Economic Insights

FEDERAL RESERVE BANK OF DALLAS VOLUME 3, NUMBER 1

Frédéric Bastiat: World-Class Economic Educator Robert L. Formaini Senior Economist

Current policy debates The Dallas Fed has an active economic education followers of every fashion- are, with few exceptions, program, focusing on high school teachers of economics. able anti-free trade thinker of echoes of past intellectual the period. Using clever disagreements. As scholars Whenever I address a group of teachers, I invariably find examples directed to ordi- learn from experience, very myself extolling the virtues of Frédéric Bastiat as the nary people, he nonetheless little is new in the history of greatest economic educator of all time. I tell them that if stood firmly by his principles ideas: just when you think and passionately argued the you have found the original Bastiat isn’t their patron saint, he should be. To increase need for political freedom roots of an idea, its origin familiarity with Bastiat, I asked my colleague, Bob and its necessary corollary, can usually be pushed back Formaini, to write this short primer. the freedom to trade without even further with more re- arbitrary government restric- search. One example is the — Bob McTeer tions. President always divisive “free trade Federal Reserve Bank of Dallas Bastiat did not wish versus protectionism” debate. merely for cessation of un- Even after centuries of dis- necessary restrictions on com- cussions, books, movements, time in 50 years), the king, markets, and Bastiat stood merce. He argued also for elections and treaties cen- Louis Philippe, was forced to strongly for that tradition. He freeing the political prisoners tered around precisely this flee for his life. France was had seen what burdensome languishing in French jails topic, we still witness vast then in a position similar to government regulation and for having done nothing outpourings of rhetoric, both America’s after its successful taxation had done to his more than express or publish pro and con, whenever any break with Great Britain: it birthplace many years earlier, their opinions. Even though new trade-related policy (the had the opportunity to build as well as the serious effect most of these prisoners’ poli- ratification of NAFTA, for a new government—and, they had on France’s econ- tical opinions were in sharp example) becomes the issue hence, new public policies— omy during his years of contrast to his own, for of the moment. A sense of virtually from scratch. As a reflection. But the revolu- Frédéric Bastiat, laissez-faire historical perspective can be delegate to the French Assem- tionary government gathered meant not just the freedom valuable in these instances, bly from Mugron, Bastiat in Paris in 1848 shared many to trade goods and services because all the arguments found himself directly in the of the same weaknesses that but also the freedom to open- we are likely to hear on both middle of this great under- had plagued the French Rev- ly trade ideas. sides of this issue have prob- taking. Because of his re- olution and that had led to Bastiat was at his very ably been made before. cently published writings on the political terror that fol- best when creating simple, One of the most famous political economy and his lowed. Political demagogues powerful examples to refute participants in the debate widely known association of all persuasions played a the economic fallacies he between those who favor with the English Anti-Corn- prominent role in the crafting believed underlay his pro- free trade and those who Law League led by Richard of policies, and their payoffs tectionist opponents’ argu- do not was Claude Frédéric Cobden and John Bright, to special interest groups, ments. One justifiably famous Bastiat (1801–50). Born in Bastiat was, by 1848, a well- usually the producers of man- example is his Petition to Bayonne, France, Bastiat spent known defender of the ufactured goods, often led the Honorable Members of the major part of his life general policy called laissez- to outrageous inefficiencies. the Chambers of Deputies farming, studying and in con- faire (“allow to do”). Bastiat was usually outvoted (see box entitled “A Petition”). templation. In 1848, as revolt Proponents of laissez- and sometimes ignored by Bastiat’s chosen strategy was and political turmoil en- faire seek minimal or no this fervent collection of to take his opponents’ argu- gulfed France (for the second government regulation of communists and socialists, ments and apply the rhetori- cal technique of reductio ad mained effective. With neither absurdum. This technique A Petition hostility for his adversaries involves pushing an argu- nor nostalgia for the over- From the Manufacturers of Candles… ment to its logical extreme; To the Honorable Members of the Chamber of Deputies thrown monarchy, he repeat- if absurdity results, then it Gentlemen: edly turned his opponents’ becomes hard for anyone to You are on the right track.You reject abstract theories and have words against them in reveal- continue to believe in that little regard for abundance and low prices.You concern yourselves ing the emptiness of their argument. Bastiat’s Petition is mainly with the fate of the producer.You wish to free him from foreign arguments. Bastiat argued one of the great reductio competition, that is, to reserve the domestic market for domestic primarily that those voting industry.… examples in all of econom- We are suffering from the ruinous competition of a foreign rival for protectionist policies ics, but it was only one of who apparently works under conditions so far superior to our own for were voting for scarcity over many he effectively employed. the production of light that he is flooding the domestic market with it abundance. How is it ever When it was proposed in at an incredibly low price: for the moment that he appears, our sales possible, he asked, that the cease, all the consumers turn to him, and a branch of French indus- the Assembly that it would try whose ramifications are innumerable is all at once reduced to average person and, presum- be economically profitable to complete stagnation. This rival, which is none other than the sun, is ably, the nation can prosper interrupt a railroad line at waging war on us so mercilessly that we suspect he is being stirred by restricting the supply of Bordeaux because such a up against us by perfidious Albion, particularly because he has, for precisely those things people that haughty island a respect he does not show for us. [This refer- stop would stimulate trade ence is to England and its often foggy weather.] need? there, Bastiat suggested that We ask you to be so good as to pass a law requiring the clos- ing of all windows, dormers, skylights, inside and outside shutters, this hypothetical effect might Allow me to emphasize curtains, casements, bull’s-eyes, deadlights, and blinds—in short, well be extended to the all openings, holes, chinks, and fissures through which the light of this point, at the risk of entire length of the railway: the sun is wont to enter houses, to the detriment of the fair industries repeating myself. There is with which, we are proud to say, we have endowed the country, a a fundamental antagonism But if Bordeaux has a country that cannot, without betraying ingratitude, abandon us today between the seller and right to profit from a break to so unequal a combat. the buyer. The former in the tracks, and if this First, if you shut off as much as possible all access to natural wants the goods on the profit is consistent with light…what industry in France will not ultimately be encouraged? If market to be scarce, in the public interest, then France consumes more tallow, there will have to be more cattle and short supply, and expen- Angoulême, Poitiers, Tours, sheep, and, consequently, we shall see an increase in cleared fields, sive. The latter wants Orléans, and, in fact, all meat, wool, leather, and especially manure, the basis of all agricul- them abundant, in plen- tural wealth. If France consumes more oil, we shall see an expansion the intermediate points… tiful supply and cheap. in the cultivation of the poppy, the olive, and the rapeseed.…Our Our laws, which should ought also to demand moors will be covered with resinous trees. Numerous swarms of breaks in the tracks…for at least be neutral, take bees will gather from our mountains the perfumed treasures that the side of the seller the more there are of today waste their fragrance, like the flowers from which they these breaks in the line, against the buyer, the emanate. Thus, there is not one branch of agriculture that would not producer against the the greater will be the undergo a great expansion. amount paid for storage, consumer, of high prices The same holds true for shipping. Thousands of vessels will against low prices, of scar- porters, and cartage at engage in whaling, and in a short time we shall have a fleet capable every point along the city against abundance. of upholding the honor of France.…It needs but a little reflection, They operate, if not way. By this means, we gentlemen, to be convinced that there is perhaps not one shall end by having a intentionally, then logic- Frenchman…whose condition would not be improved by the suc- ally on the assumption railroad composed of a cess of our petition.* ■ whole series of breaks that a nation is rich when *From Economic Sophisms, 56Ð60. it is lacking in every- in the tracks, i.e., a nega- 3 tive railroad.1 (Bastiat’s thing. (Bastiat’s emphasis) emphasis) of the end to the means.2 the Assembly had made. A The protectionists an- (Bastiat’s emphasis) Bastiat’s conclusion from the second wonderful opportu- swered such arguments by following analysis is as tren- nity to build a democratic appealing to the fear that chant today as when he first Bastiat predicted that, and capitalist country had foreigners would take away penned this essay in 1845: like the first French Repub- been squandered— destroyed the nation’s money by lic after the revolution, the by false arguments on the “flooding” France with their Whatever the protection- Second Republic was also effects of trade restrictions goods. This fear was a result ists may say, it is no less doomed to fail because of its (see box entitled “The Effects of two centuries of the pop- certain that the basic prin- of Tariffs on a Nation’s ularly accepted mercantilist ciple of restriction is the economic policies. In fact, same as the basic princi- after his untimely death in Wealth”). doctrine in Europe. Mercan- ple of breaks in the tracks: 1850, France turned once Yet through all the de- tilism claimed that physical the sacrifice of the con- again to a dictator—Louis bates and political turmoil, money was wealth, and when sumer to the producer, Napoléon—to “fix” the mess Bastiat’s counterarguments re- one traded goods for money, the person surrendering the accumulate large amounts of money “lost wealth” in the gold and silver while its The Effects of Tariffs on a Nation’s Wealth exchange. What was assumed citizens remain paupers and The honest peasant took his cask of wine to the nearest town to be true for individual go hungry. Which do people and there met a Belgian and an Englishman. The Belgian said, trades was, by extension, want: money or goods and “Give me your wine and I will give you fifteen parcels of yarn in assumed also to be true for services? If you have any exchange.” The Englishman said: “Give me your wine and I will give the nation as a whole. “Trade doubt, try eating a plate of you twenty parcels of yarn in exchange, for we English spin at a lower cost than the Belgians.” But a customs officer who was there deficit phobia” was a common twenty dollar bills. said, “My good man, trade with the Belgian if you wish, but my theme during this period. The confusion between orders are to prevent you trading with the Englishman.” The primary reason Adam money and wealth is an “What,” cried the countryman, “you want me to be content with fifteen parcels of yarn from Brussels when I could have twenty from Smith wrote his great 1776 old and stubborn problem. Manchester?” work, An Inquiry into the Bastiat saw the distinction “Certainly: Do you not see that France will lose if you received Nature and Causes of the clearly, while the protection- twenty instead of fifteen?” Wealth of Nations, was to ists, relying on the old mer- “I find that hard to understand,” said the vineyardist. “And I find it hard to explain,” replied the customs official; “but refute mercantilism. Bastiat cantilist doctrine that money it is a fact; for all our deputies, cabinet ministers, and journalists often found himself repeat- is wealth, failed to grasp the agree that the more a nation receives in exchange for a given ing Smith’s arguments 75 consequences of this view. quantity of its products, the poorer it becomes!”* ■ years later. And we are still Bastiat makes a simple but *From Economic Sophisms, 61Ð2. having this debate nearly 150 powerful point that we would years after Bastiat’s death! do well to remember when Bastiat met the main mer- examining, say, our own cantilist argument as follows: national income statistics: theory, as true today as when to let individuals decide how Bastiat wrote it in 1845. He much they wished to save But, you say, if foreigners Similarly, restrictive meas- never lost sight of the simple and invest and how much flood us with their prod- ures, while reducing the truth that the purpose of they wished to consume ucts, they will carry off abundance of things, can production is consumption. today. our money! Well, what raise their prices to such difference does that an extent that, if you will, He therefore saw no reason Bastiat did not confine make? Men are not fed every person is, in mone- to have the laws of France his thinking and writing to on cash, they do not tary terms, just as rich as lean on the side of pro- political economy. Much of clothe themselves with he was before. ducers, especially since pro- his writing addresses ques- gold, nor do they heat Whether an inventory ducers are, as all people tions in political theory and their houses with silver. shows three hectoliters of What difference does it wheat at twenty francs, ultimately must be, con- examines the proper arrange- make whether there is or four hectoliters at fif- sumers as well. However, ment of the relationship more or less money in teen francs, the result will even today many so-called between citizens and their the country, if there is be sixty francs in either “economic experts” argue state. One of his books, The more bread in the cup- case; but, are the two that production should be Law, is both easy to read and board, more meat in the quantities the same from larder, more clothing in the point of view of their encouraged while consump- comprehend and, like so the wardrobe, and more ability to satisfy wants?… tion should be discouraged! much of his work, it shines wood in the woodshed? 4 Man does not live on “Encouraging investment” with gems of wisdom on (Bastiat’s emphasis) nominal values, but on means, ipso facto, increasing almost every page. One commodities actually pro- future consumption. But why policy in which governments duced; and the more he Like Adam Smith, Bastiat has of these commodi- is future consumption prefer- routinely engage and that believed that there was ties, regardless of their able to present consumption? greatly troubled Bastiat is “nothing so foolish as dis- price, the richer he is.5 The implicit assumption is income redistribution, or cussing the so-called balance (Bastiat’s emphasis) that some people know best what he termed plunder. He of trade.” Mercantilists are what the correct mix of in- addressed this topic often, well represented in myth- This simple observation is vestment and consumption and his thoughts have great ology by King Midas, the very easy to overlook, espe- ought to be, and they have merit today: monarch whose touch turned cially today when we have at the right to try to impose this everything into gold. Al- our disposal so many statis- mix on the nation. But why is There are only two ways though Midas amassed a tics concerning national it better to force people to of obtaining the means large amount of gold and incomes (expressed in nomi- invest today rather than con- essential to the preserva- tion, the adornment, and became very wealthy, he nal values) and trade vol- sume when the ultimate pur- the improvement of life: eventually starved to death. umes. But it remains an pose of investment is future production and plunder.… A nation might do the same: essential insight of economic consumption? Bastiat wanted [W]hat keeps the social and failed attempt to square Rochelle, N.Y.: Arlington House, On Restricting Machines to this particular circle. 1971), 239. 9 Economic Sophisms, 141. Promote More Employment of Labor Although Claude Frédéric Bastiat was not a pathbreak- Further Reading In Bastiat’s time, as in ours, the fallacy that technology ing, theoretical economist, destroys jobs was prevalent in public debate. The French govern- On Frédéric Bastiat ment (among others) routinely passed legislation that “promoted much of his wisdom remains labor” by restricting the use of capital. All such schemes are, as true today as when he first Bastiat, Frédéric (1964), Selected ultimately, self-defeating if the goal is increased production and wrote it. Therefore, it is par- Essays on Political Economy (Irvington-on-Hudson, N.Y.: Foun- wealth, although such restrictions can benefit narrowly defined ticularly appropriate to con- interest groups. dation for Economic Education). clude with Bastiat’s own “To get at the root of this problem, one need only words: ——— (1964), Economic Harmo- remind oneself that human labor is not an end, but a nies (Irvington-on-Hudson, N.Y.: means. It never remains unemployed. If it removes one Foundation for Economic Educa- obstacle, it turns to another; and mankind is rid of two Government offers to tion). obstacles by the same amount of labor that used to be cure all the ills of needed to remove only one.…to maintain that a time mankind. It promises to will ever come when human labor will lack employment, restore commerce, make Rothbard, Murray (1995), Classical it would be necessary to prove that mankind will cease agriculture prosperous, Economics: An Austrian Perspec- to encounter obstacles. But in that case, labor would expand industry, encour- tive on the History of Economic not be simply impossible; it would be superfluous. We age arts and letters, wipe Thought (Hants, England: Edward should no longer have anything to do, for we would be out poverty, etc., etc. All Elgar). omnipotent.…”* (Bastiat’s emphasis) that is needed is to create The story of a Western engineer observing the construction of some new government a railroad line in China provides a modern example of this same agencies and to pay a fallacious thinking: “You ought to use explosives to clear the way few more bureaucrats. instead of all those men with shovels,” the engineer informed the We must wait until we Chinese manager. have learned by experi- “If we did that,” the Chinese manager responded, “many would ence—perhaps cruel be thrown out of work.” experience—to trust in “Ah,” replied the Westerner, “I thought you were building a rail- the state a little less and road but, given your goals, you should take away their shovels and in mankind more. give these men spoons!” ■ Heavy government expenditures and liberty *From Economic Sophisms, 18Ð19. are incompatible.8 (Bastiat’s emphasis)

order from improving is belong. See if the law And Bastiat’s final warning: the constant endeavor of benefits one citizen at the its members to live and to expense of another by Woe to the people that prosper at one another’s doing what the citizen cannot limit the sphere of expense.…I will go still himself cannot do with- action of the state! further. When plunder out committing a crime. Freedom, private enter- has become a way of life …our present-day delu- prise, wealth, happiness, for a group of men living sion is an attempt to independence, personal together in society, they enrich everyone at the dignity, all vanish.9 create for themselves in expense of everyone (Bastiat’s emphasis) ■ the course of time a legal else; to make plunder system that authorizes it universal under pretense and a moral code that of organizing it.7 Notes glorifies it. 1 Frédéric Bastiat, Economic Plunder not only redis- As Bastiat saw it, many of Sophisms (Irvington-on-Hudson, tributes wealth; it always, our laws and regulations are N.Y.: Foundation for Economic at the same time, destroys Education,1964), 94–5. Economic Insights 6 merely legal plunder, an a part of it. (Bastiat’s 2 attempt of all to live at the Ibid., 14. is a publication of the Federal Reserve Bank emphasis) 3 Ibid., 13–15. of Dallas. The views expressed are those of expense of all. Logically, this 4 Ibid., 15. the authors and should not be attributed (from The Law) is simply impossible. Bastiat 5 Ibid., 72. to the Federal Reserve System. But how is this legal wrote that “the state is that 6 Ibid., 129–30. plunder to be identified? fiction by which we all seek 7 Frédéric Bastiat, The Law Please address See if the law takes from to live at one another’s (Irvington-on-Hudson, N.Y.: all correspondence to some persons what Foundation for Economic Economic Insights belongs to them, and expense.” A great deal of Education, 1968), 21. Public Affairs Department gives it to other persons wealth has been sacrificed in 8 George Charles Roche, Frédéric Federal Reserve Bank of Dallas to whom it does not many nations in an ongoing Bastiat: A Man Alone (New P.O. Box 655906 Dallas, TX 75265-5906