Henry Dunning Macleod (1821–1902) was an exuberant and prolific Scottish maverick who, in the teeth of the Millian monolith dominating Britain after 1848, never received his due from British economists or British academics.38 Macleod was born in Edinburgh, the son of a Scottish landowner, and studied mathematics at Trinity College, Cambridge, graduating in 1843. He became an attorney and was admitted to the bar six years later. Two years afterward, Macleod wrote a report on the administration of poor-relief in several Scottish parishes, and went on to establish the first poor-law union in Scotland. In 1854, Macleod was made a director of the Royal British Bank, and this immediately sparked a lifelong fascination with economics, and specifically with matters of money and banking.
Macleod wrote prolifically on monetary matters, his Theory and Practice of Banking (1855) becoming influential and going through five editions. Macleod took a firm gold standard and free banking position, unfortunately adopting also the banking school apologia for inflationary, fractional-reserve banking. Macleod was the one who introduced the term ‘Gresham's law’ into economics, and also contributed an important analysis of the ways in which fractional-reserve bank credit operates, in particular how bank loans create deposits, which then function on the market as money substitutes in the same way as bank notes.
If Macleod had confined his economic work to money and banking, he might have earned considerable respect among British economists; although he differed from the mainstream in favouring free banking, his pro-gold standard and anti-bimetallist views, as well as his banking school orientation, were close enough to the reigning orthodoxy to bring him the acclaim he deserved.39 But Macleod ran into a wall of opposition in Britain because he stood squarely against the British Smith-Ricardo-Mill labour theory of value and material concept of wealth. As a result, Macleod's dream of becoming a professor never materialized.
Inspired by Archbishop Whately, Macleod went back to the late eighteenth century and discovered the Abbé de Condillac, whom he exuberantly declared to have been the true founder of economics, in contrast to the labour theory and materialist doctrine of Adam Smith. Enthusiastically adopting the Whately concept of ‘catallactics’ as the genuine method of economics, Macleod argued that Condillac, with his focus on economics as the science of exchanges, rather than ‘wealth’, was the founder of the catallactic approach. Condillac, noted Macleod, like the Italian economists of the eighteenth century, ‘places the origin and source of value in the human mind, and not in labour, which is the ruin of English Economics’. Furthermore, Macleod asserted, Condillac was correct that exchange value stems from value conferred upon goods by consumers, so that value and demand derive solely from mental desires by consumers. Contrary to Smith and Ricardo who believed that the labour of producers confers value on products, ‘Value does not spring from the labour of the producer, but from the desire of the consumer’.40
Since value stems from subjective valuation by consumers, it follows, declared Macleod, that men engage in exchange precisely because each man values what he gains more than what he gives up, else he would not have embarked on the exchange. Hence, echoing scholastic and continental theorists from Jean Buridan onwards, both parties to any exchange must gain in value. Macleod went on, in the proto-Austrian spirit, to declare that anticipated market prices determine costs that will be incurred in production rather than the other way round:
It is indisputably true that things are not valuable because they are produced at great expense, but people spend much money in producing because they expect that others will give a great price to obtain them... Buyers do not give high prices because sellers have spent much money in producing, but sellers spend much money in producing because they hope to find buyers who will give more.41
As if Henry D. Macleod did not give enough offence to mainstream nineteenth and twentieth century economics, he capped his crimes by hailing the great libertarian and catallactician Frédéric Bastiat, whom he saluted as ‘the brightest genius who ever adorned the science of Economics’. Bastiat, Macleod declared, ‘plucked up by the roots the noxious fallacies which are the Economics of Adam Smith and Ricardo... He simply cleared away the stupendous chaos and confusion and mass of contradictions of Adam Smith...’42
In his revolutionary work of 1871 which brought marginalism and at least a semi-Austrian position to England, W. Stanley Jevons issued a cry from the heart against the ‘noxious influence’ of the stifling authority of John Stuart Mill over economics in England. Ever eager to find and rediscover neglected forerunners, Jevons hailed Bastiat and Macleod as well as Senior, Cairnes and others. Unfortunately, as is evidenced by his treatment at the hands of the New Palgrave, Macleod's reputation clearly needs to be resuscitated once again.