Economic Sophisms

Put the case of two isolated nations, each composed of a million of inhabitants. Grant that, coteris paribus, the one possesses double the quantity of everything, – corn, meat, iron, furniture, fuel, books, clothing, etc., – which the other possesses.

It will be granted that the one is twice as rich as the other.

And yet there is no reason to affirm that a difference in actual money prices28 exists in the two countries. Nominal prices may perhaps be higher in the richer country. It may be that in the United States everything is nominally dearer than in Poland, and that the population of the former country should, nevertheless, be better provided with all that they need; whence we infer that it is not the nominal price of products, but their comparative abundance, which constitutes wealth. When, then, we desire to pronounce an opinion on the comparative merits of restriction and free-trade, we should not inquire which of the two systems engenders dearness or cheapness, but which of the two brings abundance or scarcity.

For, observe this, that products being exchanged for each other, a relative scarcity of all, and a relative abundance of all, leave the nominal prices of commodities in general at the same point; but this cannot be affirmed of the relative condition of the inhabitants of the two countries.

Let us dip a little deeper still into this subject.

When we see an increase and a reduction of duties produce effects so different from what we had expected, depreciation often following taxation, and enhancement following free trade, it becomes the imperative duty of political economy to seek an explanation of phenomena so much opposed to received ideas; for it is needless to say that a science, if it is worthy of the name, is nothing else than a faithful statement and a sound explanation of facts.

Now the phenomenon we are here examining is explained very satisfactorily by a circumstance of which we must never lose sight.

Dearness is due to two causes, and not to one only.

The same thing holds of cheapness.

It is one of the least disputed points in political economy that price is determined by the relative state of supply and demand.

There are then two terms which affect price – supply and demand. These terms are essentially variable. They may be combined in the same direction, in contrary directions, and in infinitely varied proportions. Hence the combinations of which price is the result are inexhaustible.

High price may be the result, either of diminished supply, or of increased demand.

Low price may be the result of increased supply, or of diminished demand.

Hence there are two kinds of dearness, and two kinds of cheapness.

There is a dearness of an injurious kind, that which proceeds from a diminution of supply, for that implies scarcity, privation (such as has been felt this year29 from the scarcity of corn); and there is a dearness of a beneficial kind, that which results from an increase of demand, for the latter presupposes the development of general wealth.

In the same way, there is a cheapness which is desirable, that which has its source in abundance; and an injurious cheapness, that has for its cause the failure of demand, and the impoverishment of consumers.

Now, be pleased to remark this; that restriction tends to induce, at the same time, both the injurious cause of dearness, and the injurious cause of cheapness: injurious dearness, by diminishing the supply, for this is the avowed object of restriction; and injurious cheapness, by diminishing also the demand; seeing that it gives a false direction to labour and capital, and fetters consumers with taxes and trammels.

So that, as regards price, these two tendencies neutralize each other; and this is the reason why the restrictive system, restraining, as it does, demand and supply at one and the same time, does not in the long run realize even that dearness which is its object.

But, as regards the condition of the population, these causes do not at all neutralize each other; on the contrary, they concur in making it worse.

The effect of freedom of trade is exactly the opposite. In its general result, it may be that it does not realize the cheapness it promises; for it has two tendencies, one towards desirable cheapness through the extension of supply, or abundance; the other towards appreciable dearness by the development of demand, or general wealth. These two tendencies neutralize each other in what concerns nominal price, but they concur in what regards the material prosperity of the population.

In short, under the restrictive system, in as far as it is operative, men recede towards a state of things, in which both demand and supply are enfeebled. Under a system of freedom, they progress towards a state of things in which both are developed simultaneously, and without necessarily affecting nominal prices. Such prices form no good criterion of wealth. They may remain the same whilst society is falling into a state of the most abject poverty, or whilst it is advancing towards a state of the greatest prosperity.

We shall now, in a few words, show the practical application of this doctrine.

A cultivator of the south of France believes himself to be very rich, because he is protected by duties from external competition. He may be as poor as Job; but he nevertheless imagines that sooner or later he will get rich by protection. In these circumstances, if we ask him the question which was put by the Odier Committee in these words, —

"Do you desire – yes or no – to be subject to foreign competition?" His first impulse is to answer "No," and the Odier Committee proudly welcome his response.

However, we must go a little deeper into the matter. Unquestionably, foreign competition – nay, competition in general – is always troublesome; and if one branch of trade alone could get quit of it, that branch of trade would for some time profit largely.

But protection is not an isolated favour; it is a system. If, to the profit of the agriculturist, protection tends to create a scarcity of corn and of meat, it tends likewise to create, to the profit of other industries, a scarcity of iron, of cloth, of fuel, tools, etc., – a scarcity, in short, of everything.

Now, if a scarcity of corn tends to enhance its price through a diminution of supply, the scarcity of all other commodities for which corn is exchanged tends to reduce the price of corn by a diminution of demand, so that it is not at all certain that ultimately corn will be a penny dearer than it would have been under a system of free trade. There is nothing certain in the whole process but this – that as there is upon the whole less of every commodity in the country, each man will be less plentifully provided with everything he has occasion to buy.

The agriculturist should ask himself whether it would not be more for his interest that a certain quantity of corn and cattle should be imported from abroad, and that he should at the same time find himself surrounded by a population in easy circumstances, able and willing to consume and pay for all sorts of agricultural produce.

Suppose a department in which the people are clothed in rags, fed upon chesnuts, and lodged in hovels. How can agriculture flourish in such a locality? What can the soil be made to produce with a well-founded expectation of fair remuneration? Meat? The people do not eat it. Milk? They must content themselves with water. Butter? It is regarded as a luxury. Wool? The use of it is dispensed with as much as possible. Does any one imagine that all the ordinary objects of consumption can thus be put beyond the reach of the masses, without tending to lower prices as much as protection is tending to raise them?

What has been said of the agriculturist holds equally true of the manufacturer. Our manufacturers of cloth assure us that external competition will lower prices by increasing the supply. Granted; but will not these prices be again raised by an increased demand? Is the consumption of cloth a fixed and invariable quantity? Has every man as much of it as he would wish to have? And if general wealth is advanced and developed by the abolition of all these taxes and restrictions, will the first use to which this emancipation is turned by the population not be to dress better?

The question, – the constantly-recurring question, – then, is not to find out whether protection is favourable to any one special branch of industry, but whether, when everything is weighed, balanced, and taken into account, restriction is, in its own nature, more productive than liberty.

Now, no one will venture to maintain this. On the contrary, we are perpetually met with the admission, "You are right in principle."

If it be so, if restriction confers no benefit on individual branches of industry without doing a greater amount of injury to general wealth, we are forced to conclude that actual money prices, considered by themselves, only express a relation between each special branch of industry and industry in general, between supply and demand; and that, on this account, a remunerative price, which is the professed object of protection, is rather injured than favoured by the system.

SUPPLEMENT.30

The article which we have published under the title of Dearness, Cheapness, has brought us several letters. We give them, along with our replies: —

Mr Editor, – You upset all our ideas. I endeavoured to aid the cause of free trade, and found it necessary to urge the consideration of cheapness. I went about everywhere, saying, "When freedom of trade is accorded, bread, meat, cloth, linen, iron, fuel, will go on falling in price." This displeased those who sell, but gave great pleasure to those who buy these commodities. And now you throw out doubts as to whether free trade will bring us cheapness or not. What, then, is to be gained by it? What gain will it be to the people if foreign competition, which may damage their sales, does not benefit them in their purchases?

Mr Free-trader, – Allow us to tell you that you must have read only half the article which has called forth your letter. We said that free trade acts exactly in the same way as roads, canals, railways, and everything else which facilitates communication by removing obstacles. Its first tendency is to increase the supply of the commodity freed from duty, and consequently to lower its price. But by augmenting at the same time the supply of all other commodities for which this article is exchanged, it increases the demand, and the price by this means rises again. You ask what gain this would be to the people? Suppose a balance with several scales, in each of which is deposited a certain quantity of the articles you have enumerated. If you add to the corn in one scale it will tend to fall; but if you add a little cloth, a little iron, a little fuel, to what the other scales contained, you will redress the equilibrium. If you look only at the beam, you will find nothing changed. But if you look at the people for whose use these articles are produced, you will find them better fed, clothed, and warmed.

Mr Editor, – I am a manufacturer of cloth, and a protectionist. I confess that your article on dearness and cheapness has made me reflect. It contains something specious which would require to be well established before we declare ourselves converted.

Mr Protectionist, – We say that your restrictive measures have an iniquitous object in view, namely, artificial dearness. But we do not affirm that they always realize the hopes of those who promote them. It is certain that they inflict on the consumer all the injurious consequences of scarcity. It is not certain that they always confer a corresponding advantage on the producer. Why? Because if they diminish the supply, they diminish also the demand.

This proves that there is in the economic arrangement of this world a moral force, a vis medieatrix, which causes unjust ambition in the long run to fall a prey to self-deception.

Would you have the goodness, Sir, to remark that one of the elements of the prosperity of each individual branch of industry is the general wealth of the community. The value of a house is not always in proportion to what it has cost, but likewise in proportion to the number and fortune of the tenants. Are two houses exactly similar necessarily of the same value? By no means, if the one is situated in Paris and the other in Lower Brittany. Never speak of price without taking into account collateral circumstances, and let it be remembered that no attempt is so bootless as to endeavour to found the prosperity of parts on the ruin of the whole. And yet this is what the policy of restriction pretends to do.

Consider what would have happened at Paris, for example, if this strife of interests had been attended with success.

Suppose that the first shoemaker who established himself in that city had succeeded in ejecting all others; that the first tailor, the first mason, the first printer, the first watchmaker, the first physician, the first baker, had been equally successful. Paris would at this moment have been still a village of 1200 or 1500 inhabitants. It has turned out very differently. The market of Paris has been open to all (excepting those whom you still keep out), and it is this freedom which has enlarged and aggrandized it. The struggles of competition have been bitter and long continued, and this is what has made Paris a city of a million of inhabitants. The general wealth has increased, no doubt; but has the individual wealth of the shoemakers and tailors been diminished? This is the question you have to ask. You may say that according as the number of competitors increased, the price of their products would go on falling. Has it done so? No; for if the supply has been augmented, the demand has been enlarged.

The same thing will hold good of your commodity, cloth; let it enter freely. You will have more competitors in the trade, it is true; but you will have more customers, and, above all, richer customers. Is it possible you can never have thought of this, when you see nine-tenths of your fellow-citizens underclothed in winter, for want of the commodity which you manufacture?

If you wish to prosper, allow your customers to thrive. This is a lesson which you have* been very long in learning. When it is thoroughly learnt, each man will seek his own interest in the general good; and then jealousies between man and man, town and town, province and province, nation and nation, will no longer trouble the world.

VI. TO ARTISANS AND WORKMEN

Many journals have attacked me in your presence and hearing. Perhaps you will not object to read my defence?

I am not suspicious. When a man writes or speaks, I take for granted that he believes what he says.

And yet, after reading and re-reading the journals to which I now reply, I seem unable to discover any other than melancholy tendencies.

Our present business is to inquire which is more favourable to your interests, – liberty or restriction.

I believe that it is liberty, – they believe that it is restriction. It is for each party to prove his own thesis.

Was it necessary to insinuate that we free-traders are the agents of England, of the south of France, of the government?

On this point, you see how easy recrimination would be.

We are the agents of England, they say, because some of us employ the words meeting and free-trader!

And do they not make use of the words drawback and budget?

We, it would seem, imitate Cobden and the English democracy!

And do they not parody Lord George Bentinck and the British aristocracy?

We borrow from perfidious Albion the doctrine of liberty!

And do they not borrow from the same source the quibbles of protection?

We follow the lead of Bordeaux and the south!

And do they not avail themselves of the cupidity of Lille and the north?

We favour the secret designs of the ministry, whose object is to divert public attention from their real policy!

And do they not act in the interest of the civil list, which profits most of all from the policy of protection?

You see, then, very clearly, that if we did not despise this war of disparagement, arms would not be wanting to carry it on. But this is beside the question.

The question, and we must never lose sight of it, is this: Whether is it better for the working classes to be free, or not to be free to purchase foreign commodities?

Workmen! they tell you that "If you are free to purchase from the foreigner those things which you now produce yourselves, you will cease to produce them; you will be without employment, without wages, and without bread; it is therefore for your own good to restrain your liberty."

This objection returns upon us under two forms: – They say, for example, "If we clothe ourselves with English cloth; if we make our ploughs of English iron; if we cut our bread with English knives; if we wipe our hands with English towels, – what will become of French workmen, what will become of national labour?"

Tell me, workmen! if a man should stand on the quay at Boulogne, and say to every Englishman who landed, "If you will give me these English boots, I will give you this French hat;" or, "If you will give me that English horse, I will give you this French tilbury;" or ask him, "Will you exchange that machine made at Birmingham, for this clock made at Paris?" or, again, "Can you arrange to barter this Newcastle coal against this champagne wine?" Tell me whether, assuming this man to make his proposals with discernment, any one would be justified in saying that our national labour, taken in the aggregate, would suffer in consequence?

Nor would it make the slightest difference in this respect were we to suppose twenty such offers to be made in place of one, or a million such barters to be effected in place of four; nor would it in any respect alter the case were we to assume the intervention of merchants and money, whereby such transactions would be greatly facilitated and multiplied.

Now, when one country buys from another wholesale, to sell again in retail, or buys in retail, to sell again in the lump, if we trace the transaction to its ultimate results, we shall always find that commerce resolves itself into barter, products for products, services for services. If, then, barter does no injury to national labour, since it implies as much national labour given as foreign labour received, it follows that a hundred thousand millions of such acts of barter would do as little injury as one.

But who would profit? you will ask. The profit consists in turning to most account the resources of each country, so that the same amount of labour shall yield everywhere a greater amount of satisfactions and enjoyments.

There are some who in your case have recourse to a singular system of tactics. They begin by admitting the superiority of the free to the prohibitive system, in order, doubtless, not to have the battle to fight on this ground.

Then they remark that the transition from one system to another is always attended with some displacement of labour.

Lastly, they enlarge on the sufferings, which, in their opinion, such displacements must always entail. They exaggerate these sufferings, they multiply them, they make them the principal subject of discussion, they present them as the exclusive and definitive result of reform, and in this way they endeavour to enlist you under the banners of monopoly.

This is just the system of tactics which has been employed to defend every system of abuse; and one thing I must plainly avow, that it is this system of tactics which constantly embarrasses those who advocate reforms, even those most useful to the people. You will soon see the reason of this.

When an abuse has once taken root, everything is arranged on the assumption of its continuance. Some men depend upon it for subsistence, others depend upon them, and so on, till a formidable edifice is erected.

Would you venture to pull it down? All cry out, and remark this – the men who bawl out appear always at first sight to be in the right, because it is far easier to show the derangements which must accompany a reform than the arrangements which must follow it.

The supporters of abuses cite particular instances of sufferings; they point out particular employers who, with their workmen, and the people who supply them with materials, are about to be injured; and the poor reformer can only refer to the general good which must gradually diffuse itself over the masses. That by no means produces the same sensation.

Thus, when the question turns on the abolition of slavery. "Poor men!" is the language addressed to the negroes, "who is henceforth to support you. The manager handles the lash, but he likewise distributes the cassava."

The slaves regret to part with their chains, for they ask themselves, "Whence will come the cassava?"

They fail to see that it is not the manager who feeds them, but their own labour – which feeds both them and the manager.

When they set about reforming the convents in Spain, they asked the beggars, "Where will you now find food and clothing? The prior is your best friend. Is it not very convenient to be in a situation to address yourselves to him?"

And the mendicants replied, "True; if the prior goes away, we see very clearly that we shall be losers, and we do not see at all so clearly who is to come in his place."

They did not take into account that if the convents bestowed alms, they lived upon them; so that the nation had more to give away than to receive.

In the same way, workmen! monopoly, quite imperceptibly, saddles you with taxes, and then, with the produce of these taxes, finds you employment.

And your sham friends exclaim, "But for monopolies, where would you find employment?"

And you, like the Spanish beggars, reply, "True, true; the employment which the monopolists find us is certain. The promises of liberty are of uncertain fulfilment."

For you do not see that they take from you in the first instance the money with part of which they afterwards afford you employment.

You ask, Who is to find you employment? And the answer is, that you will give employment to one another! With the money of which he is no longer deprived by taxation, the shoemaker will dress better, and give employment to the tailor. The tailor will more frequently renew his chaussure, and afford employment to the shoemaker; and the same thing will take place in all other departments of trade.

It has been said that under a system of free trade we should have fewer workmen in our mines and spinning-mills.

I do not think so. But if this happened, we should necessarily have a greater number of people working freely and independently, either in their own houses or at out-door employment.

For if our mines and spinning-factories are not capable of supporting themselves, as is asserted, without the aid of taxes levied from the public at large, the moment these taxes are repealed everybody will be by so much in better circumstances; and it is this improvement in the general circumstances of the community which lends support to individual branches of industry.

Pardon my dwelling a little longer on this view of the subject; for my great anxiety is to see you all ranged on the side of liberty.

Suppose that the capital employed in manufactures yields 5 per cent, profit. But Mondor has an establishment in which he employs £100,000, at a loss, instead of a profit, of 5 per cent. Between the loss and the gain supposed there is a difference of £10,000. What takes place? A small tax of £10,000 is coolly levied from the public, and handed over to Mondor. You don't see it, for the thing is skilfully disguised. It is not the tax-gatherer who waits upon you to demand your share of this burden; but you pay it to Mondor, the ironmaster, every time that you purchase your trowels, hatchets, and planes. Then they tell you that unless you pay this tax, Mondor will not be able to give employment; and his workmen, James and John, must go without work. And yet, if they gave up the tax, it would enable you to find employment for one another, independently of Mondor.

And then, with a little patience, after this smooth pillow of protection has been taken from under his head, Mondor, you may depend upon it, will set his wits to work, and contrive to convert his loss into a profit, and James and John will not be sent away, in which case there will be profit for everybody.