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Wednesday, June 19, 2013


One of the striking examples of injustice in the historiography of economic thought is the treatment accorded to Turgot's brilliant analysis of capital and interest by the great founder of Austrian capital and interest theory, Eugen von Böhm-Bawerk. In the 1880s, Böhm-Bawerk set out, in the first volume of his Capital and Interest, to clear the path for his own theory of interest by studying and demolishing previous, competing theories. Unfortunately, instead of acknowledging Turgot as his forerunner in pioneering Austrian theory, Böhm-Bawerk brusquely dismissed the Frenchman as a mere physiocratic naive land-productivity (or ‘fructification’) theorist. This unfairness to Turgot is all the more heightened by recent information that Böhm–Bawerk, in his first evaluation of Turgot's theory of interest in a still unpublished seminar paper in 1876, reveals the enormous influence of Turgot's views on his later developed thought. Perhaps we must conclude that, in this case, as in other cases, Böhm-Bawerk's need to claim originality and to demolish all his predecessors took precedence over the requirements of truth and justice.

In the light of Böhm-Bawerk's mistreatment, it is heartwarming to see Schumpeter's appreciative summation of Turgot's great contributions to economics. Concentrating almost exclusively on Turgot's Reflections, Schumpeter declares that his theory of price formation is ‘almost faultless, and, barring explicit formulation of the marginal principle, within measurable distance of that of Böhm-Bawerk’. The theory of saving, investment and capital is ‘the first serious analysis of these matters’ and ‘proved almost unbelievably hardy. It is doubtful whether Alfred Marshall had advanced beyond it, certain that J.S. Mill had not. Böhm-Bawerk no doubt added a new branch to it, but substantially he subscribed to Turgot's propositions’. Turgot's interest theory is ‘not only by far the greatest performance... the eighteenth century produced but it clearly foreshadowed much of the best thought of the last decades of the nineteenth’. All in all,

It is not too much to say that analytic economics took a century to get where it could have got in twenty years after the publication of Turgot's treatise had its content been properly understood and absorbed by an alert profession.

Turgot's influence on later economic thought was severely limited, probably largely because his writings were unfairly discredited among later generations by his association with physiocracy, and by the pervasive myth that Adam Smith had founded economics. And those nineteenth century economists who did read Turgot failed to grasp the significance of his capital, interest and production theories. Though Adam Smith knew Turgot personally, and read the Reflections, the influence on Smith, whose conclusions, apart from a broadly laissez-faire approach, were so different, was apparently minimal. Ricardo, typically, was heedless and uncomprehending, simply admiring Turgot for his thankless political role as liberal reformer. James Mill had a similar reaction. Malthus admired Turgot's views on value, but the only substantial Turgotian influence in England was on the great champion of the subjective utility theory of value, Samuel Bailey. Although the influence on Bailey is patent, he unfortunately did not refer to Turgot in his work, so that the utility tradition in Britain could not rediscover its champion.

It is on the French, self-avowed Smithian, J.B. Say, that Turgot had the most influence, especially in the subjective utility theory of value, and to some extent in capital and interest theory. Say was the genuine heir of the French laissez-faire, proto-Austrian, eighteenth century tradition. Unfortunately, his citations of Turgot underplayed the influence, and his obeisances to Smith were highly exaggerated, both probably reflecting Say's characteristic post-French Revolutionary reluctance to identify himself closely with the pro-absolute monarchy, pro-agriculture physiocrats, with whom Turgot was unfortunately lumped in the eyes of most knowledgeable Frenchman. Hence the ritualistic turn toward Smith.

Austrian Perspective on the History of Economic Thought (2 volume set)

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