Saturday, April 21, 2012

Producer and Consumer - Frédéric Bastiat - Pt 2

Producer and Consumer

A line no more resembles a force or a velocity than it does a value or a utility. Nevertheless, the mathematician finds lines and diagrams helpful. Why should not the economist also?

There are values that are equal to each other; there are values that have known ratios to each other of a half, a fourth, double, triple. There is no reason for not representing these differences by lines of varying lengths.

Such is not the case with utility. Utility, in general, as we have seen, can be broken down into gratuitous utility and onerous utility—into utility due to the action of Nature, and utility created by human labor. The latter, since it can be assigned value and be measured, may be represented by a line of fixed length; the former cannot be measured or assigned any value. It is certain that Nature contributes much toward the production of a hundred-weight of wheat, a cask of wine, a side of beef, a pound of wool, a ton of coal, a cord of wood. But we have no way of measuring Nature's aid contributed by a great multitude of forces, most of which are unknown and have been in operation since Creation. Nor is there anything to be gained from so doing. Gratuitous utility, then, must be represented by a dotted line of indeterminate length.

Two products, then, the one worth twice the other, may be represented by these lines:
IB, ID, represent the total product, general utility, the thing that satisfies the want, absolute wealth.
IA, IC, represent the co-operation of Nature, gratuitous utility, the part that is common wealth.
AB, CD, represent the human service, onerous utility, value, relative wealth, the part that is private property.

I do not need to say that AB, in whose place you may put, in your imagination, whatever you wish—a house, a piece of furniture, a book, an aria sung by Jenny Lind, a horse, a piece of cloth, a doctor's appointment, etc.—can be exchanged for twice CD, and that the two parties to the transaction will give each other, into the bargain, and without even realizing that they are doing so, the one,IA, the other, twice IC.

Man is so constituted that his constant concern is to lessen the ratio of effort to result, to substitute the action of Nature for his own action—in a word, to do more with less. His skill, his intelligence, his industry are always directed toward this end.

Let us suppose, then, that John, the producer of IB, discovers a process whereby he can complete his task with half the labor it previously took, everything included, even the cost of making the implement used to harness the forces of Nature.

As long as he keeps his secret, there will be no change in the figures given above. AB and CD will represent the same values, the same ratios; for since John is the only one in the world who knows the formula, he will turn it to his own exclusive advantage. Either he will rest half the day, or else he will make two IB's rather than one per day; his labor will be better paid. The conquest over Nature will be to the benefit of mankind, but mankind as represented, in this case, by one man.

The reader should note, in passing, how treacherous is the axiom of the English economists: Value comes from labor, if its intent is to assume that value and labor are proportional. In our illustration we have a case in which labor has been reduced by half, and yet there is no change in value, and this happens every minute of the day. Why? Because the service is the same. The person furnishingIB performs the same service before as after the invention. This will no longer be the case when Peter, the producer of ID, can say to John: “You ask me for two hours of my labor in exchange for one of yours; but I am familiar with your process, and if you place such a high price on your service, I shall do it for myself.”

Now this day comes inevitably. When a new process is invented, it does not remain a secret for long. Then the value of product IB will fall by one-half, and we shall have these two figures:
AA′ represents value eliminated, relative wealth that has disappeared, private property made public, utility previously onerous, now gratuitous.

This has taken place because John, used here as the symbol of the producer, is put back in his original position. He now can make IBtwice for the amount of effort that it used to take him to make it once. In order to have two ID's, he must give two IB's, whether IBrepresents furniture, books, houses, or anything else.

Who gains by all this? It is obviously Peter, the producer of ID, used here as the symbol of all consumers, including John himself. If, in fact, John wishes to use his own product, he will save himself the time represented by the elimination of AA'. As for Peter, that is, all the consumers on earth, they can now purchase IB for half the time, effort, labor, value, required before the natural resource was introduced. Hence, this resource is free of charge and, besides, common to all.

Since I have ventured to use geometric figures, let me employ them once again in the hope that this method, admittedly a little irregular in economics, will aid the reader in understanding the phenomenon to be described.

Every man, as producer or as consumer, is a center from which radiate the services he renders and to which are directed the services he receives in exchange.

Let us then place at A (Fig. 1) a producer, for example, a copyist, as the symbol of all producers or of production in general. He presents society with four manuscripts. If, at the moment at which we are making our observation, the value of each of the manuscripts is fifteen, he is performing services equal to sixty, and he receives an equal sum of value, variously distributed over many services. For the sake of simplification I show only the four points BCDE along the circumference.
lf0187_figure_004 lf0187_figure_005
Now suppose this copyist discovers the art of printing. He thereafter does in forty hours what used to take him sixty. Let us assume that competition has forced him to reduce the price of his books in the same ratio; they are now worth only ten, instead of fifteen. But it also happens that our worker can produce, not four, but six books. On the other hand, the amount received as payment, starting from the circumference, which was sixty, has not changed. There is, therefore, as much remuneration for six books, worth ten each, as there was previously for four when each manuscript was worth fifteen.

This, I may briefly remark, is what is always lost sight of in discussions concerning the question of machinery, free trade, and progress in general. We observe that labor is laid off by more efficient techniques, and we become alarmed. We fail to note that a corresponding proportion of the cost is likewise placed at our disposal at the same time.

The new transactions, then, are represented by Fig. 2, where we see radiating from center A a total value of sixty, spread over six books instead of four manuscripts. The lines extending inward from the circumference continue to represent a total value of sixty, which is necessary now, as formerly, to balance the services rendered.

Who, then, has gained by the change? From the point of view of value, nobody. From the point of view of real wealth, actual satisfactions, the countless number of consumers located on the circumference. Each one of them can now purchase a book for a third less labor. But the consumers are all mankind. For notice that A himself, if he gains nothing as producer, if he is still obliged, as formerly, to put in sixty hours of work to receive the old pay, nevertheless gains, as a user of books, that is, on the same basis as other men. Like all of them, if he desires to read, he obtains this satisfaction at a saving of one-third of his labor.

What if, in his capacity as producer, he sees the profit from his own discovery eventually slip through his hands because of competition? Where in that case, is there compensation for him?

First, it consists in the fact that, as long as he was able to keep his secret, he continued to sell for fifteen what cost him only ten.

Second, his compensation consists in the fact that he obtains books for his own use at less cost and thus shares in the advantages he has contributed to society.

But third, his greatest compensation consists in this fact: even as he was forced to benefit mankind by his progress, so he benefits from the progress of mankind.

Just as the progress made by A was of profit to B, C, D, E, so the progress realized by B, C, D, E, will be to the profit of A. A finds himself alternately at the center and at the circumference of world-wide industry, for he is alternately producer and consumer. If B, for example, is a cotton spinner who substitutes the bobbin for the spindle, the profit will go to A as well as to C and D. If C is a sailor who replaces the oar with the sail, the saving will profit B, A, E.

In the final analysis, the whole system rests on this law:
Progress is of benefit to the producer, as such, only long enough to reward him for his skill. It soon brings about a fall in value, which gives the early imitators a fair, though smaller, recompense. Finally, the value levels off in proportion to the reduction in labor, and the entire saving accrues to mankind.

Thus, all profit from the progress of each, and each profits from the progress of all. The one for all, and all for one motto advanced by the socialists and proclaimed to the world as something new to be found in budding form in their social orders based on oppression and coercion has actually been provided by God Himself; and He derived it from liberty.

God, I say, provided it; and He did not establish His law in a model community under the direction of M. Considérant, or in a phalanstery of six hundred harmoniens, or in an experimental Icaria, on condition that a few fanatics submit to the arbitrary power of a monomaniac, and that the unbelievers pay for the believers. No, God has provided it on a general, world-wide basis, through a marvelous mechanism in which justice, liberty, utility, and social consciousness are combined and reconciled to a degree that should dampen the ardor of the planners and builders of artificial social orders.

Note that this great law—one for all, and all for one—is much more universal than my description of it would suggest. Words are cumbersome, and the pen is even more so. The writer is reduced to showing successively, one after another, with discouraging slowness, phenomena that stir our admiration only when we view them collectively.

Thus, I have just spoken of inventions. One might conclude from what I have said that they represent the only case in which progress, when once achieved, slips out of the producer's hands and finds its way into the common treasury of all mankind. This is not so. It is a general law that any advantage whatsoever created by special circumstances of location, climate, or any other liberality of Nature, quickly slips through the hands of the one who first discovers it and lays hold of it, yet is not on that account lost, for it moves on to feed the immense reservoir from which flow the satisfactions that men enjoy in common. Only one proviso is attached to this result: labor and exchange must be free. To go against liberty is to go against the will of Providence; it amounts to suspending the action of God's law, to restricting progress in the two directions it takes.

What I have just said concerning the blessings of life is true also of its evils. Nothing stops with the producer, whether advantage or disadvantage. Both tend to be distributed over the whole of society.

We have just seen with what eagerness the producer seeks out whatever will make his task easier, and we have assured ourselves that very shortly his profit will elude him. He appears to be, in the hands of a superior intelligence, only the blind and docile instrument of general progress.

With the same eagerness he avoids everything that would impede his activity; and this is a fortunate thing for mankind, since in the long run it is mankind that is harmed by these impediments. Let us assume, for example, that A, a book producer, has had a heavy tax levied upon him. He must add it to the price of his books. It will become an integral part of the books' value, which means that B, C, D, E, will have to offer more of their labor for the same satisfaction. What compensation they receive for this loss will depend upon the use the government makes of the tax. If it puts it to good use, they perhaps will not lose; they may even gain by the arrangement. If it is used to oppress them, their vexation will be doubly galling. But as far as A is concerned, he is relieved of the burden of the tax, even though he advances the money for it.

This does not mean that the producer does not often suffer greatly from obstacles of all sorts, taxes included. Sometimes taxes burden him to the breaking point, and it is precisely for this reason that their incidence tends to be shifted so that they fall ultimately on the masses.

Thus, wine in France was once the object of a multitude of taxes and controls. Then a system was contrived for restricting its sale outside the country. This case illustrates how the evils that arise tend to ricochet from producer to consumer. As soon as the tax and the restrictions are put into effect, the producer strives to make up for his losses. But since both the consumer demand and the supply of wine remain unchanged, he cannot increase his price. At first his income is no more after the imposition of the tax than it was before. And since, prior to the tax, he received only a normal return, determined by the value of the services freely exchanged, he discovers that he is out the amount of the tax. In order for prices to be raised, there must be a decrease in the amount of wine produced.2

The consumer, or the public, is, therefore, in relation to the loss or gain that is first experienced by a given class of producers, what the earth is to electricity: the great common reservoir. Everything comes from it; and everything, after making more or less lengthy detours, after producing more or less varied phenomena, returns to it.

We have just noted that economic effects merely slip away from the producer, so to speak, and ultimately come to rest at the consumer's door, and, therefore, that all the great economic questions must be studied from the consumer's point of view if we wish to grasp their general and lasting consequences.

This subordination of the producer's role to that of the consumer, which we have deduced from our consideration of utility, is fully confirmed by considerations of morality.

Now, the fact is that responsibility always rests where the initiative is. And where is the initiative? In demand.

Demand (which implies the ability to pay) determines everything: the allocation of capital and labor, the distribution of population, the morality of the various occupations, etc. It is demand that corresponds to wants, whereas supply corresponds to effort. Wants are reasonable or unreasonable, moral or immoral. Effort, which is merely an effect, is amoral or else has only a reflected morality.

Demand, or consumption, says to the producer: “Do this for me,” and the producer obeys. This would be obvious in every case if the producer always and everywhere followed the lead of the consumer and waited for the demand.

But in reality things do not happen this way at all.

Whether exchange brought about the division of labor, or the division of labor introduced exchange, is a subtle and idle question. Let us say that men exchange because, being intelligent and sociable creatures, they understand that exchange is a means of improving the ratio of effort to result. What is brought about solely by the division of labor and by foresight is that a man does not wait for a formal order from others before he sets to work. Experience teaches him that such an order is tacit in human relations and that the demand exists.

He exerts the effort to satisfy it in advance, and this gives rise to the trades and professions. Hats and shoes are made in advance; men prepare themselves to sing, to teach, to plead cases, to cure diseases, etc. But in these cases does supply really precede demand and create it?

No. Men prepare themselves because they are reasonably certain that these different services will be in demand, although they may not always know by whom. And the proof that this is the case consists in the fact that the relations among these services are well enough known, that their value has been well enough established, so that one may with some confidence devote himself to making a given article or embark on a given career.

The impetus of demand, then, comes first, since it has been possible to estimate its range so accurately.

Therefore, when a man enters a trade or a profession, when he becomes a producer, what is his first concern? Is it the utility of the thing he produces, its good or bad, moral or immoral results? Not at all; he thinks only of its value. It is the demander who considers its utility. Its utility corresponds to his want, his desire, his whim. Value, on the contrary, corresponds only to effort expended, to service transmitted. Only when, through exchange, the supplier becomes in his turn a demander, does he care about utility. When I decide to make shoes rather than hats, it is not because I have asked myself whether it is more to men's advantage that their feet be warm than their heads. No, this question concerns the demander and determines the demand. Demand, in turn, determines value, or the regard in which the public holds the service. Value, in a word, determines effort, or supply.

The moral results of this fact are quite noteworthy. Two nations may be equally provided with values, that is, with relative wealth,3and yet be very unequal in their real utilities, that is, their absolute wealth. This happens when one of the nations has more unreasonable desires than the other, is concerned with artificial or immoral wants, while the other is mindful of its real wants.

In the one country a taste for learning may predominate, in the other a desire for good eating. In this case one renders a service to the first country by teaching it something; in the second, by tickling its palate.

Now, men reward services according to the importance they attach to them. If they did not exchange, they would perform the service for themselves; and what would be the determining factor if not the nature and intensity of their desires? In one of these nations, therefore, there will be many teachers; in the other, many cooks.

In both countries the services exchanged may be equal in amount and may therefore represent equal value, the same relative wealth, but not the same absolute wealth. This means nothing more nor less than that the one country puts its labor to good use, the other to bad.

And the result, as regards satisfactions, will be this: One of the countries will have much learning; the other will eat well. The ultimate consequences of this diversity of tastes will have a great influence not only on real wealth but also on relative wealth; for learning, for example, can develop new ways of performing services, a thing that good meals cannot do.

We observe among the nations a prodigious diversity of tastes, the result of their past traditions, their character, their beliefs, their vanity, etc.

Undoubtedly, there are wants so immediate and so pressing, for example drinking and eating, that they may almost be considered fixed quantities. Yet it is not unusual to see one man go without eating as well as he would like in order to have clean clothing, while another man considers the cleanliness of his clothing only after he has satisfied his appetites. The same is true of nations.

But once these pressing wants are met, everything else depends much more on the will; it is a matter of taste, and in this area the role of morality and good sense is enormous.

The intensity of a nation's various desires always determines the quantity of labor, out of the sum total of all its efforts, that it sees fit to devote to the satisfaction of each particular desire. The Englishman wants above all else to be well fed. Therefore, he devotes an enormous quantity of his labor to producing foodstuffs; and if he produces other things, it is for the purpose of exchanging them abroad for food. The total amount of wheat, meat, butter, milk, sugar, etc., consumed in England reaches terrifying proportions. The Frenchman wants to be amused. He likes what catches the eye, and he enjoys change. The direction taken by his labor is fully in accord with his desires. In France there are many singers, comedians, milliners, coffeehouses, smart shops, etc. In China, the desire is to provide oneself with pleasurable dreams through the use of opium. For this reason a great amount of the national effort goes into obtaining this precious narcotic, either directly through production or indirectly through exchange. In Spain, where people are inclined toward the pomp and ceremony of religious ritual, their efforts are directed toward the decoration of churches, etc.

I will not go so far as to say that there is never any immorality in effort that has as its goal the rendering of services related to immoral or depraved desires. But it is evident that what is essentially immoral in such cases is the desire itself.

There could be no possible doubt on this question if man lived in a state of isolation, nor can there be any in regard to man in society, for society is simply the individual enlarged.

Who would dream of blaming our workers in the south of France for producing brandy? They respond to a demand. They dig their vineyards, they dress their vines, they harvest and distill the grapes, without concerning themselves about what will be done with the product. It behooves the one who seeks the satisfaction to determine whether it is respectable, moral, reasonable, beneficial. The responsibility rests with him. Otherwise the business of the world could not be carried on. Where would we be if the tailor were to say to himself: “I will not make a suit in the style that has been ordered, because it is much too elegant and ostentatious, or because it hampers breathing, etc., etc.?”

And what concern of our poor winegrowers is it whether the rich bons vivants of London get drunk on the wines of France? And can the English seriously be accused of raising opium in India with the deliberate intention of poisoning the Chinese?

No, a frivolous people always encourages frivolous industries, just as a serious people creates serious industries. If mankind is improving, this moral growth is due, not to the producer, but to the consumer.

Religion understood this perfectly when it severely admonished the rich man—the great consumer—in regard to his tremendous responsibility. From a different point of view and in different language political economy arrives at the same conclusion. It affirms that we cannot prevent supplying what is demanded; that the product for the producer is merely a value, a kind of currency, which no more represents evil than good, whereas in the mind of the consumer it is utility, an enjoyment that is either moral or immoral; that, therefore, it behooves the one who voices the desire and makes the demand to accept the consequences, whether beneficial or disastrous, and to answer before the justice of God, as before the opinion of mankind, for the good or evil end to which he has directed the labor of his fellow men.

Thus, from whatever point of view we consider it, we perceive that consumption is the great end and purpose of political economy; that good and evil, morality and immorality, harmony and discord, everything finds its meaning in the consumer, for he represents mankind.

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