Who Was Jacques Rueff?

Written by John D. Mueller
Saturday, June 01, 1991

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Wanniski is correct about one thing: LBMC’s approach is basically “Rueffian.” “Supply-side fiscalism” was named by Herbert Stein, an opponent. Mundells’ and Laffer’s “global monetarism” was named by Marina v.N. Whitman, an opponent. Upon consideration, LBMC accepts the name “Rueffian” from Wanniski.

Jacques Rueff is interesting today for a number of reasons. He was a good economic theorist because he was a practitioner of economic policy – and vice versa.

Trained in science and mathematics at the Ecole Polytechnique, Rueff devoted his first theoretical work to showing that the same scientific method applies to “moral” or “social” sciences like economics as to the physical sciences (Des Sciences Physiques aux Sciences Morales, 1922). In both cases, he pointed out, individual acts can be “indeterminate,” but the pattern of large numbers of individual acts can be predicted as a matter of probability. And so in economics no less than physics, as he later wrote, “A scientific theory is considered correct only if it makes forecasting possible.”

Rueff wrote two treatises on money. The first dealt with basic “static” principles (Theorie des Phenomenes Monetaires, 1927). He envisioned a second volume of monetary theory, dealing with “monetary dynamics.” But when published 18years later, it had turned into a general outline of economic society, with an analysis of different monetary, fiscal and regulatory regimes and a theory of economic policy as the application of incentives and disincentives (L’Ordre Social, 1945). The themes had become so fundamental and sweeping, I think, because European civilization had come to the brink, and the immediate task was to rebuild it. Later, Rueff also wrote a number of works applying his theories to the Bretton Woods system, including The Age of Inflation, The Monetary Sin of the West, and Balance of Payments. One of his last works was The Gods and the Kings, a meditation on the relation between the sciences and society, which returned to the theme of his first work.

This theoretical output would be enough for most men. But one reason Rueff’s theories are extraordinarily applicable in the real world is that he grappled for most of his life with the day-to-day problems of economic policy. Rueff was commissioned to determine the level at which the French franc should be stabilized in 1926, based on his pioneering studies in purchasing power parity: it was a success. Rueff also was the first to point out that the chronic unemployment in Great Britain in the 1920s was the result of both the exchange rate and the unemployment “dole” being fixed too high in relation to nominal wages. Rueff was later put in charge of the Bank of France’s sterling reserves in London, where he was able to analyze and correctly warn about the deflationary collapse of the sterling-exchange system if it were not fixed. In the 1930s, Rueff served both as Secretary of the Treasury and deputy head of the Bank of France. After the war, based on the theories developed in L’Ordre Social, he outlined plans to put the basket-case French republic on a sound footing – and was given the change to implement them, successfully, in 1958. As an advisor to de Gaulle, Rueff then outlined a reform of the Bretton Woods system that would have prevented the world-wide inflation of the 1970s and 1980s. Rueff ended his career as a judge at the World Court and a member of the French Academy. He died in 1978.

Jacques Rueff is particularly interesting to us in the United States today because, in the course of all this, he debated the men and ideas behind the three macro-economic schools which took part in the U.S. economic policy debates of the 1970s and 1980s. He crossed swords with Irving Fisher, the forerunner of the domestic monetarists, and personally debated John Maynard Keynes, whose followers dominated U.S. economic policy in the 195-0s and 1960s. And in doing so, Rueff had something interesting to say about Jean-Baptiste Say’s Law of Markets, which could be called the cornerstone of the third school, supply-side economics.

I’d like to describe Rueff’s analysis of each. (I want to apologize in advance to both the layman and the expert – to the layman, for using a few mathematical formulas; to the expert, because they greatly simplify a complicated subject.)

Next: The Problem of the Quantity Theory of Money