The Economics of Freedom: What Your Professors Won't Tell You, Selected Works of Frederic Bastiat Read online

who offers his idle franc. These two elements meet and combine.

  And it is clear as day that between the supply of and the demand for labor, between the supply of and the demand for wages, the relationship has in no way changed.

  The invention and the worker, paid with the first franc, now do the work previously accomplished by two workers.

  The second worker, paid with the second franc, performs some new work.

  What has then been changed in the world? There is one national satisfaction the more; in other words, the invention is a gratuitous conquest, a gratuitous profit for mankind.

  From the form in which I have given my demonstration we could draw this conclusion:

  “It is the capitalist who derives all the benefits flowing from the invention of machines. The laboring class, even though it suffers from them only temporarily, never profits from them, since, according to what you yourself say, they reallocate a portion of the nation's industry without diminishing it, it is true, but also without increasing it.”

  It is not within the province of this essay to answer all objections. Its only object is to combat an ignorant prejudice, very dangerous and extremely widespread. I wished to prove that a new machine, in making a certain number of workers available for jobs, necessarily makes available at the same time the money that pays them. These workers and this money get together eventually to produce something that was impossible to produce before the invention; from which it follows that the final result of the invention is an increase in satisfactions with the same amount of labor.

  Who reaps this excess of satisfactions?

  Yes, at first it is the capitalist, the inventor, the first one who uses the machine successfully, and this is the reward for his genius and daring. In this case, as we have just seen, he realizes a saving on the costs of production, which, no matter how it is spent (and it always is), gives employment to just as many hands as the machine has made idle.

  But soon competition forces him to lower his selling price by the amount of this saving itself.

  And then it is no longer the inventor who reaps the benefits of the invention; it is the buyer of the product, the consumer, the public, including the workers—in a word, it is mankind.

  And what is not seen is that the saving, thus procured for all the consumers, forms a fund from which wages can be drawn, replacing what the machine has drained off.

  Thus (taking up again the foregoing example), James Goodfellow obtains a product by spending two francs for wages.

  Thanks to his invention, the manual labor now costs him only one franc.

  As long as he sells the product at the same price, there is one worker the fewer employed in making this special product: that is what is seen; but there is one worker the more employed by the franc James Goodfellow has saved: that is what is not seen.

  When, in the natural course of events, James Goodfellow is reduced to lowering by one franc the price of the product, he no longer realizes a saving; then he no longer releases a franc for national employment in new production. But whoever acquires it, i.e., mankind, takes his place. Whoever buys the product pays one franc less, saves a franc, and necessarily hands over this saving to the fund for wages; this is again what is not seen.

  Another solution to this problem, one founded on the facts, has been advanced.

  Some have said: “The machine reduces the expenses of production and lowers the price of the product. The lowering of the price stimulates an increase in consumption, which necessitates an increase in production, and, finally, the use of as many workers as before the invention—or more.” In support of this argument they cite printing, spinning, the press, etc.

  This demonstration is not scientific.

  We should have to conclude from it that, if the consumption of the special product in question remains stationary or nearly so, the machine will be harmful to employment. This is not so.

  Suppose that in a certain country all the men wear hats. If with a machine the price of hats can be reduced by half, it does not necessarily follow that twice as many hats will be bought.

  Will it be said, in that case, that a part of the national labor force has been made idle? Yes, according to ignorant reasoning. No, according to mine; for, even though in that country no one were to buy a single extra hat, the entire fund for wages would nevertheless remain intact; whatever did not go to the hat industry would be found in the saving realized by all consumers and would go to pay wages for the whole of the labor force that the machine had rendered unnecessary and to stimulate a new development of all industries.

  And this is, in fact, the way things happen. I have seen newspapers at 80 francs; now they sell for 48. This is a saving of 32 francs for the subscribers. It is not certain, at least it is not inevitable, that the 32 francs continue to go into journalism; but what is certain, what is inevitable, is that if they do not take this direction, they will take another. One franc will be used to buy more newspapers, another for more food, a third for better clothes, a fourth for better furniture.

  Thus, all industries are interrelated. They form a vast network in which all the lines communicate by secret channels. What is saved in one profits all. What is important is to understand clearly that never, never are economies effected at the expense of jobs and wages.

 

  9. Credit

  At all times, but especially in the last few years, people have dreamt of universalizing wealth by universalizing credit.

  I am sure I do not exaggerate in saying that since the February Revolution, the Paris presses have spewed forth more than ten thousand brochures extolling this solution of the social problem.

  This solution, alas, has as its foundation merely an optical illusion, insofar as an illusion can serve as a foundation for anything.

  These people begin by confusing hard money with products; then they confuse paper money with hard money; and it is from these two confusions that they profess to derive a fact.

  In this question it is absolutely necessary to forget money, coins, bank notes, and the other media by which products pass from hand to hand, in order to see only the products themselves, which constitute the real substance of a loan.

  For when a farmer borrows fifty francs to buy a plow, it is not actually the fifty francs that is lent to him; it is the plow.

  And when a merchant borrows twenty thousand francs to buy a house, it is not the twenty thousand francs he owes; it is the house.

  Money makes its appearance only to facilitate the arrangement among several parties.

  Peter may not be disposed to lend his plow, but James may be willing to lend his money. What does William do then? He borrows the money from James, and with this money he buys the plow from Peter.

  But actually nobody borrows money for the sake of the money itself. We borrow money to get products.

  Now, in no country is it possible to transfer from one hand to another more products than there are.

  Whatever the sum of hard money and bills that circulates, the borrowers taken together cannot get more plows, houses, tools, provisions, or raw materials than the total number of lenders can furnish.

  For let us keep well in mind that every borrower presupposes a lender, that every borrowing implies a loan.

  This much being granted, what good can credit institutions do? They can make it easier for borrowers and lenders to find one another and reach an understanding. But what they cannot do is to increase instantaneously the total number of objects borrowed and lent.

  However, the credit organizations would have to do just this in order for the end of the social reformers to be attained, since these gentlemen aspire to nothing less than to give plows, houses, tools, provisions, and raw materials to everyone who wants them.

  And how do they imagine they will do this?

  By giving to loans the guarantee of the state.

  Let us go more deeply into the matter, for there is someth
ing here that is seen and something that is not seen. Let us try to see both.

  Suppose that there is only one plow in the world and that two farmers want it.

  Peter is the owner of the only plow available in France. John and James wish to borrow it. John, with his honesty, his property, and his good name, offers guarantees. One believes in him; he has credit. James does not inspire confidence or at any rate seems less reliable. Naturally, Peter lends his plow to John.

  But now, under socialist inspiration, the state intervenes and says to Peter: “Lend your plow to James. We will guarantee you reimbursement, and this guarantee is worth more than John's, for he is the only one responsible for himself, and we, though it is true we have nothing, dispose of the wealth of all the taxpayers; if necessary, we will pay back the principal and the interest with their money.”

  So Peter lends his plow to James; this is what is seen.

  And the socialists congratulate themselves, saying, “See how our plan has succeeded. Thanks to the intervention of the state, poor James has a plow. He no longer has to spade by hand; he is on the way to making his fortune. It is a benefit for him and a profit for the nation as a whole.”

  Oh no, gentlemen, it is not a profit for the nation, for here is what is not seen.

  It is not seen that the plow goes to James because it did not go to John.

  It is not seen that if James pushes a plow instead of spading, John will be reduced to spading instead of plowing.