1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar
Source link: http://archive.mises.org/9920/economics-in-2-paragraphs/

Economics in 2 Paragraphs

May 8, 2009 by

Anne-Robert-Jacques Turgot (1727–1781)

Why did Rothbard so love Turgot?

This passage, which Turgot wrote as a summary of the thought of Vincent de Gournay (who coined the phrase “laissez faire, laissez passer”), makes it abundantly clear:

The general freedom of buying and selling is therefore the only means of assuring, on the one hand, the seller of a price sufficient to encourage production, and on the other hand, the consumer, of the best merchandise at the lowest price. This is not to say that in particular instances we may not find a cheating merchant and a duped consumer; but the cheated consumer will learn by experience and will cease to frequent the cheating merchant, who will fall into discredit and thus will be punished for his fraudulence; and this will never happen very often, because generally men will be enlightened upon their evident self-interest.

To expect the government to prevent such fraud from ever occurring would be like wanting it to provide cushions for all the children who might fall. To assume it to be possible to prevent successfully, by regulation, all possible malpractices of this kind, is to sacrifice to a chimerical perfection the whole progress of industry; it is to restrict the imagination of artificers to the narrow limits of the familiar; it is to forbid them all new experiments; it is to renounce even the hope of competing with the foreigners in the making of the new products which they invent daily, since, as they do not conform to our regulations, our workmen cannot imitate these articles without first having obtained permission from the government, that is to say, often after the foreign factories, having profited by the first eagerness of the consumer for this novelty, have already replaced it with something else. It means forgetting that the execution of these regulations is always entrusted to men who may have all the more interest in fraud or in conniving at fraud since the fraud which they might commit would be covered in some way by the seal of public authority and by the confidence which this seal inspires, in the consumers. It is also to forget that these regulations, these inspectors, these offices for inspection and marking, always involve expenses, and that these expenses are always a tax on the merchandise, and as a result overcharge the domestic consumer and discourage the foreign buyer. Thus, with obvious injustice, commerce, and consequently the nation, are charged with a heavy burden to save a few idle people the trouble of instructing themselves or of making enquiries to avoid being cheated. To suppose all consumers to be dupes, and all merchants and manufacturers to be cheats, has the effect of authorizing them to be so, and of degrading all the working members of the community.

– Turgot, “Éloge de Gournay” (1759), translated by P.D. Groenewegen

{ 18 comments }

Ron May 8, 2009 at 12:48 pm

Brilliant!

Inquisitor May 8, 2009 at 2:23 pm

It sounds so contemporary too!

Mark Thornton May 8, 2009 at 2:38 pm

From Wikipedia: “The exact origins of the term “laissez-faire” as a slogan of economic liberalism are uncertain. The first recorded use of the “laissez-faire” maxim was by French minister René de Voyer, Marquis d’Argenson, another champion of free trade, in his famous outburst.”

Menckenite May 8, 2009 at 3:26 pm

It’s a comfort to know the current government is doing one even better than in Turgot’s example. It’s making sure our “cushions” can become floatation devices so after knocking us on our asses we can keep afloat in the flood of debt.

BK Marcus May 8, 2009 at 5:12 pm

Thanks, Mark. But on that same Wikipedia page, we find this:

The laissez faire slogan was popularised by Vincent de Gournay, a French intendant of commerce in the 1750s. Gournay was an ardent proponent of the removal of restrictions on trade and the deregulation of industry and economic prosperity in France. Gournay was delighted by the LeGendre anecdote, and forged it into a larger maxim all his own: “Laissez faire et laissez passer” (‘Let do and let pass’). His motto has also been identified as the longer “Laissez faire et laissez passer, le monde va de lui même!” (‘Let do and let pass, the world goes on by itself!’). Although Gournay left no written tracts on his economic policy ideas, he had immense personal influence on the thinking of his contemporaries, notably the Physiocrats, who credit both the ‘laissez-faire’ slogan and doctrine to Gournay.[note] (emphasis added)

MBrown May 8, 2009 at 5:35 pm

Neat.

Can we have this as a nice poster???

Gregggg May 8, 2009 at 6:36 pm

THANKYOU!

“It means forgetting that the execution of these regulations is always entrusted to men who may have all the more interest in fraud or in conniving at fraud since the fraud which they might commit would be covered in some way by the seal of public authority and by the confidence which this seal inspires, in the consumers.”

I realized this when I was very young. It applies to so many other aspects of life, such as formal education.

Bruce Koerber May 8, 2009 at 8:58 pm

Turgot the great! Turgot the classical liberal!

Anna Morgenstern May 8, 2009 at 9:02 pm

Exactly so, Gregggg.

For instance, the true purpose of SEC regulations is to allow some people to evade the regulations…
The true purpose of drug prohibition is to enrich drug lords, etc.
—————————————————
The above is a brilliant quote by Turgot. It sums it up so neatly and pithily. Thank you very much for posting it, BK.

Vanmind May 8, 2009 at 11:26 pm

Awe

some.

Anna May 9, 2009 at 12:37 am

Viva le Gournay! Viva le Tourgot! Viva le Rothbard, et al!!

I am no scholar, but I have seen nothing written anywhere that better sums up the recent follies.

Thank you Mises Institute. If Mises had been on mount Sinai, I imagine his tablets would have made some sense! ;-)

Jorge May 9, 2009 at 1:16 pm

If we follow Turgot’s argument to its natural conclusion, and continue to using the analogy of a child, we will quickly see the error of his thinking. By Turgot’s line of thinking the market and not the government should be in charge of regulating the conduct of merchants. If a merchant sells inferior goods or cheats his customers, then over time, the customers will learn through trial and error what merchants can be trusted and which cannot. Through this mechanism merchants who sell inferior goods or who intentionally defraud their customers will lose their customers and go out of business.

Based on this line of reasoning, let consider the case of children’s medicine. Under this line of reasoning, the regulation of the effectiveness and potential safety of children’s medicine should be left to the trail and errors of those customers needing medicine for their children. If they should purchase medicine that is completely ineffective, or worse, actually toxic, they will learn through the death of their child that they cannot trust particular merchants when it comes to their children’s health and well being. The merchant, on the other hand, will eventually lose all of his customers to death by either disease or poisoning, and go out of business.

This is obviously an extreme case and no one but a senseless anarchist would propose this as a valid alternative. Yet this extreme case shows that the majority of us agree that some form of government intervention is required for the preservation of our personal safety and the stability of our society. What we disagree on is the extent to which government should protect us from the careless and/or malicious actions of others. Where we differ is in our tolerance for government intervention.

Missing from Trugot’s argument is the concept of negative externalities, or the negative consequences on an un-intended party to someone else’s transaction. We may object to bank bailouts and corporate bailouts, but if we were to let the market run its “natural” course, and allow these institutions to fail, we would more than likely have a very different opinions if we were to lose our cars and houses even though we had personally never missed a payment.

No one questions that the market inherently posses the self regulating mechanisms described by Trugot. What is questionable though is whether they are the most effective mechanisms for regulating commerce between members of society and preserving social stability.

TJR May 9, 2009 at 3:09 pm

“This is obviously an extreme case and no one but a senseless anarchist would propose this as a valid alternative. Yet this extreme case shows that the majority of us agree that some form of government intervention is required for the preservation of our personal safety and the stability of our society. What we disagree on is the extent to which government should protect us from the careless and/or malicious actions of others. Where we differ is in our tolerance for government intervention.”

Such a horrific case you imagine is already covered in a capitalist system: there are laws against fraud and such a firm would not only lose customers, its owners and its employees complicit in the fraud would be severely punished. But I wouldn’t call this government “intervention”, because that term has come to mean something else entirely than protecting individual rights. If you’re using the term “government intervention” to cover any form of government action, then you’re looking at the issue the wrong way. There is in fact, a point, a boundary, over which the government cannot cross without doing wrong itself. The “level” of government “intervention” we can tolerate is not some subjective arbitrary point that is determined by our feelings and opinions.

I’m not an anarchist, so what I will say will sound horrific to many here: the extent of the government “involvement” in any given case of rights-violation is whatever is necessary to bring the case to a satisfactory resolution, with all parties given due process. In an individual/private-party case, it may simply entail very little beyond apprehending the guilty party and carrying out the appropriate punishment. Or it can involve more coercive actions such as searches, seizures, and subpoenas. In the case of war, the government can grow to astronomical size if necessary to bring it to an end, while remaining very small in peacetime. That’s not to say that this is easily done. Many would argue that such a government cannot exist, cannot resist itself from growing beyond its appropriate limits. I believe otherwise.

But going back to your example, let me emphasize that market forces not only CORRECT such cases, but help to PREVENT them in the first place. I hope you don’t think that all people and business are all idiots and simpletons and learn only by trial and error. Firms anticipate their potential downfall or worse should their product fail or should they commit fraud. Consumers likewise are wary and take precautions against ineffective or fraudulent products. Hence the drug company will spend millions to develop and test it before it releases the drug, while consumers will likewise want independent reviews and tests of their own. If after such a process some children still die, then no government intervention could have done any better. A more stringent regulation would have resulted in much higher costs. Some children might have been saved by it, but others, many others would die as an unseen side effect, because they would have been denied of other drugs that are, in fact, effective, but which the government refuses to let the drug company release. There are many real-world examples of this. It’s not an extreme hypothetical case.

Geoffrey S. May 10, 2009 at 6:41 pm

Jorge,

I don’t think Turgot was suggesting that we should throw out laws against murder, fraud, assault, etc, and let people learn from the trial and error process which merchant decapitates his customers with a butcher’s knife and which merchant sells good products.

Letting the market process work does not preclude laws against murder or fraud from being enforced. You don’t even have to have the State for these laws to exist and to be enforced.

Jorge May 10, 2009 at 10:54 pm

“But I wouldn’t call this government “intervention”, because that term has come to mean something else entirely than protecting individual rights. If you’re using the term “government intervention” to cover any form of government action, then you’re looking at the issue the wrong way. There is in fact, a point, a boundary, over which the government cannot cross without doing wrong itself. The “level” of government “intervention” we can tolerate is not some subjective arbitrary point that is determined by our feelings and opinions.”

How can you say that the level of government intervention we can tolerate is not some subjective point when even within conservative economic circles there is not clear agreement on where this point lies? How can it be anything but subjective if even been you and I we cannot agree on where that point is? I agree completely that there is a point, a boundary, over which the government cannot cross without doing wrong itself, but I am almost positive that you and I imagine this point to be in two very different locations. By the very fact that you and I cannot agree proves that it is subjective. And simply stating that I am wrong does not in fact prove the contrary; it only demonstrates your own certainty and personal conviction.

Let me propose a question. Let’s assume the worse and say that the current government bailouts are nothing more than a reward for gross incompetence, or worse yet, a personal grab for power. If there are no laws in place that say what they are doing is fraud how can these bailouts then be anything but the very same self correctly mechanisms of the market? They have entered the arena of free market competition and they have figured out how to enrich themselves at the expense of the American tax payer. This is free market competition in its most fundamental state. The quick and the strong prosper and the rest of us are left to fend for ourselves. If we in anyway try to change this state of affairs through the imposition of laws then we are in essence working against the natural forces of the market.

If we agree that these bailouts are indeed fraud how would you suggest we stop them, or at least prevent them from happening again? By creating new laws or perhaps by enforcing old laws that for whatever reason have been overlooked or evaded? Or, would you be a true free market champion, and let the market sort it out? If we really believe that the market is self correcting then we should trust that even these frauds committed against the American people will eventually be corrected by the market forces you alluded to in your last paragraph.

I would agree that there are laws to prevent fraud and general criminal behavior. These laws though have not always been there. There was a time when what we today would call blatant fraud was simply considered being a good sales man. Time and experience has lead out society to continually add new restrictions on personal freedom in order to insure social stability. Again, we agree that there does need to be government intervention in order to protect individuals. What we do not agree on is how much government intervention is too much. I would suggest that government intervention becomes government encroachment when our PERSONAL interests are at stake. I am sure that the CEOs and bankers who are making money off of the bailouts would not say that the government has crossed the boundary of proper conduct. Only those that are personally losing their wealth would think so. The market has turned against them and now they are crying foul.

Jorge May 11, 2009 at 1:32 am

To revisit a statement made “let me emphasize that market forces not only CORRECT such cases, but help to PREVENT them in the first place.”. The market forces proposed by economist like Smith, Menger, and even Freidman are all based on cause and affect. There is no inherent benevolence in their operation. They only tell us with a certain level of probability that if a certain action is under taken then we can expect a certain reaction to occur. We are going one step too far if we begin to believe that some how these market forces posses any sort of benevolence or preference. In free market economics there is no good or bad conduct. There is only action and reaction. If we begin to apply qualitative values on particular actions then we have strayed away from our own ideological foundations, and we are only a step away from becoming an interventionist by another name.

A true free market economist would not lament about the current state of affairs but would simply try to exploit the current situation to his or her own personal advantage, which to me seems to be what the bailout recipients are doing.

Ron May 11, 2009 at 2:54 pm

Jorge,

Your reasoning implies a couple of assumptions that I think need to be addressed. The first is the implication that the State is somehow better equipped to prevent such scenarios as you describe than is the market. But there is no reason to believe bureaucrats have some greater desire or incentive to protect individuals from harm than do the manufacturers. In fact, there is every reason to believe the opposite, as the FDA, for instance, suffers no losses nor receives any admonishment when an unsafe drug slips past their screening process. The blame and the loss are always borne by the manufacturer.

This leads to the second assumption, which is that manufacturers wouldn’t consider the potential for future losses when they release a drug onto the market. The fact is that killing people really isn’t the best long-term business model for any pharmaceutical company, so drug makers strive to make their products safe in an effort to avoid taking losses in the future. Pharmaceutical companies would much rather make a profit on safe, effective drugs than pay legal fees and out-of-court settlements. So the market’s self-regulation not only punishes past or present failures, but also serves to discourage future mistakes.

Jorge May 11, 2009 at 7:30 pm

Ron,

You are speaking of the conduct of corporation who already must work within the confines of a heavy regulated industry. If you were to observe the very same corporations that act with such care and discretion in our domestic markets in a significantly less regulated foreign market, lets say Mexico, you would not see them self imposing additional regulations simply to protect the general public. On the contrary, they adopt the bare minimum safety requirements necessary in order to continue to operate. This is true of not only pharma companies but pretty much all corporations in nearly all industries. A prime example is the conduct Monsanto’s exportation of domestically banned pesticides to developing markets.

Even within our own domestic markets drug manufactures typically do not voluntarily recall their products until either the FDA instructs them to do so, or it becomes apparent that a FDA mandated recall is imminent.

I may be wrong, but corporations willfully acknowledging that they have done wrong and of their own free will seeking out and compensating their victims is not typical. A quick review of our court records relating to corporations being sued for misconduct will reveal that most will insists on their innocence until the bitter end.

We are speaking of formal laws governing public safety and intentional government intervention in to free market economics as if they are two separate and distinct things when they are one and the same thing.

Why is it that we are so dedicated to the ideal of free market competition yet we shy away from the reality that free market competition can and does cause harm? Free competition entails that someone must lose. Right now who ever is in charge of the bailouts has figured out how to make money off of the current economics collapse. Who ever they are, whether members of the Obama administration or members of the banking industries elite, they have understood the true working of the market and and are beating us out of our lunch. We should be patting them on the back for a job well done, and not crying that they are breaking the rules.

Do we want free competition or do we want rules and regulations to protect our interest?

Comments on this entry are closed.

Previous post:

Next post: