Influences

Adam Smith and Jean-Baptiste Say

Bastiat Economic Thought

Adam Smith and Jean-Baptiste Say

In economics, Bastiat always acknowledged his debt to Adam Smith and Jean-Baptiste Say. At 26, he wrote to one of his friends, "I have never read on these subjects but these four works, Smith, Say, Destutt, and the Censor."

Political economy, as conceived by Adam Smith and J.-B. Say, is encapsulated in a single word: freedom. Freedom of trade, individual freedom, free trade, and free initiative. Free trade was first defended by the physiocrats, such as François Quesnay and Vincent de Gournay, and then by Adam Smith, who synthesized their ideas with his own observations. Finally, at the end of the 18th century, Jean-Baptiste Say clarified and corrected certain points in his master's doctrine, Adam Smith's, in his masterful Treatise on Political Economy.

Adam Smith was interested in prosperity, not as an end in itself but as a means for the moral elevation of individuals. For him, the wealth of nations consists of the wealth of individuals. If you want a prosperous nation, says Adam Smith, let individuals act freely. And the market works because it allows everyone to express their preferences and pursue their interest.

The great novelty of modern economists at the dawn of the 18th century is that they are interested in each individual with the will to restore their capacity for action while thinking about how to contain passions and conflicts. People naturally want to improve their lot and that of their loved ones through the exchange of goods and services.

What Adam Smith shows is that one can only serve one's own interest by serving the interests of others:

Give me what I need, and you will have from me what you need yourselves. (...) It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

“The natural effort of every individual to better his own condition... is so powerful, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations.”
The Wealth of Nations
Book IV, Chapter V

Exchange is a positive-sum game. What one gains, the other also gains. It thus differs from political redistribution, where there is always a winner and a loser. If we consider the English school, including Smith, Ricardo, and Locke, value is linked to labor. For Marx, it is the same.

On the other hand, Bastiat will admit with Jean-Baptiste Say that utility is the true foundation of value. Labor does not create value. Scarcity does not either. Everything stems from utility. Indeed, no one agrees to pay for a service unless they deem it useful. One only ever produces utility. But Bastiat also nuanced Say on this point. It's not about the utility that is in things; it's about the relative utility of services. "Value is the ratio of two exchanged services," according to his own words. Therefore, value is subjective, and the only way to grasp individuals' preferences is to observe their behavior in a free market. The market reveals individual preferences and is a great regulator of society through exchange.

The economy obeys a number of simple laws derived from human behavior. One of them, known as "Say's Law," states: "Products and services are exchanged for products and services." His idea is that nations and individuals benefit from an increase in production level because it offers increased opportunities for mutually beneficial exchanges.

Indeed, products are only purchased in anticipation of the services the buyer expects: I buy a disk for the music I will listen to, I buy a movie ticket for the film I will see. And in an exchange, each party decides because it judges that it can derive more services from what it acquires than what it gives up. In this context, money serves as an intermediary commodity, compensating for a service rendered and facilitating access to other services.

For Bastiat, the economy of exchanges — that is, of mutual services freely offered and accepted — is what underpins peace and prosperity, allowing for the harmony of interests.

But from Jean-Baptiste Say, Frédéric Bastiat also inherits a key concept, that of plunder. For, he says, echoing the words of Say:

There are only two ways to acquire the things necessary for the preservation, embellishment, and improvement of life: production and plunder.

Producers resort to persuasion, negotiation, and contract, while plunderers resort to force and deceit. It is therefore up to the law to suppress plunder and to secure labor as well as property. As Adam Smith had already stated, ensuring the safety of citizens is the main mission of public authority, and it is this that legitimizes the levying of taxes.

Quiz

eco2032.1

1/5

Which author is primarily responsible for Frédéric Bastiat's education in economics?