 Welcome to George H. Smith's Excursions into Libertarian Thought, a production of Libertarianism.org and the Cato Institute, narrated by James Foster. Thomas Hodgkin, Libertarian extraordinaire, Part 4. In my last essay I discussed some general features of Thomas Hodgkin's popular political economy, 1827. I will now explore this book in more detail. Despite some theoretical shortcomings, popular political economy contains a number of insightful discussions such as Hodgkin's defense of free market currency and banking. Perhaps most valuable is Hodgkin's discussion, which anticipates later insights by F. A. Hayek and other Austrian economists, of the role of prices in transmitting vital information in a free market. According to Hodgkin, variations and fluctuations in prices are crucial economic indicators that regulate consumption. For instance, if the price of bread did not rise when farmers anticipated a poor wheat crop, no persons would be admonished in time to lessen their consumption or seek for other food than wheat and bread, and before the next harvest famine might ensue. Conversely, if prices did not fall during an abundant crop, a good deal of bread would be wasted. Prices are therefore the index to the wants of society. They indicate to all men how they may employ their time and talents most profitably to themselves and most beneficially for the whole of society. In characterizing retailers and wholesalers as indispensable agents in adjusting the supply of commodities to the demand and to consumption, Hodgkin gave us one of the finest treatments of the market as a coordinating process to be found in the literature of nineteenth century economics. Hodgkin set up the problem of market coordination by noting two things in regard to agricultural products. First, some commodities take longer to produce than other commodities. Second, some commodities will last longer than other commodities before they spoil and become useless as food. Nevertheless, people need to eat every day. So how is it that a free market can provide a regular supply of food despite these dramatic differences in various agricultural commodities? Hodgkin wrote, But though the products of different species of labour are completed in unequal times and are of such unequal durability that some must be immediately sold and consumed while others can be kept from the market for months, the appetite of each labourer is renewed daily and must every day be satisfied. If we were aware of these natural laws influencing both us and the materials of our subsistence and if we at the same time knew that the great majority of the operations carried on in society were in the long run of equal utility, each being necessary to the completion of the others, and that civilized society probably could not exist and certainly could not flourish wanting any of them should we not think ourselves bound to take measures by which he whose useful task could not be completed and its produce brought to market for several months might be able to obtain his daily bread. As if anticipating later criticisms of central economic planning Hodgkin expressed mock surprise that our parliament men have not yet claimed to possess the near omniscience that would be needed to enable us to produce every commodity in the precise form and at the precise time it is wanted and have not taken measures to ensure all classes of labourers however long a time may be required for their products to reach the market, their necessary daily subsistence. No such overall knowledge of markets is possible nor is it needed. The ability of free markets to coordinate supply and demand grows up unperceived and uninfluenced by legislators. Indeed this crucial function is performed by retail and wholesale merchants who are motivated by nothing more than their own economic interests. Laborers know very well the utility of different commodities and they conjecture with tolerable accuracy the different periods in which a given quantity will be consumed. They buy therefore from the various classes of labourers or manufacturers their different products and share them out as is most suitable to the wants of all. They reconcile the apparent incongruity of nature and while labouring for themselves are useful to others. The important business of actually distributing the wealth of society in such proportions as individuals can buy it so that the daily wants of all classes even of those whose produce is not completed for months or years may be conveniently supplied is in fact performed by retail dealers. They take to their business, I am aware, with no such high object in view. They are led to it by an instinctive view of their own interest and they are just as unobserving of those great natural circumstances which give rise to their occupation and as ignorant of the great utility to society at large of that subdivision of labour they carry into practice as those individuals who pretend that nature regulates nothing and that but for their ordering wisdom society could not exist. According to Hodgkin in all cases when trade is voluntarily carried on we may be sure that it is beneficial to all parties. Voluntary exchanges permit each person to pursue his own interests according to his own judgments. Although retail dealers in their pursuit of profit are sometimes described as sucking the marrow out of the bones of the poor labourers this depiction is wholly inaccurate. Retailing is a species of labour and the retailer can profit only if he exercises the greatest economy in distributing commodities to consumers who want them. Retailers have a direct interest in performing their task well and strong motives for that watchfulness which is beneficial to the whole of society. Hodgkin concludes under the influence of self interest buying and selling only with a view to their own profit retail dealers distribute the whole wealth of society in the most economical manner possible. They find customers even for refuse. Popular political economy continues with a similar analysis of wholesale merchants who were widely condemned for hoarding grain and then selling it for high prices during times of famine. Although Hodgkin's defense is similar to that found in Adam Smith's Wealth of Nations Hodgkin's stressed more than Smith did the role of wholesalers in coordinating economic activity. Space does not permit me to explore this aspect of Hodgkin's book so I leave it to readers to discover his brilliant treatment for themselves. Generally considered popular political economy is a sustained critique of the principle of population defended by the English clergyman Thomas R. Malthus 1766 to 1834 and this brings us to some economic arguments that though they may fail to captivate modern readers generated an enormous amount of interest and controversy in Hodgkin's day. Prior to what Hodgkin called the unhappy celebrity of Malthus's arguments economics had generally been viewed especially by Adam Smith as an optimistic enterprise, one that explained how no definite limits could be assigned to economic progress. After a theory of indefinite progress had been integrated by some Enlightenment philosophers especially the anarchist William Godwin into their futuristic utopian schemes Malthus responded in 1798 with a terse critique, an essay on the principle of population. Although Malthus modified his views in later editions of this book it was the first edition that generated most of the controversy. Malthus was widely regarded as having delivered the coup de gras to optimistic theories of progress. His refutation rested on the claim which was not original with him that population when unchecked increases in a geometrical ratio whereas the food supply increases only in an arithmetical ratio. The economic significance of this principle of population is that the constant tendency of a population to increase tends to subject the lower classes of the society to distress and to prevent any great permanent amelioration of their condition. The pressure of population growth relative to the food supply will impose severe limitations on economic progress. This means that there will always exist a significant number of workers who will never be able to acquire more than subsistence wages. It would be difficult to overestimate the influence of Malthusianism on 19th century thought especially in Britain. It was partially owing to this influence that Thomas Carlisle dubbed economics the dismal science. When David Ricardo incorporated the principle of population into his own economic theory it became a part of Benthamite orthodoxy. According to Ricardo wages like all other contracts should be left to the fair and free competition of the market and should never be controlled by the interference of the legislature. This had been the view of Adam Smith as well but Ricardo injected a pessimistic note into the long term prospects for real wages that conflicted with Smith's account according to which the real wages of labor will tend to rise in a progressively expanding economy along with the accumulation of capital. In contrast Ricardo maintained that the natural price of labor is that price which is necessary to enable the laborers one with another to subsist and perpetuate their race without either increase or diminution. Ricardo did not deny that the market price of labor the price which is really paid for it will be determined by the market forces of supply and demand but he also maintained that however much the market price of labor may deviate from its natural price it has like commodities a tendency to conform to it. When early economists spoke of natural price they roughly meant what modern economists call the equilibrium price. One thing that differentiated Ricardo's account from Smith's is the fact that the former incorporated the Malthusian principle of population and it was this factor that imbued Ricardo's theory with pessimistic hue. Ricardo's approach falls somewhere between the pessimism of Malthus and the optimism of Smith. When according to Ricardo the market price of labor exceeds its natural price the condition of the laborer is flourishing and happy but the long-term tendency is for the market price to gravitate to the natural price because higher wages will motivate workers to have larger families and this by increasing the number of laborers will eventually bring about lower wages. This is only a tendency however in fact the market rate of wages may in an improving society for an indefinite period be constantly above the natural rate. Much of popular political economy is a sustained critique of Malthusianism and of its use by Ricardo especially in connection with this theory of rent. Rent Ricardo argued arises from natural differences of fertility among different units of land. As more land is cultivated to meet an increasing demand for food less productive land is brought under cultivation. Consequently each unit of agricultural labor will become less productive owing to the poorer quality of that land. This is essentially a theory of marginal productivity applied to agriculture. Thus as more labor is required to produce the same amount of food on less fertile land that could previously be produced on more fertile land the real price of agricultural products will increase relative to other goods. This Ricardo concluded is a major reason why the food supply will never keep pace with population growth and why wages will tend to fall to the level of subsistence. Hodgkin while not denying that we must have recourse to soils of less and less fertility nevertheless questioned the conclusions that Ricardo drew from his theory. For even Ricardo had conceded that various factors such as technological improvements will tend to mitigate the higher food prices generated by the diminished productivity of less fertile soil. Thus given that there are numberless circumstances which compensate for decreasing fertility Hodgkin could not understand how Ricardo could dogmatically conclude that these mitigating circumstances would not neutralize the effects of decreasing fertility in the long run. Once again Hodgkin appealed to the optimism of Adam Smith over the relative pessimism of Ricardo. Smith had argued that the prices of almost all commodities will decrease with economic progress owing to a greater division of labor and new technology. Hodgkin maintained that there is nothing unique about agricultural products that should exempt them from this general trend. He also called attention to the many innovations and machines that had appeared since Smith's day which diminished to an almost inconceivable degree the labor necessary to procure meat or make bread. Hence the opinion that the natural price of food lessens rather than increases in the progress of society seems borne out by facts because in the progress of society food is obtained by less and less labor. Technical arguments aside it is important to understand Hodgkin's basic approach. He believed that the progress of knowledge is the mainspring of economic progress. The advance of knowledge will generate labor saving inventions and technology innovations that we cannot possibly predict or foresee. It is therefore impermissible for economists to stipulate necessary limits to economic progress as if human creativity and innovation will never advance beyond their current state. Thank you for listening to Excursions. To learn more about libertarian philosophy and history visit www.libertarianism.org