George H. Smith begins his discussion of the free‐​market theories of Thomas Hodgskin.

George H. Smith was formerly Senior Research Fellow for the Institute for Humane Studies, a lecturer on American History for Cato Summer Seminars, and Executive Editor of Knowledge Products. Smith’s fourth and most recent book, The System of Liberty, was published by Cambridge University Press in 2013.

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 the 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.