Saturday, April 7, 2012

Wealth - Frédéric Bastiat -


Thus, in everything that is calculated to satisfy our wants and desires, two things must be considered and differentiated: what Nature has done and what man has done, what is free of charge and what is acquired through effort, the gift of God and man's service,utility and value. In the same object one of them can be immense, and the other imperceptible. While utility may remain constant, value can and does decrease steadily as ingenious new devices enable us to achieve an identical result with less effort.

At this point, even as we begin the study of political economy, we can foresee one of the greatest difficulties, one of the most fertile sources of misunderstanding, controversy, and error.

What is wealth?

Are we rich in proportion to the utilities we have at our disposal, that is, according to the wants and desires that we can satisfy? “A man is rich or poor,” wrote Adam Smith, “according to the number of useful things he is able to enjoy.”

Are we rich in proportion to the values we possess, that is, the services we have at our disposal? “Wealth,” said Jean-Baptiste Say, “exists in direct proportion to value. Wealth is great if the total value that it contains is considerable; it is small if the total value is small.”

Uninformed people give two meanings to the word “wealth.” Sometimes we hear them say: “The abundance of water in such and such a country is a source of wealth to it,” when they are thinking only in terms of utility. But when someone of them tries to ascertain his own wealth, he prepares what is called an inventory, in which he reckons value only.

With all due respect for the experts, I believe that, in this instance, the uninformed are right. Wealth, in fact, can be either real orrelative. From the former point of view, it is reckoned according to our satisfactions. Mankind's wealth is greater or less according to its level of prosperity, whatever may be the value of the objects that maintain it. But suppose we want to know each man's individual share in the general prosperity, in other words, his relative wealth? This is a simple ratio, which value alone reveals, because value is itself a relative term.

Political economy is a science that concerns itself with men's general prosperity and material comfort, with the ratio of their efforts to their satisfactions, a ratio that is improved by the increase in the amount of gratuitous utility available for the work of production. In political economy, therefore, we cannot exclude this factor from our idea of wealth. Scientifically speaking, real wealth is not to be found in the sum total of values, but in the sum of gratuitous utility or onerous utility contained in these values. From the point of view of our satisfactions, that is, as far as our real wealth is concerned, we are as much enriched by the value that we have lost through progress in the means of production as by the value that we still possess.

In the transactions of everyday life we no longer take utility into account, in so far as, through the decrease in value, it becomes free of charge. Why? Because what is free of charge is common to all, and what is a common possession has no effect on each person's individual share of the total real wealth. No exchange is made of what is held by all in common; and since, in business transactions, we need to know only that proportion which is constituted by value, that is all we concern ourselves with.

A debate arose between Ricardo and Jean-Baptiste Say on this question. Ricardo used “wealth” in the sense of utility; Say, in the sense of “value.” Neither of them could possibly win a complete victory, because the word has both meanings, depending on whether one views wealth as real or relative.

But we must add a word of caution, all the more important because Say's authority is so great in such matters; for if we identify wealth (meaning the real, effective level of our material comforts) with value, if, in particular, we affirm that wealth and value are in direct proportion to each other, we run the risk of putting our economic thinking on the wrong track. The works of second-rate economists and of the socialists prove this only too well. This is an unfortunate starting point, since it loses sight of what is, in fact, humanity's noblest heritage; for we must consider as nonexistent that part of our material well-being which, through progress, has been rendered common to all, and we expose our minds to the greatest of all dangers—that of becoming involved in a petitio principii, in which we assume as true what we are trying to prove, of looking at political economy backwards and constantly confusing the goal that we wish to reach with the obstacle that blocks our way.

In fact, without these obstacles there would be no value. Value is the sign, the symptom, the testimony, the proof of our natural infirmity. It constantly reminds us of the sentence originally pronounced upon us: “In the sweat of thy face shalt thou eat bread.” For the Omnipotent the words effort, service, and, consequently, value, do not exist. As for us, however, we are placed in a world ofutilities, of which many are free of charge, but others are to be had only at the price of our toil. Obstacles stand between these utilities and the wants that they can satisfy. We are condemned to doing without the utility or overcoming the obstacle by our efforts. Sweat must indeed fall from our brows, or from the brows of those who toil for our profit.

The more values a society possesses, therefore, the clearer the evidence that it has surmounted obstacles, but the clearer the evidence, also, that it had obstacles to surmount. Shall we go so far as to say that these obstacles create wealth, since without them the values would not exist?

We can imagine the case of two nations. One has more satisfactions than the other, but it has fewer values, because Nature has favored it and placed fewer obstacles in its way. Which nation is the richer?

We can carry this further: Let us take the same nation at two stages in its history. The obstacles to be overcome are the same. But today it overcomes them with such ease, it has become so efficient in its transportation, agriculture, textile production, for example, that the values of these things have been considerably reduced. It has, therefore, been able to choose one of these two courses: either to be content with the same satisfactions as before, translating its improved methods into increased leisure (and in that case shall we say that its wealth has declined because it has fewer values?); or else it can choose to apply the surplus efforts newly made available to it to the task of increasing its satisfactions, and should we be justified in concluding that because its total values remain stationary, its wealth has also remained stationary? This is what comes of identifying value with wealth.

This is indeed a treacherous shoal for the political economist. Is wealth to be measured by the satisfactions achieved or by the values created?

If there were no obstacles between utilities and wants, there would be no efforts, services, values, any more than there are for God; and, while measuring wealth in terms of satisfactions, mankind would be in possession of infinite wealth; yet in terms of value, it would have no wealth at all. Thus, two economists, according to the definition they chose, might say: Mankind is infinitely rich, orMankind is infinitely poor.

The infinite, it is true, is in no respect an attribute of humanity. But mankind is never static; it always moves in some direction; it exerts efforts; it exhibits tendencies; it gravitates toward steadily increasing wealth or steadily increasing poverty. Now, how can political economists come to a common understanding, if this successive reduction of effort in relation to satisfaction, of pains to be taken or rewarded, that is, value, is considered by some an advance toward wealth and by others a descent into poverty?

Yet if the difficulty merely concerned economists, we could say: Let them have their arguments. But legislators and governments are daily required to take measures that exercise a very real influence over human affairs. And what a plight we are in if these measures are taken in ignorance so complete that wealth cannot be distinguished from poverty!

So, I make this declaration: The theory that defines wealth in terms of value is, in the last analysis, a mere glorification of the role of obstacles. It rests on the following syllogism: Wealth is proportional to value, value to effort, effort to obstacles; therefore, wealth is proportional to obstacles.

I make this further declaration: Because of the division of labor, which assigns every man to a trade or a profession, this illusion is very difficult to destroy. We all live by the services that we render in overcoming obstacles, satisfying wants, or removing pain: the doctor by combatting disease; the farmer, hunger; the textile manufacturer, cold; the carriage-maker, distance; the lawyer, injustice; the soldier, danger to the country; and so complete is the list that there is not a single obstacle whose elimination would not seem most inopportune and most inconvenient to someone, and even disastrous to society at large, since it would appear that a source of services, value, and wealth was to be destroyed. Very few economists have completely resisted this false notion, and, if political economy ever succeeds in dispelling it, on that score alone its practical mission in the world will have been accomplished; for I now make this third declaration: Our public policy is steeped in this notion, and whenever governments feel obliged to make special concessions to some class, profession, or industry, they follow no other procedure than to erect obstacles designed to encourage the development of a certain type of efforts, in order to increase artificially the number of services society will be obliged to call for, and thus to increase value and, supposedly, wealth.

And, in fact, it is very true that this procedure is useful for the class receiving the special favor. We see the ensuing self-congratulation and applause, and what happens? The same special concessions are successively granted all other classes.

First identify utility with value, then value with wealth. What could be more natural? Political economists have never been taken more unawares. For what has happened? At every step along the path of progress, they have reasoned thus: “The obstacle is lessened; therefore, effort is reduced; therefore, value is lowered; therefore, utility is decreased; therefore, our wealth is diminished; therefore, we are the most unfortunate of men for ever having bethought ourselves of inventing and exchanging, for having five fingers instead of three, and two arms instead of one; hence, we must set the government, which has force at its disposal, at correcting these abuses.”

This type of political economy in reverse supports a large number of newspapers and many sessions of our legislative assemblies. It misled the honest and philanthropic Sismondi; it is expounded very logically in M. de Saint-Chamans' book.

“A nation has two kinds of wealth,” he says. “If we consider only useful commodities from the point of view of their quantity, their supply, we deal with wealth that procures society things that it can consume, and this I shall therefore term consumers' wealth.

“If we consider commodities from the point of view of their exchangeable value, or simply their value, we deal with wealth that brings society value, and this I therefore term value wealth.

“Political economy deals primarily with value wealth; and it is with it primarily that government may properly deal.”

This being granted, what can political economy and government do? Political economy can indicate the means of increasing value wealth; and government can put these means into effect.

But value wealth is in proportion to efforts, and efforts are in proportion to obstacles. Political economy must therefore show the way, and government must employ all its resources to multiply the obstacles. This is the logical conclusion, and M. de Saint-Chamans faces it squarely.

Does exchange make it easier for men to acquire more consumers' wealth for less value wealth? Then we must restrain exchange.1

Is there any amount of gratuitous utility that we can replace with onerous utility—for example, by eliminating a tool or a machine? We must not neglect the opportunity, for it is obvious, he says, that if machines increase consumers' wealth, they decrease value wealth. “Let us bless the obstacles that the high cost of fuel in our country puts in the way of the multiplication of steam engines.”2

Has Nature favored us in any way? It is our loss, for, by so doing, she has deprived us of a chance to work. “I admit that it is quite possible for me to desire to see done by hand, sweat and toil, and forced effort, what can be produced spontaneously and without pains.”3

What a shame, therefore, that Nature has not obliged us to manufacture drinking water! It would have been a wonderful opportunity to produce value wealth. Most fortunately, we even the score with wine. “Find the secret of making wine flow as abundantly as water from springs in the earth, and you will discover that this fine system of things will bankrupt one quarter of France.”4

Within the gamut of ideas that our economist so naively runs, there are innumerable means, all very simple, of reducing men to the level where they may create value wealth.

The first is to take it away from them as rapidly as they acquire it: “If taxes confiscate money from areas where it is plentiful, in order to allocate it to areas where it is scarce, they serve a useful purpose, and this action, far from representing a loss to the state, represents a gain.”5

The second is, after taking it, to throw it away. “Luxury and extravagance, so disastrous to the wealth of private individuals, areadvantageous to the wealth of the nation. ‘That's a fine moral doctrine you are preaching,’ people will say to me. I make no such claims. We are dealing with political economy, not morals. We are seeking means of making nations richer, and I preach the gospel of luxury.”6

An even faster means is to destroy it by a few good wars. “If you will admit with me that the extravagances of a spendthrift are as productive as any other expenditures; that government spending is equally productive, .... you will not be surprised at England's wealth, after this very costly war of hers.”7

But all these means of encouraging the creation of value wealth —taxes, luxury, war, etc.—must yield the palm to a much more effective device: conflagration.

“Construction is a great source of wealth, because it brings revenue to the sellers of builders' supplies, to workmen, and to various classes of artisans and artists. Melon quotes Sir William Petty who classes as national profit the work done for the rebuilding of London after the famous fire that destroyed two-thirds of the city, and he estimates it [this profit!] at a million pounds sterling (1866 value) per year for four years without injuring other businesses in any way. Without accepting this exact figure as a completely accurate estimate of this profit,” adds M. de Saint-Chamans, “we may be certain at least, that this event did not have an adverse effect on England's wealth at this period..... Sir William Petty's estimate is not impossible, since the need to rebuild London must have created vast sources of new revenue.”8

Economists who start from the premise that wealth is value would inevitably arrive at the same conclusions as M. de Saint-Chamans, if they were logical; but they are not logical, because on the road to absurdity all of us stop short of the final destination, some a little sooner, some a little later, according to the relative reasonableness of our minds. M. de Saint-Chamans himself seems to have drawn back just a shade from the full consequences of his theory when he finds that they lead to praise of conflagration as a road to wealth. We see him hesitate and content himself with perfunctory approval. Logically he should have carried his reasoning to its ultimate conclusion and stated openly what he clearly implies.

Of all economists, M. Sismondi is certainly the one who most distressingly falls afoul of this difficulty. Like M. de Saint-Chamans, he started with the idea that value is one of the component elements of wealth; like him he erected on this foundation a political economy in reverse, deploring everything that reduces value. He too praises obstacles; bans machinery; anathematizes exchange, competition, and freedom; glorifies luxury and taxes; and finally reaches this conclusion, that the more abundantly men have everything, the more completely they have nothing.

Yet M. de Sismondi seems, from beginning to end, to have a subconscious feeling that he is mistaken, and that a veil that he cannot lift may have interposed itself between his mind and the truth. He does not quite dare to draw explicitly, like M. de Saint-Chamans, the ultimate conclusions inherent in his theories; he is disturbed, he hesitates. He wonders sometimes if it is possible for all men, since the beginning of the world, to have been in error and on the road to suicide, in seeking to decrease the ratio of effort to satisfaction, that is, in seeking to decrease value. A friend and yet an enemy of liberty, he fears it, since, by creating the abundance that reduces value, it leads to poverty; and, at the same time, he does not know how to go about destroying this fatal liberty. Thus, he reaches the outer limits of socialism and artificial social orders; he suggests that government and the social sciences must regulate and restrict everything; then he realizes the danger of his advice, retracts, and finally gives way to despair, saying: “Liberty leads to a bottomless pit; restraint is as impossible as it is ineffective; there is no way out.” And there is none, indeed, if value constitutes wealth, that is, if obstacles to our well-being constitute our well-being, that is, if adversity is prosperity.

The latest writer, to my knowledge, to stir up this question is M. Proudhon. It was a windfall for his book, Economic Contradictions. Never was there a finer opportunity to seize an antinomy, a contradiction, by the hair and shout defiance at the science of political economy. Never was there a finer opportunity to ask, “Do you view increase in value as a good thing or as an evil? Quidquid dixeris argumentabor.” I leave it to the reader to imagine what a fine time he must have had!9

“I call upon every responsible economist,” he said, “to tell me, other than by rewording or repeating my question, for what reason value decreases as production increases, and vice versa. .... In technical terms, value in use and value in exchange, although necessary to each other, exist in inverse ratio to each other..... Value in use and value in exchange always remain, then, inextricably linked to each other, although by their nature they always tend to be mutually exclusive.

“There is no assignable cause or possible explanation for this contradiction inherent in the notion of value..... If we grant that man has need of a great variety of commodities that he must obtain through labor, we are necessarily faced with a conflict between value in use and value in exchange, and from this conflict a contradiction arises at the very outset of our study of political economy. No intelligence, no will, either divine or human, can prevent it. Thus, instead of seeking a useless explanation, let us be content to note the fact that the contradiction is inevitable.”

We know that the great discovery with which we can credit M. Proudhon is that everything is both true and false, good and bad, legal and illegal; that there is no principle that is not self-contradictory; and that the contradiction is not in erroneous theories, but in the very essence of things and phenomena: “It is the expression of pure necessity, the inner law of being, etc.”; consequently, it is inevitable, and it would be theoretically irremediable, but for the series of contradictory elements, and practically irremediable but for the banque du peuple. God, a contradiction; liberty, a contradiction; property, a contradiction; value, credit, monopoly, common ownership, contradiction on contradiction! When M. Proudhon made this tremendous discovery, his heart must surely have leaped for joy; for since contradiction is in all things, there is always something to contradict, which for him is the supreme happiness. He once said to me, “I'd be perfectly willing to go to heaven, but I'm afraid that everybody agrees up there, and I couldn't find anyone to argue with.”

It must be admitted that the subject of value gave him an excellent opportunity to indulge in contradiction to his heart's content. But, begging his pardon, the contradictions and the conflicts that this word “value” suggests stem from erroneous theories, and not at all, as he asserts, from the nature of the phenomenon.

Theorists first began by confusing value with utility, that is, by confusing the ills with the benefits (for utility is the means to the end sought—the benefit—and value comes from the obstacle—the ill—that stands between the end and the desire). This was the initial error, and when they saw its consequences, they thought that they could save the situation by thinking up a distinction between value in use and value in exchange, a cumbersome tautology that involved the fallacy of applying the same word, “value,” to two opposite phenomena.

But if, setting aside these subtleties, we keep to the facts, what do we see? Certainly, only something very natural and far from contradictory.

Suppose that a man works exclusively for himself. If he acquires skill, if his capacities and his intelligence develop, if Nature becomes more generous, or he learns to utilize it better for his needs, he has more comforts and well-being and goes to fewer pains. Where do you see any contradiction, and where do you find anything to make such protests about?

Now, instead of being alone, this man has contacts with other men. They exchange, and I repeat my observation: In proportion as they acquire skill, experience, capacity, intelligence, in proportion as Nature, becoming more generous, or being made more amenable, co-operates more effectively, they have more comforts and well-being and go to fewer pains; there is a greater amount of gratuitous utility at their disposal; in their transactions they offer one another a larger proportion of usable results for a given amount of labor. Where, then, is the contradiction?

Ah! if you make the error, like Adam Smith and all his successors, of applying the same term “value” both to results obtained and to trouble taken, then, the antinomy, or the contradiction, appears. But, you may be sure, it lies entirely in your erroneous explanation, and not at all in the facts.

M. Proudhon would, therefore, have had to formulate his proposition in this way: Granted man's need for a great variety of commodities and the necessity of providing them through his labor and his precious gift of learning and improving, nothing in the world is more natural than the steady increase of results in relation to efforts, and it is not at all contradictory that a given value transmits more in the way of available utilities.

For, once again, utility is, for man, the good side of the coin; value, the bad side. Utility relates only to our satisfactions; value, to the pains we take. Utility makes possible our satisfactions and is in proportion to them; value indicates our innate infirmity, is created by obstacles, and is in proportion to them.

By virtue of man's perfectibility, gratuitous utility tends more and more to replace the onerous utility denoted by the word “value.” Such is the phenomenon, and it most certainly presents nothing contradictory.

But there still remains the question of determining whether the word “wealth” is to include both these utilities taken together or the second only.

If we could set up, once and for all, two classes of utility, put on one side all those that are gratuitous, and on the other all that are onerous, we should thus establish two classes of wealth that we should call, with M. Say, natural wealth and social wealth; or else, with M. de Saint-Chamans, consumers' wealth and value wealth. This done, we should, as these writers suggest, concern ourselves no further with the first class.

“The blessings available to all,” says M. Say, “which all may enjoy as they will, without the necessity of procuring them, without fear of exhausting them, such as air, water, sunlight, etc., having been given us gratis by Nature, may be called natural wealth. Since they cannot be produced or distributed or consumed, they do not fall within the scope of political economy.

“That type of wealth which it is the function of political economy to study is composed of those things that we possess having a recognized value. We can call it social wealth, because it exists among men living together in society.”

“It is with value wealth,” says M. de Saint-Chamans, “that political economy is primarily concerned, and every time I shall speak in this book of wealth without specifying the type, it will be to this type only that I refer.”

Almost all economists have considered the matter in this light.

“The most striking distinction that we encounter at the outset,” says Storch, “is that there are some values that are capable of appropriation, and that there are others that are not.10Only values of the first type belong to the study of political economy, for analysis of the others would furnish no results worthy of the attention of a statesman.”

For my own part, I believe that that portion of utility which, as a result of progress, ceases to be onerous, ceases to have value, but does not on that account cease to be utility, and falls eventually within the domain called common to all and free of charge, is the very one that must constantly attract the attention of the statesman and the economist. Otherwise, instead of viewing with deep and sympathetic understanding the great results of this process that so influence and elevate humanity, all that the political economist will see in it is a mere contingent phenomenon, unstable, tending to decrease, if not to disappear entirely, just a simple relation, or, in a word, nothing but another case of value. Without perceiving what is happening, he will permit himself to be carried along, content merely to consider effects, obstacles, the interests of the producer, and worse yet, to confuse those interests with the public interest. This, in fact, amounts to choosing the ills instead of the benefits, and finally, under the leadership of men like Saint-Chamans and Sismondi, ending with a socialist utopia or in Proudhon's land of contradiction.

Furthermore, is not the line of demarcation between these two utilities entirely a fanciful, arbitrary, and impossible one? How do you propose to dissolve the union of Nature and man, when they are everywhere mingled, combined, fused, and, even more, when one of them tends constantly to replace the other, and in so doing becomes the source of all progress? If the science of economics, so dry in some respects, can, in others, so inspire and enchant our minds, it is precisely because it sets forth the laws governing this association between man and Nature; because it shows how gratuitous utility replaces onerous utility more and more, how man's satisfactions increase as his toil and drudgery decrease, how obstacles are constantly reduced, along with value, how the producer's losses are more than compensated by the consumer's increasing prosperity, how natural wealth, that is, wealth free of charge andcommon to all, takes the place of wealth that is individual and privately owned. Would you, then, exclude from political economy the very element that constitutes its divine harmony?

Air, water, sunlight are free of charge, you say. That is true, and if we made use of them only in their natural forms, if we did not harness them to any labor of our own, we could exclude them from the domain of political economy, just as we exclude the utility that may, quite possibly, exist in comets. But consider where man started and how far he has come. Originally he had a most imperfect notion of how to make air, water, sunlight, and other natural resources work for him. His every satisfaction was bought at the cost of great personal effort, required a great amount of labor for the result obtained, could be surrendered to another only as a great service—represented, in a word, a great amount of value. Little by little these resources, water, air, light, and others, like gravitation, elasticity, thermodynamics, electricity, the energy of plant life, have emerged from their relative inertia. They have become incorporated more and more into our industry. They have been substituted more and more for human labor. They have accomplished gratis what once cost much in terms of human toil. Without impairing our satisfactions, they have annihilated value. To express it in ordinary terms, what used to cost ten days' work now requires one. All this annihilated value has passed from the domain of private property to the domain of what is free of charge and common to all. A considerable amount of human effort has been freed and made available for other enterprises. Thus, for equal pains, equal services, equal value, mankind has enlarged prodigiously its circle of satisfactions, and you say that I should eliminate from political economy the study of this gratuitous and common utility, which alone can explain progress in all its height and breadth, if I may so express myself, in all it brings in prosperity and equality!

Let us state as a conclusion, then, that we may give, and give legitimately, two meanings to the word “wealth”:

Effective Wealth, real wealth, which produces satisfactions, that is, the sum of the utilities that human labor, with Nature's help, puts at society's disposal.

Relative Wealth, that is, each individual's share in the general wealth, which share is determined by value.

Here, then, is the harmonious law that can be expressed thus:

Through labor the action of man is combined with the action of Nature.

From this co-operation utility results.

Each individual takes from the general store of utility in proportion to the services that he renders—in the last analysis, then, in proportion to the utility he himself represents.

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