Do you wish to decide between free trade and protectionism? Do you wish to appreciate the significance of an economic phenomenon? Inquire into the extent of its effects upon the abundance or the scarcity of commodities, and not upon a rise or a fall in prices. Beware of thinking in terms of money prices; they will only lead you into an inextricable labyrinth.

M. Mathieu de Dombasle, having proved that a policy of protectionism makes things more expensive, adds:

The increase in price raises the cost of living and consequently the price of labor, and everyone receives from the increase in the price of what he sells compensation for the increase in the cost of what he buys. Thus, if everyone pays more as a consumer, everyone also receives more as a producer.

It is clear that one could reverse the argument and say: “If everyone receives more as a producer, everyone pays more as a consumer.”

Now, what does this prove? Nothing, except that a policy of protectionism uselessly and unjustly redistributes wealth. Plunder does the same thing.

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

But this question, which is of the greatest interest, will be examined elsewhere. So far as money prices are concerned, I maintain that there are no absurdities that one cannot render plausible by reasoning such as that of M. de Dombasle.

Let us assume that there is an isolated nation, possessing a given quantity of specie, that amuses itself every year by burning half of all the commodities that it produces. I shall undertake to prove, using M. de Dombasle’s theory, that it will not as a consequence be any the less rich.

In fact, as a result of the fire, everything that remains will double in price; so that an inventory taken after the disaster will show exactly the same nominal value as one taken before. But, in that case, who will have lost? If John buys cloth at a higher price, he also sells his wheat at a higher price; and if Peter loses on the purchase of wheat, he recovers his loss by the sale of his cloth. “Everyone receives from the increase in the price of what he sells [I shall say] compensation for the total increase in the cost of what he buys; and if everyone pays more as a consumer, everyone also receives more as a producer.”

All this is sheer rigmarole, and not science. The truth, reduced to its simplest terms, is this: Whether men destroy cloth and wheat by burning them or by using them, the effect on prices is the same, but not on wealth; for it is precisely the potentiality of using things that constitutes wealth or well-being.

Similarly, restrictive measures, while reducing the abundance of things, can raise their prices to such an extent that, if you will, every person is, in monetary terms, just as rich as he was before. Whether an inventory shows three hectoliters of wheat at twenty francs, or four hectoliters at fifteen francs, the result will be sixty francs in either case; but are the two quantities the same from the point of view of their ability to satisfy wants?

This is the point of view of the consumer, and it is the consumer’s point of view that I shall never cease calling to the attention of the protectionists; for consumption is the goal of all our efforts, and it is only by adopting the point of view of the consumer that we shall find the solution to all our problems. The argument I address to them will always be the same: Is it not true that restrictive measures, by impeding exchange, by limiting the division of labor, by forcing workers to compensate for hardships due to geographic situation and climatic conditions, ultimately diminish the quantity produced by a given amount of labor? And what difference does it make that the lesser quantity produced under the protective system has the same nominal value as the greater quantity produced under conditions of free trade? Man does not live on nominal values, but on commodities actually produced; and the more he has of these commodities, regardless of their price, the richer he is.

I did not expect, in writing the foregoing, that I should ever come upon an antieconomist logically consistent enough to conclude explicitly that the wealth of nations depends upon the monetary value of things apart from their abundance. Yet here is what I find in the book of M. de Saint-Chamans (page 210):

If fifteen million francs’ worth of goods sold abroad are taken from the normal production, estimated at fifty million francs, the remaining thirty-five million francs’ worth of goods, being no longer capable of satisfying normal demand, will increase in price and rise to the value of fifty million francs. In that case, the income of the country will increase by fifteen million….. There will thus be an increase in the national wealth of fifteen million francs, exactly the amount of the specie imported.

This is a really delightful way of looking at things! If a nation’s agriculture and industry produce annually fifty million francs’ worth of goods, it has only to sell a quarter of these products abroad to be a fourth richer! Thus, if it sold half of them, it would increase its fortune by half; and if it exchanged for cash its last thread of wool and its last kernel of wheat, it would raise its income to 100 millions! What a singular way of enriching oneself, by producing infinitely high prices by means of absolute scarcity!

Do you still insist on making a comparison between the two doctrines? Submit them to the test of exaggeration.

According to the doctrine of M. de Saint-Chamans, the French would be just as rich—that is to say, as well provided with everything—with a thousandth part of their present annual output, because it would be worth a thousand times as much.

According to our doctrine, the French would be infinitely rich if their annual output were infinitely abundant, and consequently had no monetary value at all.

 


This segment of Economic Sophisms is found at the Library of Economics and Liberty.
The original image used to make the cover was taken by Ben Sutherland (CC BY 2.0 — photoshopped).
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