Saturday, September 8, 2012

Thrift and Luxury - Frédéric Bastiat

It is not only in the matter of public expenditures that what is seeneclipses what is not seen. By leaving in the shadow half of the political economy, this phenomenon of the seen and the unseen induces a false moral standard. It leads nations to view their moral interests and their material interests as antagonistic. What could be more discouraging or more tragic? Observe:
There is no father of a family who does not take it as his duty to teach his children order, good management, economy, thrift, moderation in spending.
There is no religion that does not inveigh against ostentation and luxury. That is all well and good; but, on the other hand, what is more popular than these adages:
"To hoard is to dry up the veins of the people."
"The luxury of the great makes for the comfort of the little fellow."

"Prodigals ruin themselves, but they enrich the state."
"It is with the surplus of the rich that the bread of the poor is made."
Certainly there is a flagrant contradiction here between the moral idea and the economic idea. How many eminent men, after having pointed out this conflict, look upon it with equanimity! This is what I have never been able to understand; for it seems to me that one can experience nothing more painful than to see two opposing tendencies in the heart of man. Mankind will be degraded by the one extreme as well as by the other! If thrifty, it will fall into dire want; if prodigal, it will fall into moral bankruptcy!
Fortunately, these popular maxims represent thrift and luxury in a false light, taking account only of the immediate consequences that are seen and not of the more remote effects that are not seen. Let us try to rectify this incomplete view.
Mondor and his brother Ariste, having divided their paternal inheritance, each have an income of fifty thousand francs a year. Mondor practices philanthropy in the fashionable way. He is a spendthrift. He replaces his furniture several times a year, changes his carriages every month; people talk about the ingenious devices to which he resorts to get rid of his money faster; in brief, he makes the high livers of Balzac and Alexander Dumas look pale by comparison.

What a chorus of praises always surround him! "Tell us about Mondor! Long live Mondor! He is the benefactor of the workingman. He is the good angel of the people! It is true that he wallows in luxury; he splashes pedestrians with mud; his own dignity and human dignity in general suffer somewhat from it. .... But what of it? If he does not make himself useful by his own labor, he does so by means of his wealth. He puts money into circulation. His courtyard is never empty of tradesmen who always leave satisfied. Don't people say that coins are round so that they can roll?"
Ariste has adopted a quite different plan of life. If he is not an egoist, he is at least an individualist; for he is rational in his spending, seeks only moderate and reasonable enjoyments, thinks of the future of his children; in a word, he saves.

And now I want you to hear what the crowd says about him!
"What good is this mean rich man, this penny-pincher? Undoubtedly there is something impressive and touching in the simplicity of his life; furthermore, he is humane, benevolent, and generous. But he calculates. He does not run through his whole income. His house is not always shining with lights and swarming with people. What gratitude do the carpetmakers, the coachmakers, the horse dealers, and the confectioners owe to him?"
These judgments, disastrous to morality, are founded on the fact that there is one thing that strikes the eye: the spending of the prodigal brother; and another thing that escapes the eye: the equal or even greater spending of the economical brother.
But things have been so admirably arranged by the divine Inventor of the social order that in this, as in everything, political economy and morality, far from clashing, are in harmony, so that the wisdom of Ariste is not only more worthy, but even more profitable, than the folly of Mondor.
And when I say more profitable, I do not mean only more profitable to Ariste, or even to society in general, but more profitable to present-day workers, to the industry of the age.
To prove this, it suffices to set before the mind's eye those hidden consequences of human actions that the bodily eye does not see.

Yes, the prodigality of Mondor has effects visible to all eyes: everyone can see his berlines, his landaus, his phaetons, the delicate paintings on his ceilings, his rich carpets, the splendor of his mansion. Everyone knows that he runs his thoroughbreds in the races. The dinners that he gives at his mansion in Paris fascinate the crowd on the boulevard, and people say to one another: "There's a fine fellow, who, far from saving any of his income, is probably making a hole in his capital." This is what is seen.
It is not as easy to see, from the viewpoint of the interest of the workers, what becomes of Ariste's income. If we trace it, however, we shall assure ourselves that all of it, down to the last centime, goes to give employment to the workers, just as certainly as the income of Mondor. There is only this difference: The foolish spending of Mondor is bound to decrease continually and to reach a necessary end; the wise spending of Ariste will go on increasing year by year.
And if this is the case, certainly the public interest is in accord with morality.
Ariste spends for himself and his house twenty thousand francs a year. If this does not suffice to make him happy, he does not deserve to be called wise. He is touched by the ills that weigh on the poor; he feels morally obligated to relieve them somewhat and devotes ten thousand francs to acts of charity. Among businessmen, manufacturers, and farmers he has friends who, for the moment, find themselves financially embarrassed. He inquires about their situation in order to come to their aid prudently and efficaciously and sets aside for this work another ten thousand francs. Finally, he does not forget that he has daughters to provide dowries for, sons to assure a future for, and, consequently, he imposes on himself the duty of saving and investing ten thousand francs a year.
1. Personal expenses20,000 francs
2. Charity10,000 francs
3. Help to friends10,000 francs
4. Savings10,000 francs
This, then, is how he uses his income:
If we review each of these items, we shall see that not a centime escapes going into the support of national industry.
1. Personal expenses. These, for workmen and shopkeepers, have effects absolutely identical to an equal amount spent by Mondor. This is self-evident; let us not discuss it further.

2. Charity. The ten thousand francs devoted to this end will support industry just as much; they will go to the baker, the butcher, the tailor, and the furniture dealer, except that the bread, the meat, the clothes do not serve the needs of Ariste directly, but of those whom he has substituted for himself. Now, this simple substitution of one consumer for another has no effect at all on industry in general. Whether Ariste spends a hundred sous or asks a poor person to spend it in his place is all one.
3. Help to friends. The friend to whom Ariste lends or gives ten thousand francs does not receive them in order to bury them; that would be contrary to our hypothesis. He uses them to pay for merchandise or to pay off his debts. In the first case, industry is encouraged. Will anyone dare say that there is more gained from Mondor's purchase of a thoroughbred for ten thousand francs than from a purchase by Ariste or his friends of ten thousand francs' worth of cloth? If this sum serves to pay a debt, all that results is that a third person appears, the creditor, who will handle the ten thousand francs, but who will certainly use them for something in his business, his factory, or his exploitation of natural resources. He is just one more intermediary between Ariste and the workers. The names change, the spending remains, and so does the encouragement of industry.

4. Savings. There remain the ten thousand francs saved; and it is here that, from the point of view of encouragement of the arts, industry, and the employment of workers, Mondor appears superior to Ariste, although morally Ariste shows himself a little superior to Mondor.
It is not without actual physical pain that I see such contradictions appear between the great laws of Nature. If mankind were reduced to choosing between the two sides, one of which hurts its interests and the other its conscience, we should have to despair for its future. Happily this is not so. To see Ariste regain his economic as well as his moral superiority, we need only understand this consoling axiom, which is not the less true for having a paradoxical appearance: To save is to spend.
What is Ariste's object in saving ten thousand francs? Is it to hide two thousand hundred-sou pieces in a hole in his garden? No, certainly not. He intends to increase his capital and his income. Consequently, this money that he does not use to buy personal satisfactions he uses to buy pieces of land, a house, government bonds, industrial enterprises; or perhaps he invests it with a broker or a banker. Follow the money through all these hypothetical uses, and you will be convinced that, through the intermediary of sellers or borrowers, it will go to support industry just as surely as if Ariste, following the example of his brother, had exchanged it for furniture, jewels, and horses.
For when Ariste buys for ten thousand francs pieces of land or bonds, he does so because he feels he does not need to spend this sum. This seems to be what you hold against him.

But, by the same token, the person who sells the piece of land or the mortgage is going to have to spend in some way the ten thousand francs he receives.
So that the spending is done in either case, whether by Ariste or by those who are substituted for him.
From the point of view of the working class and of the support given to industry, there is, then, only one difference between the conduct of Ariste and that of Mondor. The spending of Mondor is directly accomplished by him and around him; it is seen. That of Ariste, being carried out partly by intermediaries and at a distance, is not seen. But in fact, for anyone who can connect effects to their causes, that which is not seen is every bit as real as that which is seen. What proves it is that in both cases the moneycirculates, and that no more of it remains in the coffers of the wise brother than in those of the prodigal.
It is therefore false to say that thrift does actual harm to industry. In this respect it is just as beneficial as luxury.
But how superior it appears, if our thinking, instead of confining itself to the passing hour, embraces a long period of time!

Ten years have gone by. What has become of Mondor and his fortune and his great popularity? It has all vanished. Mondor is ruined; far from pouring fifty thousands francs into the economy every year, he is probably a public charge. In any case he is no longer the joy of the shopkeepers; he is no longer considered a promoter of the arts and of industry; he is no longer any good to the workers, nor to his descendants, whom he leaves in distress.
At the end of the same ten years Ariste not only continues to put all of his income into circulation, but he contributes increasing income from year to year. He adds to the national capital, that is to say, the funds that provide wages; and since the demand for workers depends on the extent of these funds, he contributes to the progressive increase of remuneration of the working class. Should he die, he will leave children who will replace him in this work of progress and civilization.
Morally, the superiority of thrift over luxury is incontestable. It is consoling to think that, from the economic point of view, it has the same superiority for whoever, not stopping at the immediate effects of things, can push his investigations to their ultimate effects.

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