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Bastiat, Common Sense Personified

To read mainstream economics reporting regularly is to encounter one blood pressure-raising falsehood after another.

According to the Wall Street Journal’s Justin Lahart, the savings without which there would be no economic progress are economically harmful. Lahart’s colleague Greg Ip agrees about savings, oddly thinks that copious amounts of what’s essential for progress were what caused the late 2007-2009 “financial crisis,” and presumes that imports in great quantity bring economic stagnation. Over at the New York Times, Neil Irwin tells readers that falling prices damage them.

All three think economic growth causes inflation despite the unassailable truth that growth is the greatest enemy of rising prices, for it coincides with the very investment in production enhancements that always and everywhere pushes prices down.

To navigate the musings of Ip, Irwin, and Lahart is to wish that their editors would require them to read the great 19th century French political economist, Frederic Bastiat (1801-1850). If they were to read what’s essential, they would never report on economics or economic policy in the same way again. Freed from the discredited notions that define economic thinking, and that inform their reporting, they would soon enough be telling endlessly uplifting stories of progress that are all about abundant savings, investment, falling prices, and imports.

Happily for the reporters mentioned, and many more, the Liberty Fund has released the most comprehensive collection of Bastiat’s brilliant writings yet, Economic Sophisms and “What Is Seen and What Is Not Seen.” Even if the reporters don’t read this thoroughly excellent book, readers should. Anyone who does will never read a newspaper the same way again—or think the same way again, either.

If there’s a difficulty that comes in reading Bastiat, it has to do with the happy truth that nearly everything he writes is worth underlining. Bastiat is common sense personified, and there are lessons in seemingly every subject the great Frenchman chose to comment on. If one only skimmed, one would miss crucial lessons.

And then there’s a timeless quality to Bastiat’s writings that will uplift readers, cause them to marvel at how little things have changed, or both. Donald Trump campaigned on the idea that Americans were being ripped off by exports from China, Germany, Japan, and other economically productive countries. Bastiat properly saw imports as the surest sign of prosperity, noting that “Mankind’s wealth lies in the abundance of things.” Absolutely. Work is all about the getting, about the fulfillment of wants. Imports are the rewards that result from exports.

Bastiat’s clarity is all the more remarkable for the fact that he was a political economist beset by politicians and economists who saw the world backwards. To the small minds in his midst, imports were the cause of France’s problems. Bastiat asked, “Do we not hear this every day: ‘Foreigners are going to swamp us with their products’?”

In short, Trump’s protectionism is hardly new, and neither is the economic illiteracy that fills our most esteemed newspapers and online opinion-writing. Reading Bastiat, one imagines the fun he would have had with instant responses to the bilge one sees on blogs, in Facebook posts, and on Twitter feeds. To the silly idea that foreigners could injure us by “swamping us with their products,” Bastiat’s reply was quick and to the point: “Do not worry about it. If we are flooded, it is because we will be able to pay, and if we cannot pay we will not be flooded.” A visit to any impoverished country that is bereft of imports will likely cure any reasonable person of an aversion to the world’s plenty, and to the principles that describe how the plenty came about.

What is the source of Bastiat’s genius? Arguably it is that he analyzes all things economic through the eyes of the individual. Economies aren’t living, breathing blobs; they’re just collections of individuals. And for an individual, “It is only too obvious that abundance would be advantageous to him.” As individuals, we’re all too aware of how few of life’s necessities or luxuries we could produce on our own. And if imports are wondrous for the individual (whether from across the street, or the other side of the world), which they are, they’re wondrous for an economy that is merely a collection of individuals.

So, too, are robots, automation, and all labor-saving devices wondrous. They accentuate the genius of man at work, as opposed to rendering man unfit for work, or unemployable. Bastiat observed that a solitary man would never “envisage breaking tools that spared him effort.” Of course not. That which frees the individual from work enables the pursuit of new production. Just as no sane man would refuse labor-saving devices, neither should a collection of people who comprise what we call an “economy.” There will always be something else to do. As Bastiat saw it, “sparing people work is nothing other than progress.” (Emphasis in original.)

What’s interesting about Bastiat’s common sense is how much both sides of the political aisle shunned what was logical in his time, and continues to be. Through protection, governments “create” what he called “diverted work.” The latter was and is a function of protection. Through tariffs, a government could protect an industry and its jobs. Bastiat’s reply was a persistent version of why? That Paris was arguably not the ideal location for agriculture and livestock didn’t mean Parisians would go without either one or, for that matter, any good or service not produced inside the city.

As Bastiat so sensibly points out, there are two ways to attain anything that’s desirable: “The first is to make it; the second is to make something else and trade this something else abroad for” the desired good. He understood what’s too often forgotten, that “commerce is just a series of barter exchanges, products for products and services for services.” (Emphasis in original.) We can only “import” insofar as we “export.” Our production is the source of our demand, our exports an expression of our desire for imports, and since they are, logic dictates that we pursue the work that most elevates our unique skills, all the while leaving the rest to others. The more productive we are, the more that we’ll be able to attain in exchange for our work.

We must never forget Bastiat’s axiomatic point that “Mankind’s wealth lies in the abundance of things.” A division of labor across cities, states, and countries is the quickest path to the abundance that is wealth.

Which brings us back to “diverted work.” Bastiat’s writings roundly dismissed the idea of protection given the basic truth that businesses aren’t established with “capital from the moon.” More realistically, the establishment of a business or economic activity springs from the withdrawal of capital from somewhere else. When a business or industry is protected, some jobs are no doubt “saved,” but only at the expense of the unseen—the jobs that never emerged thanks to unproductive (but well-connected) industries’ being propped up by the state.

Bastiat likened all this to expensive butter. No doubt there was a way to produce it in Paris back in the 19th century, but it would be very costly, the City of Lights being “ill-suited to this industry.” With “products for products” foremost in mind, Parisians should do what amplifies their skills the most, and “import” the butter.

In our context, and hard as it is for conservatives to admit this, the United States is plainly “ill-suited” to oil exploration. By which I do not mean to knock fracking, only to point out that it has only proven economical insofar as oil prices are subsidized with a weak dollar that keeps the price per barrel up above $40 or $50. But when oil was trading at $12 a barrel in the late 1990s, the United States didn’t have much of an oil industry to speak of, but Americans were hardly struggling.

More than conservatives would perhaps like to admit, the great Bastiat would plainly question their worship of U.S.-sourced oil. Oil being a commodity like any other, the cost of bringing it out of the ground in fracking locales is quite expensive. Oilfield work is “diverted work” that only exists insofar as the rest of the U.S. economy must suffer subdued investment wrought by a weaker dollar. If Bastiat is a hero to any Americans (he’s not a well-known figure), they would be conservatives and Republicans—yet his critiques of protectionism would surely extend to the Republican in Trump, and to conservatives enraptured by the subsidized extraction of a commodity that could easily be imported.

As for those on the Left who decry “draconian” cuts in government spending that are anything but, Bastiat has an answer for them, too:

Whatever you do, sirs, you can give money to some only by taking it from others.  If you genuinely wish to drain taxpayers dry, go ahead, but at least do not mock them and say to them, ‘I am taking from you to compensate you for what I have already taken from you.’ (Emphasis in original.)

Readers can hopefully see that Bastiat was more than wise to the fiction that is “government spending.” What could government possibly spend that it hasn’t previously been taken from us, the creators of the wealth that it consumes? Those “draconian” spending cuts that enrage the Left despite being illusory are merely a plea from the creators of wealth that politicians cease consuming and wasting what those politicians didn’t create.

When it comes to Frederic Bastiat, one cannot review a collection of his writings without leaving on the proverbial cutting-room floor all sorts of valuable insights. The only way for readers to truly understand Bastiat’s greatness is to read Economic Sophisms and “What Is Seen and What Is Not Seen.” It would be impossible to overstate what a useful book this is. You’ll see why from the opening pages. And if you agree, please pick an economics reporter to send an extra copy to.

Reader Discussion

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on September 14, 2017 at 10:01:01 am

Free trade is great in theory, but it doesn't work in practice ... because for it to work, everybody has to play. No one in the free trade crowd has a lick of common sense, which explains the bizarre love affair with Bastiat, von Mises, and Ayn Rand. No one seems to have worked out what would happen if the worker bees "went Galt."

Practically predicting the French Revolution, Thomas Jefferson refutes Bastiat's nonsense in a letter to James Madison: http://press-pubs.uchicago.edu/founders/documents/v1ch15s32.html

Trickle-down urination economics has never worked, and never will. S&P recently observed that our grotesque GlNl score was costing us 0.5% in GDP growth per year. The Chicago school should be interred, and not even given a dignified burial.

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LawDog
on September 14, 2017 at 11:29:51 am

What a nasty and ignorant comment. True laissez faire always works to raise living standards. What never works is statist economics, putting rulers (elected or otherwise) in charge of the allocation of resources. Care to contrast China with Hong Kong?

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George Leef
on September 14, 2017 at 11:56:38 am

In short, "yes" & "no".

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Paul Binotto
on September 14, 2017 at 13:20:00 pm

Dawg:

Bastiat DOES make a great deal of sense.
Where I part with him, and agree with you, is that for *free* trade to work, ALL must trade *freely* - this is most assuredly NOT the case, nor has it been for some seven decades.

Additionally, I find the essayists, and others of his ilk / persuasion, paean to "homo economicus" somewhat tiresome because 1) we are more than simple economic engines, 2) we are people of a *place* - and one that is apparently at risk of being "de-placed" as our globalist friends seek to rid themselves of any attachment to the "place" (nation-state) from which they have arisen and now seek to eliminate all trivial impediments to their wealth / influence / power, such as national borders / peoples, customs and 3) such analyses / prescriptions deny the CRUCIAL role in national defense that certain industrial undertakings / enterprises play. Or are we now to request that the Chinese (or some other adversary) continue to supply us with rare earth minerals, computer chips, etc, IF and when the proverbial fecal matter hits the fan.

Heck, only the Soviets, at the immediate outbreak of WWII, were stupid enough to send trainload after trainload of critical war making material to the Hitlerites - indeed as Operation Barbarossa unfolded, long lines of Soviet trains were speeding toward Germany with critical supplies.

Da ya tink that the chinese will keep sending ocean freighters to us in case the worst were to occur.

Nope, all you free traders! _Moderation in ALL things - especially allegedly *free* trade.

And that goes for the "free" trade of "peoples" as well. Build a WALL for immigrants; Build a Security Gate for imports.

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gabe
on September 14, 2017 at 13:41:11 pm

AND OH BTW:

What kind of nonsense is this?

Americans are not good at, nor should they pursue oil exploration. Really! As a result of what the essayist must consider "ill-founded", American oil exploration efforts have NOW resulted in the largest known petroleum reserves of any country on earth.
Also, "fracking" is inefficient? Really, how is it that costs of petroleum / crude have been reduced since the introduction of fracking, allowing tens of billions of barrels of crude, previously inaccessible, to be within reach of petroleum producers.
And lastly, it would appear that the essayist favors ONLY foreign "efficiencies" (incidentally, in most cases derived from low wages, horrid working conditions, etc (-YES, SEE CHINA FOR THAT) - not efficiencies, such as fracking, that are domestically generated.

As for "cheap" dollars - again, see CHINA.

Moreover, how is it that we are paying for all these imports - you guessed it - with a FIAT dollar.

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gabe
on September 14, 2017 at 13:56:45 pm

It is not about raising living standards - no one, certainly not I, would object to that, nor contend that free trade does not raise all boats. Raise them up high! - is what I say.

But it is the ancillary effects of the *current* embodiment of *free* trade about which I am concerned. Even NRO has, at times, acknowledged this.

Most importantly, it is not improper for a nation-state to seek to protect those industries / technologies that are CRUCIAL to its ability to defend itself. We have failed to do so and now find ourselves dependent upon foreign sources for many crucial materials / components essential to our war fighting ability. This is unwise!

Would the outcome of WWII have been different if the USA had not had massive productive capability?
Indeed, a respectable case may be made that Nazis embarked upon their adventurism SIMPLY because they did not control, nor have the productive capability to take advantage of, critical resources. Look only to the seemingly endless re-deployment of German troops during Barbarossa - ultimately, those movements may have been dictated by a need to secure critical resources.

What position shall we find ourselves in? I would prefer a strong / viable industrial capacity rather than a strong "merchant"/ banking class / capacity. To insist that we voluntarily allow certain critical industries to falter / wither away betrays an underlying "globalist" perspective. "We are all one, we humans. They are just like us. We will have no need for defense any longer" - Yeah, right - ask Kim Jung Un as he launches another missile into the skies above Japan!!!!

So, Bastiat is fine - eminently sensible - BUT "All things in moderation"

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gabe
on September 14, 2017 at 15:32:34 pm

BTW, Dawg:

It would appear that Jefferson was once again decrying the abuses (logical outcome) of a system that he himself favored and sought to advance within the new nation - an agrarian dominated society.

Growth for this poor woman, and millions other like her, did not, and COULD NOT, come about until the advent of a capitalist system predicated upon free trade AND, most importantly, as R. Richard Schweitzer is apt to note, upon the transformation from a Limited Access society / economy to an OPEN Access society. Agrarian societies were (are) notoriously deficient in providing ready access to both capital and opportunity - Free trade only serves to enhance the "Open" part of Open Access.

But you know this as we have been over it before.

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gabe
on September 14, 2017 at 15:37:38 pm

And just in case anyone missed this:

https://spectator.org/chinas-two-front-ip-war/

Wherein, our partner in *free* trade continues to "appropriate" our intellectual property - all with *statist* (China) impulses.

Question:

Has anyone checked s/w embedded in Chinese supplied components that may end up in US defense systems.
Were I a Chinese czar for exports, I would assure that we added a little something "extra" for our free trading friends. -Ha!

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gabe
on September 14, 2017 at 16:21:47 pm

There is much more to Bastiat's case for laissez faire than just free trade, but once the state begins interfering with trade of any kind, it is certain to keep interfering in many, many other aspects of our lives. And there is no such thing as "moderation" when it comes to trade restrictions. The government officials have no idea what is "right." They will be pressured by interest groups to do what is in their best interests.

Sorry, but believing in the government to act in "moderation" is like believing in unicorns.

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George Leef
on September 14, 2017 at 17:41:47 pm

Hey, what is wrong with unicorns - Hillary had one and look how far it got her.

But seriously, George:

I have no objection to free trade, as my other posts should indicate AND I think very highly of Bastiat BUT:

My concern is one based upon national defense needs. Does it not concern you that we would no longer be able to marshal the type and level of industrial capacity that proved determinative during WWII; or for that matter WWI and, of course, the North won, due not to superior generalship, but by virtue of industrial might.

Yes, it is an age of ICBM's, smart bombs, etc. Odd thing is that many of the critical components for those systems are neither manufactured in the USA - nor is the USA capable of producing them.

One need only look to Boeing and it's willingness to not only permit the offshoring of certain structural components on the 787 (and previous jets) BUT the enlightened leadership of Boeing GAVE THE TOOLING AND THE TECHNOLOGY to the Japanese (and Italians, etc). Even the President of Mitsubishi Heavy Industries questioned Boeing's "wisdom" in doing so.

As for government and moderation - you clearly have a point. Yet, confronted with an economic competitor that enjoys (nay, demands) the protection and intervention of it's own State apparatus, who else would you nominate to "negotiate" the issue.

As you, I am distressed by government *interventions* - not only in trade issues but in a host of other areas. In short, the "guvmnt" is gonna do what the guvmnt is gonna do. Our task is to assure that those interventions are limited. I would look first, not to maligned "anti-free traders", such as myself (we are not against free trade) but rather to SCOTUS and it's "long train of abus[ive]" Commerce Clause decisions.

There, too, moderation is required; yet, without a free people acting freely and responsible to limit / moderate guvmnt, we get only "lip service" in support of free (and fair) trade whilst the favored crony's of the Legislative Branch pursuing their own "anti"- free trade.

take care
gabe

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gabe
on September 14, 2017 at 18:15:00 pm

No, Gabe, none of that worries me. What does worry me is that if we open the door to trade restrictions, there is no logical stopping point. Sure, we can try to limit the government's meddling, but that was the purpose of the Constitution and it must be pronounced a failure. And as for democratic politics, that has given us two parties that differ only marginally in their willingness to try to run society with an array of mandates, prohibitions, taxes, and subsidies.

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George Leef
on September 15, 2017 at 08:18:40 am

Mr. Leef,

Pardon me for stepping into your conversation with Mr. Gabe. You make some rightful observations, but please don't let the failures that, whether by ill or good intention, came about as a result of, the perversion of our Constitution and Democratic process to diminish your commitment to the Constitution or our particular form of Republican Democracy. Instead, become all the more committed to it; The document, though flawed, in my opinion, remains the best single instrument of good government yet to appear among nations.

Our Constitution has not failed us; our common commitment to it is more to blame for the failures you cite..

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Paul Binotto
on September 15, 2017 at 11:05:07 am

Some gratitude is owed to the Foundation for Economic Education, Inc. [FEE], supported by the William Volker Fund, for bringing English translations of Bastiat to us back in 1964. We now also have much of his other writing (correspondence - that fading art) available at Liberty Fund books.

What may be noted from the way Bastiat discusses "Trade," is the necessity to understand what is intended by "Free."

1. Freedom From.
2. Freedom To.

Both very similar to the Isaiah Berlin enquiry, but possibly having more definitive conclusions and applications.

If there is to be "Free" Trade, what is it (actually, what are those trading)to be Free **From**? Bastiat's efforts on Legislated issues present the major form of freedom. THAT is what is still with us, reflected as "negotiated" trade, with political interpositions (tariffs, prohibitions, etc.).

Freedom **To** trade may be (is?) constrained by additional factors ("national security" e.g.).

So, when we consider "Free Trade" we might also consider the lessons from Bastiat about Freedom From and Freedom To.

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R Richard Schweitzer
on September 15, 2017 at 14:27:07 pm

John Tamny wrote that "growth is the greatest enemy of rising prices, for it coincides with the very investment in production enhancements that always and everywhere pushes prices down."

Unfortunately, these days, investment in gambling casinos and increases in the Homeland Security budget are counted as economic growth, which basically means that available numbers have disconnected from reality.

Reference was made to Jefferson's vision of an agrarian society. If I remember correctly, after the War of 1812, Jefferson eventually admitted that he was wrong and conceded that, in the interest of national security, a protective tariff was necessary. (If we rely on British imports for war-related industries like iron production, we're in big trouble in time of war.)

This was because of the British dumping of manufactured goods (selling below the cost of the production) immediately after the end of the war served to bankrupt fledgling American enterprises. As the future Lord Brougham said in a speech to Parliament, "it was well worth the while to incur a loss upon the first exportation, in order, by the glut, to stifle in the cradle those rising manufactures in the United States, which the war had forced into existence contrary to the natural course of things."

More recently, back in the 1960s the USA partook of the cornucopia of imported goods -- and, under the Bretton Woods gold reserve system, the accumulation of dollars in foreign hands led to gold flowing from the US vault in the Federal Reserve to the German and French vaults -- until the Nixon administration solved this balance-of-payments crisis by pulling the plug on gold backing for the dollar -- and that is where we got the current fiat dollar. As Ben Bernanke famously said, " "The US government has a technology, called a printing press, that allows it to produce as many dollars as it wishes at essentially no cost." Of course, the good living will end if the U.S. dollar ever loses its position as the global reserve currency. Does Bastiat's book include a chapter on balance-of-payments crises?

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John Schmeeckle
on September 15, 2017 at 15:23:56 pm

"Unfortunately, these days, investment in gambling casinos and increases in the Homeland Security budget are counted as economic growth, which basically means that available numbers have disconnected from reality."

Absotively luvv'd it!

Add to that inflated growth number all the revenue generated by Facebook, google," I-phone chattering" "snap-this / snap-that" and we may conclude that also have a *fiat economy."

Me I want "guns and butter" and I don't want to procure guns from a potential adversary.

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gabe
on September 15, 2017 at 21:38:45 pm

J S:

Bastiat's translated (English) works are usually presented in 3 volumes (Liberty Fund Books has added another).

His remarks on what we today refer to as "Balance of Payments" are in terms of export and imports.

You might go over to the full Liberty Fund site and access the catalogue.

https://www.libertyfund.org/books?author_reversed=Bastiat%2C+Fr%C3%A9d%C3%A9ric

Unfortunately they have not yet got to his "Economic Harmonies" which you can still get elsewhere.

Take a read and see how almost unbelievably congruent those are with our times.

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R Richard Schweitzer
on September 19, 2017 at 00:41:52 am

Then you should practice what you preach, 1st by not commenting on any computer gadgets that took thousands of people from all over the world to create and 2nd grow your own food

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Patrick
on September 24, 2017 at 15:13:59 pm

[…] John Tamny riffs on the work of the great Bastiat. […]

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Some Links - Cafe Hayek

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