First Series, Chapter 4
Equalizing the Conditions of Production
It has been said.... but, in order to avoid being charged with putting sophisms into the mouths of the protectionists, I prefer to let one of their most vigorous champions speak for them.
This argument recurs time and again in the writings of the protectionist school. I propose to examine it carefully, and to this end I solicit the reader's attention and patience. I shall concern myself first with the inequalities that stem from the nature of things, and then with those that are derived from various taxes.
Here as elsewhere we find the advocates of protectionism taking the point of view of the producers; whereas we defend the cause of the unfortunate consumers, whom they absolutely refuse to take into consideration. The protectionists compare the field of industry to a race track. But at the race track, the race is at once means and end. The public takes no interest in the contest aside from the contest itself. When you spur your horses on with the single end of learning which is the fastest runner, I agree that you should equalize their weights. But if your end were getting an important and urgent piece of news to the winning post, would it be consistent for you to put obstacles in the way of the horse that had the best chance of getting there first? Yet that is what you protectionists do with respect to industry. You forget its desired result, which is man's well-being; by dint of begging the question, you disregard this result and even go so far as to sacrifice it.
But since we cannot persuade our opponents to accept our point of view, let us adopt theirs, and examine the question in relation to production.
I shall try to establish:
(2) That it is not true that job opportunities within a country may be choked off by the competition of more favored countries.
(3) That, even if this were true, protective tariffs do not equalize the conditions of production.
(4) That free trade equalizes these conditions as much as they can be equalized.
(5) Finally, that it is the least favored countries that gain the most from exchange.
1. To equalize the conditions of production is not only to obstruct exchange to some extent but also to attack exchange at its very foundations; for exchange is based precisely on the diversity, or, if you prefer, on the inequalities of fertility, skill, climate, and temperature, that you are seeking to eliminate. If Guienne sends wines to Brittany, and if Brittany sends wheat to Guienne,28* it is because these two provinces offer different conditions for production. Is international trade conducted on a different basis? Moreover, to attack the inequalities in conditions that give rise to exchange and that account for it is in effect to attack exchange itself. If the protectionists had the power to give legal effect to their convictions, they would reduce all men to the snail's life of utter isolation. A rigorously logical analysis would show, besides, that there is not one of their sophisms that would not lead to ruin and annihilation.
2. It is not true, in practice, that inequality in the conditions of production between two similar industries necessarily involves the failure of the less favored one. At the race track, if one of the horses wins the place, the other loses it; but when two horses work to produce something useful, each will produce an amount in proportion to his strength; and although the stronger will render the greater service, it does not follow that the weaker will render none at all. Wheat is grown in all the departments of France, although there are among them enormous differences in fertility; and if by chance there is one department in which no wheat is grown, it is because it would not pay to grow wheat even for consumption there. By analogy it is clear that under the system of free trade, despite comparable differences, wheat would be grown in every kingdom in Europe; and if there were one that decided to discontinue the cultivation of wheat, it would do so because it had found, in its interest, a better use for its land, its capital, and its manpower. And why does not the fertility of one department nullify the efforts of the farmer in a neighboring, less favored department? Because economic phenomena have a flexibility, an elasticity, and, so to speak, capacities for achieving equalization that appear to have altogether escaped the notice of the protectionist school. The protectionists accuse us of being doctrinaire; but they are the ones that are doctrinaire in the highest degree, for they build the whole edifice of their doctrine on the basis of a single fact rather than on an aggregation of facts. In the example cited above, the differences in the value of various pieces of land are what compensate for the differences in their fertility. Your land produces three times as much as mine. Yes, but it cost you ten times as much, so that I can still compete with you. There is the whole secret. And observe that superiority in some respects leads to inferiority in others. It is precisely because your land is more fertile that it is more expensive, so that it is not accidentally, but necessarily, that an equilibrium is established or tends to be established; and it cannot be denied that the system of free trade is the one that most favors this tendency.
I have taken as my example a branch of agriculture, but I could just as well have cited a branch of industry. There are tailors at Quimper;29* but this does not prevent there being tailors in Paris, although the latter pay much more for rent, furnishings, workers, and food. But they also have a much different clientele, and this fact suffices not only to redress the balance but even to tip it to their side.
Thus, when one speaks of equalizing the conditions of production, one should at least ascertain whether free trade does not do what one seeks to accomplish by arbitrary control.
This natural equalizing tendency of economic phenomena is so important to the discussion and at the same time so well suited to fill us with admiration at the providential wisdom that presides over the regulation of a society based on equal rights that I ask leave to dwell on it for a moment.
The protectionists are wont to say: "Such and such a nation has an advantage over us because its people can obtain coal, iron, machinery, and capital cheaply; we cannot compete with them."
I shall later examine some of the further implications of this proposition. For the present, I shall confine myself to the problem of ascertaining whether a superiority in one respect and an inferiority in another do not, in the end, counterbalance each other and thereby tend to reach a true equilibrium.
Suppose there are two countries, A and B. A has all sorts of advantages over B. From this you infer that industry will be concentrated in A, and that B is powerless to make anything. A, you say, sells much more than it buys; B buys much more than it sells. I could dispute this, but I shall adopt your position.
On this hypothesis, labor is in great demand in A, and soon its wages rise.
Iron, coal, land, food, and capital are all in great demand in A, and soon their prices rise.
Meanwhile labor, iron, coal, land, food, and capital all go begging in B, and soon all wages and prices fall there.
Nor is this all. Since A is selling all the time and B is buying all the time, money passes from B to A. It abounds in A and is scarce in B.
But an abundance of money means that it costs a great deal to buy anything. Thus, in A, to the really high cost of living that stems from a very active demand is added a nominally high cost of living resulting from the overabundance of precious metals.
A scarcity of money means that little is needed for each purchase. Thus, in B a nominally low cost of living comes to be combined with a really low cost of living.
In these circumstances, industry will have all sorts of motives—motives, if I may say so, intensified to the highest degree—for deserting A and going to establish itself in B.
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.
And when I say that, if it were possible for industry to concentrate in one area, this very fact would give rise to an irresistible tendency toward decentralization, I am indulging in no idle hypothesis.
Let us listen to what was said by a manufacturer in addressing the Manchester Chamber of Commerce (I omit the figures with which he supported his argument):
You see clearly that Nature, or rather Providence, which is more ingenious, more intelligent, and more discerning than your narrow and rigid theory supposes, has not permitted the existence of that concentration of labor, that monopoly of all advantages, which you argued was a positive and irremediable fact. Providence has seen to it, by means as simple as they are unfailing, that there should be simultaneous dispersion, diffusion, interdependence, and progress. All these are tendencies that your restrictive laws paralyze as much as they can; for such measures tend in their turn, by isolating communities, to perpetuate and intensify the differences in their respective conditions of production, to prevent their equalization, to bar their commingling, to neutralize countervailing forces, and to immobilize nations in their respective positions of superiority or inferiority.
3. In the third place, to say that a protective tariff equalizes the conditions of production is to give currency to an error by a faulty mode of expression. It is not true that an import duty equalizes the conditions of production. These are the same after the tax as they were before. At worst, all that such a duty equalizes are the conditions of sale. It may be said perhaps that I am playing on words, but I reply by making the same charge against my opponents. If they cannot prove that production and sale are synonymous, I am justified in charging them, if not with playing on words, at least with confusing them.
Permit me to illustrate what I mean by an example:
Let us assume that some Parisian speculators decide to devote themselves to the production of oranges. They know that oranges from Portugal can be sold in Paris for ten centimes; they, on the other hand, because of the seedling-flats and greenhouses they will need and the cold weather that will often thwart their efforts, cannot ask less than a franc30* if they are to make any profit at all. They demand that Portuguese oranges be subject to a tariff of ninety centimes. By means of this customs duty, they say, the conditions of production will be equalized; and the Chamber, yielding as always to this kind of reasoning, imposes a duty of ninety centimes on foreign oranges.
Now, I maintain that despite this tariff the conditions of production are in no way changed. The law has taken away none of the heat from the sun at Lisbon, nor has it rendered the frosts at Paris less frequent or less bitter. The ripening of oranges will continue to be natural on the banks of the Tagus31* and artificial on the banks of the Seine; that is, growing oranges will require a great deal more human labor in one country than in the other. All that will be equalized are the conditions of sale: the Portuguese will have to sell us their oranges for one franc, ninety centimes of which will go to pay the tariff. This will evidently be paid by the French consumer. And see how absurd the result will be. On each Portuguese orange consumed, the country will lose nothing; for the ninety centimes extra charged the consumer will be paid into the treasury. Money will change hands, but it will not be lost. However, on each French orange consumed, ninety centimes, or nearly that much, will be lost; for the buyer will certainly lose it, and the seller just as certainly will not gain it, since, on this hypothesis, he will leave received for the orange no more than its net cost. I leave it to the protectionists to draw the conclusion.
4. If I have insisted on this distinction between the conditions of production and the conditions of sale, a distinction that the protectionists will doubtless find paradoxical, it is because I am about to use it as the basis for inflicting on them yet another, even stranger paradox: Do you want to really equalize the conditions of production? Then permit free trade.
"Oh!" they will say; "this is really too much. You are carrying your joke too far!" Very well! If only to satisfy their curiosity, I ask the protectionist, to follow my argument to its conclusion. It will not be long. I revert to the example I have been using.
If we assume, for the moment, that the average daily income of each Frenchman is one franc, it will follow incontestably that to produce directly one orange in France will take one day's work or its equivalent; whereas to produce the exchange-value of a Portuguese orange will take only one-tenth of that day's labor, which means nothing else than that at Lisbon the sun accomplishes what at Paris can be performed only by human labor. Now, is it not evident that, if I can produce an orange, or—what comes to the same thing—enough to buy it, with one-tenth of a day's labor, the conditions of that production are for me exactly the same as those for the Portuguese producer himself, save for the transportation to Paris, the cost of which must be charged to me? Hence, it is clear that free trade equalizes the conditions of production, whether it is direct or indirect, as far as they can be equalized, because it does away with all differences save one that is inevitable, that of transportation.
Moreover, free trade also equalizes the conditions of enjoyment, of satisfaction—in short, of consumption. People seem never to take this aspect of the matter into consideration; yet it is the crux of the whole discussion, since, after all, consumption is the ultimate goal of all our productive efforts. Under a system of free trade, we should enjoy the benefits of the Portuguese sun just as Portugal itself does; and the inhabitants of Le Havre would have just as much access to the advantages that Nature conferred upon Newcastle in the form of mineral resources, and under the same conditions, as the people of London do.
5. As the protectionists can see, I find myself in a paradoxical humor and am now disposed to go even farther. I contend, and I quite sincerely believe, that if two countries have unequal conditions of production, the one of the two that is the less favored by Nature has the more to gain from free trade. In order to prove this, I shall have to depart somewhat from the customary form of a work of this kind. I shall do so, nevertheless, first because the foregoing thesis expresses my whole point, and then because this digression will provide me with the opportunity to expound an economic law of the highest importance. Indeed, I think that when this law is properly understood, all those sects that in our day have been seeking in the land of fantasy the economic harmony that they have been unable to discover in Nature will be led to take a more scientific view of things. I refer to the law of consumption, which the majority of economists should perhaps be reproached for having too much neglected.
Consumption is the end, the final cause, of all economic phenomena, and it is consequently in consumption that their ultimate and definitive justification is to be found.
Nothing, whether favorable or unfavorable, has effects that touch only the producer. The advantages that Nature and society lavish upon him, as well as the disadvantages that they inflict upon him, slip away from him, so to speak, and tend insensibly to be absorbed and dissolved into the community, that is, the mass of the consumers. This is an admirable law both in its cause and in its effects; and he who succeeded in explaining it fully would, I think, have the right to say: "I have not passed through this life without paying my debt to society."
Every circumstance that favors the work of production brings pleasure to the producer, for the immediate effect is that he can render more services to the community and ask a greater remuneration from it. Every circumstance that hampers production brings pain to the producer, for the immediate effect is to limit his services and consequently his remuneration. Precisely because the immediate benefits or hardships from fortunate or unfortunate circumstances are necessarily felt first by the producer, he is irresistibly impelled to seek the former and to avoid the latter.
In the same way, when a worker succeeds in improving his skill, he reaps the immediate benefit of the improvement. This is necessary to convince him to work intelligently; and it is just, for it is only fair that an effort crowned with success should bring its reward with it.
But, I assert that these good and bad consequences, although permanent in themselves, do not permanently remain with the producer. Otherwise, the inequalities existing among men would become ceaselessly and progressively greater, and that is why these benefits and hardships quickly become part of the general destiny of mankind.
How does this process take place? I shall explain it by means of a few examples.
Let its go back to the thirteenth century. The men who then practiced the art of copying received for the service they performed a remuneration determined by the average rate of wages. Among these copyists, there was one who sought and discovered the means of multiplying rapidly copies of the same work. He invented printing.32*
At first, one man became rich, while many others were being impoverished. However marvelous this discovery was, one might, at first sight, have hesitated to decide whether it was harmful or beneficial. Apparently it was introducing into the world, as I have said, an element of limitless inequality. Gutenberg profited by his invention and employed his profits to extend its use indefinitely, until he had ruined all the copyists. As for the public, the consumers, they gained little, for Gutenberg was careful to lower the price of his books only just enough to undersell his rivals.
But God had the wisdom to introduce harmony not only into the movement of the spheres but also into the internal machinery of society. Hence, the economic advantages of this invention did not remain the exclusive possession of one individual, but instead became for all eternity the common inheritance of all mankind.
In time, the process became known. Gutenberg was no longer the only printer; others imitated him. Their profits at first were considerable. They were compensated very well for being in the vanguard of the imitators, and this extra compensation was necessary to attract them and to induce them to contribute to the great, approaching, final result. They earned a great deal, but they earned less than the inventor, for competition was beginning to operate. The price of books kept falling lower and lower, and the profits of imitators kept diminishing as the invention became less novel, that is, as imitation became less deserving of especial reward. Soon the new industry reached its normal state: the remuneration of printers no longer was exceptionally large, and, like that of scribes in earlier days, it was determined only by the average rate of wages. Thus, production itself became once more the measure of compensation. Yet the invention nonetheless constituted an advance; the saving of time, of labor, of effort to produce a given result, for a fixed number of copies, had nonetheless been realized. But how was this saving manifested? In the cheapness of books. And to whose profit? To the profit of the consumer, of society, of mankind. Printers, who henceforth had no exceptional merit, no longer received an exceptional remuneration. As men, as consumers, they doubtless shared in the advantages that the invention had conferred upon the community. But that was all. In so far as they were printers, in so far as they were producers, they had returned to the conditions that were customary for all the producers to the country. Society paid them for their labor, and not for the usefulness of the invention. That had become the common and freely available heritage of all mankind.
I confess that the wisdom and the beauty of these laws evoke my admiration and respect. In them I see Saint-Simonianism: To each according to his capacity; to each capacity according to its production.33* In them I see communism, that is to say, the tendency of goods to become the common heritage of men; but a Saint-Simonianism, a communism, regulated by infinite foresight, and in no way abandoned to the frailty, the passions, and the tyranny of men.
What I have said of printing can be said of all the tools of production, from the nail and the hammer to the locomotive and the electric telegraph. Society possesses all of them in having an abundance of consumers' goods; and it possesses them as gratuitous gifts, since their effect is to reduce the price of commodities; and all that part of the price that has been eliminated as a result of the contribution of inventions to production clearly makes the product to that extent free of charge. All that remains to be paid for is current human labor; and it is paid without regard to the result of the invention, at any rate when the invention has gone through the inevitable cycle that I have just described. We may take the saw as an example. I summon a workman to my house, he comes with a saw, I pay him two francs a day, and he makes twenty-five boards for me. If the saw had not been invented, he would perhaps not have finished one board; yet I would have paid him no less for the day. The utility produced by the saw is thus a gratuitous gift I receive from Nature, or rather, it is a portion of the inheritance that I have received, in common with my fellow men, from the wisdom of our ancestors. The same is true of agricultural implements. I have two workmen in my field. One works with a plow, the other with a spade. The results of their work are quite different, but their daily wage is the same; for the remuneration is proportionate, not to the utility produced, but to the effort, the labor, demanded.
I entreat the reader's patience and beg him to believe that I have not lost sight of free trade. I hope he will be good enough to remember the conclusion I have reached: Remuneration is proportionate, not to the utility that the producer offers on the market, but to his labor.34*
So far I have taken my examples from among human inventions. I should like now to deal with advantages conferred by Nature.
Every product results from the collaboration of Nature and man. But the portion of utility that Nature contributes is always free of charge. It is only the portion of utility due to human labor that becomes the object of exchange, and consequently of remuneration. The latter doubtless varies greatly in proportion to the intensity of the labor, its skill, its promptitude, its timeliness, the demand for it, the momentary absence of competition, etc., etc. But it is nonetheless true, in principle, that the contribution of the laws of Nature, though involved in all production, counts for nothing in the price of the product.
We do not pay for the air we breathe, although it is so useful to us that we could not live two minutes without it. Nevertheless we do not pay for it, because Nature furnishes it to us without the need of any human labor. But if we want to separate from it one of the gases of which it is composed—for example, in order to conduct an experiment—we have to make an effort, or, if we have someone else make the effort for us, we must give him the equivalent effort embodied in some other product. From this it is evident that exchange is concerned with exertion, effort, labor. It is not really the oxygen that I am paying for, since it is everywhere at my disposal, but the labor needed for isolating it, labor that I have been spared and that I must pay for. Will it be said that there is something else to pay for—supplies, materials, equipment? But it is still the labor connected with these things that I am paying for. The price of the coal used represents the labor needed to extract and transport it.
We do not pay for the light of the sun, because it is a gratuitous gift of Nature. But we do pay for that of gas, of tallow, of oil, and of wax, because in these cases there is some human labor to be remunerated; and note that the remuneration is proportioned so closely to the labor, and not to the utility, that one of these illuminants, although casting a much more intense light than another, may still cost less simply because the same quantity of human labor produces more of it.
If, when the water carrier comes to supply my house, I paid him in proportion to the absolute utility of water, my whole fortune would not be enough. But I pay him in proportion to the pains he has taken. If he demanded more money, others would do this work for me, and, ultimately, in case of need, I should do it myself. The real object of our bargain is not the water, but rather the labor performed to obtain the water. This point is so important and the conclusions that I am going to draw from it throw so much light on the question of the freedom of international trade that I believe I ought to elucidate it with some additional examples.
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.
If, by a happy miracle, the fertility of all arable land happened to increase, the consumer and not the farmer would reap the advantage of this phenomenon, for it would result in abundance and therefore in low food prices. Since each hectoliter35* of wheat would involve less labor, the farmer could exchange the wheat only for some other product that involved a lesser quantity of labor. If, on the contrary, the fertility of the soil should suddenly diminish, the share of Nature in production would be less, and that of labor more, so that the cost of the product would be higher. Thus, I was right in saying that every economic phenomenon in the long run diffuses its effects among the consumers, i.e., all mankind. So long as you have not followed its consequences that far, so long as you stop at the immediate effects, those that concern only one man or one class of men as producers, you are not an economist; any more than you are a doctor if, instead of following the effects of a potion through the entire organism, you confine yourself to observing how it affects the palate or the throat.
The tropical regions are very well suited to the production of sugar and of coffee. This means that Nature does the larger portion of the work and leaves little to be done by human labor. But, then, who reaps the advantage of this liberality on the part of Nature? It is not these regions, for competition allows them to receive remuneration only for the labor expended; instead, it is mankind, for the result of this liberality is termed cheapness, and cheapness benefits everyone.
In a temperate zone where coal and iron ore are at the surface, one need only stoop down to get them. At first, I readily agree, it is the inhabitants of the favored region who will profit from this lucky circumstance. But soon, as competition develops, the price of coal and iron ore will continue to fall until the gift of Nature is available free of charge to everyone, and human labor alone is remunerated in accordance with the average rate of wages.
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.
Hence, we see how absurd it is for a consuming country to reject a product precisely because it is cheap. This is like saying: "I do not want anything that Nature gives me. You can make a product and sell it to me for only half as much of my labor as I should have to expend to make it for myself. You can do this because in your country Nature has done half the work. Very well! I, for my part, refuse to buy the product, and I shall wait until your climate, by becoming inclement, forces you to demand twice as much labor on my part; then I can deal with you on an equal footing."
A is a favored country; B is a country ill-treated by Nature. I hold that exchange is advantageous for both of them, but especially for B; because what are exchanged in commercial transactions are not utilities, but values. Now, A includes a greater amount of utility in the same value, since the utility of the product includes the contributions of both Nature and human labor, whereas its value corresponds only to the contribution of labor. Therefore, the bargain is entirely to the advantage of B. By paying the producer in A simply for his labor, B receives into the bargain more natural utility than it gives.
We are now in a position to formulate the general rule.
Exchange involves the bartering of values; and since competition makes value the equivalent of labor, exchange involves the bartering of equal quantities of labor. What Nature has contributed to the products in the exchange is given by both parties to the transaction free of charge and into the bargain, whence it follows necessarily that exchange carried on with the countries most favored by Nature is the most advantageous.
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*
Notes for this chapter
The Vicomte de Romanet.
Mathieu de Dombasle.
[Two geographical provinces of France, Guienne being in the southwestern part of the country and Brittany in the northwestern part.—TRANSLATOR.]
[A city of about 20,000 inhabitants in Brittany, possessing great beauty of location and considerable historical and architectural significance. However, probably because of its distance from Paris, it has often been the target of jokes in about the same vein as those directed at the fictitious "Dogpatch" in the United States.—TRANSLATOR.]
[There are 100 centimes in a franc.—TRANSLATOR.]
[The principal river of Portugal, on whose estuary Lisbon is situated.—TRANSLATOR.]
[Johann Gutenberg (1398?-1468), a citizen of Mainz, Germany, who is generally credited (perhaps erroneously) with having invented the technique of printing with movable type, was not a copyist, and may very well have not profited from his printing enterprises. Bastiat's knowledge of Gutenberg may have come in part from the various forged documents about Gutenberg current and accepted in Europe in the early 1800s.—TRANSLATOR.]
[Saint-Simonianism was the name applied to the doctrines and program of Claude Henri de Rouvroy, Comte de Saint-Simon (1772-1837), historically the founder of French socialism, who urged the establishment of an industrial state administered according to "scientific" principles. His works were influential in his time and for many years after.—TRANSLATOR.]
It is true that labor does not receive a uniform remuneration. It varies according to whether it is more or less exhausting, dangerous, skilled, etc. Competition establishes for each category a current price, and it is this variable price that I am discussing.
[A metric unit of volume equaling 2.838 bushels.—TRANSLATOR.]
[Fourierism was the term applied to the doctrines and program of F. C. M. Fourier (1772-1837), a French socialist who urged the reconstruction of society on the basis of large groups of about 1,600 persons, called "phalanges," each occupying a common building, or "phalanstery." His ideas were very influential at home and abroad; Brook Farm, Massachusetts, was an experimental society based on Fourierism.—TRANSLATOR.]
[The theory sketched in this chapter is the same as the one that, four years later, was expanded in Economic Harmonies. Remuneration paid exclusively for human labor; the gratuitous utility of natural resources; the progressive harnessing of these resources for the benefit of mankind, whose common patrimony they thus become; the raising of the general standard of living and the tendency toward relative equalization of conditions: these can be recognized as all the essential elements in the most important of Bastiat's works.—EDITOR.]
First Series, Chapter 5
End of Notes
First Series, Chapter 5
Our Products Are Burdened with Taxes
This is the same sophism. People demand that a tariff be levied on a foreign product in order to neutralize the effects of a domestic tax imposed upon the same product when it is made in France. The issue here is the same as the one we have just considered, namely, that of equalizing the conditions of production. We have little more to say on the subject. The domestic tax is an artificial obstacle that has exactly the same result as a natural obstacle, which is to force a rise in the price. If the price rises to the point at which there is a greater loss in making the product ourselves than in importing it from abroad by producing its exchange-value, then leave things as they are. In his own self-interest, the individual will know well enough to choose the lesser evil. I could, in fact, refer the reader to the preceding demonstration; but the sophism that I have to combat here reappears so often in the petitions of grievances and the requests—I might almost say, demands—of the protectionist school that it deserves a special discussion.
If we are talking about one of those exceptional taxes that are imposed on certain products, I readily grant that it is equitable to impose the same tax on the foreign product. For example, it would be absurd to free foreign salt from the salt tax, but not because France would lose anything from the economic point of view; for the contrary is true. Whatever one may say, principles are immutable; and France would gain by removing the tax, just as it will always gain by removing any obstacle, whether natural or artificial. But in this case the obstacle has been erected for a fiscal purpose. This purpose must be achieved; and if foreign salt were sold on our market duty-free, the treasury would lose hundreds of millions of francs which it would have to raise by means of some other tax. There would be an evident inconsistency in creating an obstacle in order to avoid achieving one's purpose. It would have been better, in that case, to have had recourse at the very outset to this other tax and not to have taxed French salt. These, then, are the only circumstances in which I admit the propriety of a customs duty, not protective, but revenue-producing, on a foreign commodity.
But it is fallacious to argue that a country, simply because it has a heavier tax burden than its neighbor, should protect itself by tariffs against the competition of its rival, and this is the sophism I propose to attack.
I have said several times that I mean to limit myself to purely theoretical considerations and to expose, as far as possible, the sources of the protectionists' errors. If I were engaging in polemics, I should ask them: "Why do you direct your tariffs principally against England and Belgium, the most heavily taxed countries in the world? Am I not justified in viewing your argument as nothing but a pretext?" But I am not one of those who believe that one is a protectionist solely from motives of self-interest and not by conviction as well. Protectionism is too popular for its adherents to be regarded as insincere. If the majority of people had faith in free trade, we should have free trade. It is doubtless motives of self-interest that have been responsible for the imposition of our tariffs, but only after having produced sincere conviction. "The will," says Pascal,38* "is one of the principal organs of belief." But the belief is no less real for having its roots in the will and in the secret promptings of selfishness.
Let us revert to the sophism based on the premise of the domestic tax burden.
The state can put its taxes to either a good or a bad use. It puts them to a good use when it performs services for the public equivalent to the value it receives from the public. It puts them to a bad use when it squanders its revenues without giving the public anything in return.
In the first case, it is a sophism to say that the taxes render the conditions of production in the country that pays them less favorable than the conditions of production in a country that is free of such taxes. We pay twenty millions for courts and police forces, it is true; but we do get courts and police forces, with the security that they provide us and the time that they save us; and it is hardly likely that production is either safer or brisker among those nations, if there are any, in which each man takes the law into his own hands. We pay several hundred millions for highways, bridges, harbors, and railroads; granted. But we have these railroads, these harbors, these bridges, and these highways; and unless we made a mistake in building them, it cannot be said that they render us inferior to nations that are not, it is true, burdened with the taxes needed to support a public works program, but that, at the same time, have no public works. And this explains why, while we blame our domestic taxes for our industrial inferiority, we direct our tariffs precisely against those countries that are themselves the most tax-ridden. The fact is that taxes, when properly used, have bettered rather than worsened the conditions of production in these countries. Thus, we must again conclude that protectionist sophisms not only deviate from the truth, but are contrary to it, are, in fact, at the opposite pole from it.39*
As for domestic taxes that produce little revenue, abolish them if you can; but surely the strangest imaginable method of neutralizing their effects is to supplement taxes levied for public purposes with taxes levied for the profit of individuals. A fine way, indeed, to correct the situation! The state has taxed us too much, you say. Well, all the more reason for not taxing one another besides!
A protective tariff is a tax directed against foreign goods, but that falls, let us never forget, on the domestic consumer. Now, the consumer is the taxpayer. And is it not ridiculous to tell him: "Since your taxes are heavy, we shall raise the price of everything you buy; since the state takes a part of your income, we shall hand over another part of it to a monopolist"?
But let us delve further into this sophism, which is so much in vogue among our legislators, although it is quite extraordinary that the very people who defend unproductive taxes (for that is what they are assumed to be on our present hypothesis) are the ones who attribute to them our alleged industrial inferiority in order to justify other taxes and restrictions as compensatory devices.
It seems clear to me that neither the essence nor the consequences of protectionism would in any way be altered if it took the form of a direct tax levied by the state and distributed as subsidies to privileged industries by way of indemnification.
Let us assume that, while foreign iron cannot be sold on our market for less than eight francs, French iron cannot be sold for less than twelve.
On this hypothesis, the government has two ways of assuring the French producer a domestic market.
The first is to impose a customs duty of five francs on foreign iron. It is clear that this would definitely bar the iron from the French market, since it could no longer be sold for less than thirteen francs, that is, eight francs net price and five francs for the tax, and that at this price it would be driven from the market by French iron, which we assumed to be only twelve francs. In this case the buyer, the consumer, would bear all the costs of protection.
On the other hand, the state might levy a tax of five francs on the public and give the proceeds as a subsidy to the ironmaster. The protective effect would be the same. In this case too, foreign iron would be excluded from the French market; for our ironmaster would sell his product at seven francs, which with the five-franc subsidy would give him a remunerative return of twelve francs. But with domestic iron available for seven francs, the foreigner could not sell his at eight.
Between these two systems I can see only one difference. Their principle is the same; their effect is the same: but in one case the protection is paid only by certain individuals; in the other, by everyone.
I frankly confess my preference for the second system. It seems to me more just, more economical, and more honest: more just, because if society wants to pay bounties to certain of its members, everybody should contribute to them; more economical, because it will save much of the cost of collection and will eliminate many restrictions; finally, more honest, because the public would then see clearly the nature of the operation and realize what it is being made to do.
But if the protectionist system had taken this form, it would be really laughable to hear people say: "We pay heavy taxes for the army, the navy, the courts, public works, the public schools, the national debt, etc.; they amount to more than a billion francs. That is why it would be good for the state to take still another billion from us, for the relief of those poor ironmasters, those poor stockholders of the Anzin Company,40* those unfortunate owners of woodlands, those useful codfishers."
One has only to examine matters closely to be convinced that this is what the sophism I am combatting amounts to. Do what you will, gentlemen; you cannot give money to some without taking it away from others. If you absolutely insist on draining the taxpayer dry, well and good; but at least do not treat him like a fool. Do not tell him: "I am taking this money from you to repay you for what I have already taken from you."
It would be an endless task to attempt to criticize everything that is false in this sophism. I shall confine myself to three points.
You argue that, since France is overburdened with taxes, it is necessary to protect this or that industry. But we have to pay these taxes in any case, whether or not there is protection. If, then, the spokesman of a particular industry argues: "We share in the payment of taxes; they raise our costs of production, and we demand that a protective tariff be levied so as to raise correspondingly the selling price of our product," what does such a demand amount to but that the burden of the tax be shifted onto the rest of the community? The object of the demand is to recover, by raising the price of the product, the amount of the tax paid by the industry. Now, since the total revenue from all taxes must always flow into the treasury, and since the public has to assume the burden of the rise in price, it pays not only its own share of the tax but that of this industry as well. But, you say, everyone will be protected. In the first place, that is impossible; and even if it were possible, where would be the relief? I shall pay for you, and you will pay for me; but the tax will have to be paid nonetheless.
This, you are the victims of an illusion. You pay taxes in order to have an army, a navy, a church,41* public schools, courts, highways, etc., and yet you want to free first one industry, then a second, then a third, from its share of taxes, in every case by distributing the burden among the public. But you do nothing but create endless complications, with no result except these complications themselves. If you could show me that a rise in prices that is due to protection falls on foreigners, I might see some plausibility in your argument. But if, before the enactment of the proposed law, the French public was paying the tax, and if, after the law is enacted, it will pay the customs duty as well as the tax, I really cannot see what will be gained by the law.
But I go even further: I maintain that, the heavier our taxes on domestic products, the more quickly must we open our harbors and our frontiers to the goods of foreign countries less heavily taxed than we. And why? To shift to them a larger part of our tax burden. Is it not an incontestable axiom of political economy that taxes ultimately fall upon the consumer? Thus, the more our foreign trade expands, the more foreign consumers will reimburse us for the taxes embodied in the products we sell them; whereas we should have to make them, in this respect, a lesser repayment, since, according to our hypothesis, their products are less heavily taxed than ours.
Finally, with respect to these heavy taxes that you are using as a justification for the protectionist system, have you ever asked yourself whether it is not the system itself that produces them? I do wish someone would tell me what would be the use of large standing armies and powerful navies if trade were free..... But that is the concern of the politicians.
Notes for this chapter
[Blaise Pascal (1623-1662), great French ascetic, religious philosopher and writer, and geometer; his best-known work, the Pensées, comprises fragments of his incomplete planned defense of the Christian religion.—TRANSLATOR.]
[Cf. Economic Harmonies, chap. 18.—EDITOR.]
[The Anzin Company was a remarkable business organization, already close to a century old in Bastiat's day, based on huge coal-mining operations in northeastern France.—TRANSLATOR.]
[The Catholic Church in France was a state church, financed by taxes levied on the whole public.—TRANSLATOR.]
[From the fable, The Weasel that Got Caught in the Storeroom (La Belette entrée dans un grenier), by Jean de la Fontaine (1621-1695)..—TRANSLATOR.]
[Cf., in Vol. V (of the French edition), the pamphlet "Peace and Liberty."—EDITOR.]
First Series, Chapter 6
End of Notes
First Series, Chapter 6
The Balance of Trade
Our opponents have adopted a tactic that puts us in a most embarrassing position. When we expound our doctrine, they accept it in the most respectful manner possible. When we attack their principles, they abandon them with the best grace in the world. They ask only that our doctrine, which they accept as true, be relegated to books, and that their principles, which they admit to be faulty, constitute the rule in the realm of practical affairs. Grant them the management of tariffs, and they will leave to you the domain of theory.
"Surely," said M. Gaulthier de Rumilly44* on a recent occasion, "none of us wants to revive the old theories of the balance of trade." Very well; but, M. Gaulthier, it is not enough just to give error a passing slap on the wrist; you must also avoid arguing, immediately afterward and for two whole hours, as if that error were truth.
Let me speak of M. Lestiboudois.45* Here we have a man who reasons consistently and argues logically. There is nothing in his conclusions that is not to be found in his premises; he does not demand to do in practice anything that he does not justify in theory. Whether the principle that he takes as his initial premise is true may be open to question, but at least he does base his reasoning on a principle. He believes and loudly proclaims that if France gives ten in order to receive fifteen, it loses five; and it is quite plain that he would draft laws accordingly.
"The important thing," he says,
Here, at least, is a man who makes his views clear. There is no hypocrisy in this language. The principle of the balance of trade is openly avowed. France imports 200 millions more than it exports. Thus, France loses 200 millions yearly. And what is the remedy? To restrict imports. The conclusion is unexceptionable.
It is therefore M. Lestiboudois who will have to bear the brunt of our attack; for how can one argue with M. Gaulthier? If you say to him, "The principle of the balance of trade is false," he will reply to you, "That is just what I said from the start." If you tell him, "But the principle of the balance of trade is true," he will tell you, "That is what I have established in my conclusion."
The economist school will doubtless censure me for arguing with M. Lestiboudois. They will say that combatting the principle of the balance of trade is like tilting at windmills.
But we must be careful, for the principle of the balance of trade is not as old, sick, or dead as M. Gaulthier would have us believe; for the whole Chamber, including M. Gaulthier himself, has espoused, in its votes, the theory of M. Lestiboudois.
However, in order not to weary the reader, I shall not probe very deeply into this theory. I shall content myself with submitting it to the test of facts.
We are constantly being told that our free-trade principles are valid only in theory. But, tell me, gentlemen, do you think that the account books of businessmen are valid in practice? It seems to me that if there is anything in the world that has the authority of practice when the question concerns profits and losses, it is commercial accounting. Are we to suppose that all the businessmen in the world have been in agreement for centuries to keep their books in such a way that they would show profits as losses and losses as profits? Instead, I should prefer to believe that M. Lestiboudois is a poor economist.
Now, after one of my friends, a businessman, had carried out two transactions that had had very different results, I was curious to compare the accounting methods of the bank with those of the customhouse, as interpreted by M. Lestiboudois, with the approval of our six hundred lawmakers.
M. T. despatched a ship from Le Havre to the United States, with a cargo of French goods, chiefly those known as specialties of Parisian fashion, totaling 200,000 francs. This was the amount declared at the customhouse. When the cargo arrived at New Orleans, it had to pay a shipping charge of ten per cent and a tariff of thirty per cent, which brought the total to 280,000 francs. It was sold at a profit of twenty per cent, or 40,000 francs, for a total price of 320,000 francs, which the consignee converted into cotton. This cotton had to pay ten per cent more, for transportation, insurance, commissions, etc.; so that, when the new cargo arrived at Le Havre, its cost amounted to 352,000 francs, and that was the figure entered into the accounts of the customhouse. Finally, M. T. again realized, on this return trip, twenty per cent profit, or 70,400 francs; in other words, the cotton sold for 422,400 francs.
If M. Lestiboudois requires it, I shall send him some figures taken from the books of M. T. There he will see, in the credit column of the profit-and-loss account—that is to say, as profit—two entries, one for 40,000 francs and the other for 70,400 francs; and M. T. is fully satisfied that in this respect his accounting is not in error.
And yet, what do the figures in the account books of the customhouse tell M. Lestiboudois regarding this transaction? They tell him that France has exported 200,000 francs, and that it has imported 352,000 francs; whence the honorable deputy concludes "that it has consumed and dissipated the proceeds of previous savings, that it has impoverished and is on the way to ruining itself, that it has given away 152,000 francs of its capital to foreigners."
Some time afterward, M. T. despatched another ship with a similar cargo, worth 200,000 francs, of produces of our domestic industry. But the unfortunate vessel sank while leaving the harbor, and there was nothing else for M. T. to do but to inscribe in his books two brief entries phrased thus:
Sundry goods due to X: 200,000 francs for the purchase of various commodities carried by ship N.
Profits and losses due to sundry goods: 200,000 francs for ultimate total loss of the cargo.
Meanwhile, the customhouse on its part was entering 200,000 francs into its export ledger; and as it will never have anything to enter into the opposite import ledger on this account, it follows that M. Lestiboudois and the Chamber will view this shipwreck as a clear net profit of 200,000 francs for France.
There is still a further conclusion to be drawn from all this, namely, that, according to the theory of the balance of trade, France has a quite simple means of doubling her capital at any moment. It suffices merely to pass its products through the customhouse, and then throw them into the sea. In that case the exports will equal the amount of her capital; imports will be nonexistent and even impossible, and we shall gain all that the ocean has swallowed up.
"You're just joking," the protectionists will say. "We couldn't possibly have been saying anything so absurd." Indeed you have, and, what is more, you are acting upon these absurd ideas and imposing them on your fellow citizens, at least as far as you can.
The truth is that we should reverse the principle of the balance of trade and calculate the national profit from foreign trade in terms of the excess of imports over exports. This excess, minus expenses, constitutes the real profit. But this theory, which is the correct one, leads directly to the principle of free trade. I present this theory to you, gentlemen, just as I do all the others that have been the subjects of the preceding chapters. Exaggerate it as much as you wish; it has nothing to fear from that test. Assume, if it amuses you, that foreigners flood our shores with all kinds of useful goods, without asking anything from us; even if our imports are infinite and our exports nothing, I defy you to prove to me that we should be the poorer for it.46*
Notes for this chapter
[L. M . C. H. Gaulthier de Rumilly (1792-1884), a Deputy and an authority on tariffs, railroads, and trade.—TRANSLATOR.]
[G. T. Lestiboudois (1797-1876), a Deputy and a doctor.—TRANSLATOR.]
[In March, 1850, the author was again forced to combat the same sophism, which he heard expressed in the Chambers. He amended the preceding demonstration by excluding from his calculations the costs of transportation, etc. Cf. Selected Essays on Political Economy, chap. 13.—EDITOR.]
First Series, Chapter 7
End of Notes
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