The Third School of Political Economy

What is the third school of political economy, and how is it distinct from the French liberal school?

…as answered on Quora. . . .

The term “Third School of Political Economy” was coined by Scottish economist H. Dunning Macleod (1821–1902). Whereas the designation “French Liberal School” focuses on the nationality of its members and on their general laissez faire policy positions, Macleod focused on the catallactic point of view of Condillac’s Le Commerce et le gouvernement, considérés relativement l’un a l’autre (1776) as it spread among dissident economists all over Britain, Europe and America. While most historians refer to J.-B. Say as the fountainhead of French Liberal Political Economy, Macleod placed Say squarely in the “Second School of Political Economy,” which Adam Smith famously launched and most of us know as Classical Political Economy.

The train of thought Macleod identified as “Third” is indeed distinct from Smith, Say, Ricardo and the Mills, as well as from the Physiocrats (the “First School”) before them. In Elements of Economics, and other works, Macleod discussed a handful of economists as the school’s exemplars: Étienne Bonnot de Condillac (French); Archbishop Whately (British, first in a long line of heretical Oxford economists); and Arthur Latham Perry (American). He made much of the science as all about exchange, though he came to prefer the name “economics” for the science over Whately “catallactics.” But Macleod was a quirky fellow, and used the Physiocrats’ term, “Economical Philosophy,” in the title of one of his better treatises.

Macleod is generally considered an “also-ran” in the history of economics. His own contributions never really gained much ground, though he had a rather surprising influence on American institutionalism. But one thing you glean from reading his work, as well as that of Perry: Frédéric Bastiat was the most-admired (or at least most inspiring) of the writers in this school. And since Bastiat was French, and a radically individualistic laissez faire proponent, “French Liberal” is hard to argue with.

Other “members” of this school include Destutt de Tracy (French, but translated into English by Thomas Jefferson), Henry Charles Carey (American), Amasa Walker (but not his eclectic son, Gen. Francis Amasa Walker, both Americans), Gustave de Molinari (Belgian), Jean Gustave Courcelle-Seneuil and Yves Guyot (both French). But taking a hint from W.S. Jevons, I include not only Leon Walras’ father, but Leon himself, and especially Jevons, Menger, and their followers. Vilfredo Pareto, an admirer of Molinari, probably also qualifies.

But that is argumentation, a thesis to be established. Or maybe a mere waste of time.

That being said, the distinguishing feature of the school is the idea that in trade both parties [expect to] gain. This is a bedrock notion of today’s neoclassical economists, who sometimes sniff and snort that this idea is “obvious.” Or “just an assumption.” A presupposition. But what the Third School did with it does differ from modern economics in important ways. But that, I think, is another story.

twv