Sunday, August 15, 2010

Benjamin Franklin and 18th Century Economic Thought (1939)

The Rodda Project: An early essay on American economics

The title page of Sen. Rodda's paper on Benjamin Franklin and his views on economics carries an interesting information block:

Winter, 1939
Albert S. Rodda

One assumes, therefore, that Albert wrote this paper back in 1939 in response to an assignment in Professor Barker's winter quarter class on the colonial mind. Was Albert on sabattical from his high school position, taking a seminar at Stanford—or was it elsewhere? He had already earned his bachelor's degree from Stanford in 1933 and would not return for graduate studies until after World War II. This essay, therefore, remains something of a mystery.

However, the Senator was clearly fond enough of the essay to include it in his collection of papers and to make copies of it available. The version I possess was clearly typed professionally by the Senator's office staff rather than by the Senator himself (Albert's own typing is rather distinctive) and my copy is a photocopy of a comb-bound original. Since he often tinkered with and fussed over his papers, it's likely that the following essay is not exactly as it was in 1939. Nevertheless, it gives us a peek at an early stage of the Senator's thoughts on economics and presents his analysis of a Founding Father's perspective on economic theory.

One small technical note: The number 20 occurs twice as a footnote reference, but this is probably a typo. The reference for the first footnote 20 appears to be missing.

Benjamin Franklin in Relation to the Economic Thought of the Eighteenth Century

Albert S. Rodda
Winter, 1939

Europe in the eighteenth century was in a state of intellectual revolt against tradition and authority. Institutions, religion, philosophy, the sciences, morals, all were under the examining eyes of the rationalistic philosophers who were busy tearing down, patching up, and rebuilding European civilization according to an architectural pattern which would harmonize with the discoveries of inductive science and which would conform with the “eternal” laws of the natural order.

Men like Hume, Bayle, Locke, Voltaire, Diderot, Rousseau, scoffing at everything which was upheld by the sanctity of tradition, directed the vanguard of the attack on the ancien regime. With reason their weapon, humanity their cause, they drove relentlessly against every stronghold of old order.

Colonial America, though situated on the periphery of the struggle, was able, nevertheless, to contribute in no small degree to the spread of the principles of enlightenment. European traditionalism had been established only weakly on this side of the Atlantic, and a careless British government had allowed heretical institutions to take shape, with the result that the colonies served, somewhat unconsciously, as an experimental laboratory where the social theories of the intellectual dissenters were put to test.

Prior to 1700 the colonials were carefully nourishing such innovations as religious toleration, local self-government, social equality, constitutional government, and other significant departures from the social experiences of. the past. A few colonial philosophers had risen to leadership—Roger Williams and William Penn, for example— but none had approached the stature of their European contemporaries. Before the turn of the century American participation in the cause of liberty and freedom had been an important one, but it had been clearly more institutional than personal in character.

In the eighteenth century, however, Benjamin Franklin emerged from the American scene to occupy such an important position in the intellectual world as to force even the Europe of Voltaire to acknowledge him. Without a doubt, Franklin was the dominant intellectual light in the colonies and he was their great contribution to the cause of philosophical rationalism. Though less the destructive critic than most of his contemporaries, he was a true representative of that group of learned men. Truth, justice, peace, and order on earth were the goals sought by the apostles of enlightenment, and this was true of none more than it was true of Franklin. The impelling ambition of Franklin's philosophy was the betterment of the spirit of man and of the spirit of the world.

Not a creator of abstruse philosophical systems, Franklin gave the world no treatises on science, no monographs on government, no essays on philosophy and religion. For these things he was not famous. His greatness lay rather in the versatility of his knowledge, in his understanding of men, in the sobriety and depth of his character, in the breadth of his tolerance, and in his vast knowledge of the world and of the people in it. In these things Franklin showed a maturity of wisdom, perhaps, unequalled by anyone in his time.

Notwithstanding the fact that Franklin never wrote a treatise on economic theory, he must be credited with being the first American economist.1. His writings are full of intelligent opinions on the economic problems of his century, such as paper currency, free trade, taxation, population, slavery, interest and capital, labor, and many others. It is impossible, however, to say that he belonged to a particular school of economic thought, though he subscribed to the fundamental tenets of the Physiocrats.

Born in 1706, Franklin grew to manhood at a time when mercantilism, the theory of political economy which flourished in the seventeenth century, was on the defensive. The history of mercantilism had been closely interwoven with the social fabric of the ancien régime, and for this reason it was under suspicion and its doctrines were being rudely examined by the philosophers. Particularly in France, where commerce and industry had long experienced the suffocating restrictions of “Colbertian” mercantilism, was this true. In that country economic theory was being directed into new channels by a group of rationalists—the Physiocrats.

These men were the predecessors of Adam Smith in the attack on mercantilism. Their ideas were antithetical to the mercantile system, which they opposed because it violated the natural order of things,2 and it was from their doctrines that Smith developed the laissez-faire principles, so ably presented in his book The Wealth of Nations, which led to the complete discrediting of mercantilism.3 Between the extreme of laissez-faire and mercantilism must be placed the Physiocrats and Benjamin Franklin; they bridged the gap which separated the two.

Franklin came into first contact with the Physiocratic school of thought during his visit to Paris in 1767. At that time he met and became a personal friend of Quesnay, Mirabeau, Du Pont de Nemours, Turgot, and others.4 The exchange of ideas which took place naturally had a strong influence on Franklin's opinions, and his economic writings after that time reveal his inclination towards the Physiocratic way of thinking. However, it must be admitted that Franklin's own personal ideas and views, which he had developed independently of the Physiocrats, had made him a person who was almost a Physiocrat before he became familiar with their tenets.

Resenting British interference in colonial trade and industry, Franklin had become a believer in free trade as early as 1747.5 The Physiocratic objections to the mercantile restrictions on French commerce and their insistence on world-wide free trade served to convince Franklin of the correctness of his own views and caused him to become more firm in his opposition to British mercantilism.

At the same time, the relatively significant position occupied by agriculture in the colonial economic system had long absorbed Franklin's attention, and had made him a sincere and understanding friend of the farmer. He soon became quite won over to the idea of the Physiocrats that the only creators of real value were the agriculturists and those engaged in the extractive industries.6

He, therefore, subscribed to the theory of the “produit net” and supported the Physiocrats in their demand for the single tax on land, or the “impôt unique.”7 Franklin was considerably more sensible to the limitations of this principle than were the Physiocrats, however, and he suggested that in practice there doubtless would be countries in which the exclusive use of the “impôt unique” as a source of revenue would prove impossible. For this reason, he consented to a restricted use of indirect taxes on trade and industry where conditions adverse to the single tax prevailed. It was on the basis of this opinion that he later considered his conduct in support of a low import duty in Pennsylvania completely in accord with his original views. The American colonies, in his belief, presented an environment unfavorable to a successful application of the single tax principle.8

In respect of the question of value Franklin had again adopted the Physiocratic concept. In his early years he had adhered to the “labor-time” theory of value which he had learned from Sir William Petty, but he soon abandoned it for the value theory as conceived by the Physiocrats.9

He wrote to Lord Kames, in February, 1769:

Food is always necessary to all; and much the greatest part of the labour of mankind is employed in raising provisions for the mouth. Is not this kind of labour, then, the fittest to be the standard by which to measure the values of all other labour, and consequently of all other things whose value. depends on the labour of making or procuring them?10
This definition of value was a correlative to the theory of the “produit net.” For it was by the use of this value concept that the Physiocrats demonstrated the sterility of manufacturing. To labor engaged in manufacturing was attributed, by Physiocratic theory, a wage equivalent to the needs of living at a bare subsistence level. According to this proposition it was clear to the Physiocrats that during the process of manufacture labor would consume the entire reward for its efforts so that its work would not be productive of any addition to the sum total of social wealth. It must not be supposed, however, that either the Physiocrats or Franklin were of the opinion that manufacturing did not serve a social purpose. They merely maintained that manufacture produced no new wealth and that its service to society was in changing wealth to more desirable forms.11

Franklin also agreed with the Physiocrats in their opinion that commerce was merely an exchange of equal values and, therefore, was unproductive and was of benefit to society only insofar as it created place utility. According to this belief the only way a nation could secure wealth by foreign trade was through unfair commerce, or the exchange of commodities for foreign goods of greater intrinsic value—determined, of course, according to the Physiocratic value theory.12

Doubtless, Franklin favored the principles of the Physiocrats because of the emphatic support they gave to the movement for free trade and because of the significance they attributed to agriculture in the economic scheme of things. It is my opinion that the close similarity between the views of Franklin and the Physiocrats can be explained further as a natural outcome of the fact that they experienced the same feeling of humanitarian idealism. The philosophical outlook of the Physiocrats was predicated upon a spirit of altruism and upon an unselfish devotion to the task of improving society. They were seeking to design a social order in harmony with the “natural” scheme of things which they were certain would be more fitting to man's needs. In so doing, they struck a particularly responsive chord in Franklin, for they appealed to his strong sense of justice and to his implicit faith in a divine creator.

In their rebellion against the “positive” order created by the arbitrary enactments of governments, the Physiocrats, as we have observed, carried on their attack by extolling free competition among men and free trade among nations. However, their support of competition and of free trade was a subordinate part of their doctrine. They laid greater stress upon the importance of agriculture and the “produit net” concept, and in so doing they took up a blind trail and marched off into oblivion.

Quite the contrary, Adam Smith gave greater emphasis to the idea of free economic activity and elaborated a theory of political economy which rested upon a more comprehensive concept of the social order than that of the Physiocrats. Accepting the Lockean assumption of the natural order, so important to the Physiocratic analysis, Smith explained an economic system which operated naturally and spontaneously as a result of the competitive action of individuals working for their self-interest within the framework of a system of free economy.13

Predicating his investigations, then, upon the hypothesis that the social order operates according to fundamental natural laws, that free economic competition is necessary if society is to benefit from the spontaneous operation of these laws, and that individuals are governed in their action by the consideration of their own self-interest, Smith brought forth in The Wealth of Nations what he considered to be a detailed analysis of the dynamics of man's economic activities. His conclusions concerning the nature of wages, rent, value, money, taxation, production, distribution and other economic phenomena constitute the world's first scientific treatise on economic history and principles. In so doing, he unconsciously gave direction to the course that economic reasoning was to pursue during the nineteenth century, and although many of his ideas have been proven erroneous and have been abandoned, the essence of modern laissez- faire reasoning has its genesis in Adam Smith's basic assumptions and conclusions.

Concerning Franklin's attitude on the ideas put forth in the Wealth of Nations, we have little positive information. That Franklin knew of Smith's work is certain. In fact, Franklin was personally acquainted with Smith and was in touch with him in London (1773-1775) , while he was finishing his book. A Mrs. Deborah Logan stated in the memoirs which she wrote of her husband's life that Franklin told her husband that Smith had accepted certain suggestions of criticism made by Franklin with respect to particular chapters in the Wealth of Nations.14 It seems, though, that Mrs. Logan's statement exaggerated the influence that Franklin may have exerted on Smith while he was in London.15 Undoubtedly, Smith was familiar with Franklin's writing and thinking concerning certain politico-economic problems which had reference to the colonies, and Lewis Carey in his work entitled Franklin's Economic Views expresses the opinion that Smith embodied in his work some of Franklin's ideas with respect to the effect of abundant land on wages and population in a frontier society, certain population tendencies in the colonies, and the colonial point of view in regard to the British imperial system.16

Whenever Adam Smith's reasoning was in line with that of the Physiocrats, Franklin found it easy to agree with him. For example, in the case of free trade there existed a close similarity between the two men's opinion; although neither of them was in complete accord with the French economists. Both Franklin and Smith agreed that free trade was the most desirable situation with respect to the carrying on of commerce between nations, and yet both admitted that there were occasions when mild revenue tariffs and other restrictions, if not excessive or extreme, were justifiable. The Physiocrats, of course, could not agree with this mild departure from their doctrine.

Franklin would have approved of the implication of the “natural” order in Smith's system. He would also have favored Smith's forceful demonstration of the validity of the doctrine of free competition. The principles of extreme individualism, however, which exerted such a forceful influence on nineteenth century laissez-faire reasoning were not Smith's. Smith was suspicious of the social effects of unrestrained individualism and favored government regulation of the freedom of the individual when the better interests of society could be served by so doing.19 Franklin would have certainly agreed to this. Although a believer in free trade and the principle of “Pas trop gouverner,” he was aware of the weaknesses of human nature and would have questioned the wisdom of granting compete license to the individual. On minor points of doctrine Smith and Franklin found occasion to disagree quite widely. In their conceptions of a theory of value, for example, there was a wide divergence in the thinking of the two. Franklin, as we observed, expressed a belief similar to the Physiocratic idea; this was rejected by Smith, who, though somewhat uncertain about the real nature of value, suggested that it was determined by the amount of labor or of a combination of labor, land and capital which had gone into the productive process.20[?]

Again in the case of money Franklin subscribed to a different principle. Throughout his life he was consistent in supporting inflation in the colonies through the emission of paper currency. Though at all times moderate in his demands, he was, nevertheless, on the opposite of this issue from Adam Smith, who regarded the printing of paper money with a suspicious eye and a procedure to be utilized with discretion.20

Smith refused to accept the Physiocratic principle of the “produit net,” while Franklin gave every indication in his writing to a belief in this concept, and made the mistake, along with the Physiocrats, of exaggerating the importance of agriculture to the economic system. Smith, in fact, was the first important economist to assert that commerce and manufacturing were productive of economic wealth, and to emphasize the importance of the division of labor and the accumulation of capital in effecting increases in social income.21

As a philosopher, Benjamin Franklin belonged to the eighteenth century. He was a rationalist and believed that the human mind could solve most of the problems of living. He was a deist and sympathized with the idea of a “natural” law which governed human society. He was an optimist arid was convinced that society could be bettered. He was an individualist, but advocated some restraint of the individual on behalf of the interests of society. As an economist, he also belonged to the eighteenth century. His reasoning paralleled closely that of the Physiocrats, though he was less dogmatic in insisting on the infallibility of the Physiocratic tenets. And in striving for a solution to a practical economic problem of the day, he was quite willing to use whatever theoretical approach seemed the most reasonable. For this reason he accepted several of Adam Smith's most fundamental arguments. However, he could never have become a whole-hearted believer in the nineteenth century philosophy of laissez-faire. He was too much the sociologist and too little the scientific economist.

1 V.L. Parrington, The Colonial Mind (New York, 1927), p. 170.

2 Lewis J. Carey, Franklin's Economic Views (New York, 1928), p. 140.

3 Ibid., p. 160.

4 Ibid., pp. 137-9, B.A. Wetzel, Benjamin Franklin as an Economist (Baltimore, 1895), p. 31.

5 Carey, op. cit., pp. 134, 161-2; Albert H. Smyth, ed., The Writings of Benjamin Franklin (New York, 1907), II, 313-4, IV, 469.

6 Frank L. Mott and C.E. Jorgenson, eds., Benjamin Franklin (New York, 1936) , 345-7.

7 Carey, op. cit., pp. 154-5.

8 Franklin to Small, September 28, 1787. Smyth, op. cit., IX, 614-5.

9 Carey, op. cit., p. 147; Arthur E. Monroe, ed., Early Economic Thought, Selections from Economic Literature Prior to Adam Smith (Cambridge, 1930), 211-2.

10 Franklin to Kames, February, 1769. Smyth, op. cit., V, 102; Carey, op. cit., pp. 142-3.

11 Franklin to Evans, February 20, 1768. Smyth, op. cit., V, 102: Carey, op. cit., pp. 142-3.

12 Franklin's “Position to the Examined, Concerning National Wealth,” April 4, 1769. Mott, op. cit., pp. 345-7.

13 Encyclopaedia of the Social Sciences, IX, 15; Glen R. Morrow, The Ethical and Economic Thinking of Adam Smith, (New York, 1923), pp. 79-80.

14 Carey, op. cit., pp. 106-7.

15 Ibid., p. 130.

16 Ibid., pp. 124, 131.

17 Franklin to Small, September 28, 1787. Smyth, op. cit., IX, 614-5; Charles Gide and Charles Rist, Histoire des Doctrines Economiques Jusque Nous Jours (Paris, 1909), p. 117.

18 Ibid., p. 110.

19 Wetzel, op. cit., pp. 52-3.

20 Adam Smith, Wealth of Nations (New York, 1937) Edwin Cannan, ed., pp. 47, 48, 51; Gide, op. cit., p. 87.

21 Morrow, op. cit., p. 165.



Franklin, Benjamin. Autobiography. Goodman, Nathan, ed. New York, 1932.

Smyth, A.H., ed. The Writings of Benjamin Franklin, 10 vols. New York, 1907.

Smith, Adam. An Inquiry into the Nature and Cause of the Wealth of Nations. Cannan, Edwin., ed. New York, 1937.


Carey, Lewis J. Franklin's Economic Views. New York, 1928.

Gide, Charles and Rist, Charles. Histoire des Doctrines Economiques Jusque Nous Jours. Paris, 1909.

Morrow, G.R. The Ethical and Economic Thinking of Adam Smith. New York, 1923.

Mott, F.L. and Jorgenson, C.E. Benjamin Franklin. New York, 1936.

Parrington, V.L. The Colonial Mind. New York, 1927.

Wetzel, B.A. Benjamin Franklin as an Economist. Baltimore, 1895.

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