High Prices and Low Prices
In this excerpt from Economic Sophisms, Bastiat dispels the notion that policymakers should attempt to attain “high” or “low” prices.
I feel it my duty to present to the reader certain—alas, theoretical—comments on the illusions to which the expressions high prices and low prices give rise. At first glance, I know, people may be inclined to consider these comments a little abstruse; but the question is, not whether they are abstruse, but whether they are true. Now, I believe that they are not only perfectly true but particularly well suited to raise some doubts in the minds of those—by no means few in number—who have a sincere faith in the efficacy of protectionism.
Whether we are advocates of free trade or proponents of restrictive measures, we are all obliged to make use of the expressions high prices and low prices. The former proclaim themselves in favor of low prices, with a view to the interests of the consumer; the latter declare themselves in favor of high prices, having regard for the interests of the producer. Others take a middle position and say: “The producer and the consumer are one and the same person”; thereby leaving it quite undecided whether the law should aim at high prices or at low.
Faced with this conflict, the law, it would seem, has only one alternative, and that is to permit price to be arrived at naturally. But then one has to meet the objections of the implacable enemies of laissez faire. They absolutely insist that the law intervene, even without knowing in what direction. Yet it is incumbent upon those who want to use the law for the purpose of creating artificially high or unnaturally low prices to explain the grounds of their preference. The burden of proof rests exclusively upon them. Hence, it follows that free trade is always to be deemed good until the contrary is proved, for free trade consists in allowing prices to be arrived at naturally.
But the roles have been reversed. The advocates of high prices have succeeded in making their system prevail, and it is incumbent upon the proponents of natural prices to prove the superiority of theirs. On both sides the argument turns on the meaning of two expressions, and it is therefore essential to ascertain just what these two expressions really mean.
But first we must call attention to a series of events that may well disconcert the champions of both camps.
In order to raise prices, the restrictionists have obtained protective tariffs; and, much to their surprise and disappointment, prices have fallen.
In order to reduce prices, the freetraders have sometimes succeeded in securing the adoption of their program, and, to their great astonishment, what followed was a rise in prices.
For example, in France, in order to favor agriculture, a duty of twenty-two per cent was imposed on foreign wool; and yet domestic wool has been selling at a lower price after the law than it did before.
In England, for the relief of the consumer, the duty on wool was reduced and finally removed entirely; and yet the price of English wool is higher than ever before.
And these are not isolated cases, for there is nothing unique about the price of wool that exempts it from the general law governing all prices. The same result is produced whenever the circumstances are analogous. Contrary to every expectation, a protective tariff has more often brought about a fall, and competition more often a rise, in commodity prices.
Then the debate reached the height of confusion with the protectionists saying to their adversaries: “It is our system that brings about these low prices of which you boast so much,” and the latter replying: “It is free trade that brings about those high prices that you find so advantageous.”
Would it not be amusing to see low prices in this way become the password in the rue Hauteville, and high prices in the rue Choiseul?
Evidently there is in all this a misunderstanding, an illusion, that needs to be dispelled, and this is what I shall now attempt to do.
Imagine two isolated nations, each containing a million inhabitants. Suppose that, other things being equal, one of them has twice as much of everything—wheat, meat, iron, furniture, fuel, books, clothing, etc.—as the other. Evidently, then, one is twice as rich as the other.
However, there is no reason to assert that money prices will differ in these two countries. They may even be higher in the richer country. It may be that in the United States everything is nominally more expensive than in Poland, and that the American people are nevertheless better provided in all respects; whence we see that what constitutes wealth is, not the money prices of goods, but their abundance. Hence, when we wish to compare protectionism and free trade, we should not ask which of the two produces low prices and which produces high prices, but which leads to abundance and which leads to scarcity.
For it should be noted that, when products are exchanged, a relative scarcity of everything and a relative abundance of everything leave the money prices of things at exactly the same point, but not the relative condition of the inhabitants of the two countries.