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Economic Sophisms; Bastiat, Frédéric
25 paragraphs found.
S.1, Ch.1, Abundance and Scarcity

Take the case of any producer. In what does his immediate self-interest consist? It consists in two things: (1) that the smallest possible number of persons engage in the same kind of labor as he; and (2) that the greatest possible number of persons be in quest of the product of his labor. Political economy expresses this more succinctly in these terms: that the supply be very limited, and the demand very extensive; in still other terms: limited competition, and unlimited market.


In what does the immediate self-interest of the consumer consist? That the supply of the product he wants be extensive, and the demand limited.

S.1, Ch.4, Equalizing the Conditions of Production

Or, to return to reality, let us say that industry would not have awaited this moment, for abrupt relocations are repugnant to its nature; from the very outset, in the absence of restrictions it would have been gradually dividing and distributing itself between A and B according to the laws of supply and demand, that is to say, according to the laws of justice and utility.


The nutritive substance in potatoes does not cost us very much, because we can obtain many potatoes with little labor. We pay more for wheat because Nature demands a greater amount of human labor for its production. It is evident that, if Nature did for the latter what it does for the former, the prices of both would tend to become equal. However, the producer of wheat cannot go on forever earning much more than the producer of potatoes. The law of supply and demand stands in the way.


Thus, as a result of the operation of the law of supply and demand, the gifts of Nature, like improvements in the processes of production, are—or continually tend to become—the common and gratuitous heritage of the consumers, the masses, mankind in general. Hence, the countries that do not possess these advantages have everything to gain by exchanging with those that do possess them, for exchange involves the products of labor, without regard to the utilities contributed to these products by Nature; clearly, the most favored countries are those that have combined with their labor the greatest number of these natural utilities in making a given product. Their products, which represent less labor, are less well remunerated; in other words, they are cheaper, and if all the gifts of Nature result in lower costs, evidently it is not the producing country, but rather the consuming country, that reaps the benefit.


The theory whose outlines I have attempted to sketch in this chapter still stands in need of a great deal of development. I have considered it only in its bearing on the subject of free trade. But perhaps the attentive reader may have perceived in it the fertile seed that is destined, when it matures, to eradicate not only protectionism, but, along with it, Fourierism, 36* Saint-Simonianism, communism, and all those schools of thought that aim at excluding the law of supply and demand from the governance of the world. From the point of view of the producer, competition doubtless often clashes with our immediate self-interest; but, if one considers the general aim of all labor, i.e., universal well-being—in a word, if one adopts the point of view of the consumer—one will find that competition plays the same role in the moral world as equilibrium does in the physical world. It is the basis of true communism, of true socialism, and of that equality of wealth and position so much desired in our day; and if so many sincere publicists and well-intentioned reformers demand arbitrary controls, it is because they do not understand free exchange.37*

S.1, Ch.11, Money Prices

Nevertheless, before we can argue that such an elaborate mechanism has this simple counterbalancing effect, we must accept M. de Dombasle's "consequently" and be sure that the price of labor does actually rise with the price of protected commodities. This is a question of fact in regard to which I defer to M. Moreau de Jonnès; 52* let him be good enough to ascertain whether wage rates have advanced as much as the price of shares in the mines of the Anzin Company. I, for my part, do not think so; for I believe that the price of labor, like all other prices, is governed by the relation between supply and demand. Now, it is clear to me that restrictive measures diminish the supply of coal and, as a result, raise its price; but it is not so clear to me that they increase the demand for labor and thereby result in higher wage rates. What renders such consequences unlikely is the fact that the quantity of labor demanded depends on the amount of capital available. Now, protection may well be able to redistribute capital by shifting it from one industry to another, but it cannot increase the total amount of capital by a single centime.

S.1, Ch.12, Does Protectionism Raise Wage Rates

For the sake of brevity, let me state this more scientifically, though perhaps not quite so clearly: Wage rates depend upon the supply of and the demand for labor.

S.1, Ch.20, Human vs. Mechanical Labor and Domestic vs. Foreign Labor

For, if the restrictive measures had never been imposed, labor on its own initiative would have allocated itself in accordance with the law of supply and demand so as to achieve the highest ratio of result to effort, and no displacement would have occurred.

S.2, Ch.1, The Physiology of Plunder

An isolated case of monopoly never fails to enrich those to whom the law has granted it. It may then happen that each class of producers, instead of seeking to destroy this monopoly, will demand for itself a similar monopoly. This kind of plunder, thus reduced to a system, then becomes the most ridiculous practical joke on everybody, and the ultimate result is that each person thinks he is getting more out of a general market in which the supply of everything is being lessened.

S.2, Ch.5, High Prices and Low Prices

One of the best-established principles of political economy is that prices are determined by the relation between supply and demand.


There are, then, two factors that influence prices: supply and demand. These factors are inherently variable. They can work together in the same direction, or they can work in opposite directions, and in infinitely varied proportions in either case. Hence, prices are the resultant of an inexhaustible number of combinations of these two factors.


Prices may rise, either because the supply diminishes or because the demand increases.


They may fall, either because the supply increases or because the demand diminishes.


High prices of the bad type are the results of diminution in the supply, for this implies scarcity and therefore privation (such as was experienced this year in regard to wheat); high prices of the good type result from an increase in demand, for this presupposes a rise in the general level of prosperity.


Now, please observe that a policy of protectionism tends to produce, at the same time, both the bad type of high prices and the bad type of low prices: the bad type of high prices, in that it diminishes the supply of goods—which, indeed, is its avowed purpose; and the bad type of low prices, in that it also reduces demand, since it encourages unwise investment of both capital and labor, and burdens the consumer with taxes and restrictions.


Hence, so far as prices are concerned, these two tendencies neutralize each other; and that is why this system, which restricts demand at the same time as supply, does not in the long run result even in the high prices that are its object.


The effect of free trade is precisely the opposite. In its general consequences, it may likewise fail to result in the low prices it was intended to produce; for it, too, has two tendencies, the one toward a desirable reduction in prices effected by an increase in the supply, i.e., by way of abundance, and the other toward an appreciable rise in prices resulting from an increase in demand, i.e., in general wealth. These two tendencies neutralize each other in regard to money prices; but they co-operate in improving the well-being of the population.


In short, in so far as a policy of protectionism is put into effect, men retrogress toward a state of affairs in which both supply and demand are enfeebled; under a system of free trade, they advance toward a state of affairs in which both supply and demand increase together without necessarily affecting money prices. Such prices are not a good criterion of wealth. They may very easily remain the same, whether society sinks into the most abject poverty or advances to a high level of prosperity.


Now, if the scarcity of wheat tends to raise its price on account of the diminution in the supply, the scarcity of all the other commodities for which wheat is exchanged tends to lower the price of wheat on account of the diminution in demand; so that it is by no means certain that in the long run the price of wheat will be one centime higher than under a system of free trade. All that is certain is that, since there is less of everything in the country, everyone will be less well provided in every respect.


What we have said of the farmer is just as true of the manufacturer. Textile manufacturers assert that foreign competition will lower prices by increasing the supply. Granted; but will not these prices rise again as a result of an increase in demand? Is the consumption of cloth a fixed, invariable quantity? Does everyone have as much of it as he could and should have? And if the general level of prosperity was raised by the abolition of all these taxes and restrictions, would not the first use that people would make of the money be to clothe themselves better?


If this is the case, if restriction is advantageous to each particular branch of industry only by impairing the general well-being to an even greater extent, we must conclude that money prices in themselves express a relation between each particular branch of industry and industry in general, between supply and demand, and, accordingly, that a remunerative price, which is the object of protectionism, far from being realized by such a policy, is actually rendered impossible by it. 22*


Allow us to inform you that you only half read the article that inspired your letter. We said that free trade acts in the same way as roads, canals, railways, and everything else that facilitates communication by removing obstacles. Its first tendency is to increase the supply of the duty-free commodity, and consequently to lower its price. But, by increasing at the same time the supply of everything else for which this commodity may be exchanged, it concomitantly increases the demand for it, and its price accordingly goes up. You ask how people will gain by free trade. Suppose you have a balance consisting of several scales, in each of which there are a certain number of the items that you have enumerated. If you add a little wheat to one scale, it will tend to tip the balance; but if you add a little cloth, a little iron, and a little fuel to the other scales, the equilibrium will be restored. So far as the beam is concerned, nothing has changed. But so far as the people are concerned, they are evidently better fed, better clothed, and better housed.


We say that the object of your restrictive measures is something evil, namely, artificially high prices. But we do not say that they always realize the hopes of those who support them. It is certain that they inflict on the consumer all the evil consequences of high prices. But it is not certain that they invariably confer any of the expected benefits on the producer. Why? Because while they diminish the supply, they also diminish the demand.


Suppose that the first shoemaker who established himself there had succeeded in keeping out all others; that the first tailor, the first mason, the first printer, the first watchmaker, the first hairdresser, the first doctor, and the first baker had all likewise been successful in maintaining a monopoly on their services. Paris today would still be a village of from 1,200 to 1,500 inhabitants. Instead, the market has been open to everyone (save those whom you still debar), and this is precisely what has made it the great metropolis it is today. For the enemies of competition it has meant only a long series of vexations; but it has made Paris a city of a million inhabitants. No doubt it has raised the general level of prosperity; but has it been detrimental to the individual prosperity of the shoemakers and the tailors? That is the essential question you have to ask yourself. As competitors arrived, you would have said, "The price of shoes is going to fall." But has it fallen? No; for if the supply has increased, the demand has increased as well.