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Molinari’s 12th Evening

Gustave de Molinari, Les Soirées de la rue Saint-Lazare: entretiens sur les lois économiques et défense de la propriété (Evenings on Saint Lazarus Street: Discussions on Economic Laws and the Defence of Property) (1849)

[A Draft of Liberty Fund's new translation]
[May 17, 2012]

[12th and Last Evening]

[SUMMARY: Rent. – Its nature and its origin. – Resumé and conclusion.]

Molinari_1849LesSoireesRSL-TP300.jpg MolinariObitB-300
Title Page of the original 1849 edition
The photo of Molinari (1819-1912) which accompanied his obituary in the Journal des économistes

Introduction

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  • ToC of Les Soirés

Molinari's book Les Soirées de la rue Saint-Lazare; entretiens sur les lois économiques et défense de la propriété. (Paris: Guillaumin, 1849) is being translated by Liberty Fund. The translation was done by Dennis O'Keeffe and it is being edited by David M. Hart. The critical apparatus of foontnotes and glossary entries, and introduction are being provided by David Hart. We welcome feedback from Molinari scholars to ensure that this edition will a great one and thus befitting Molinari in his centennial year.

This page has a detailed Table of Contents and links to other Chapters.

 

The Twelfth and Last Evening

[p. 336]

SUMMARY: Rent. – Its nature and its origin. – Resumé and conclusion.

THE ECONOMIST.

Our discussions are drawing to a close. Do you want me to give you a resumé of our work, as they say in the National Assembly?

THE SOCIALIST.

I have a clarification to ask of you before that.[417]

You have told us that the costs of production of anything are made up of the labor bill and the interests on capital; you added that the market price of things tends naturally and irresistibly to an equilibrium with their costs of production. You have not, however, said a word about rent.

THE ECONOMIST.

Rent does not play any part in the production costs of things.

THE SOCIALIST.

What are you saying? Do you deny that thousands of individuals exist, not on interest payments or wages, but on a rent?

THE ECONOMIST.

I will not deny it.

[p. 339]

THE SOCIALIST.

So where does that rent reside if not in the price of things? If the smallholder paid no rent to his proprietor, would he not be able to sell his corn cheaper? When he produces wheat, is he not bound to include the rent in his costs of production?

THE ECONOMIST.

He does not sell his wheat at a higher price because he pays a rent; he pays a rent because he sells his wheat at a higher price. Rent does not act as a cause in the formation of prices; it is only a result.

THE SOCIALIST.

Cause or result, is it any the less a fact, any the less iniquitous? What! There we have a man who possesses, by way of inheritance, a huge expanse of land on which neither he nor his people have expended any labor. This land belongs to him because it once fell into the hands of one of his ancestors, the chief of one of the barbarian hordes which invaded and devastated the country. Since that time the lord of this land has obliged the peasant to hand over a third or a half of the fruits of his hard labor, by way of rent. Thousands of men have lived and still live by extracting this payment from the labor of their peers. Is this just?

Should not governments put an end to this monstrous abuse, either by seizing the land in order to restore it to the workers, or by imposing on the proprietors obligations which absorb the value of the rent? All incomes have their origin in labor, saving only this one. Is it not time that this exception was stopped? Did not J.-B. Say, himself, agree that the [p. 340] income derived from rent was the least respectable of all?[418] Give me what you take in rent and I will allow you to keep your property.

THE ECONOMIST.

Grant me property and I will guarantee you that the rent will vanish of its own accord.

THE SOCIALIST.

Rent vanish on its own? That would be curious!

THE ECONOMIST.

Rent is not, as you seem to believe, the fruit of property. Rent is on the contrary, the product of various attacks made on property, since societies began.

In his researches on the origin of rent, Ricardo[419] recognised that it was not part of the costs of production.[420] This means that if products never sell at a price higher than their costs of production, above the quantity of labor they have required, there would be no rent.

If rent is not part of the costs of production, what is it then?

It is the difference which exists between the market price of things (the price at which they sell) and their production costs.

THE SOCIALIST.

What does it matter, I repeat, that rent is not reckoned in the costs of production, if it is counted in the market price and therefore paid?

THE ECONOMIST.

This matters enormously. The costs of production, [p. 341] being made up of the labor necessary for the production of a product, cannot help but be part of the price paid. Whatever exceeds the costs of production, on the contrary, cannot be part of of the price paid.

THE SOCIALIST.

I am beginning to understand.

THE CONSERVATIVE.

And I think I have understood all too well.

THE ECONOMIST.

Do not worry. If rent is not included in the costs of production, the implication is:

1. That it (rent) represents no work completed nor any compensation for losses undergone or to be undergone.

2. That it is the result of artificial circumstances, which are bound to disappear along with the causes which gave rise to them.

What are these causes? What causes are there which raise and maintain the market price of things above their costs or production, or make them fall below these costs, against the force of the natural law which acts incessantly to align the market price with the costs of production?

That is how the question should be framed.[421]

THE SOCIALIST.

If the economic law which brings the market price closer to production costs is the same as the physical law which governs the fall of bodies and maintains the equilibrium of liquid surfaces, I do not understand why its action should be disturbed by artificial causes.

THE ECONOMIST.

You are not thinking about the dams and the uneven pieces of ground which disturb the natural flow of the water.

[p. 342]

THE SOCIALIST.

Yes but the level always re-establishes itself.

THE ECONOMIST.

You are wrong. New artificial levels are established. The natural level does not reappear until after the dam has been broken. Now, with each person having wanted to increase the flow of water on his side without bothering about his neighbor, the field of production has been traversed by a multitude of dams. Some of them have had more water than they needed; others have been drained.

The economic equivalents of dams are called monopolies and privileges.

Now we will see how the workings of monopoly and privileges generate rent.[422]

If an industry is subject to the law of free competition, it will not for very long be able to sell its products at prices higher or lower than its costs of production. Therefore it will not give rise to any rent. Those who manage it will receive only the legitimate return to their labor and the compensation necessary for the use of their capital.

If, on the contrary, certain producers enjoy the exclusive privilege of selling their merchandize in a given district, these producers will be able to conspire in always supplying this good in a quantity lower than that demanded. By this means they will succeed in raising its market price above the costs of production. The difference constitutes their rent.

On the other hand, when a commodity has been overproduced, in relation to the number of [p. 343] consumers who can reimburse its costs of production, the market price falls below those costs, and the difference once again constitutes a rent. Only this rent, instead of being paid by the consumer, is payed by the producer. Of course, this could happen only accidentally.

The production of goods of prime necessity can just on its own give rise to a considerable rent.

If one lowers the supply of luxury goods in an artificial way, with the price rising, demand will contract. In this circumstance, the price will fall rapidly, and the rent with it.

Suppose the question concerns wheat. If supply is lower than demand, the going price of wheat can rise in almost unlimited fashion. Let us examine how things work out in this connection and how the rent of land is established.

A tribe lives in the midst of a vast tract of land. It is small in numbers, and content to bring into cultivation the best fields, those which yield a sizeable product, in exchange for rather little effort. This tribe’s numbers start to grow. If it cannot extend further, either because of lack of security against the outside, or because of internal obstacles making difficult its natural expansion, what will happen?

If it is not permitted to draw its subsistence shortfall from outside, that is from regions where the fertile lands more than suffice to feed the population, domestic shortages will force it to pay a [p. 344] price for corn above its costs of production. In this instance a rent from land will be created.

The rise in the price of wheat, however, will immediately initiate the cultivation of cereals on land of second quality, or more precisely lands less suitable for that particular crop. The production of wheat working out more expensively on this land than on land of first quality, the owners will obtain less rent. It may even happen that the marketing of a new quantity of wheat will push the market price down to the level of the production costs of the lands recently brought under cultivation, or perhaps even lower than that. In the first case, the owners of these lands will cover just the bill for their costs of production, and will receive no rent; in the second case, the production costs will not even be covered, and the rent will fall as a result; which will bring about the abandonment of the lands cultivated beyond the basic requirements.

If, on the contrary, the lands recently put into cultivation are still not enough to make good the deficit in demand, with the market price continuing to yield a rent, yet further lands, of lower quality than the previous ones, will be brought into wheat production. This trend will continue until the market price ceases to exceed the production costs of cereals in the lands most recently put into cultivation.[423]

Thus we see in certain countries where the population has grown excessively without being able to spread out, and where at the same time edible commodities from outside cannot get access, soil which is almost barren bearing stunted crops of wheat, while good lands give rise to an enormous rent.

[p345]

THE SOCIALIST.

Do you believe that if no artificial obstacle had got in the way of the natural expansion of populations, if no institution or preconceived notion had over-stimulated the growth of the population, if, in a word, food had always been in free circulation, the rent from land would never have been created?

THE ECONOMIST.

I am sure that such is the case. In those circumstances, what would have happened is this. The various people on the land would have planted in each type of land whatever cultivable crop was most appropriate for that land to grow, and they would have subsisted by exchanging their surplus natural production for the commodities produced under the same conditions by the other peoples. As long as the demand for these diverse commodities, cultivated on their special soils, did not exceed supply, there would be no rent created. Now, with this mode of natural land-use, with the soil yielding maximum production, the population would easily have been able to align itself always with the available means of subsistence.

THE SOCIALIST.

This would be true if the various sorts of crops for which the land is the receptacle and which labor transforms into consumable products, turned out to be proportional in their quantities to the various needs of man; if the extent of the wheat-lands were proportionate to the overall consumption of wheat; if the fields of olive-trees and rape were proportionate to the overall consumption of oil; if deposits of metal and coal matched the overall consumption of these minerals; but does this harmony between our [p. 346] various needs and the quantity of materials proper to satisfying them, exist naturally? Is it not true that certain things are not found in sufficient abundance, given the need for them? The lands which contain primary materials and the people provided with the faculties with which to gain access to them, do they not enjoy a true natural monopoly in the sense that they must either yield or gain a rent?

THE ECONOMIST.

There are no natural monopolies. Providence has precisely proportioned to our various needs the diverse riches she has put at our disposal. If we have used our free will and our powers, however, to destroy or waste some of these riches instead of using them all, if we have spent centuries quarrelling over small patches of land instead of spreading ourselves freely across the immense areas opening out before us; if, by confining ourselves within narrow limits, we have directly or indirectly overstimulated the reproduction of our species, if we have refused commodities coming from places where they were produced to best advantage, in order to produce them ourselves, by going against the tide of nature, if in our ignorance we have thus distorted the essential order which the Creator had in his wisdom established, is this the fault of Providence?

If, to speak only of France, our institutions of State charity have encouraged the abnormal growth [p. 347] of the population; if at the same time, our customs and excise regulations have blocked the entry of foreign cereals, in such a way that it has become advantageous to chop down magnificent woods of olive-trees in order to replace them with wheat fields of wretched quality, is this Providence’s fault?

If our legislation on mines, by stopping the development of mineral production, while our customs regulations were preventing the import of mineral products from abroad, has created an artificial gap in our supply of iron, lead, copper, tin, etc., is this the fault of Providence?

If a detestable monopoly, by deflecting education from its natural tendency while at the same time steering others to excess, has rendered very many men unequipped for various useful employments, is that the fault of Providence?

If, finally, as a result of the perverse outcomes in the natural order of society, arising from monopoly and privileges, with certain individuals becoming true experts at satisfying their wildest desires, while the masses can barely meet their primary needs, the natural shape of consumption has been distorted, such that some commodities have been too much in demand and others too little, is that the fault of Providence?

THE SOCIALIST.

No, you are right, it is the fault of mankind!

THE ECONOMIST.

Just let these causes of disruption disappear,[424] however, and you will soon see the natural order of society re-establishing itself, as one sees the natural course of water re-establishing itself after the destruction of a dam; you will see production [p. 348] concentrated in the areas where it can operate most advantageously and consumption reassume its normal proportions; you will see as a consequence large fluctuations in the market price and the natural price growing smaller and smaller, becoming almost undetectable and finally disappearing, taking rent with them. Then you will see production operating with the maximum abundance and distribution working in conformity with the laws of justice.

You will see this even more clearly when I have summarized for you the ideas of which I have given you an account in these discussions.

THE CONSERVATIVE AND THE SOCIALIST.

Please be so kind, then, as to give us this summary.

THE ECONOMIST.

With pleasure!

We took man as our starting-point. Man is driven by his physical, intellectual and moral needs to engage in production. To this end, he employs his physical, moral and intellectual faculties. The effort he imposes on these faculties in order to produce is called “labor”. Each effort requires a corresponding process of recovery, otherwise the powers are wasted, the faculties deteriorate, and the human being wastes away, instead of maintaining or improving his standards.

Each effort entailing some pain, each period of recovery or consumption some enjoyment, man naturally devotes himself, driven by his self-interest, [p. 349] to expending less effort and receiving more things suitable for his consumption.

This result is obtained by means of the division of labor.

The division of labor implies exchange, relationships, society.

Here a serious problem emerges.

In the state of isolation (assuming that this condition has ever existed) the efforts of man are the weakest they can be, but the individual who carries them out awards himself all the benefit. He consumes everything he produces.

In the social state, man’s efforts acquire their maximum strength, thanks to the division of labor. Can each producer, however, always preserve intact the result of his efforts? Does the social condition allow the same justice, from this point of view, as the state of isolation? How, for example, can a man who spends his life producing the tenth part of a pin,[425] obtain payment as fairly matching his efforts, as can the isolated savage, who, having brought down a deer, consumes this product of his labor all on his own?

How? By means of property.

What is property? It is the natural right to use at will one’s abilities and the product of one’s labor.

How do the production and distribution of wealth operate under the regime of property?

Man produces all the things he needs by means of his labor, acting on the primary materials [p. 350] provided by nature. His labor is of two kinds:

When man exerts himself to produce something, this effort is called labor. When the effort is complete, when the result has been a product, this product takes the name “capital”. All capital consists of accumulated labor.

Now all production requires the contribution of these two agents: present labor and accumulated labor.

It is between these two agents that the product is shared.

How is it shared? In proportion to the costs of production of each of these, that is to say in proportion to the sacrifices which both the owner of present labor or worker and the owner of accumulated labor or capital, impose on themselves, and to the efforts to which they commit themselves.

In what do the costs borne by the capitalist consist?

They consist in the labor accomplished by the capitalist, in applying his capital to a productive endeavor, of the sacrifice he imposes on himself and the risks he runs in engaging his capital in the production.

This labor, this sacrifice and these risks, are the constituent elements of interest.

In what do the production costs borne by the worker consist?

In the total effort which the worker expends in putting his abilities to work. These abilities are of various kinds – physical, moral and intellectual – according to the nature of the work. They require, if they are to be carried out, without impairing the worker’s productive abilities, a certain [p. 351] flow of compensation, again varying with the nature of the work.

This compensation, which is necessary to the accomplishment of the labor, constitutes the basics of the wage.

The combination of interest-payment and wage represent the production costs of products of all kinds.

An Example:

How are the costs of a piece of calico constituted?

They consist, in the first place:

Of the earnings of workers, foremen and the entrepreneurs of the weaving.

Of the interest on the capital set to work by the entrepreneurs. This capital comprises buildings, machinery, raw materials, cash for paying the workers, etc. The capitalist who has relinquished the management of this cash, receives interest covering his work as a lender or shareholder, his sacrifices and his risk of capital deterioration or loss.

(This results in the) initial interest payments and initial earnings.[426]

Before being woven, the cotton has been spun. To spin it, it was necessary, in the same way, to set the capital and labor in motion – the labor of entrepreneurs, foremen, spinners; capital expenditure on buildings, machines, fuel, raw materials and cash.

(This is the) Second set of interest payments and earnings.

Before being spun, the cotton was transported. To transport it, recourse had to be made to contributions by merchants, brokers, porters, ship-owners, people in the haulage business. – The work of merchants, brokers, [p. 352] porters, ship-owners, sailors, carters; capital in the form of shops and stores, offices, wagons, ships, provisions for the crew, coaches or wagons, cash.

(This is the) Third set of interest payments and payments of earnings.

Before being transported, the cotton had to be grown. Again, this required capital and labor. – The labor of the plantation managers, of foremen and workers; capital in the form of land made cultivable, of buildings, seed, machinery, cash (If the workers are free, they are usually paid in cash; if they are slaves, they are paid, without free negotition, in food, clothing and lodging; in both cases, the price of cotton must cover their costs, along with the earnings of the entrepreneur and the foremen, as well as the interest on the capital advanced to the workforce before the sale of whatever product the harvesting yields).

(This is the) Fourth set of interest payments and earnings:

Add to this the payments made to storekeepers who put the pieces of calico within the reach of the consumer and cut them up for him according to his specified needs, and the interest on the capital put to work by these indispensable intermediaries, and you will have the overall costs of the production of calico.

Let us suppose that a plantation had supplied a thousand bales of cotton, and that from these thousand bales, twenty five thousand pieces of calico of fifty ells in length have been manufactured. Suppose, also, that these twenty five thousand pieces have been further cut into unbleached sections, at a price of 30 centimes per ell and you will have a total of… fr.375,000.

[p. 353]

This sum of fr.375,000 will have been distributed among all those who have contributed to the production of the calico, from the slave and the planter, to the shopkeeper and his assistant.

According to what law, however, did the distribution of this sum of fr.375,000 between all those who contributed to forming its value, actually operate? What law determined the fair rate of interest of the capitalists, and the fair earnings of the workers, as also the fair price of the product which yielded this interest and these earnings?

This law, which is the true regulator of the economic world, I have explained thus:

When supply exceeds demand in arithmetic progression, the price falls in geometric progression, and, likewise, when demand exceeds supply in arithmetic progression, the price rises in geometric progression.

Under the sway of this law, acting in a free milieu, no one can set a price for interest, wages or products above or below the sum necessary to place that interest, wage or product on the market, that is to say at above or below the sum of all the efforts and sacrifices which they really cost.

This is because, consistently with this law, the market price of all things, whether interest, earnings or products, is endlessly and irresistibly pulled to the level of their costs of production.

How?

Man, at once a producer and a consumer, is endlessly obliged, in a society where the division of labor has resulted in most acts of production being specialized, [p. 354] to supply what he produces so that he can demand, in exchange, the things which he needs.

When one asks for a thing, one consults only the extent and the intensity of the need one has for it; nor is one concerned with what it might have cost to produce. It may therefore happen that one imposes on oneself, in order to procure it, sacrifices and efforts considerably greater than those which its production cost. As the witness of experience shows, this is what happens when a great number of individuals need a commodity and few individuals produce it, when it is in much demand and there is little supply of it. In this case, experience also shows that a slight disproportion between demand and supply, engenders a rapid movement in price. When the disproportion increases in arithmetic progression, the change in price grows and accelerates in geometric progression.

As the price increases, however, it also acts more strongly to bring back the equilibrium between supply and demand.

When the price at which a thing sells greatly exceeds the efforts and sacrifices which its production required, the host of men occupied in less advantageous production, or whose capital, intelligence and labor happen just now to be inactive, are immediately motivated to produce this thing. The inducement is all the stronger when the price rises higher, when the gap between demand and supply is more notable. Under the pull of this inducement, a greater or a lesser number of competitors comes forward therefore, to increase production and satisfy demand more completely.

[p. 355]

There will, however, be a limit to this increase in production. What will this limit be?

If the price rises in geometric progression when demand rises above supply, it likewise falls in geometric progression, when supply exceeds demand. If therefore, spurred by the lure of profit, producers increase supply, a point will come when the market price of the good falls to the levels of its costs of production. If people in this situation continue bringing to the market larger and larger quantities of this good, and if the increase in demand does not balance that of supply, we will see the market price falling progressively below the costs of production.

But, to the degree that the disparity increases in this way, the producers who are less able to cover their costs have greater interest in turning towards other branches of production. To the degree that the price drops even further, this will cause supply to slow more rapidly until the point is reached where the price returns to the costs of production.

Thus we see the market price of all things, labor, capital and products, gravitating incessantly and irresistibly towards the limit of the production costs of these things, that is to say towards the sum of the real efforts and sacrifices that their production incurred.[427][p. 356]

If the price of all these things, however, is endlessly and irresistibly driven back to the limit of their costs of production, to the sum of real efforts and sacrifices which they have incurred, each person must inevitably receive, in the social state as much as in a state of isolation, the just payment of his efforts and sacrifices.

With this difference: that the isolated man, producing everything for himself, is forced to spend much effort in securing a small number of satisfactions, while man in society, enjoying the advantage of the division of labor, can obtain lots of satisfaction for very little effort. The satisfaction will be all the more extensive and the [p. 357] effort all the slighter, in that progress has developed further the division of labor, and thereby just in itself cut the production costs of things.

Unfortunately, if numerous efforts have served to develop production economically, numerous obstacles have been raised at the same time, by ignorance or human perversity, both to impede this development and to disturb the natural and equitable division of wealth.

It is in a free milieu, in a milieu in which the property rights of each person with respect to his faculties and the results of [p. 358] his labor are fully respected, that production develops to the maximum, and that the distribution of wealth is proportioned irresistibly to the efforts and sacrifices each person has put in.

Now from the beginning of the world, the strongest and most cunning men have infringed the internal or external property of other men, in order to consume some of their share in the fruits of production. From this arose slavery, monopolies and privileges.

At the same time as they destroyed the equitable distribution of wealth, such slavery, monopolies and privileges slowed down production, either by reducing the incentive producers had to make things, or in deflecting them away from the kind of production they could most usefully pursue. Oppression engendered poverty.

For long centuries, humanity groaned in the limbo of servitude. From one age to another, however, the somber clamor of distress and anger echoed in the midst of the enslaved and exploited masses. The slaves rose up against their masters, demanding freedom.

Freedom! That was the cry of the captives of Egypt, the slaves of Spartacus,[428] the peasants of the Middle Ages, and more recently of the bourgeoisie oppressed by the nobility and religious corporations, of the workers oppressed by masters and guilds. Freedom, that was the cry of all those who found their property confiscated by monopoly and privilege. Freedom, that was the burning aspiration of all those whose natural rights had been forcibly repressed.

[p. 359]

A day came when the oppressed found themselves strong enough to rid themselves of oppressors. It was at the end of the eighteenth century. The main industries providing for the needs of all were still organized in closed and privileged corporations. The nobility who provided internal and external defense and security were a corporation; the Parliaments which dispensed justice were a corporation; the clergy who conducted religious services were a corporation; the university and the religious orders who provided education were a corporation; the bakers, the butchers: corporations. These different states were, for the most part, independent of each other, but all found themselves subordinate to the armed body which guaranteed the material privileges of each one.

Unfortunately, when it seemed the hour had come to pull down this regime of iniquity, no one knew with what to replace it. Those who had some notion of the natural laws which govern society, spoke out in favor of laissez-faire.[429] Those who did not believe in the existence of these natural laws protested, on the contrary, with all their might against laissez-faire and demanded the substitution of a new organisation in place of the old. The leading supporter of laissez-faire was Turgot.[430] At the head of the organisers and neo-regulators, was Necker.[431]

These two opposed tendencies, without including people of a reactionary persuasion, divided the French Revolution between them. The liberal element dominated the Constituent Assembly, but it was not pure. The liberals themselves did not yet have enough faith in freedom to entrust [p360] the direction of human affairs entirely to it. Most material production was freed from the bonds of privilege, but non-material production, with, first and foremost, the defense of property and justice, were organized on the basis of communist theories. Less enlightened than the Constituent Assembly, the Convention proved to be even more communist. Compare the two Declarations of the Rights of Man of 1791 and 1793, and you will see the proof of this.[432] Finally, Napoleon, who combined the passions of a Jacobin with the prejudices of a reactionary, without any tinge of liberalism, tried to reconcile the communism of the Convention, with the monopolies and privileges of the Ancien Régime. He organized community-based teaching, subsidized communitarian religion, set up a department of bridges and highways with the purpose of establishing a vast network of means of communitarian interchange and brought in conscription, that is to say a people’s army. Furthermore, he centralized France like some vast commune. Nor was it any fault of his that in that centralized commune all production was not organized on the model of the University and the state control of the tobacco industry.[433] If war had not prevented him, as he himself declared in his Mémoires,[434] he would certainly have accomplished these great things. On the other hand, he revived in this organised France most of the privileges and restrictions of the Ancien Régime; he reconstituted the nobility’s prerogative; reestablished the privileges of the meat trade, of baking,[p361] of printing, of the theatres and of banks; restricted the free arrangement of labor by legislation on apprenticeships, on labour workbooks and on labor unions; the right to lend by the law of 1807; the right to make wills by the Civil Code; the right to trade by the Continental Blockade and the multitude of decrees and regulations relating to the customs. In a word, he refashioned, under the influence of two inspirations born of opposite viewpoints but equally regulatory, the old network of obstacles which had in former times oppressed property.

We have lived until now under this deplorable system, one aggravated further by the Bourbon Restoration (involving the reestablishment of the “vénalité des charges”[435] in 1816 and the increasing of Customs barriers in 1822[436]), but far from the wickedness and poverty of our present day society being attributed to that system, property and freedom have been held to blame. The learned men of socialism, misunderstanding the natural organization of society, and unwilling to recognize the deplorable outcomes of the return of the ancien régime’s privileges, along with the introduction of revolutionary or Imperial communism, maintained that the former society was offensive in its very foundations, namely property, and strove to organize a new society on a different basis. That led them to utopias, some merely absurd, others immoral and abominable. Moreover, we have seen them at work.

Fortunately, the Conservatives put up a barrier against the terrifying incursions of socialism; but having no more precise idea of the natural organization of society than their opponents, they could not defeat them other than out in the streets.[437] The Conservatives, supporters of the status quo because [p. 362] they found it profitable and were not worrying about the rest of it, opposed the Socialist innovations just as they had in the course of the preceding years, opposed the property- based innovations of the supporters of the freedom of education and commerce.

It is between these two sorts of opponents of property, the former wishing to increase the number of restrictions and levies which already weigh on property, the others wishing purely and simply to preserve those which already exist, that the debate occurs today. On the one hand we have M. Thiers[438] and the old committee of the Rue de Poitiers;[439] and on the other Messieurs Louis Blanc, Pierre Leroux, Cabet, Considérant, Proudhon.[440] The spirit of Necker dominates both groups. I no longer detect the influence of Turgot.

THE SOCIALIST.

If society is naturally organized and all that is required is to destroy the obstacles blocking the free play of its organization, that is to say the attacks made on property, so as to raise total production to the maximum consistent with the present state of advancement in the arts and sciences, and thereby render the distribution of wealth fully equitable, it is assuredly pointless to look any more for artificial organizations. There is nothing else to do than to bring society back to a situation of pure property.

THE CONSERVATIVE.

But how many changes must we effect to reach that point? It makes one shudder!

THE ECONOMIST.

Not so, because all the reforms needed to achieve this are consistent with justice and utility and would not offend any legitimate [p363] interest nor cause any harm to society.

THE SOCIALIST.

Furthermore, one way or another, reforms, either for property or against property, will have to be made. Two systems are before us: communism and property. We have to go in one direction or the other. The regime of part-property and part-communism under which we live, cannot last.

 

Molinari’s Long Quotation from Adam Smith on Market and Natural Prices

Without determining this law, and also without defining very precisely the role it plays in the production, Adam Smith clearly indicated it in this passage:

8. The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity, or the whole value of the rent, labour, and profit, which must be paid in order to bring it thither. Such people may be called the effectual demanders, and their demand the effectual demand;  since it may be sufficient to effectuate the bringing of the commodity to market. It is different from the absolute demand. A very poor man may be said in some sense to have a demand for a coach and six; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to market in order to satisfy it.

9. When the quantity of any commodity which is brought to market falls short of the effectual demand, all those who are willing to pay the whole value of the rent, wages, and profit, which must be paid in order to bring it thither, cannot be supplied with the quantity which they want. Rather than want it altogether, some of them will be willing to give more. A competition will immediately begin among them, and the market price will rise more or less above the natural price, according as either the greatness of the deficiency, or the wealth and wanton luxury of the competitors, happen to animate more or less the eagerness of the competition. Among competitors of equal wealth and luxury the same deficiency will generally occasion a more or less eager competition, according as the acquisition of the commodity happens to be of more or less importance to them Hence the exorbitant price of the necessaries of life during the blockade of a town or in a famine.

10. When the quantity brought to market exceeds the effectual demand, it cannot be all sold to those who are willing to pay the whole value of the rent, wages and profit, which must be paid in order to bring it thither. Some part must be sold to those who are willing to pay less, and the low price which they give for it must reduce the price of the whole. The market price will sink more or less below the natural price, according as the greatness of the excess increases more or less the competition of the sellers, or according as it happens to be more or less important to them to get immediately rid of the commodity. The same excess in the importation of perishable, will occasion a much greater competition than in that of durable commodities; in the importation of oranges, for example, than in that of old iron.

11. When the quantity brought to market is just sufficient to supply the effectual demand and no more, the market price naturally comes to be either exactly, or as nearly as can be judged of, the same with the natural price. The whole quantity upon hand can be disposed of for this price, and cannot be disposed of for more. The competition of the different dealers obliges them all to accept of this price, but does not oblige them to accept of less...

15. The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating.  Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this center of repose and continuance, they are constantly tending towards it.[441]

 

THE ECONOMIST.

It has already meant appalling catastrophes for us and perhaps some new ones lie in wait for us too.

THE CONSERVATIVE.

Alas!

THE ECONOMIST.

We must therefore escape from this dilemma. Well, we can only leave by way of communism or by the way of property:

You must choose!

END.

 

 

Endnotes

[417] It is curious that Molinari has the Socialist interrupt the Economist here just as he is about to provide us with a resumé of the book's arguments in favor of the free market and the political and economic reforms he believed needed to be introduced in France after the chaos of the Revolution of 1848. It seems that Molinari felt obliged to insert a 6 page digression on the nature of rent. There are two possible reasons for this; firstly, throughout 1848 and 1849 the Economist's views on the nature and legitimacy of profit, interest, and rent had been under attack by socialists such as Proudhon and Louis Blanc both in print and in the National Assembly. Bastiat had written a pamphlet on “Capital and Rent” in February 1849 as a reply to Proudhon’s critique. Molinari might have felt obliged to continue defending these ideas in Les Soirées. Perhaps as he came close to finishing his book the topic of rent came up again in the Assembly which he thought needed addressing. Secondly, the Société de l'Économie Politique was in turmoil because of challenges to three orthodox positions held by most of their members, namely the Smithian view of the role of the state (challenged by Molinari in February 1849 with his article "De la production de la sécurité” and here again in the 11th Soirée), Malthus's theory of population (challenged by Bastiat in his Harmonies Économiques), and Ricardo's theory of rent (also challenged by Bastiat). All three topics were discussed by the SEC at their regular monthly meetings over a period of 3 years 1849-1851. On the topic of rent, Molinari began as an orthodox Ricardian but began to challenge important parts of the theory as he worked on Les Soirées in 1849 and his economic treatise which was published in 1855. It seems Molinari felt the matter was of sufficient importance to insert the discussion here, perhaps at the last minute as the manuscript was being finalized for the printer. Normally in economic treatises one begins with the basic principles such as prices, exchange, production, labour, interest, profit, and rent before moving onto other matters. Molinari discusses interest in Soirée 5 which is where a discussion of rent might have been expected as well. [See, glossary entry on "Molinari and Rent".]

[418] In spite of his reservation about land ownership and the income which comes from such ownership Say did not argue for the injustice of land ownership: "Land, as we have above remarked, is not the only natural agent possessing productive properties; but it is the only one, or almost the only one, which man has been able to appropriate, and turn to his own peculiar and exclusive benefit. The water of rivers and of the ocean has the power of giving motion to machinery, affords a means of navigation, and supply of fish; it is, therefore, undoubtedly possessed of productive power. The wind turns our mill; even the heat of the sun co-operates with human industry; but happily no man has yet been able to say, the wind  and the sun’s rays are mine, and I will be paid for their productive services. I would not be understood to insinuate, that land should be no more the object of property, than the rays of the sun, or blast of the wind. There is an essential difference between these sources of production; the power of the latter is inexhaustible; the benefit derived from them by one man does not hinder another from deriving equal advantage. The sea and the wind can at the same time convey my neighbour’s vessel and my own. With land it is otherwise.” Jean Baptiste Say, A Treatise on Political Economy; or the Production, Distribution, and Consumption of Wealth, ed. Clement C. Biddle, trans. C. R. Prinsep from the 4th ed. of the French, (Philadelphia: Lippincott, Grambo & Co., 1855. 4th-5th ed. ). Chapter: BOOK II, CHAPTER IX: OF THE REVENUE OF LAND. </title/274/38091/901098>.

[419] David Ricardo (1772-1823) was a successful stockbroker, politician, and Benthamite reformer who became one of the most influential economists of the classical school of economic thought. [See, the glossary entry on "Ricardo".] Ricardo's On the Principles of Political Economy and Taxation (1817) was translated into French by F.S. Constancio with notes by J.B. Say in (1818). It was reprinted with additions from the 3rd London edition of 1821 by Alcide Fonteyraud in a collection of his Complete Works published by Guillaumin in 1847 as volume XIII of the series Collections des principal économistes in which Molinari was also involved as an editor. [See, Oeuvres complètes de David Ricardo, traduites en français par Constancio et Alc. Fonteyraud; augmentées des notes de Jean-Baptiste Say, et de nouvelles notes et de commentaires par Malthus, Sismondi, Rossi, Blanqui etc., et précédées d'une notice biographique sur la vie et les travaux de l'auteur par Alcide Fonteyraud (Paris: Guillaumin, 1847).] Most of the Economists were orthodox Ricardians on the question of rent [See, Joseph Garnier, "Ricardo” DEP, vol. 2, pp. 530-33, and Hippolyte Passy, "Rente du sol,” DEP, vol. 2, pp. 509-20.]

[420] Ricardo had a very narrow definition of "rent", by which he meant only "that portion of the produce of the earth, which is paid to the landlord for the use of the original and indestructible powers of the soil": "Rent is that portion of the produce of the earth, which is paid to the landlord for the use of the original and indestructible powers of the soil. It is often, however, confounded with the interest and profit of capital, and, in popular language, the term is applied to whatever is annually paid by a farmer to his landlord. If, of two adjoining farms of the same extent, and of the same natural fertility, one had all the conveniences of farming buildings, and, besides, were properly drained and manured, and advantageously divided by hedges, fences and walls, while the other had none of these advantages, more remuneration would naturally be paid for the use of one, than for the use of the other; yet in both cases this remuneration would be called rent. But it is evident, that a portion only of the money annually to be paid for the improved farm, would be given for the original and indestructible powers  of the soil; the other portion would be paid for the use of the capital which had been employed in ameliorating the quality of the land, and in erecting such buildings as were necessary to secure and preserve the produce. [See, David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 1 Principles of Political Economy and Taxation. Chapter II: On Rent </title/113/38277/879029>.]

[421] Molinari left France after the coup d'état which brought Louis Napoleon (later Napoleon III) to power in December 1851. He returned to his native Belgium where he became a professor of political economy at the Belgian Royal Museum of Industry in Brussels. He published his lectures as a two volume treatise called Cours d'économie politique (1st ed. 1855, revised 2nd ed. 1863). [See Gustave de Molinari, Cours d'économie politique (Bruxelles: Librairie Polytechnique d'Aug. Decq, 1855), 2 vols. He devotes two chapters in vol. 1 to a discussion of land and rent [Treizième leçon. La part de la terre,” pp. 312-38 and Quatorzième leçon. La part de la terre (suite), pp. He presents his theory by starting with the long definition by Ricardo (see footnote??? above), briefly mentions and rejects the criticism of Ricardo by Carey and Fontenay (without mentioning Bastiat), and then considers several gaps in Ricardo's theory which need to be addressed. He concludes that the word "rent” is confusing and rather "inappropriate” to use when referring to the return due to "the original and indestructible powers of the soil". Molinari prefers the term "profit foncier” (profit from the land). He has a more general theory of "rent” which applies to any additional amount or premium which is paid over the "natural price” of any productive agent as a result of "a rupture in economic equilibrium” which is usually of a temporary nature until equilibrium can be reestablished. These “ruptures in equilibrium” can be the result of natural factors, such as a flood or a crop failure, or they can be the result of lobbying for political favours, such as a tariff or a subsidy. Thus, Molinari is here toying with the 20th century idea of a “political rent” or “rent-seeking” developed by the Public Choice school of economics. Molinari concludes that as competitive market forces begin to operate, the "rent” premium is gradually reduced until prices again approach their "natural” level (Cours, vol. 1, pp. 373-74). [See the glossary entry "Molinari on Rent."]

[422] Molinari here is grappling with the notion of “political rent” or “rent seeking.” The public choice economist Gordon Tullock invented idea of rent seeking in 1967. David Henderson defines it as follows: "People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors.” See, David Henderson, "Rent seeking,” The Concise Encyclopedia of Economics <http://www.econlib.org/library/Enc/RentSeeking.html>.

[423] Molinari is grappling here with the idea of diminishing marginal returns of the additional areas of land which are brought into production.

[424] Molinari uses the word “perturbation” (disturbance or disruption). Bastiat also had a theory of “causes perturbatrices” (disturbing factors) which hindered the full productive powers of the free market from being realised. He was woking on this idea in the final chapters of Economic Harmonies (1850) before he died. See especially Chap. XVIII.

[425] This is a reference to the famous story by Adam Smith in the Wealth of Nations about the pin factory which he uses to show how much greater output is possible if a group of workers cooperate and specialize in producing only a small part of the finished output (the division of labour). [See, Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. I ed. R. H. Campbell and A. S. Skinner, vol. II of the Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1981). Chapter: [I.i] CHAPTER I: Of the Division of Labour.]

[426] We have added the phrase in brackets as the original French is rather terse.

[427] See Molinari’s long quotation at the end of the chapter.

[428] Spartacus (109-71 BC) was a Thracian slave who was forced to fight as a gladiator in Rome before leading a rebellion of slaves against the Roman Empire. He and his fellow slaves were defeated and brutally crucified as a warning to other slaves. As a keen theatre goer Molinari might well have seen the play "Spartacus” by Bernard Joseph Saurin which premiered at the Comédie-Française in 1760 and was revived in 1818. Crassus offers his daughter Emilie in marriage to Spartacus in order to cement a possible peace treaty between them, which Spartacus rejects in the following words (p. 107): "Pour être digne d'elle il faut y renoncer, Et ne point immoler, en m'unissant à Rome, La liberté du monde à l'intérêt d'un homme: Je n'achèterai point mon bonheur à ce prix” (In order to be worthy of marrying her in Rome, I would have to renounce and not just sacrifice the liberty of the world for the interest of a man: I will not not buy my happiness at such a price). A statue of "Spartacus breaking his chains” by the neoclassical sculptor Denis Foyatier (1793-1863) was erected in the Tuilleries Gardens in 1831. Molinari might well have seen this as well.  [See, Bernard Joseph Saurin, Spartacus. Les moeurs du temps. Blanche et Guiscard. Béverlei: accompagnées de commentaires anciens et de nouvelles remarques, de notices sur les auteurs, et d'examens des pièces. Collection de pièces de théâtre (Paris: L. Tenré, 1830), pp. 35-136.]

[429] This is one of the half dozen or so references in the Soirées to the doctrine of “laissez-faire” or the idea that there should be no government intervention in economic matters whatsoever. [See the glossary entry on “Laissez-faire” and Molinari’s use of this expression throughout Les Soirées.]

[430] Turgot (1727-1781) was an economist of the physiocratic school, politician, and reformist bureaucrat. Louis XVI made him minister of finance between 1774 and 1776 at which time Turgot issued his "six edicts” to reduce regulations and taxation. [See the glossary entry on "Turgot".]

[431] Jacques Necker (1732-1804) was a Swiss-born banker and politician who served as the minister of finiance under Louis XVI just before the French Revolution broke out. His private financial activities were intertwined with the French state when he served as a director of the monopolistic French East India Company and made loans to the French state.  [See the glossary entry on "Necker".]

[432] The National Constituent Assembly met from July 1789 until September 1791. It issued the "Declaration of the Rights of Man and Citizen” on 27 August, 1789. [See, A Documentary Survey of the French Revolution, ed. John Hall Stewart (New York: Macmillan, 1964), pp. 113-115.] The National Convention met from 20 September 1792 to 26 October 1795. Among its members were Maximilien Robespierre and Georges Danton. Between 1793 and 1794 executive power was exercised by the Convention's Committee of Public Safety which operated “The Terror” policy of imprisonment and execution of “enemies of the revolution.” The Convention's "Declaration of the Rights of Man and Citizen” was issued on 24 June, 1793. [See, A Documentary Survey of the French Revolution, ed. John Hall Stewart (New York: Macmillan, 1964), pp. 454-58.]

[433] GdM - The production of tobacco, set free by the Constituent Assembly, was put under state control by a decree of 29th of December 1810. The government monopoly on tobacco sales raised 120 million Francs according to the Budget of 1848 which was 8.6% of the entire amount of revenue raised (1.4 billion). It was the same in 1849. [See the Appendix on the 1848 and 1849 Budgets.]

[434] In Note XXVI of his Memoirs Napoleon talks about his "vaste idée” to recreate in France a "national nobility": "This huge idea would change the plan of a nobility which was only feudal and would build upon its ruins an historical nobility (une noblesse historique) founded upon interest in one's homeland (patrie) and the services which one has rendered to the people and to the sovereigns. This idea, like that of the Legion of Honor, like that of the University, was eminently liberal and it would be suitable at the same time in consolidating the social order and destroying the vain pride of the nobility. It would destroy the claims of the oligarchy and would maintain the unity of the dignity and equality of man.” [p. 200]. [See, Napoleon, Mémoires pour servir à l'histoire de France, sous Napoleon, écrits à Sainte-Hélène, par les généraux qui ont partagé sa captivité, et publiés sur les manuscripts entièrement corrigés de la main de Napoleon. Notes et

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