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The French Financial Debates in the Aftermath of the 1848 Crisis:
An overview of the Socialist and Liberal positions1
Clément Coste and Claire Silvant2
Work in progress – please do not quote
Abstract
1848 is considered by the historians as a turning point in French: a major
political crisis takes place, and is accompanied by major financial troubles
for the French government. The economists of that time do not stay away
and actively debates about the economic causes and consequences of the
crisis. Our paper is precisely devoted to the analysis of these financial
controversies around 1848 in the French economic thought. If political and
philosophical debates of 1848 between Liberals and Socialists are quite well
known by the historians of economic thought, their financial side has been
relatively neglected. According to us, it is nevertheless of high interest to
confront Liberal and Socialist ideas in that time, since. This article aims at
investigating this little studied question by raising three main questions: the
first one consists in presenting the different diagnosis of the 1848 financial
crisis from the socialist and from the liberal viewpoints. Secondly we aim at
analyzing the content of the debates between Liberals and Socialists
regarding the ways to overcome the financial troubles, particularly
regarding the trade-off between taxation and debt. Thirdly we emphasize
the role of this period in the forthcoming constitution of a financial
orthodoxy in France.
JEL codes: B.12, B.14.
Key-words: French liberal School. – French Socialists. – Public Finance. – Taxation. – Debt. – Public
expenditure.
1 This article has been written within the scope of the collective project “The trade-off between taxation,
money and debt in the history of public finance crises” supported by the ESHET that the authors warmly thank. 2 Clément Coste, Triangle, [email protected]; Claire Silvant, Triangle, Associate Professor, University
Lumière Lyon 2, [email protected].
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Introduction
The French 19th century has been characterized by a high political instability: three revolutions and
two coups d'état took place, and three types of regime (monarchic, imperial, or republican)
alternated, causing disturbances in public finance. The 1848 crisis is one of these turning points; as
well from a political viewpoint as for an economic one, the years around 1848 are of high interest,
since the crisis aroused abundance of debates and discussions among the contemporary economists.
Before presenting and analyzing the French financial debates around 1848, it seems to us necessary
to give some short and general indications about the historical context. Under the Monarchy of July
(instituted in 1830) inequalities and antidemocratic positions of the government evolved pari passu
with the increase in the aspirations of the working class to social progress and to a republican
regime. France faces a violent economic crisis and financial in 1846-18473, which resulted in a
spectacular rise of unemployment and poverty. Contestation becomes more and more visible,
especially in Paris, and the social crisis end up in February 1848 with a Revolution. On 22 February,
plenty of street demonstrations spread in Paris. In the following days, the king Louis Philippe is
obliged to dismiss his government. On 25 February 1848 the Second Republic is proclaimed. Under
the pressure of the demonstrators, the provisional government of the Second Republic, in which the
Socialists economists4 were represented, constitutes a Committee, named Luxembourg Commission
on 28 February 18485. Its role consists of improving the living conditions and of increasing the rights
of citizens.6 The Constituent Assembly is formed in April; replacing the provisional government, it
gathers many political sensibilities, and some of the economists (to whom this paper is devoted) are
elected, as well among the Socialists7 as among the Liberals8. Louis-Napoléon Bonaparte win the
December 1848 presidential election and stay in power until his Coup d’état in December 1851,
which marks the beginning of the Second Empire.
In this highly sensitive context, two opposite “camps” of economists developed conflicting analyses
about the causes and the consequences of 1848: that of the French liberal economists and that of
the Socialists. Both groups of economists are the most influent of their time9 and regularly come into
conflict each other. Let us describe briefly both “schools”.
What we call the French liberal school is a large group of liberal10 intellectuals and practitioners,
interested in economic theory as well as in economic discussions; they considered themselves as the
heirs of Jean-Baptiste Say on the most of theoretical topics11, and belonged to a classical and
3 The 1847 financial crisis is a crisis of the private sector.
4 Commission du gouvernement pour les travailleurs
5 Louis Blanc (1811-1882) was its president; Constantin Pecqueur (1801-1887), François Vidal (1812-1872) and
Victor Considérant (1801-1893) were members of the Commission. 6 The Luxembourg Commission obtained the following improvements: abolition of slavery, universal suffrage,
freedom of press and freedom of association. See Breton (2005) and Frobert (2014). 7 L. Blanc, V. Considérant et F. de Lamennais, then P. Leroux and P.-J. Proudhon.
8 F. Bastiat, L. Faucher, F.E. de Parieu, L. Reybaud and L. Wolowski.
9 We have to give the following precision: the Socialists authors have been particularly influent during the
1830s and the 1840, whereas the Liberals consolidated their institutions later, from 1841-1842, with the creation of the Journal des économistes et of the Société d’économie politique; they had a complicated relationship to political power, but dominated the diffusion and the teaching of political economy between the mi-1840s and the beginning of the 1870s. 1848 is a pivotal period from that point of view. 10
We use the French acceptance of the word. 11
To have more elements on the intellectual inheritance of these economists, and on the strong influence of J.-B. Say and A. Smith, see the work of Béraud, Gislain and Steiner (2004).
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individualistic tradition.12 The most influent of them around 1848 are Frédéric Bastiat (1801-1850),
Henri Baudrillart (1821-1892), Michel Chevalier (1806-1879), Joseph Garnier (1813-1881), Gustave de
Molinari (1819-1912), Hippolyte Passy (1793-1880), Gustave du Puynode (1817-1898) and Louis
Wolowski (1810-1876). These economists headed the most influent liberal institutions of that time:
the Journal des économistes, the Société d’économie politique, the Académie des sciences morales et
politiques, the publishing house Guillaumin and the first chairs of political economy in the Grandes
écoles. In the mid-19th century they surely exerted a kind of monopoly on the diffusion of political
economy in France; although they had minority ideas from the political point of view13, they
represent the economic orthodoxy which dominates the academic field. After having neglected for
long, the interest of the historians of economic thought for the French Liberal group has been
renewed since many years, thanks to the studies of Breton and Lutfalla (eds) (1991), Le Van Lemesle
(2004), Béraud, Gislain and Steiner (2004) and Dockès et al. (eds) (2000). Nevertheless their analyses
of public finance, especially over the period 1848-1852, have been little studied in spite of relative
abundance of raw bibliographical material (articles in the Journal des économistes, discussions and
debates in the Société d’économie politique and in the Académie, handbooks, textbooks…).
The second group of economists that we consider in our paper is that of the French Socialists. At the
beginning of the 1830s, some young followers of Saint-Simon left the movement because of its
political powerlessness and its authoritarianism. The most important of them were Philippe Buchez
(1796-1865), Pierre Leroux (1797-1877), Constantin Pecqueur (1801-1887) and François Vidal (1812-
1872)14. The “socialisme fraternitaire” (Lanza 2006; Frobert 2014) – to which also Louis Blanc (1811-
1882) belongs – was structured around both concepts of solidarity and equality, considered as
necessary conditions to guarantee individual liberty (Coste 2016a). These socialists largely protested
against the abandonment of the working class by economists and against the drifts of Saint-
Simonism. So, they spread their ideas in favour of an emancipating social economy through several
journals (Bouchet et al. 2015)15. 1848 is a crucial period for the politicization of this kind of socialism:
from there, socialism is confused with republicanism (Démier 2006; Charruaud 2008)16. Propositions
of Louis Blanc, Constantin Pecqueur and François Vidal from the “Commission du Luxembourg” were
particularly significant in this respect (Pecqueur & Vidal 1849; Frobert 2014) since they aim at
rethinking economic institutions through the prism of solidarity. After the fall of “social republic”
(Hayat 2011), Vidal created Le travail affranchi (…) (1849), Blanc Le Nouveau Monde (1849) and
Pecqueur Le Salut du Peuple (1849); the main objective of these journals was to diffuse a social and
republican political economy. If French socialism was recently rediscovered by historians of economic
12
They can be called “classical economists” since they share numerous common analyses with the classical tradition of Smith, Say, Ricardo (in a lesser extent) and Malthus; and they can be called “individualistic” because they align themselves with the spirit of the French revolution of 1789 which placed the individual rights and the individual freedom at the center of their concerns. 13
Around 1848, the majority opinion is mostly in favour of interventionism. On the contrary, the systematic and dogmatic defence of the freedom of trade and of a lower public intervention made them run the risk, many times since the 1830s, to be victim of censorship. For more precision, see Le Van-Lemesle (2004). 14
Andrea Lanza (2006) made a more accurate inventory of these socialist authors. See also Bouchet et al. (2015). 15
For example, L’Européen (1831-1832 for the first), La Revue encyclopédique (1831), La Revue Indépendante (1841), L’Avenir (1844), La Revue du progrès (1839). We also mention the imposing Encyclopédie Nouvelle (…) directed by Leroux and Reynaud (1833-1847). See Forcina (1887). 16
The Socialists are calling for an economic and social republic (Hayat 2014).
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thought (Ege 1992; Benausse 2000 ; Frobert 2014 ; Coste 2017; Bellet 2017 ; Frobert 2017), their
contributions to public finances issues, especially during the crisis of 1848, remains largely unknown.
The 1848 moment is particularly interesting to confront socialist and liberal ideas, because it
simultaneously corresponds to the culmination of the Socialist group and to the rise of the Liberal
one. As far as we know, the idea consisting in confronting liberal and socialist ideas on public finance
around 1848 has never been deeply investigated by the historians of economic thought, except by C.
Coste (2016); however the topic seems to us to be of high importance in its time, since we observe a
flourishing of articles, books, debates on the questions raised by the crisis. If the question is relevant,
if not fundamental, for the mid-19th economists, it should also be the case for the historians of
economic thought. That is why we aim at bringing a contribution on this question. We decide to limit
our analysis to the 5 years following the crisis and the breakdown of the July Monarchy, ending in
1852 with the second Empire. 1852 is also an important year from the viewpoint of public finance
because the government launched a famous annuity conversion; lastly the year 1852 is that of the
publication of the Dictionnaire de l’économie politique by the Guillaumin editing house, Dictionary
which is usually considered as the masterpiece of the French liberal school.
According to us, presenting and analyzing the Socialist and Liberal debates on this period is of high
interest in three respects for the history of economic thought. Firstly, we aim at giving insights on a
little studied question by identifying divergence points in their analysis of the financial crisis;
secondly, we want to present the terms of the debate concerning the financial reforms to adopt;
lastly, we want to put this controversy in line with the constitution of a French orthodoxy regarding
public finance in the French liberal thought; in this respect, the culmination of discussions around
1848 probably played a great role in the later structuration and strengthening of their orthodox
ideas, while socialist ideas about public finance have been discredited for the next decades, because
of the smear campaign undertaken by the Liberals, and also because the topic become a minor one
in their own thought regarding other questions as the definition of property rights or the reform of
credit. In particular, socialist ideas on taxation have been forgotten after revolution of 1848. Without
any doubt, solidarism of Léon Bourgeois has overshadowed their contribution in terms of progressive
taxation. Otherwise, the rediscovery of this type of socialism by authors of the third Republic (Benoit
Malon, Eugène Fournière) did not focus on taxation issues.
The first section of the paper presents an overview of the economic and financial situation of France
around 1848, examining the increase in public debt and the evolution of State revenues. Section 2 is
devoted to a comparison of the different ways the Liberals and the Socialists analyzed the causes of
the crisis. Then, we try to reconstruct the arguments of both camps concerning the solutions to
overcome the troubles in public finance: Liberals and Socialists developed contrasted views on debt
(Section 3). In the 4th section we present the liberal and socialist controversies about taxation.
1. An overview of the economic and financial stakes of 1848
Before exposing the debates between contemporaries of the 1848 crisis, it is necessary to give to the
reader a short overview of the condition of French public finance before and after 1848. Lots of
historians underline the fact that 1848 undoubtedly is a year of major financial troubles (Delalande
2011). Nevertheless it would be false to believe that these difficulties only started with the February
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Revolution. Some studies in the economic history show a degradation of the French public finance
since the beginning of the 1840 decade (La Place de Chauvac 1916, Fontvieille 1976, Bonney 2010).
Financial problems slowly begin to grow under the July Monarchy (1830–1847).
Table 1. Revenues, Expenditure, and Public Debt of the French Government (expressed in millions
of francs)
Source: Calculation by Louis Fontvieille (1976), quoted by R. Bonney (2010), p. 104.
Since the early 1840s the grow rate of government revenues is quite low (+ 11% between 1840 and
1847), while public expenditure increased twice this rate (almost 20%). As shown in the Table 1, in
the same time, the rise in public debt is above 28%. This can be explained by the financing choices of
the Monarchy of July. As a consequence, problems began to occur to finance the ordinary expenses
as well for the extraordinary ones (railways, canals, other public utilities, etc.) before 1848.
In November 1847 the Finance minister of the July Monarchy negotiated a loan of 250 Millions of
Francs; it is a contestable success since only 85 million francs have been collected. The situation will
logically get worse after the February Revolution.
We have to add a word about the long-term historical context. In contrast with Britain, France
traditionally had a strong defiance since its experiences of payment defaults in the 18th century
(Bonney 2010, p. 102-103), what would have led the French economists to loathe the risks of an
excessive public debt. The link between political instability and financial crisis would have prevailed
among the economists until the mid-19th century.17
17
“It was not until the 1850s that the psychological connection between political stability and financial crisis was finally broken. In the first half of the nineteenth century, credit markets were thus clouded by the continuing threat of political instability and its dire financial consequences’ (Hoffman, Postel-Vinay, and Rosenthal 2000: 208).
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1848 and 1849 show an interesting change: in the beginning of 1848, the situation of French public
finance is considered as apocalyptic by the Minister Goudchaux,18 who simultaneously had to deal
with the suppression of some indirect taxes (tax on stamps, tax on salt) and the payment of the debt
service, in the context of a credit crunch and of a strong defiance towards perpetual rentes which
price dramatically falls (see Graph 1). In March, Goudchaux abandons his functions and is replaced by
Garnier-Pagès, which is considered as the emblematic Finance Ministry of the Post-revolution area.
Garnier-Pagès arrival at the Finance Ministry gives a signal for a financial change; the government
aimed at implementing some principles claimed during the February days while reassuring the
French bourgeoisie in order to restore its confidence in public annuities... Paradoxical financing
choices are made by Garnier-Pagès. On the one side, some measures are undoubtedly in line with
socialist ideas consisting in providing a more equitable taxation system (decree of February 29th) in
the sense of more proportionality: the temporary government removes some indirect taxes
considered as harmful to the working class (taxation on salt, stamp on journal, excise duty on meat
and on the circulation of beverages).19 In the line with the Saint-simonian ideas since the 1830
decade, Garnier-Pagès launched in March 1848 a massive public loan of 100 Millions of Francs to
honor its commitments and to finance the current expense. This public loan is at the end a total
failure since it succeeded in levying only 500 000 francs (that is 5 % of the objective…). On the other
side, some other financial measures are more surprising: one of the first adopted is an effort to
partially reimburse depositors. At the same time, a paradoxical fiscal policy is implemented by
government that we could call orthodox: the creation of the “45 cent tax” on direct taxes which
results in an increase by 45% of the direct contributions of small taxpayers, or the selling of some
symbolic public assets (woods, lands, minting of the silverware of the State, etc.).
As a consequence, we observe that public revenues and public expenditure have simultaneously
grown in 1848; but one year later, public revenues dramatically fall regarding corresponding
expense, leading to an explosion of French public debt (+ 17,5% between 1848 and 1849).
18
This situation is well described by Léon Faucher in the Revue des Deux Mondes (1849a), and also by Gustave du Puynode (1849a). 19
Progressively, facing difficulties to finance public budget, all these consumption taxes will be reintroduced by the Government between June and December.
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Graph 1 – Price of rentes during the Second Republic
Source : C. Coste, with datas given by Jacques-Marie Vaslin20.
The following years show a taking in hand from the French government (Table 2): public resources as
well as public expense strongly decrease. These “efforts” of the government are the consequence of
a tightening of the Ministry of Finance who took many sudden and abrupt measures to avoid an
excessive growth of the debt (see below, 2nd section).
Table 2. Revenues, Expenditure, and Public Debt of the French Government (expressed in millions
of francs)
Source: Calculation by Louis Fontvieille (1976), quoted by R. Bonney (2010), p. 105.
This policy had notable consequences on the interest rate (see Graph 2): the government
management of the panic movement around 1847 leads to a stabilization of the interest rate at the
end of the 1840 decade.
20
The graph can be read as follows: before the February Revolution, the 5% rente is above the par (around 115 francs). It will strongly decrease and return to the par only with the taking up of power by Napoléon III. The financial world mistrusted the 2nd Republic.
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Graph 2 – Evolution of the long term interest rate on rente on the State
(rente 5% until 1825, then rente 3%)21
Source: C. Coste, with datas of Monnet & Levy-Garboua, 201622.
To summarize, until the conversion of annuities realized in 1852 (with which the 5% annuities almost
disappear, replaced by 3% rente (annuity)), most of financial measures taken between the end of
1848 and 1852 could be called austerity measures (reinforcement of consumption taxes, diminishing
of the payroll of the State). We will see that most of economists, either Liberals or Socialists, will
strongly criticize this choice of policy, accused of being short-sighted.
To be synthetic, what is particularly interesting for our study is the fact that a large sample of
financial measures (that we cannot describe extensively in this short introductive section of our
article) has been experimented during the period 1848-1852. It is thus a formidable moment for the
historians of economic thought to observe and study the reactions of the contemporary economists.
2. Contrasted evaluations of the 1848 financial crisis in socialist and liberal thoughts
Before going further, it seems to us necessary to raise the question of the contrasting diagnosis
of the causes of the financial trouble made by the Liberals and the Socialists. Do they disagree even
on the evaluation of the grounds of the crisis, or only on the ways to overcome it?
21
The long term interest rate is calculated on the basis of the rate of return of the rentes on State. Its peaks are obviously related with the political crises which have occurred during the 19
th century.
22 Clément Coste thanks Eric Monnet for having accepted to put these datas at his disposal.
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The origins of the crisis from the liberal viewpoint
We find among the liberal writings (articles of the Journal des économistes, discussions at the Société
d’économie politique) quite contrasting analyses about the causes of the 1848 crisis.23 They can be
synthesize in two categories: the criticisms towards what they consider as wrong choice of financial
policy around 1848; and the denunciation of more structural “vices” of the French economy.
The first category of argument is related to the criticism of wrong choices of recent economic policy
(particularly regarding their financing), as well from the end of the Monarchy of July as from the
immediate reaction of the new governments after the February revolution.
The first cause of the crisis has to be searched in the wrong choices of economic policies before 1848.
Some extremely influent liberal economists of the time, like Joseph Garnier, Horace Say or Gustave
du Puynode) the slow but certain increase in public debt associated with insufficient interest rates
caused from 1847 a degradation of the perceived quality of the French Treasury bills, and then of the
capacity of the French government to levy sources of funding. As a consequence, the State had
difficulties to get rid of its bonds: “it seems to us that better results could have been obtained by
offering to the buyers of treasury bills a higher interest rate and by promising a higher prime to the
subscribers of the direct loan” (Garnier, 1848b, p. 335).
Obviously, the situation does not get better, according to the Liberals, with the February Revolution.
Of course, all the French liberal economists agreed on one point: they all strongly criticized the
impact of the choices of the temporary government in terms of public finance. They consider them as
responsible for the exhaustion of public resources of the young Second Republic (Coquelin 1848,
Parieu 1848). They also insist on the errors committed by the governments after the Feruary
Revolution to find immediate remedies to the financial risks. By selling symbolic assets of the State,
the French government (especially Garnier-Pagès) has caused a major risk of amplification of the
crisis; H. Say briefly alludes to a mechanism according to which selling assets in a crisis moment
contributes to keep lowering their prices (H. Say, 1848b). In that, public resources are lower than
expected and moreover the operation contributes to compromise forthcoming assets sales due to
the fall in price… Debt reduction in a period of finance troubles should not be done through assets
selling.
Before going to the diagnosis made by the Socialist, we have to add the fact that some other liberal
economists insist more on structural causes to explain the French problems of public finance. The
arguments are well-known since Jean-Baptiste Say (we remind that the French liberal economists
considered themselves as the heirs of Say). It is particularly the case of Gustave de Molinari and
Charles Dunoyer, who belong to the most orthodox side of the French school. They attribute financial
troubles to an excessive growth of the size of the State (number of civil servants, excessive extension
of its attributes, to many discretionary intervention and less rationale than private actors). A public
finance crisis may consequently occur when commercial troubles suffocate public revenue, without
any possibility to decrease expense… As a result, crisis is viewed as a consequence of an excessive
rigidity. Particularly, Charles Dunoyer, one of the most conservative economists of the Liberal school,
added an aggravating feature of the French economic: the crisis would also be caused by an
excessive centralization.
23
An attentive reading of the reviews of that time could also show a controversy about the quantitative appraisal of the amount of debt. Lots of publicists disagree about the way of calculating it properly. See Garnier (1848b), Vitet (1848) for example.
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Finally, to conclude the first part of this section, it seems to us that the liberal group seems on this
question of the diagnosis to be divided between a conservative aisle24 which puts the accent on the
structural defaults of the French economy, and a most reformative one (close to the moderate
republicans).
The socialist diagnosis: public finance crisis as a result of the commercial crisis
Logically, the Socialists rejected the liberal according to which the public finance crisis would be
explained by a too low interest rate offered to the creditors of the State. Indeed, the interest rate on
the public debt is, according to them, a transfer from work to idleness (Menger 1900).
An attentive reading of the Socialists writings shows that they also dissociate two kinds of grounds to
explain the financial troubles around 1848.
First, some reasons to the crisis can be found in the economic conditions of the 1840 decade. To
them, one of the major causes of the 1848 crisis is a brutal and excessive contraction of the credit
(credit crunch) which is largely due to the laisser-faire allowed by the regime of free competition.
This is for example the argument developed by François Vidal and Louis Blanc. The deep causes have
to be searched for the Revolution; if the February Revolution happened, it is according to them
because of the high unemployment; they view unemployment as a consequence of the agricultural
and commercial difficulties since 1846 which have been reinforced by free-competition and absence
of State regulation. This economic situation impoverishes many different social groups: the working
class of course, but also the industrials25 and the small capitalists who suffer a decrease in their
outcomes. Finally, their difficulties to pay tax raised the specter of a crisis in public finance. The great
disorganization introduction by free competition (at national scale) is according to them responsible
for the propagation and the transformation of a crisis of private finance onto a crisis in public
finance.
In a more astonishing way, many Socialists also strongly criticized the choices made by the temporary
government of March 1848, as well from a philosophical as from an economic viewpoint. Blanc Vidal
and Pecqueur developed a particularly virulent criticism of the National Workshops (Ateliers
nationaux), which paradoxically aimed at being an application of the right to work dear to the
Socialists… But these National Workshops, created by Marrast, appeared to them as far from their
originate goals, since they simply gather unemployed people from different professions without
taking into account their skills26. This error also has financial consequences for the State: as the salary
becomes a kind of charity, they do not hesitate to characterize it as a dilapidation of public finance
(Vidal 1848, Blanc 1848a, 1848b, 1849, 1870).
24
This part of the liberal school is largely influenced by Adolphe Thiers and its Parti de l’ordre, still very influent during the period we study. Also belong to this party François Guizot, Odilon Barrot or Alexis de Tocqueville. Incidentally Thiers has massively intervened in the Journal des economists in 1848 to express his – conservative – viewpoint on property rights. 25
Louis Blanc collected many testimonies by many captains of industry, letters that he considered as “testimonies of death of the French industry based on competition” (Blanc, 1848a: 382). 26
Louis Blanc considered that the creation of National Workshops was a part of a strategy designed to discredit the socialist program.
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To conclude this section, we showed the Liberals and the Socialist did not provide the same diagnosis
of the 1848 financial troubles. It is then not a surprise that they do not elaborate the same proposals
to overcome it.
3. How to overcome the financial troubles: debt as a remedy?
We examine in this third section the arguments of the French economists related to debt as a way of
going out of crises and to avoid other financial troubles. The discussions among Socialists and Liberals
have been numerous especially after the national loan launched by the Minister Garnier-Pagès in
order to finance the immediate needs of government. Both of them considered with a severe view
Garnier-Pagès’ initiative to launch a new 100 million loan. Liberals considered it as inappropriate, in a
situation of excessive public debt, and dangerous, since it validates the doubts towards the financial
solidity of the State. We find also in the socialists writings a strong criticism: Louis Blanc considered
that the Minister has overdone and underestimated the role of the capitalists and the bankers who
massively refused to borrow to the State. The government is accused of having implemented a naïve
policy without respecting the fundament of Socialist ideas. Nevertheless French authors realized then
the fact that public debt seemed to become if not uncontrollable, but at least a permanent issue.
Views on debt in liberal and socialist theories
Since many decades, Saint-simonians economists have a strong interest in the debt instruments to
finance public policy. In 1848 the Socialists remain strong advocates of public loans. According to
Louis Blanc, this is a good way of giving an impulsion to the workers associations, in a climate of
economic crisis. By levying resources through credit, the government can avoid massive increase of
taxation which could be harmful to working classes. Public debt is viewed in a dynamic way:
“But taxation? How to increase taxes? Though Mr. Thiers pretends ignoring that aside
taxation, there is public credit! He pretends to ignore that public loans is the best way in
which the future can contribute to the charges of the present time! If a war is declared, the
government borrows; what it can do in order to organize destruction or, if we want, its
defense, is it unable to do the same to impregnate production? (…) A war has most of time
less return than its costs, whereas the labor nearly always yields more revenue than it costs.
On the other side, don’t imagine that it would need high financial advances. By studying with
attention the system described above, we will notice that it has a strong elasticity which
would allow starting its application in small proportions (…). The essential principle consists
in setting it in motion; it would then grow by its own powerful force. The last objection of Mr.
Thiers falls down by itself. Taxation! But the most secure way to extend its sources would be
to establish a better economic regime and to increase by this way the general wealth. Yet the
following principle must not be forgotten: the association [between workers] is admirable in
this that it produces a more legitimate repartition of products, but also that it multiplies the
fruits of production.” (Blanc, 1848a, p. 386).
Debt is also preferable to a reduction in public expense which cannot be a solution to overcome
financial difficulties. Moreover one of the ways to go out the crisis is to undertake courageous social
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reforms; these are as well a question of social justice, as for economic efficiency, could we write with
more actual words. According to François Vidal, “if we do not hurry to enter boldly and frankly the
way of social reforms, we will observe a run out in our public finance” (Vidal, 1848, p. 10).27 What
Vidal understands by social reform is a revival in economic policy, because only economic activity and
industry can ensure sufficient tax levy. Concretely Vidal and other Socialists propose deep economic
and social reforms; among them the most important is probably the recognition of the right to work
(droit au travail), which is a right to live from his work and which is not a right to be funded even if
people are unemployed (Vidal, 1848, p. 18).
Believing that the State could have an interest in public borrowing, the Socialists nevertheless
condemned the unlimited credit theory developed by the Saint-Simonians (Coste 2016b).
Simultaneously, Socialists challenged the liberal theory explaining the state's use of public debt by
the deficiency of fiscal resources (Garnier 1848c; Coste 2016a).
Naturally the liberal economists do not share the same enthusiasm than the Saint-simonians towards
public loans. For most of liberal economists, public debt is viewed as a charge and as a generally bad
way of financing of public expense. The reasons invoked are numerous. We propose hereafter a
synthesis of the arguments given – not exhaustively - by Garnier (1848b and 1848c) Puynode (1849
and 1852) or H. Say (1848b), since they developed the most consensual liberal arguments at the
time. Nevertheless, before going further, we precise that they share the idea that public debt should
only be a limited solution,28 in comparison with taxation which should according to them bring the
vast majority of public resources. Contrarily to the Saint-simonians they also refuse to understand
that debt also can be a resource: “Public debt is however a strange resource; how many rich people
in that case would lack bread!” (Puynode 1852, p. 511).
The first argument against public credit is that of its cost – higher than the implementation cost of
any tax. When the State borrows on capital markets, he must – whatever the form taken by the
credit29 – reimburse it with interests. This reimbursement will necessarily be obtained through a new
increase in taxation, a through an additional loan…
“The interest rate paid on public debt overloads the tax burden; taxation increases
production costs, and these elevate the price of commodities that the consumer cannot
afford anymore.” (Garnier 1848c, p. 360).
The second argument focuses to the relative inefficiency of public credit because it would slow the
growth of private sector. They mention a kind of crowding-out effect: by exerting a high pressure
over the capital markets, the financial needs of the State cause an elevation of the interest rate,
which is harmful to the industry (Puynode, Garnier, H. Say). In particular, Puynode considers in this
27
« Si l’on ne se hâte pas d’entrer franchement et hardiment dans la voie des réformes sociales, nous verrons
les finances épuisées » (Vidal 1848, p. 10). 28
Garnier considered that the only reason to increase the public debt is the temporary incapacity to balance public revenue and expenditure. The selling of public estate is the last resort solution if government is unable to borrow. See Garnier (1848c, p. 350-52). 29
All the handbooks and dictionaries of that time – either in Law or in Economics – established a distinction between the floating debt and the consolidated debt. See Le Rat de Magnitot (1841), Garnier (1848c), Puynode (1852). These works often rely on the contributions of Smith, Say, Ricardo and MacCulloch regarding public finance.
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respect that it could easily be observable that an industrial crisis often follows the issuance of new
public loans (Puynode 1852). And of course, from our Liberals faithful to their spiritual father J.-B.
Say, a public use of private resource levied by public borrowing is always worse than its use by
private industries…
Thirdly, a systematic resort to public credit could also have bad long-term effects: by spending in
advance resources on the cost of future generations, public expense financed by credit would have
an inflationist effect (Garnier 1848c). In this respect they would be no equivalence between taxation
and public credit. The last argument of the Liberals against financing through public debt is the
danger it conveys for the credibility of the State. If the State is so indebted that it can suffer any panic
movement on capital market, there is an unbearable danger.30
Yet the management of public debt needs particular skills from the government since it is not
dissociable from the question of public confidence. Consequently, bad choices of wrong financial
orientations could have dramatic consequences for the credibility of the State. For example there is a
risk concerning the sustainability of consolidated debt, a risk of abuses of the floating debt. As
Garnier writes “a weak State cannot find any credit” (1848c, p. 354).
Nevertheless, we have to precise that in some cases, public credit can be admitted only in few cases:
in order to prepare military conflicts or to repair the consequences of revolutions (Garnier 1848c,
Puynode, 1852). After the end of the short period we studied, we will notice some inflexions in the
liberal thought. Joseph Garnier for example will regard public debt with less negativity and accept
more cases for its use (See Silvant 2017).
Of course, a very easy solution is proposed by the Liberals to avoid either an increase in public debt
or the urgent situation consisting in selling the assets of the nation: this solution is the reduction in
public expense… In this regard, Garnier-Pagès financial measures are severely judged by the liberal
economists (H. Say, J. Garnier). Numerous contributions establish the necessity to reduce the size of
public expense (as well the ordinary as the extraordinary), especially by reducing public employment.
This is for example Horace Say’s appeal, since he considers that such an effort would have been
sufficient to resolve public finance troubles in 1848:
“The resources of the Treasury are obviously sufficient to satisfy all the reasonable needs of
the moment; all the danger [of the 1848 context] lies in the exaggeration of public expense;
this is the most concerning problem for the future.” (H. Say, 1848b, p. 17).
Why and how to manage public debt?
After having briefly presented the arguments of liberals and socialists about the legitimacy of
increasing public debt, we now examine what analysis of debt management they propose: should the
government act, through a sinking fund or through conversion of annuities, to reduce its costs? Or
are these methods a danger for the credibility of public credit?
30
In this regard, they particularly targeted another measure taken in March 1848, that is the suspension of the repayment of the Caisses d’épargne. In a context in which the French public debt is perceived as being too high, and then in a context of high defiance toward the French State, Garnier considered that “this decision was regrettable (…). Treasury bonds are not exchanged anymore; the rentes suffer a significant decrease (…). A panic can emerge from a preventing measure” (1848b, p. 336).
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The controversy about the sinking fund (Caisse d’amortissement) and the reduction of the
amount of debt
The principle of a sinking fund exists in France since many centuries (Lutfalla 2006). By certifying to
future State creditors that they would always find a buyer for their rentes, the sinking fund was set
up to attain the “public’s faith” (Aglan et al. 2006) – it is worthwhile noting the synchronicity
between the creation of the sinking fund (1816) and the rise of the French rente (cf. graph 1). By way
of an initial endowment from the public Treasury, the sinking fund repurchased rentes on the Stock
Market, which it then immobilised within its assets in order to receive the interest payments, thus
increasing its capacity for amortisation.
Numerous socialists in the first half of the 19th century were very early interested in this method of
reducing the amount of debt – it is the case, in particular, of the Saint-Simonians. The idea is indeed
seducing: it offers to the government a simple and economic way of diminishing the liabilities of the
State by continuing purchase of public bonds.
But the observation of the operating of the Caisse left them a bad taste. The fund is subject to a
major theoretical criticism.
According to the Saint-Simonians, the sinking fund absorbed a considerable portion of France’s
capital whether through the form of a) the annual endowment; b) the issuance of new rentes
destined to buy back older rentes; or c) interests that corresponded to the payment of rentes
immobilised by the sinking fund: all the capital available to the sinking fund is provided by the
taxpayers (Enfantin 1831). Socialist arguments will be taken up by Liberals in the 1840s.
Indeed, the Liberal economists developed a particularly strong criticism about the Caisse
d’amortissement whose role consists in finding solutions of installment or reimbursement of public
debt (by purchasing public bonds). Since 1833, this organism has difficulties to fulfill its initial
function, as his capital is entirely absorbed by the financing of the ordinary public deficits and the
extraordinary expense. What about giving it a new breath, or what about founding another Caisse
d’amortissement, on the same model?
This hypothesis is refused by the Liberals. Their arguments are the following: 1) The Caisse is without
any doubt less efficient to reduce debt than a primary budget surplus… It is neither necessary to give
a new impulsion to the ancient Caisse, nor to create a new one. 2) According to them, the experience
has shown that the political power can easily make a misuse of it, by forcing it to finance the current
deficits rather that fulfilling its ordinary goals31. 3) Lastly, the economists, especially Coquelin (1852)
and Puynode (1852) point out the fact the substantial principle of a Caisse d’amortissement is less
efficient than expected in the case of an expensive State which goes on borrowing for its new
expense…
Such as the Liberals, the Socialists do not want systematically to resort to the sinking fund.
Nevertheless, among them, Vidal disputed the argument that the only way to amortize the debt is to
generate a surplus.
In 1848 the needs of the current financial situation give to the Socialists the idea to short-circuit the
sinking fund to push away the risk of financial panics. One of the most innovative authors in this
31
The Liberals were opposed on this point to the Saint-Simonians who claimed in the 1830s an alternative use of the sinking fund - notably the young Michel Chevalier (1832) who proposed to encourage the realization of public utility works by the payment of a premium levied on the sinking fund.
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respect is François Vidal. How to do this? Vidal elaborates in 1848 a proposal of purchase of public
debt by the State. The principle is quite easy to understand: rather than giving high dotation to the
Fund, which could use it to purchase public bonds, the State could make an economy by purchasing
directly its own bonds (by adding 0,5% on the annual interest rate for its amortization), during 59
years.
How to reduce the public debt service: the conversion of annuities
Another advantage of public debt, rather than other ways of financing the State, aroused the interest
of the Saint-simonians and Socialists since the 1830 decade: the possible conversion of annuities (by
replacing the return rate – for its holder – by another one, generally lower). Annuities conversion is
often undertaken at particular political moments, when its acceptance by people is considered as not
antagonistic. Why is the conversion of annuities viewed with benevolence by Socialists?
After the saint-simonian enthusiasm of 1830s for the conversion, Pierre-Joseph Proudhon declared
(in 1840) that it was an efficient way to attack private property by eroding the estate of the owners.
In the same way, Louis Blanc views it as “a way of bring to an end the idleness of certain capitalists
and to obviate the laziness of some capitals [holding these bonds]” (Blanc 1844, p. 947). However,
against the Saint-Simonian enthusiasm for regular conversions of rents (Coste 2016), Louis Blanc
explained that the Saint-Simonian position imposed to be dependent on the Stock Exchange, what he
refused. Indeed, the stock market prevents the direct connection between capital and labor (Blanc
1845).
The Liberals interest for the topic emerged in 1840s. Horace Say legitimized the principle in the
reissue of his father’s Cours complet (Say 1840, II: 469) ; in the Revue des deux Mondes (1843), Léon
Faucher deplored the status quo with reference to the conversion of debt taken on at 5% - Faucher
demanded that the debt’s nominal rate be made conform with its actual rate ; in 1845 Charles
Coquelin who emphasised the legitimacy of conversion in the same Revue des deux mondes, arguing
that the rentier should not be exempt from a decrease in interest rates that occurred across the
board ; finally, in the Journal des économistes (1845), Dussart circumvented the accusation of
“bankruptcy in disguise” by arguing that the alternative of redemption was always proposed to any
unsatisfied creditors. Dussart concluded that, “Conversion represents bankruptcy for clairvoyants,
just as bankruptcy represents conversion for the blind” (Dussart 1845: 54).
However, Charles Dunoyer – one of the most conservative liberal economists – challenged the
principle of conversion by denouncing the right of reimbursement claimed by the State. According to
him, the conversion is unfounded in law because the State is not entitled to reimburse at par (100
francs per annuity title) the debt it has contracted at variable prices (Dunoyer 187? [1845]: 366).
In any case, reducing the service of the debt by a conversion is impossible as long as the price of the
annuity to be converted (5%) is less than 100 francs. Indeed, in such a situation, no annuitant would
accept it. It was therefore necessary to wait until 1852 for a conversion (see graph 1) to reduce the
long-term interest rate (see graph 2).
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4. The debates on taxation
Between 1848 and 1852, taxation also becomes a central topic of discussions in the economic in
intellectual circles. Debates focused as well on the commentary of fiscal policies undertaken by the
successive governments, as on propositions of fiscal reforms which aroused at the Parliament or in
some booklets in that time. To have a right idea on fiscal debates in this period, we confront in this
section liberal and socialist arguments on taxation around 1848. In 1848, the Gouvernement
Provisoire took two important tax measures: the "over-taxation" of property through the tax of 45
centimes and the abolition of certain indirect taxes. In addition, the provisional government
discussed the introduction of an income tax. So we identify two central questions in this respect
which have interested Liberal and Socialist economists: that of the trade-off between properties or
consumption taxes, and that of the relevancy of an income-tax (in the British fashion) or of a capital
tax in the 1848 context.
Tax on properties or on consumption?
Firstly it is important to note that the Liberal economists, over the period studied, did not find any
consensus about taxation as a remedy to the public finance crisis. We will show that some of them
considered that it was a last resort solution, preferable to an increase in debt, but could not reach an
agreement on the way to implement it. Nevertheless they share a common view about taxation: the
idea that “it is a necessary privation, that must be diminished as far as possible, up to the limits of
the needs of society” (Garnier 1848c, p. 341).
In general, the Socialists wanted the substitution of indirect taxes (in particular consumption taxes)
by an increase in taxes on ownership (in particular the land tax). But in 1848 both socialists and
liberals rejected the tax of 45 centimes considering it as an excessive contribution demanded to
property owners.
Concerning indirect taxation, a major of academic writings of Liberals condemn the multiplication of
indirect taxes - apart from Molinari (1849), for example, who, with Thiers (1848), claimed the
distribution of tax (la "diffusion de l'impôt"). According to them such taxes are in efficient, because
they cause a distortion on the market of consumption goods. And they also must be rejected because
they are often used by the politicians to deceive people, as consumption taxes are the most invisible
for the consumer (since they are confused with the price of commodities) (Garnier 1848c)32. In this
perspective, liberals and socialists could welcome with the same enthusiasm the first measures of
the temporary government… If we now examine their more applied analyses, for example in the
discussions at the Société d’économie politique, things seem to be more contrasted.
The socialists (Louis Blanc and Constantin Pecqueur for example) are not surprisingly strongly
opposed to indirect taxation (particularly on ordinary consumption goods). To them, this type of
32
“Les meilleurs impôts, dissent-ils, sont ceux que le public paye sans s’en douter. Mais c’est là de la ruse et non de la véritable politique. En effet le sacrifice n’existe pas moins, et tôt ou tard, les contribuables en portent la peine (…). L’impôt indirect prive le pauvre de sel, de son véritable sucre (…) ; il oblige les sept huitièmes des Français qui possèdent les vignobles les plus étendus et les plus féconds du monde à se priver de vin (…)” (Garnier 1848c, p. 346).
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taxation is “a progressive regressive tax” (Pecqueur, AN : 17 (17)). They promote the necessity of an
equal sacrifice between all the citizens: the only way to ensure the equality of sacrifice is to remove
indirect taxation, which means always a heavier burden for the poor (the worker) than for the rich
(the capitalist and the landowners).
Léon Faucher (1849) challenged this socialist assertion, rejecting "the inequalities of the tax often
denounced"33. According to him, taxation weighs heavily on capitalists, landowners and captains of
industry through four direct contributions, stamp duties and registration (enregistrement), which
together accounted for 52% of the 1847 budget – the working class would pay only 13.5% of the total
taxes, 18,5% for the middle class (Faucher 1849: 73)34.
Income tax vs Capital tax
Socialists and Liberals also strongly discussed about the opportunity to create an income tax or a
capital tax in order to solve public finance crisis and to introduce more redistributive justice. This is
related with many attempts from the Finance Ministry as well as from intellectuals thirsty for more
equality: the Minister Goudchaux tried two times to establish a new income tax35, but the latter was
unanimously refused by the French Parliament (F. Esquirou de Parieu was the writer of the report). In
the following months, Pierre-Joseph Proudhon and Hippolyte Passy both tried to propose the
establishment of an income tax: both times their projects are refused by the Assembly… What were
the positions of the Liberal and Socialists in these debates?
Not surprisingly, a part of the liberal economists supported the idea of an income tax; it is the case of
Cherbuliez, H. Passy and Garnier in 1848. As the question is sensitive from a political viewpoint,
Joseph Garnier cautiously considers that an income tax in the British fashion (like Robert Peel had
implemented it) would have been a better option than the increase of the debt. The trade-off
between both ways of financing the State should balance in favor of income taxation for the
following reasons (1848b and 1848b); a unique income tax is the better way to organize a just and
not arbitrary contribution and to comply with proportionality, which is considered (in that time and
in the following decades) as the most important principle for any fiscal system:
“Tax should be proportional that is levied so that every taxpayer contributes in proportion of
its private income. This is by far the most important rule. It complies with the most
elementary principles of equity.” (H. Passy, 1852, p. 900). “The income tax is the most
proportional, is better adapted to the real faculties of taxpayers” (ibid., p. 903).
Income tax also avoids most of market disturbances (on the contrary to indirect taxes with exerts
crowding out effects or under consumption). The case of Léon Faucher is quite interesting and in
some extent representative of the Liberals hesitation; if he seems to agree with the spirit of the
young Republic in 1848, particularly about taxation, he pronounces him radically against the income
tax in 1849, in an article published in the Revue des Deux Mondes. In this article he pretends that an
income tax complies only with infant societies, whereas the types of taxes should be more and more
diversified as societies improve, that is as the forms of wealth diversify. According to him, the
33
« Les inégalités de l’impôt dont on fait tant de bruit » (Faucher 1849: 73). 34
There is no explicit reference to the notion of inequality of sacrifice. 35
The first attempt of the Minister Goudchaux in 1848 foresaw a tax on movable revenue and mortgage debt. His second attempt after June was a proportional 2% taxation over every type of income.
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comparison with Britain on this point is not relevant, since Britain is an aristocratic country and
would have much more fiscal inequalities than France, which would require a more corrective tax
system (like the income tax). Because, write Faucher, the progressive taxation would be the natural
outcome of each system of income tax.36 Faucher uses, as the majority part of his Liberal colleagues,
the traditional liberal arguments against progressive taxation: firstly they consider it a profoundly
unfair, since it would modify the social order; it would be inefficient by discouraging any efforts; and
it would carry arbitrariness since it needs a political definition of the rate of progression…37
The case of Joseph Garnier is also of interest. In his 1848 Handbook (Eléments de l’économie
politique), he takes over the benefit principle (so defined by Seligman 1895) considering that a
proportional taxation is unfair to the working class, who should neither contribute in a proportionate
way to funding the National Opera or to financing ornamental gardens or promenade that they will
never enjoy. The distributive justice would require that the poor pay a lower rate than the rich:
“There is in every non-progressive tax a radical cause of inequality which collides with the
notions we developed about the laws of distributive justice. For no one it is equitable that a
poor peasan contributes either for the financing of the Paris Opera whose existence he
ignores, or to the embellishment of a promenade (…)” (Garnier 1848c, p. 337).
Nevertheless we observe a resistance towards income tax, particularly in the writings of Thiers and
Molinari. These hesitations illustrate the tensions inside the Liberal school between a progressive
aisle which considered income tax as an instrument of rationalization and of compliance with
efficiency and justice, and a conservative one which believes it would ineluctably be perverted
towards a progressive taxation system.
Taxation of capital is as controversial among the French liberal economists. Most of them rejected it
and defended the idea according to which taxation should hit the revenue and not the capital
(Cherbuliez, 1848 : 419). Emile de Girardin’s proposal consisting in taxing the capital (1849) by the
means of a voluntary insurance contribution, or that of Léon Walras to tax with high rates landed
properties, are thrown out by the Liberals.
From the socialist viewpoint, the necessity of an income tax is fundamental to establish more justice
in society. That is why Louis Blanc and Constantin Pecqueur actively defended a unique and
progressive income tax:
“The unique and personal tax is the only one which complies with justice; because it is
possible to hit the wealth or the capital, the property and the income, only if we have a total
appraisal of what he owns and what he annually earns.” (Pecqueur, AN: 17 (17)).
By defending progressive income tax, the Socialists want to establish a new definition of tax: it
should not anymore be the price of the protection service rendered by the State (the benefit-
principle), but the individual contribution in function of everyone’s resources (the ability-to-pay
principle). Thus direct taxation of income is viewed as a “principle of association to the common
utility expense” (Blanc 1849, p. 113).
36
« Oui, l’impôt progressif est au bout de l’impôt sur le revenu » (Faucher, 1849a : 94). 37
We do not treat this question in details here because it was dealt with in a separate article. See Silvant 2010. In this article, we show than some liberal economists are not hostile to progressive taxation.
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On the other side, many Socialists also advocated a capital tax. Constantin Pecqueur defended
taxation of landed properties and of capital based on a criterium of justice: as movable and landed
capitals are unequally distributed in a society, it is fair that those who benefited them support a tax;
it complies with the principle of equality of conditions. A capital tax is perceived as an interest
received by the State for the benefit of the whole society. It could be redistributed to the working
class, as a compensation of what the capitalists retire from their labor. Rather than the payment of a
kind of mandatory insurance, as in Girardin, Pecqueur perceives his capital tax as the payment of a
debt due to the members of the working class, the capitalist being debtors of their salaries since they
do not permit them to earn a fair portion of the capital they contribute to create.38
Conclusive remarks: On the way of a French financial orthodoxy
We have shown that 1848 was an important year with regard to many subjects related to the
question of public finance. Our study has allowed us to confront socialist and liberal ideas in three
respects: their diagnosis of the causes of the crisis; their views on debt as an advisable way to finance
a State; and their conceptions of taxation.
According to us, our paper has given new insights on two points. Firstly, we propose to make a
reconstruction of the socialist and liberal debates about a technical question, that of public finance
troubles, what had never been done. In this regard, we tried to give to the reader a clear view of the
financial controversies of that time. We aimed at underlining the permeability between theoretical
and “applied” questions. Secondly it showed that neither the Socialist group nor the Liberal one are
“monolithic” groups; it means that if a kind of orthodox line can obviously be highlighted in both
groups, there were also a room for discussions among them, what results in very rich discussions at
the Parliament or in the reviews of that time.
The following decades (from the 1840s to the 1870s) shows a diverging destiny for Liberal and
Socialist ideas. While the liberal group will expanded through their powerful institutions (particularly
the Journal des Economistes, the Société d’économie politique and the Chairs of higher education)
and spread its thoughts over the political power, the Socialists will lose influence until the 1870-1871
events which rekindle the necessity of a social Republic.
As a consequence, the ideas about public finance developed by the French liberals around 1848 are
probably the early developments of a modern area of finance ideas which will be undertaken from
1858 to the 1870 by Joseph Garnier and Paul Leroy-Beaulieu who will give to finance a new
respectability by constituting a real science of finance.
38
« Il faut demander à l’impôt sur le capital une compensation qui se rapporte à la privation où sont tous les
prolétaires de toute participation à l’usage et aux fruits du sol » (Pecqueur, 1849-1850, n°3).
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