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In my last essay, I discussed some general features of Thomas Hodgskin’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 Hodgskin’s defense of free-market currency and banking. Perhaps most valuable is Hodgskin’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 Hodgskin, 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 wheaten 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,” Hodgskin gave us one of the finest treatments of the market as a coordinating process to be found in the literature of nineteenth-century economics.

Hodgskin 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? Hodgskin 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, Hodgskin 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.

Dealers…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 sub-division 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 Hodgskin, 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 labor, 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.” Hodgskin 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 Hodgskin’s defense is similar to that found in Adam Smith’s Wealth of Nations, Hodgskin stressed more than Smith did the role of wholesalers in coordinating economic activity. Space does not permit me to explore this aspect of Hodgskin’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 (1766-1834). 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 Hodgskin’s day.

Prior to what Hodgskin called the “unhappy celebrity” of Malthus’ 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 grace 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 nineteenth-century thought, especially in Britain. It was partially owing to this influence that Thomas Carlyle 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 labourers, 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 labour 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 his theory of rent.

Rent, Ricardo argued, arises from natural differences of fertility of 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.

Hodgskin, 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,” Hodgskin 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 Hodgskin 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. Hodgskin 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 labour 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 Hodgskin’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.

In 1823, Thomas Hodgskin co-founded, with his friend Joseph C. Robertson, the Mechanics’ Magazine. At that time “mechanic” referred to skilled artisans with a specialized trade, rather than to manual laborers in general, so the Mechanics’ Magazine featured articles on the latest developments in science and technology that would be of interest to educated workers.

With the Baconian maxim “Knowledge is power” on its masthead, the Mechanics’ Magazine stressed the crucial role of knowledge and innovation in improving the productive powers of labor. Inventors and creative engineers, such as James Watt (inventor of the steam engine), were praised as exemplars that all workers should seek to emulate. The thesis that the progress of knowledge is essential to the betterment of the working classes was a recurring theme in the writings of Thomas Hodgskin, one that he would elaborate upon in considerable detail in his book on economics, Popular Political Economy (1827).

In various articles published in the Mechanics Magazine, Hodgskin argued that government was no friend of the working classes and that the individual freedom of laissez-faire was the best policy. An ardent voluntaryist, Hodgskin opposed all state interference in education. He wrote in the Mechanics’ Magazine (Oct. 11, 1823):

The education of a free people, like their property, will always be directed more beneficially for them when it is in their own hands. When government interferes, it directs its efforts more to make people obedient and docile than wise and happy. It devises to control the thoughts, and fashion even the minds of its subjects; and to give into its hands the power of educating the people is the widest possible extension of that most pernicious practice which has so long desolated society, of allowing one or a few men to direct the actions, and control the conduct of millions. Men had better be without education—properly so called, for nature of herself teaches us many valuable truths—than be educated by their rulers; for then education is but the mere breaking in of the steer to the yoke; the mere discipline of a hunting dog, which, by dint of severity, is made to forego the strongest impulse of nature, and instead of devouring his prey, to hasten with it to the feet of his master.

Encouraged by the success of the Mechanics’ Magazine, and inspired by the market educational institutions in Edinburgh and elsewhere, Hodgskin and Robertson decided to establish the London Mechanics’ Institute. As originally conceived, this teaching institute was to be funded entirely by workers themselves, without private contributions from wealthy patrons—a caveat that was fueled by the fear that he who controls the purse strings would also control the agenda.

Things did not work out as Hodgskin and Robertson had hoped. After Francis Place, a skilled organizer with many contacts to potential contributors (especially among the Benthamites), was brought into the project, he insisted that the London Mechanics’ Institute could not survive without outside financial assistance. Seed money, in the form of a substantial loan, from Dr. George Birkbeck helped decide the issue in favor of Francis Place. Consequently, although Hodgskin and Robertson played formative roles in the founding of the London Mechanics’ Institute, neither ever served in an administrative capacity. (The London Mechanics’ Institute later became Birkbeck College, which is now a branch of the University of London.)

Robertson was so angered by what he regarded as a betrayal of the original vision that he attacked the Institute in the pages of the Mechanics’ Magazine. But Hodgskin was more conciliatory, maintaining that honest disagreements will sometimes arise among well-intentioned people. Although Hodgskin’s friendship with Place became strained, he formed a friendship with Birkbeck and dedicated Popular Political Economy to him.

In 1826, Hodgskin delivered four lectures on economics for the London Mechanics’ Institute. His book Popular Political Economy, published the following year, was an expansion and reorganization of the material contained in those lectures.

This highly interesting book deserves more attention than it has generally received. Even some libertarian scholars who praise Hodgskin for his later book, The Natural and Artificial Right of Property Contrasted (1832)—a true classic of libertarian thought—don’t quite know what to make of Popular Political Economy. Hodgskin’s labor theory of value renders it suspect to modern Austrian economists, and the critique of capital and capitalists in the final chapter appears to be nothing more than a summary of material that Hodgskin presented in his 1825 tract, Labour Defended Against the Claims of Capital (which I discussed in my last essay).

While conceding that the material in Popular Political Economy is of uneven value—a complaint that would apply to every book on economics written during the early nineteenth century—I also contend that it contains a number of brilliant insights and arguments that anticipate the ideas of F.A. Hayek and other Austrians. I will therefore devote the remainder of this essay and at least part of my next to exploring some of Hodgskin’s economic theories.

I undertake this discussion with a certain amount of fear and trembling, for I know, from many years of teaching, that no subject can bore readers as much as economics—especially various technical controversies in the history of economic thought. But I also know that libertarian readers tend to be an intelligent, educated, and inquisitive tribe, so I am willing to risk losing a few readers for the sake of explaining some problems in the history of economic thought that were crucial to the early development of libertarian theory.

In criticizing the most influential British economists of his time, most notably T.R. Malthus and David Ricardo, Hodgskin proved to be right on almost every major issue. Hodgskin’s critique of Malthus’s “principle of population” is sound, as is his critique of Ricardo’s theory of rent—two pillars of the doctrine, discarded long ago by economists, known as the “Iron Law of Wages.” According to this doctrine, those workers on the lowest rungs of the economic ladder in a free market are forever doomed to a subsistence level of survival.

This pessimistic doctrine—a stark contrast to the earlier economic optimism of Adam Smith, which Hodgskin sought to rehabilitate—became part and parcel of Marx’s theory of exploitation, so Popular Political Economy may be viewed as a pre-Marxian refutation of Marx.

Hodgskin was not an uncritical disciple of Adam Smith, however much he admired that great pioneer. On the contrary, Hodgskin was an eclectic who drew from a variety of sources, including the brilliant French economist J.B. Say.

For example, in criticizing Smith’s overemphasis on the division of labor as the mainspring of economic progress, Hodgskin relied on Say’s insight that the progress of knowledge, which in many cases precedes the division of labor, is the ultimate foundation of economic progress. This focus on the progress of knowledge—which was a throwback to Turgot, Condorcet, and other Enlightenment thinkers who defended the theory of “indefinite progress”—became the foundation from which Hodgskin launched his criticism of the economic orthodoxy of his day, as defended by Malthusians and Ricardians.

I shall explore this historical context in more detail in my next essay. For now, I wish to make a few general observations about Popular Political Economy.

According to Hodgskin, economic progress depends on observing natural laws, i.e., general principles based on the nature of human beings and social interaction. All wealth, both mental and material, is produced by the labor of human beings, and such wealth will tend to increase as people pursue their own interests within the boundaries of justice.

Economic intervention by governments can do nothing to increase wealth or to accelerate its progress. Nevertheless, legislators—who are typically ignorant of economic science and who are primarily concerned with preserving and enhancing their own power—“look on human society as a machine put together and regulated in all its movements by the politician; and they endeavour to make us believe that it would fall in pieces if it were not for the preserving power of his master hand.”

Hodgskin’s view is “totally different.” To provide for the general welfare through economic intervention is beyond the power of the human mind. Our powers, though admirably adapted to provide for our personal wants, “are quite incompetent to grasp, much less to regulate the complicated relations of society.” Such political endeavors become “every day more and more contemptible” as social relationships become more and more complicated.

What we now call “economics” was known in Hodgskin’s day as “political economy.” Hodgskin objects to the latter label (he was among the first to do so) because it confuses the natural laws of economics with the artificial (man-made) enactments of legislation. Hodgskin’s book, which lays out a “code of natural laws” in the sphere of economics, offers no practical suggestions except of a negative kind. The major lesson taught by economic science is that governments should stay out of economic affairs.

According to Hodgskin, a science of economic intervention is impossible, given the many variables involved. In other words, we cannot specify with precision how a particular regulation will affect the overall economic order. This is why the science of economics is so crucial. By giving us knowledge of how an economic order would function in a condition of perfect freedom, we come to understand, if only in general terms, the harmful effects of government intervention.

Hence it is by understanding the natural laws of economics that we also come to understand the harmful effects of political interference, for knowledge of economic laws enables us to trace the complex connections between social causes and effects.

Economics teaches us, for example, that “all legislative measures relative to the production of wealth” (such as the Corn Laws and other restrictions on trade) amount to nothing more than benefitting some people at the expense of other people. The lawgiver cannot increase wealth; the most “the vain and ignorance-begotten schemes of human legislators” can do is to alter the distribution of wealth, i.e., “to take or keep from one class and give to some other.”

In using the term “popular” as part of his title, Popular Political Economy, Hodgskin does not mean that he has reduced a difficult subject to light reading that can be understood without much thought. Rather, by “popular” he means the widespread suspicion among laypersons that there must be something terribly wrong with some of the theories defended by leading economists, such as T.R. Malthus in Essay on the Principle of Population.

As Hodgskin saw the matter, the proverbial common man, however ignorant he may be of technical economics, frequently has a better understanding of how markets actually work than do supposed experts in economic theory. On a practical level, the economic knowledge of entrepreneurs, manufacturers, merchants, and other laborers far exceeds the knowledge of intellectuals—but working people, however much they may suspect that a given economic theory is nothing more than junk science (to use a modern expression), are typically unable to justify their suspicions with abstract reasoning.

Hence title of Hodgskin’s book, Popular Political Economy. His presentation is “popular” in the sense that it seeks to vindicate the popular doubts that many people entertained about conventional economic wisdom.

To be continued….

In Part 1 of this series, I discussed Thomas Hodgskin’s advocacy of radical individualism and laissez-faire. Hodgskin’s libertarian views were so extreme that he has frequently and understandably been called an “anarchist,” though he expressly repudiated the label.

If you consult standard histories of economic thought, you will find a more curious label attached to Hodgskin, namely, “Ricardian socialist.” This label has been used because Hodgskin supposedly took the labor theory of value defended by the free-market economist David Ricardo (1772-1823) and developed it into a full-scale critique of “capital” and “capitalists”—most notably in Labour Defended Against the Claims of Capital (1825).

This tract is far from the best of Hodgskin’s writings, but it is the most famous. Why? Primarily because it was repeatedly cited and praised by Karl Marx, who was influenced by some of its key arguments. Indeed, in the first volume of Capital, Marx praised Hodgskin as “one of the most important modern English economists.”

We thus are presented with the anomaly of a radical advocate of private property and laissez-faire being called (by some historians) an English forerunner of Karl Marx. But we should not be misled by how the ideas of one intellectual were used by another intellectual. The fact that Marx cherry-picked a few arguments and concepts from Hodgkin and adapted them to his own socialistic agenda does not transform Hodgskin into a socialist or into a forerunner of Marx.

As Murray Rothbard pointed out in Classical Economics: An Austrian Perspective on the History of Economic Thought, p. 401:

There is no doubt that Hodgskin’s ultra labourism influenced Karl Marx, but his extreme labor theory of value does not make him a Ricardian, much less a socialist. In fact, Hodgskin was highly critical of Ricardo and the Ricardian system, denounced Ricardo’s abstract methodology, and his theory of rent, and considered himself a Smithian rather than a Ricardian. [Adam] Smith’s natural law and harmony-of-interest free market doctrine was also far more congenial to Hodgskin.

Consider these comments that Hodgskin made in a letter to Francis Place in 1820, just three years after Ricardo published Principles of Political Economy and five years before Hodgskin published Labour Defended Against the Claims of Capital:

I think I never saw a book more destitute of facts than Mr. R’s [Principles] which, at the same time, has had so much weight. To me it appears to rest on arbitrary definitions and strange assumptions. The first two sentences of the book are radically false…. [His] definition of value is wrong…. His explanation of the manner in which fixed capital tends to lower the prices of all commodities into which it enters, I hold to be the best and only good part of his book…. [I]t does appear to be built on no sort of facts, to contradict many and to have little more merit than a “bewildering subtlety.”

In early 1823, Hodgskin moved from Edinburgh to London, where he became the parliamentary reporter for the Morning Chronicle (whose editor was a friend of the Benthamite James Mill). Within months of arriving in London, Hodgskin started the Mechanics’ Magazine, an educational journal aimed at factory workers and other laborers. At a time when many workers were demanding minimum wage laws, Hodgskin argued that all economic regulations, including minimum wage laws, should be repudiated in favor of a free, unregulated market.

Legislators, Hodgskin warned, are not the friends of workers. Indeed, “legislators have always belonged to the non-labouring classes of society, and it seems bad, therefore, for the poor man to have any law of this kind emanating from them.” Members of the ruling class already have too much power, and to grant them the right to regulate wages would enhance their power even more. Even if such regulations might prevent wages from falling in the short run, laborers would be better served in the long run by looking after their own interests in a free market, rather than depending on legislators, whose principal concern is preserving their own power.

In 1824, while working as a parliamentary reporter, Hodgskin observed debates in the House of Commons that led to the repeal of the Combination Laws, which had outlawed trade unions by prohibiting combinations of workers who wished to pressure employers for shorter hours or more pay. These Combination Laws were a chief target of the Benthamites and other free-market advocates, who argued that workers should be permitted to negotiate freely with their employers, so long as no coercion was used.

Although some free-market types, such as Francis Place, predicted that the wholesale repeal of the laws prohibiting trade unions would diminish the frequency of strikes, this is not what happened. Repeal was immediately followed by an outbreak of strikes, some of which were violent. Thus, no sooner had the old laws been repealed than alarmed legislators passed the 1825 Combination Act. This new legislation, while permitting collective bargaining in matters pertaining to wages and conditions of employment, stated that union members could not “molest”, “obstruct”, or “intimidate.” It was unclear, however, how terms like “obstruct” would be interpreted by English courts.

This historical background is essential to understanding Hodgskin’s political purpose in writing Labour Defended Against the Claims of Capital, which carries the subtitle: Or the Unproductiveness of Capital proved with Reference to the Present Combinations amongst Journeymen.

Thomas Hodgskin used the new law against trade unions as an opportunity to criticize the theory of capital that had been defended by David Ricardo and his followers. The Ricardians, such as economist J.R. McCulloch (whom Hodgskin specifically mentioned), were peculiar targets in a way, since they had spearheaded the movement to repeal the prohibition against trade unions and collective bargaining. Nevertheless, Hodgskin believed that these free-market economists had fostered, if unwittingly, the widespread prejudice against trade unions by investing “capital” with productive powers that it did not in fact possess.

Hodgskin’s critique of “capitalists” was severe and unremitting. He denied “that capital has any just claim to the large share of the national produce now bestowed on it” “One is almost tempted to believe that capital is a sort of cabalistic word, like Church or State, or any other of those general terms which are invented by those who fleece the rest of mankind to conceal the hand that shears them.” The “evil effects of capital” are seen in the fact that the laborer must give a “large quantity” of the produce of his labor to the capitalist, which keeps “the labourer in poverty and misery.” Capitalists “can grow rich only where there is an oppressed body of labourers,” and they “have long since reduced the ancient tyrant of the soil to comparative insignificance, while they have inherited his power over all the labouring classes. It is, therefore, now time that the reproaches so long cast on the feudal aristocracy should be heaped on capital and capitalists.”

Readers familiar with the Austrian theory of capital can easily identify the serious flaws in Hodgskin’s theoretical attack on capital and capitalists. (See Rothbard’s discussion, cited above, for a brief but incisive critique.) But in fairness to Hodgskin, three points should be kept in mind.

1) Labour Defended should be read, in part, as a criticism of “crony capitalism,” to use a modern expression. Hodgskin believed that laws against trade unions and collective bargaining had created an unfair advantage against workers in favor of capitalists. Hence the large profits reaped by capitalists were not the result of natural economic forces but were generated by the coercive laws of government.

2) Hodgskin distinguished between different economic functions that are sometimes included within the label “capitalist.” Although he stressed that “whatever labour produces ought to belong to it,” he also emphasized that “labor” does not refer to physical exertions alone but also to mental activities and skills. “I therefore would caution my fellow labourers not to limit the term labor to the operations of the hands.”

The production of a commodity requires the joint labor and cooperative efforts of many different people with many different skills, including the “knowledge and skill of the master manufacturer, and of the man who plans and arranges a productive operation, who must know the state of the markets and the qualities of different materials, and who has some tact in buying and selling….” These “masters,” “employers,” and “contrivers and enterprising undertakers of new works” are authentic laborers, so they have a just claim to their share of profits. “The labour and skill of the contriver, or of the man who arranges and adapts a whole, are as necessary as the labour and skill of him who executes only a part, and they must be paid accordingly.”

3) Another point is even more significant, for it clearly separates Hodgskin’s critique of capitalists from socialistic proposals. If it is true that the laborer should receive the full product of his labor, it is also true that commodities in an advanced society are the product of a complex division of labor wherein many people contribute to the manufacture of a single economic good.

So how can a particular laborer receive just compensation, when it is impossible to separate his contributions from those of many others? There is only one way, according to Hodgskin, namely, to allow laborers (including employers, manufacturers, entrepreneurs, and others) to complete freely in a competitive market. As Hodgskin put it:

There is no principle or rule, as far as I know, for dividing the produce of joint labour among the different individuals who concur in production, but the judgment of the individuals themselves; that judgment depending on the value men may set on different species of labour can never be known, nor can any rule be given for its application by any single person. As well might a man say what others shall hate or what they shall like.

At each stage of production a person must decide how much he is willing to pay for the materials and services needed to produce his share, and many such subjective evaluations are reflected in the value of the final product. Hence when something is finally produced under an advanced division of labor, “there is no longer any thing which we can call the natural reward of individual labour.”

Each labourer produces only some part of the whole, and each part having no value or utility of itself, there is nothing on which the labourer can seize, and say: “This is my product, this will I keep to myself.”

Given the many different people and skills that are required to produce even a simple commodity under a complex division of labor, how should we determine the reward that should go to a particular laborer? Hodgskin answers this question as follows:

I know of no way of deciding this but by leaving it to be settled by the unfettered judgments of the labourers themselves. If all kinds of labour were perfectly free, if no unfounded prejudice invested some parts, and perhaps the least useful, of the social task with great honour, while other parts are very improperly branded with disgrace, there would be no difficulty on this point, and the wages of individual labour would be justly settled by what Dr. Smith calls the “higgling of the market.”

We thus see that Thomas Hodgskin was not a “Ricardian socialist,” or a socialist of any kind. Quite the reverse is true. Rather than draw socialistic conclusions from the labor theory of value, Hodgskin employed it as an underpinning for laissez-faire. Only in a free market, he maintained, can laborers of every kind receive just compensation for their work.

It would be impossible to explore the many problems in Hodgskin’s critique of capital and capitalists without simultaneously discussing the labor theory of value on which it depends. But it should be noted that leading proponents of the labor theory of value, most notably Smith and Ricardo, were unable to provide an altogether satisfactory account of the profit generated by capital.

Although it was generally understood that the capitalist advances wages to workers, and thereby foregoes present for future consumption, most classical economists failed to understand the crucial relationship between time preference and the interest that accrues to capital. Although Hodgskin appreciated (and praised) the risk-taking role of the entrepreneur, he also separated this role from that of the pure capitalist in an artificial manner. All capital investment in a free market is attended with some degree of profit-generating risk.

The Englishman Thomas Hodgskin was born December 12, 1787. His spendthrift father, despite making decent money as a storekeeper at the Chatham naval stockyard, managed to keep his family in dire financial straits, so he sent Thomas (who was barely twelve) to serve as a cadet aboard a British warship.

Although he served with distinction during the Copenhagen expedition and rose to the rank of lieutenant, Hodgskin detested his twelve years as a sailor. For one thing, it deprived him of an education. His access to books was limited, so he could do little more than “reflect in the midnight watch, on the solitary deck, on the wide ocean, amidst the wildest or the most peaceable scenes of nature…before I had acquired a sufficient stock of material.”

Hodgkin’s independent spirit, his intense dislike of unjust authority, and his determination “to make a powerful resistance to oppression every time I was its victim” were not well suited to the rigors and harsh discipline of naval life. Thus, when it became clear that he would be passed over for promotion, Hodgskin complained “of the injury done to me, by a commander-in-chief, to himself, in the language that I thought it merited.” This of course only made matters worse. Hodgskin, at age twenty-five, was forced into retirement at half-pay, after which he wrote An Essay on Naval Discipline (1813), a scathing indictment of conscription and the brutal conditions endured by British sailors.

Hodgskin’s experience with the horrific punishments inflicted on British sailors for even minor offenses caused him to question both the justice and utility of the supposed “right” to punish. British sailors, who typically hailed from lower-class backgrounds, were frequently pressed into service against their wills, and their officers tended to view them as brutes who could be controlled only by the lash.

Hodgskin, who by this time had read John Locke, William Paley, and other moral philosophers, had a different opinion. Humans, created by God with “similar passions,” are “everywhere made alike.” Many individual differences are caused by different social and political environments. If the English tended to be happier and more virtuous than people from other nations, this was largely because they were less governed than other nations. And if English sailors appeared more brutish than other Englishmen, this was owing not to any inherent defects in their natures but to the barbarous conditions of naval life.

In short, if you treat men like brutes, they will behave like brutes. Press gangs and conscription, according to Hodgskin, should be abolished and replaced by voluntary, short-term enlistments; pay should be increased so that sailors can afford a decent standard of living; and the draconian penal laws of the navy — which were applied arbitrarily, without recourse to due process — should be eliminated. If there must be punishment, then the navy should follow the example of the civilian courts in England, which “do not punish the innocent” and which are administered according to impartial laws, not by the whims of superiors.

As Hodgskin (who was remarkably frank about his motivations) would later note, his Essay on Naval Discipline was an emotional reaction to his unjust treatment by superior officers: “I was angry at being punished when I thought I was doing the duty of a good man and a good citizen.” Hodgskin used his anger to spur further investigations into the right of punishment:

This anger made me read books on the subject, and I sought in vain. I sought and still seek in the writings of celebrated authors for any justification of the right to punish, and the result of that was a system of opinion which, as far as I have read, may be called on the whole peculiar.

Hodgskin would later elaborate upon these “peculiar” opinions in the pages of The Economist, after he became senior editor of that journal (the same one published today) in 1846—a position he would hold for eleven years. Hodgkin’s many articles for The Economist made it one of the most interesting and provocative libertarian periodicals of its time. In addition to supporting laissez-faire, voluntary education, and other (classical) liberal causes, Hodgskin also opposed capital punishment and questioned the traditional wisdom about the efficacy of punishment as a deterrent to crime.

According to Hodgskin, most crimes are motivated by a desire to escape intolerable poverty, and such poverty is often the consequence of taxes, economic regulations, and other governmental restrictions of free-market activities. If people were allowed to pursue their own interests through voluntary interaction with others, and if they were allowed to keep the fruits of their own labor rather than having much of it expropriated by government, then a good deal of poverty—along with a major motive for criminal acts—would be eliminated.

Around 1815, Thomas Hodgskin became friends with Francis Place, the famous tailor and working class radical of Charing Cross Road. This friendship gave Hodgskin access to London libertarians—including Jeremy Bentham, his Scottish protégé James Mill (the father of John Stuart Mill), and an elderly William Godwin, who had created a sensation with the first systematic defense of philosophical anarchism, An Enquiry Concerning Political Justice (1793).

Hodgskin felt that his age and other obstacles would make it difficult to embark on a new career. Medicine would require that he learn Latin, whereas law would require that he smother his love of justice—so, given that peace had returned to Europe in 1815, Hodgskin decided to take the grand tour and write a book based on his experiences. The result was his first major work, Travels in the North of Germany, published in two volumes in 1820.

These volumes combined interesting observations with political commentary on “the much governed countries of Germany.” Hodgskin emphasized the inefficiency and waste of government projects. For example, he commented on the inferior quality of state-financed roads in Germany, contrasting them with the privately financed roads in England, and he even suggested that police functions should be placed in private hands. As Hodgskin put it, “the real business of men, what promotes their prosperity, is always better done by themselves than by any few separate and distinct individuals, acting as a government in the name of the whole.”

When it is remarked, that the prosperity of every nation is in an inverse proportion to the power and to the interference of its government, we may be almost tempted to believe the common opinion, that governments are necessary and beneficial, is one of those general prejudices which men have inherited from an ignorant and barbarous age, and which more extensive knowledge and greater civilization will show to be an error full of evil.

The hundreds of German principalities were the consequence of artificial political divisions, but the solution was not to unite them under a single conqueror or central government. Hodgskin deplored the “stupid veneration” of great men, who mask their personal ambition and self-interest in the rhetoric of the public good. Instead, the Germans need only “chase away their different masters to make them all sensible that their interest is everywhere the same.”

Thus did Hodgskin defend the spontaneous social order that emerges from private property, voluntary exchange, and the natural harmony of interests (as explained by Adam Smith and other political economists), while excoriating the “square, mechanical” unity of despotism and economic regulations that transfer wealth from the productive class of laborers to the unproductive class of rulers.

Hodgskin did not recommend a parliamentary system, such as that found in England, as the cure for Germany’s problems. The key to England’s prosperity lay not in its parliament but in a vigilant public and a free press that acted as a continuous check on the abuse of power. “The evils of society cannot be remedied by acts of parliament.” Even public assistance laws and proposals for agrarian reform, however well intentioned, will not accomplish their intended purposes; such measures merely create the illusion of reform while placing more power in the hands of legislators. “The simple means of making the race frugal is to supply the wants of no man and to leave every man the produce of his own labour.”

The Germans, like many Europeans, had a false conception of political economy, according to which prosperity can be promoted by means of government. In truth, prosperity can come about only through human labor and voluntary exchange, and “those social regulations ought to be exposed to censure, which have inflicted on us so much poverty and distress.”

Hodgskin was living in Edinburgh when Travels was published, and this city had long been a center of liberal agitation. While his wife (whom he had met on his travels) was giving German lessons to supplement the family income, Hodgskin was doing his part by writing articles for the Edinburgh Review and other liberal journals. He wrote to Francis Place:

Undoubtedly the abolition of all restrictions of whatever kind is the great point to be aimed at. We want a destroying legislature whose great business would be to do away with the enactments of their predecessors.

Although at this time Hodgskin had a good deal in common with other liberal reformers, his anarchistic tendencies often gave give his opinions a radical edge that alienated other liberals. This tension became evident in his reaction to the “Peterloo Massacre” of August 16, 1819.

After a coalition of middle and working class reformers organized a mass meeting at St. Peter’s Field in Manchester to call for parliamentary reform, the crowd was attacked by mounted soldiers who killed 11 people and wounded around 400 others, including 100 women. Although this incident was universally condemned by liberals, they typically focused on its supposed illegality and condemned it as a violation of the British constitution. Thus, as Hodgskin saw the matter, liberals, while explicitly criticizing the government, were implicitly supporting the system of unjust law on which the government depended for its legitimacy. As he explained to Place:

The horrid violation of the laws at Manchester seems only now to be a cry and a watchword to support them. Productive as it has been of miseries, it is our miserable constitution we are now told we must defend and support. I am heartily sick of such nonsense. I should like to know the single law that is worth an honest man’s struggle…. I do not know one that of itself is worth supporting, but all men seem to think it is better to be sabred by hussars or shut up in Bastilles according to rule than trust their fellow men. They seem to think it better to be fleeced according to rule than run the most remote possibility of living according to reason.

In an article which he submitted to the Scotsman in January 1820, Hodsgkin praised Smith, Malthus, Bentham other political economists who “had shown the absurdity of almost every regulation and, as a necessary consequence, had weakened the respect of all men for the authority from which these absurdities had emanated.” But the Scotsman declined to publish this article, probably because Hodgskin pushed his critique of law into an anarchistic direction that few liberals could accept.

Whereas Jeremy Bentham and his followers had criticized bad laws as the consequence of “sinister interests” (i.e., the landed aristocracy), Hodgskin extended this perspective to all governmental laws, while contrasting them with the natural laws of social interaction. All governmental laws are designed by ruling oligarchies to further their own private interests, and these laws conflict with those natural laws of society that serve the general interests of the people. This recurring theme would later receive an extensive treatment in Hodgskin’s most important book, The Natural and Artificial Right of Property Contrasted (1832).

To be continued…