Economic Sophisms

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:

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 franc
30* 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 Tagus
31* 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 hectoliter
35* 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*