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Tuesday, August 13, 2013

The influence of Bastiat in Europe

Inspired by Bastiat's organizing and by his theories, free trade associations rapidly established themselves in various countries in Europe. Belgium formed a free trade association shortly after France, and the Belgian group stayed in constant correspondence with Bastiat and his Libre-Échange. Former minister Charles de Brouckère, burgomaster of Brussels, was president of the Belgian association. In Italy an association for free trade established the journal Contemporaneo in the Autumn of 1846, and printed a statement hailing the French free trade association. While the statement praised the Anti-Corn Law League, it also lauded the French association as more all-encompassing in its free-market position: ‘the British Association has declared war against only one of the evils in its own country [tariffs and the Corn laws], while the French Association has adopted a more general plan that encompasses the entire human race. It wishes to induce all nations to fraternize, and to invite everyone to the banquet of production and consumption.’

One of the prominent signers of the Italian statement was Professor Raffaele Busacca, a vigorous defender of free trade and a prolific writer on statistical, historical and theoretical subjects in economics.
A particularly important follower and admirer of Frédéric Bastiat was the man who became the unquestioned leader and dominant force in economic theory and policy in nineteenth century Italy. He was the Sicilian-born Francesco Ferrara (1810–1900), a stalwart advocate of laissez-faire, professor of political economy at the University of Turin, and the teacher and mentor of most Italian economists of the next generation. Ferrara also played an important political role in the unification of Italy and was at one time minister of finance of the new nation. In addition, Ferrara was an eminent historian of economic thought, to which he contributed the editorship of the first two series of the multi-volume translation, Biblioteca dell'Economista (Turin, 1850–69), and especially his two-volume Esame storico-critico di economisti e dottrine economiche (1889–92). For many years, Ferrara was professor at the University of Turin, and there trained many prominent Italian economists. In addition to Bastiat, upon whom he lavished 100 pages in his great Esame, Ferrara particularly hailed the works, of Say, Dunoyer and Chevalier.

Ferrara's theoretical contributions, like Bastiat's, have been systematically underweighted by harsh modern, anti-laissez-faire critics who, as in the case of Bastiat, find it difficult to believe that anyone who is ardently and consistently in favour of laissez-faire could possibly be an important scholar and economic theorist. Thus, Ferrara's ‘cost-of-reproduction’ theory of value, often dismissed as a clumsy rewrite of Ricardian ‘cost-of-production’, has recently been shown instead to be a partial anticipation of subjective, marginal utility theory.

For several decades Francesco Ferrara's exchange-oriented and laissez-faire economics held sway among Italian economists. In the 1870s, however, the interconnected statist trends of protectionism and of the German historical school, as well as outright socialism, began to infest Italian economics. Ferrara valiantly combated the new trends. A formal split occurred in 1874, when the younger statists, centred in Padua, formed the Association for the Development of Economic Studies, publishing a journal which soon become the Giornale degli Economisti. On the other hand, the Ferraristas, centred in Florence, formed the Adam Smith Society, and published the weekly L'Econotnista. While outnumbered, the Ferrara group produced some notable younger disciples, including Domenico Berardi, who published a critique of government intervention in 1882 and a book on money 30 years later; A. Bertolini, who wrote a critique of socialism in 1889; and Fontanelli, who wrote a critique of unions and strikes. In particular, we might mention Tulio Martello of Bologna, known as the last of the Ferraristas. With the characteristic half-sneer which he tended to reserve for ardent partisans of laissez-faire, Schumpeter wrote of Martello's challenging call for polymetallism as the path of complete monetary freedom in La Moneta (1883), that ‘the value of which is but slightly impaired by some liberalist vagaries on free coinage’.

While seemingly battling a rear-guard action against overwhelming odds, Ferrara and his school actually hung on long enough to turn the tide, by influencing the new ‘army of marginalist-liberalists’ led by Maffeo Pantaleoni. The group seized control of the dominant economic journal (the Giornale degli Economisti) in 1890, and was to remain dominant for years thereafter.

Sweden was a country heavily influenced by Bastiat, who became the major authority in Swedish economics and politics. A young Swede, Johan August Gripenstedt (d. 1874), met Bastiat on a trip to France, and was deeply influenced for the rest of his life by the French laissez-faire leader. Gripenstedt became the greatest of the economic liberals in Sweden during the 1860s and 1870s, as well as the most influential politician in Sweden. By 1870, Gripenstedt, almost single-handed, had managed to eliminate all import and export prohibitions in Sweden, to abolish all export duties, to reduce tariffs on manufactured goods, and to bring about free trade in agricultural products.

Shortly after Gripenstedt's death, his followers and disciples formed the Stockholm Economic Society in 1877, dedicated to the principles of Bastiat and Gripenstedt. Some of the leading members were: Johan Walter Arnberg, director of the Bank of Sweden, who warned of the dangers of socialism stemming from businessmen's demands for government subsidies; G.K. Hamilton, professor of economics at the University of Lund, so dedicated to Frédéric Bastiat that he named his son ‘Bastiat’ in 1865; A.O. Wallenberg, founder of the Stockholm Euskilda Bank; and Johan Henrik Palme, leading banker, dedicated to free trade.

Two prominent laissez-faire political leaders in the Economic Society should be mentioned. One was Axel Gustafsson Bennich, director-general of the customs, and right-hand man of Gripenstedt. Bennich was an indefatigable and joyous battler for free trade and laissez-faire throughout his long life. Another was the president of the Stockholm Economic Society, Carl Freidrich Waern, a Gothenburg merchant who became minister of finance and head of the board of trade. Waern resigned from the latter post because he refused to sign a law mandating protection of young timber in the forests, a measure he denounced as an egregious invasion of the rights of private property.

As was true of laissez-faire thinkers and activists in England and France, Swedish libertarians were split on what to do about banking. Central banker Johan Arnberg and economist Hans Forssell favoured the central Bank of Sweden as a means of abolishing all private bank notes, which they considered inflationary and pernicious. On the other hand, banker A.O. Wallenberg championed free banking.
By the mid-1880s, however, in Sweden as in the rest of Europe, statism began to make a successful comeback and gradually to become dominant. Protectionists began to infiltrate the Economic Society by the mid-1880s, and Sweden adopted a protective tariff system in 1888. In 1893, the symbol of protectionist triumph came with a protectionist being chosen president of the former central nucleus of free trade, the Stockholm Economic Society. During the 1880s, too, despite the bitter attacks of Forssell and other founding stalwarts, the society began to champion social welfare and other Kathedersozialist (‘socialism of the chair’) policies. In this way, Swedish economic theory and policy shifted, during the decade, from its original French laissez-faire orientation toward the German historical school and its ‘monarchical socialism’. This sharp change was greatly facilitated by German being made the dominant foreign language in the Swedish public schools in 1878.12
But even in Prussia, a free trade party was established during the late 1840s dedicated to Bastiat's principles. The Prussian free trade movement was led by John Prince Smith (1809–74), son of an English father and German mother, who corresponded frequently with Bastiat. In one letter Prince Smith wrote to Bastiat:

The friends to whom I have shown your book [Economic Harmonies] are enthusiastic about it. I promise you that it will be read eagerly by our best thinkers... We hope to establish a formal league among the democratic parties and the free traders... ‘Bring Bastiat here’, a leader of the democrats said to me, ‘and I promise to lead 10,000 men in a procession to celebrate his visit to our capital’.13

John Prince Smith was born in London in 1809, the son of a barrister. On the death of his father, he began working at the age of 13 for a London mercantile firm.14 Later he turned to journalism, travelling to his mother's country, and in 1831 became a teacher of English and French at a gymnasium in the port of Elbing in East Prussia. Learning economics in Germany, Prince Smith, by the 1830s, began writing articles on behalf of the free market, and vigorously defended seven professors who had been fired in 1837 from the University of Gottingen for protesting the despotic revocation of the liberal Hanoverian constitution. His ensuing difficulties with the Prussian educational administration led Prince Smith to leave his teaching post in 1840 and turn to full-time journalism.
Prince Smith not only came out generally for the free market, but also began a vigorous and consistent anti-war and anti-militarist stand, which brought him to advocate the elimination of the Prussian state's bulwark, the standing army, and its replacement by a far cheaper and popularly controlled citizens' militia.
In 1843, Prince Smith launched his lifelong crusade for freedom of trade, putting it in a historical and sociological context reminiscent of the writings of Comte and Dunoyer. Furthermore, Prince Smith made clear that for him ‘free trade’ meant not simply absence of international trade barriers but also an absolute free market at home, with the state confined only to police protection.15
In 1846, Prince Smith, joined by several associates, sent an address to Robert Peel, in which they congratulated the British prime minister for his outstanding achievement in repealing the Corn Laws. Peel's gracious and highly principled reply caused a sensation in Prussia, and Prince Smith was inspired by the response to found, in December of that year, the German Free Trade Union.16 The union, consisting of business leaders and scholars, held its first, organizing meeting the following March in the hall of the Berlin Stock Exchange. The great majority of the 200 attendees were businessmen.
For the rest of his life, John Prince Smith led the way in Germany in agitating for free markets and free trade. In 1860, he founded the Economic Society as the successor to the Free Trade Union. His home in Berlin (he had married the daughter of a wealthy Berlin banker) became a salon for liberal Prussian politicians, some of whom formed the Progressive Party. In 1858, Prince Smith helped found the annual congress of German economists, which was dedicated to laissez-faire until its final meeting in 1885. At the congress, Prince Smith delivered papers attacking usury laws, criticizing patents, and denouncing irredeemable paper money. In 1863, Prince Smith helped found and co-edited the Quarterly Journal for Economy, Politics, and Cultural History (Vierteljahrschrift für Volkwirtschaft, Politik, und Kulturgeschichte), along with the ultra-individualist Julius Faucher (1820–78), Prince Smith's closest collaborator. The Quarterly Journal soon became ‘the chief theoretical organ of classical liberalism in Germany’,17 and continued in existence for 30 years. Fluent in French, Prince Smith contributed to the French Journal des Économistes, and he also helped organize, and wrote for, a Concise Dictionary of Economics (Handwörter-buch der Volkwirtschaftslehre, 1866), modelled after the French laissez-faire Dictionnaire d'Économie Politique.
During the 1870s and 1880s, laissez-faire views in Prussia and Germany were swiftly replaced by the dominance of the German historical school, statism, and ‘socialism of the chair’. This radical change was greatly fostered by the political triumph of Bismarck and Prussian militarism over classical liberalism, and the union of the bulk of the German nation under the Prussian domination of ‘blood and iron’.
The high point of the European free trade movement came early, at a famous international congress of economists, organized by the Belgian free trade association at Brussels, from 16–18 September 1847. Inspired by the Anti-Corn Law League victory and the Bastiat movement, and by a triumphal 14 month-long European tour by Cobden in 1846–47, the congress met to decide the free trade question. Presided over by the Belgian de Brouckère, the congress consisted of 170 delegates from 12 countries, and included publicists, manufacturers, agriculturists, merchants and statesmen, as well as economists. While Bastiat was unable to attend, de Brouckère, in his opening address, hailed Bastiat as the ‘zealous apostle of our doctrines’. Particularly active at the congress was the French delegation, especially Louis Wolowski, Charles Dunoyer, Jérome-Adolphe Blanqui and Joseph Garnier; also active was John Prince Smith, head of the Prussian delegation. Other prominent attendees were Colonel Thomas Perronet Thompson, of the English parliament, and James Wilson, editor of The Economist.
While a small contingent of protectionists spoke at the congress, they were swamped by the free traders, who passed a resounding declaration for freedom of trade. Unfortunately, plans for further meetings of the congress were broken up by the Revolution of 1848, which delivered a grave setback to the movement for economic freedom in Europe, from which it took some years to recover. After a brief Indian Summer of the 1860s, the laissez-faire movement for free markets, free trade and international peace, began in the 1870s and 1880s to give way, tragically, to a Europe of protectionism, militarism, welfare states, compulsory cartels and warring international power blocs. Nationalist and statist economics, an industrial recrudescence of commercial mercantilism, began to dominate Europe.
Austrian Perspective on the History of Economic Thought (2 volume set)

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