How freedom works

Production and contracts

Freedom as a Social Project

Production and contracts

Production: a historical conquest
The error of "productive" and "unproductive" workers
The conditions of production
Exchange as a positive-sum game

Production: a historical conquest

Understanding economic freedom is a major challenge in our reflection on freedom as a project for society. The economic dimension of liberty is often poorly understood, not because it is intrinsically complex, but because economic education remains insufficient, particularly in France. Yet the mechanisms of production and exchange are relatively simple, and they need to be clarified to understand how a liberal society is essentially founded on contract, exchange, and peaceful production.

Jean-Baptiste Say (1767-1832), the Lyonnais cotton merchant's son who became the most widely read economist in the world during the first decades of the nineteenth century, placed production at the center of his monumental Traité d'économie politique (1803). Say understood that the analysis of wealth must begin not with distribution but with creation: how do human beings produce the utilities that constitute their well-being? His answer laid the foundation for everything that followed:

"To produce is not to create matter, for matter is indestructible and no human power can bring it into existence from nothing. To produce is to give matter a form, a place, or a time in which it is useful to men. The farmer who harvests his wheat, the merchant who transports it to the hungry city, the miller who grinds it into flour: each of them produces, because each of them renders a service that would not exist without his intervention."

In other words, production is the creation of utility, not the creation of substance. This apparently simple distinction has far-reaching consequences: it means that every service that renders life easier or richer is productive labour, and that the traditional hierarchy placing manufacturing above commerce and commerce above intellectual work is entirely without foundation.

Indeed, Say's insight liberates economic analysis from the tyrannical prejudice that only those who work with their hands "really" produce. A teacher, a lawyer, an artist: all produce utility, all contribute to the wealth of society, if their services are freely sought and freely purchased.

Production itself represents a genuine conquest in the history of mankind. For a long time, human societies were content to gather foodstuffs without any particular creative input, through hunting, fishing, and gathering, where man's productive activity remained minimal.

The error of "productive" and "unproductive" workers

Adam Smith, among other thinkers, made a significant error in distinguishing between productive and unproductive workers. In the "unproductive" category he placed lawyers, artists, and doctors, on the grounds that their product would disappear immediately after delivery. But does this distinction hold up? Consider: a lawyer who secures the enforcement of a contract creates a utility that lasts for the entire duration of that contract. A doctor who cures a patient creates a utility that persists for the rest of that patient's life. The error is plain.

Gustave de Molinari (1819-1912), the Belgian-born economist who settled in Paris and became, over the course of a long and prolific career, one of the most original and combative voices of the French liberal tradition, saw through this confusion immediately. In his Cours d'économie politique (1855), he wrote:

"What good tools certain books are! The Wealth of Nations, for instance, has generated more real wealth in the two centuries since its publication than most factories could claim to have produced in their entire existence. Is this not production? To say otherwise is to confuse the medium with the message, the form with the substance."

In other words, immaterial production is not a lesser form of production: it is often the most consequential form, since ideas multiply without being consumed, spreading their utility to an indefinitely large number of beneficiaries.

Gustave de Molinari rightly observed that the retailer, by transferring foodstuffs and making them available to the consumer in an accessible and organized way, renders a genuine service. This transfer from one place to another constitutes real production, for which the consumer is prepared to pay. Work, generally speaking, is about creating new utilities and rendering services. To be of service to others is what production truly means.

The conditions of production

What are the conditions that make production possible? The liberal economists identified three that are indispensable, and their analysis converges with striking unanimity on this point.

The first condition is an appropriate choice of means and ends, which implies enlightened freedom and a sense of self-government. One must be the owner of oneself, and one must be able to choose wisely among the various options available. This capacity for choice requires freedom of thought and freedom of action. Say expressed this simply:

"The man who does not choose is not producing; he is merely executing. Production begins with the judgement that this end is worth pursuing and this means is the best available to pursue it. Remove freedom of choice, and you have not merely changed the form of production; you have destroyed its animating principle."

The second condition is the possible use of means; in other words, property. Without ownership of things, of tools, and of one's own body (everything begins with self-ownership), production becomes impossible. The third condition is the possibility of profitability, which is conditioned by security. Without security, I cannot undertake a viable production project, for I risk being hindered by violence, threats, or the theft of my resources.

In other words, the three conditions of production are freedom, property, and security. These are precisely the three things that systems of unfreedom destroy. The circle is complete: oppression is not merely unjust; it is economically ruinous.

The direction of production obeys what the economists called "natural law," according to which the production of all things organizes itself, in time, in place, and in the most useful manner. Economic agents seek their own interest, not a narrow, selfish one, but a broad and enlightened interest. Motivated by the search for profit and security in their resources, they gravitate toward those branches of production that yield profits. Prices and profits are thus the signals that naturally guide production, without the need for governmental or regulatory organization.

Exchange as a positive-sum game

The central element that explains the importance of contract and exchange is their nature as positive-sum games. I make a contract because it is in my interest to do so; otherwise, I would simply prefer not to contract. Similarly, in economic terms, if I make an exchange, it is because I find it advantageous; if not, I refrain.

The Abbé de Saint-Pierre, at the beginning of the 18th century, was one of the first to recognize the full importance of this principle. In his Projet pour perfectionner le commerce (1735), he expressed it with characteristic clarity:

"When a sale is made between merchants, the seller gains and the buyer also; for without a reciprocal gain, real or apparent, neither would the seller sell at such a price, nor would the buyer on his side buy at such a price. Sometimes one of the two makes a mistake; but commonly, with regard to their needs and their interests, both gain from the exchange, sometimes equally, but more often unequally. From this it follows that to multiply exchanges or sales between merchants, between the subjects of a nation, and between nation and nation, is to contribute to their enrichment; to diminish commerce, to diminish the number of exchanges, of sales, of purchases between traders, is to diminish their profit and their revenue."

In other words, every voluntary exchange creates value for both parties simultaneously. This is what distinguishes peaceful commerce from war and theft: those methods redistribute existing wealth; exchange creates new wealth. The importance of this distinction for the whole of social philosophy can hardly be overstated.

Indeed, from this analysis stems a fundamental conclusion. The more contracts are made, the more advantageously the contract replaces the law in many domains. Freedom consists precisely in this choice to act in one direction or another with the properties at one's disposal, the first being one's own person, then that of legitimately acquired things, in order to exchange them in a mutually advantageous manner.

Say himself was explicit on this point:

"Commerce is not, as some have supposed, a combat in which one party must be defeated for the other to triumph. It is, on the contrary, a form of cooperation in which both parties bring what they have in excess and receive what they lack. The merchant is not the enemy of the producer; he is his most necessary ally, the indispensable link between the place of production and the place of consumption."

Quiz

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1/5

How does the text apply Lavoisier's principle to the concept of economic production?