Jefferson's Economist

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In 1817 the Frenchman Destutt de Tracy (1754–1836) published his Treatise on the Will and Its Effects. Thomas Jefferson was so enthusiastic about Tracy’s book that he had it translated, then edited and revised the translation himself. He renamed it A Treatise on Political Economy.

Why was Jefferson so excited about the work? It contains a clear appreciation of the free society that would have excited anyone with Jefferson’s philosophical and political proclivities. Let’s have a look at some of what Tracy had to say.

We should first note that Tracy anticipated (though imperfectly) key insights of the Austrian school of economics, which would come into being a little more than half a century later at the University of Vienna under Carl Menger. The classical school of economics associated with Adam Smith’s The Wealth of Nations (1776) leaned on an objective theory of value; the value of goods was said to be determined by the amount of labor embodied in them. Exchange for Smith consists of the trading of equivalents (measured in labor time). But here’s Tracy, four decades later, stating something very close to the subjective utility theory of value that would mark the Austrian school’s revolutionary approach to economics:

In general we may say that whatever is capable of procuring any advantage, even a frivolous pleasure, is useful. . . . [T]he measure of the utility of a thing, real or supposed, is the vivacity with which it is generally desired. . . . Now, how are we to fix the degrees of a thing so inappreciable as the vivacity of our desires? We have, however, a very sure manner of arriving at it. It is to observe the sacrifices to which these desires determine us. . . . [A]n exchange is a transaction in which the two contracting parties both gain. Whenever I make an exchange freely, and without constraint, it is because I desire the thing I receive more than that I give; and, on the contrary, he with whom I bargain desires what I offer more than that which he renders me.

Thus, contra Smith, Tracy understood that people exchange unequal things on the basis of differing assessments of their utility, or usefulness.

And like a good proto-Austrian who understands that the future is uncertain, Tracy hastens to add:

In truth it is possible that, in an exchange, one of the contractors, or even both, may have been wrong to desire the bargain which they conclude. It is possible they may give a thing, which they will soon regret, for a thing which they will soon cease to value. It is possible, also, that one of the two may not have obtained for that which he sacrifices as much as he might have asked, so that he will suffer a relative loss while the other makes an exaggerated gain. But these are particular cases which do not belong to the nature of the transaction.

As a result of his insights, Tracy has a distinctive way of describing society:

Society is purely and solely a continual series of exchanges. It is never anything else, in any epoch of its duration, from its commencement the most unformed, to its greatest perfection. And this is the greatest eulogy we can give to it, for exchange is an admirable transaction, in which the two contracting parties always both gain; consequently society is an uninterrupted succession of advantages, unceasingly renewed for all its members. . . .

It is this innumerable crowd of small particular advantages, unceasingly arising, which composes the general good, and which produces at length the wonders of perfected society.

Those are some of the fundamentals of Tracy’s positive economics. From there he moves on to normative economics, or political economy. Given what he has said already, we should not be surprised that he embraces freedom and property: “[S]ociety should have for its basis, the free disposition of the faculties of the individual, and the guarantee of whatever he may acquire by their means; then every one exerts himself. One possesses himself of a field by cultivating it, another builds a house, a third invents some useful process, another manufactures, another transports; all make exchanges; the most skilful gain, the most economical amass.”

Tracy points out that land is a key source of income that in a free society competes with employers for labor, maximizing workers’ bargaining power by providing an alternative to wage employment.

[S]o long as society has not occupied all the space of which it may dispose, all still prosper with care; for those who have nothing but their hands, and who do not find a sufficiently advantageous employment for their labour, can go and possess themselves of some of those lands which have no owners, and derive from them a profit so much the more considerable, as they are not obliged to lease or buy them. Accordingly care is general in new and industrious nations. But when once all the country is filled, when there no longer remains a field, which belongs to nobody, it is then that pression begins. Then those who have nothing in advance, or who have too little, can do no otherwise than put themselves in the pay of those who have a sufficiency. They offer their labour every where, it falls in price.

Curiously, Tracy does not acknowledge that land may become unavailable not because of population density but because the government has seized it and given it to the nobles or cronies. In fact, this happened repeatedly in England. State-sponsored “land monopoly” and the exploitation it made possible were deep concerns of libertarians from the early nineteenth century into the twentieth century.

Tracy understood that through government intervention class conflict emerges, as owners of land and capital seek advantage over those who labor for them:

After the free disposition of his labour, the greatest interest of the poor man is that this labour should be dearly paid. Against this I hear violent outcries. All the superior classes of society—and in this view I even comprehend the smallest chief of a workshop—desire that the wages should be very low, in order that they may procure more labour for the same sum of money; and they desire it with so much fury, that when they can, and the laws permit them, they employ even violence to attain this end,—and they prefer the labour of slaves, or serfs, because it is still at a lower rate. These men do not fail to say, and persuade, that what they think is their interest, is the general interest; and that the low price of wages is absolutely necessary to the development of industry, to the extension of manufactures and commerce,—in a word, to the property of the state. [Emphasis added.]

Thus the State is implicated in class conflict, a theme that originated not with Marx but with early libertarians.

In future columns, I’ll examine Tracy’s views on government spending and borrowing.

UPDATE: Above I attributed to Adam Smith the view that “value was determined by the amount of labor needed to produce” goods. James Ahiakpor has alerted me to the fact that I misspoke. For Smith, labor is a measure of exchange value, not a determinant of individual use value. Ahiakpor has written about this matter here.