossen should all be engaged in developing an optimistic thesis just about the same time. Of the three, Gossen’s was the most optimistic and by far the most scientific. He concurred in the judgment of the Physiocrats, who believed that the world was providentially subjected to the action of beneficent laws which men must know and obey if they are ever to become happy. Such, he thought, are the laws of enjoyment, or of utility or ophelimity, as we call them to-day. A person who merely follows his own interests finds that unconsciously, perhaps, he has been contributing to the happiness of the whole of society. Gossen gives a remarkably clear proof of the theory of maximum ophelimity, based upon a very ingenious analysis of wants. According to this theory, every individual who pursues the satisfaction of his own desires under a régime of free competition helps in the realisation of the maximum satisfaction by everybody concerned.

If it be true that each individual in pursuit of personal enjoyment unwittingly contributes to the well-being of the whole community, it is clear that everyone ought to be given the utmost possible freedom in the pursuit of his interests. But there are two great obstacles in the way of this. The first of these is want of capital, which Gossen thought could be obviated by creating a huge Government bank which would lend capital whenever required. The mechanism of the bank is described in considerable detail. The second obstacle is the existence of private property in land. If man is to develop all his faculties and to use them to their utmost extent in the production of wealth, he must be allowed to choose his work freely and to carry it on under the most advantageous circumstances possible. But private property hinders free choice. “Thanks to this one fact,” says Gossen, “the obstinacy of a single proprietor often hinders the best development of the land which belongs to him and prevents its utilisation in the fashion that would best meet the needs of production. The necessity for the compulsory purchase of land for industrial purposes, for the making of roads, railways, or for developing mines, affords an indication of the unsatisfactory condition of landholding as it exists at present.”[1214]

It is obviously necessary that the community’s right to the soil should again be restored to it, so that everyone might be free to demand and to obtain the use of as much of it as he required. Every industry could then choose that locality which seemed best fitted for it. The right of using the land might be disposed of by public auction and given to the bidder who offered the highest rent. There would thus be a kind of guarantee that the organisation of production at any one moment was being carried on in the most favourable fashion—relatively, that is to say, to the knowledge possessed by the community at that period.[1215]

(b) Walras’s position is not quite so frankly utilitarian as Gossen’s. It was the analysis of the respective rôles of the individual and the State, of which he gave an exposition in his lectures on La Théorie générale de la Société (1867), that inspired his reform. Following Henry George, he sought a reconciliation of individualism and socialism[1216]—a reconciliation which he variously speaks of under the terms “liberal socialism,” “synthetic socialism,” or simply “syntheticism.”[1217]

It was his opinion that no real opposition existed between the State and the individual, that the one is just the complement of the other. Taken separately, it has been well said that they are nothing better than abstractions; the only real man is the social man—man living in society. This man, as we know, has two kinds of interests—the one personal or individual, and as such opposed to the interests of other beings; the other social or collective, common both to himself and his fellows—and unless these are secured the existence of the race is immediately jeopardised. The two groups of interests are equally important, for they are both equally necessary for the life of the social being. The State and the individual are mere phases in the life of the same being, according as we think of him pursuing the collective interests which he has in common with his fellow-men or his more personal and individual interests. Each has its own sphere of activity definitely marked off from the other by the diverse nature of the respective tasks which they have to perform.

The duty of the State is to secure those general conditions of existence which are necessary for everybody alike. Upon the individual devolves the duty of determining his own personal position in society through perseverance in the exercise of his own capacity in any line of activity which he may himself choose. But if both of them, individual and State alike, are to perform their respective tasks efficiently, they must be supplied with all necessary resources. To the individual should accrue the wealth which results from labour and saving, to the State the revenue which results from general social progress—i.e. the rent of land. Provided for in the manner indicated, there would be no necessity for taking away from the individual a portion of the fruit of his labour by means of taxation. Collective ownership of land and rent, private ownership of capital and labour, together with their incomes—such is the social organisation which Walras thought would solve the problem of distribution: equal conditions, coupled with unequal situations.[1218]

The reforms of Gossen and Walras, starting from a different angle as they do, depend for their realisation upon conditions that are exactly identical. Both of them evince the most scrupulous respect for the prescriptive rights of the present owners; and both agree that the State has no more right to appropriate future rents[1219] upon which these owners rely, in the manner suggested by John Stuart Mill, than it has to confiscate present rents, as Henry George proposed. The only way in which reform can be fairly carried out is to buy back the land, including in the purchase price any surplus values upon which the present proprietors have set their hopes. The most expedient way, perhaps, would be to issue bonds and to offer these to the proprietors in exchange for the land. The rents, which would still be received by the State—for there is no prospect of cessation of growth—would be employed partly in paying interest on the debt and partly in redeeming it; so that at the end of a certain period, say fifty years, the State would have paid back all the capital and it alone would henceforth draw the rents.[1220]

It would have been unnecessary to add anything to the exposition as given by Walras but for the objection which he himself raised to it, and which led him to give a very interesting account of his belief in the permanence of rent.