Bastiat

The French Connection: The Consequences of Frederic Bastiat Introduction Revolutions are trapped in them. Entire societies fall into their traps. And it was a lone French pamphleteer, Claude Frederic Bastiat, who set out to pave over those economic pitfalls and raze the fallacies that spanned the empires. Bob McTeer, former president and CEO of the Federal Reserve Bank of Dallas, put it best in his 2002 speech, “Why Bastiat is My Hero,” paraphrasing economist Henry George: “Protectionists want to do to in peacetime what the country’s enemies want to do to it in wartime.” For this purpose, we will limit these economic fallacies to those that Bastiat first pointed out with success in his essay “What is Seen and What is Not Seen.” We then follow with some of the inferences Bastiat was able to make from his thinking. The Economics of Candle Making Now for sure, there has been much written on economic fallacies, but Bastiat made them accessible to ordinary readers (Blaug, 1986, p. 15). A good start is to understand what an economic fallacy is. The term was available in Bastiat’s time, so we take it from his “What is Seen …” essay in which he describes “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen” (Selected Essays on Political Economy, 1845/1965, p. 1). As Karl Marx was divining his conflict between the proletariat and the bourgeoisie, Bastiat was writing in Economic Harmonies, first published in the last year of his life, of the inherent convergence of people when operating in an environment of property rights (Blaug, 1986, p. 15). The trailblazing works of Bastiat, the one-time lawmaker who fancied himself as an economist to the masses, are not entirely unknown to most students (p. 14). Among his most popular works is the satirical candlemakers petition to outlaw the Sun on behalf of “Generally of Everything Connected with Lighting” in order to protect from a “foreign rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price” (Bastiat, 1849/1965, pp. 2-3). His remedy? Close all the windows in the city to not allow any ruinous competition from “foreign” light, namely, the Sun. He begins the essay with his famous Broken Window fallacy, which is a story of local residents (falsely) coming around to praise a young shopkeeper’s son for breaking a pane of glass at his father’s shop. In their silver lining for the vandalism, Bastiat writes, the spectators have only taken into account two parties, the storekeeper and the glassmaker who will benefit from the new business. But Bastiat raises the awareness of the missing player, “the shoemaker (or some other tradesman), whose labour suffers proportionably by the same cause. It is this third person who is always kept in the shade, and who, personating that which is not seen, is a necessary

element of the problem.” The Broken Window fallacy takes its disguise in natural disasters, material destruction and war—to name a few (pp. 2-3). The second fallacy Bastiat takes in his “What is Seen …” essay is on the disbanding of troops and, consequently, the supposed benefits of war. As Bastiat points out again, the objection to releasing troops from their obligation is that it will further traumatize the job market by flooding the labor pool. And in return for their service, the fallacy states, troops spur economic activity by requesting supplies to fill their garrisons. Bastiat has the insight that the arguments in favor of keeping the troops mobilized is “not for the services rendered by the army, but for economic ideas. It is these considerations alone that I propose to refute” (p. 4). But, as the saying goes, what is not seen? The taxes being used to support those troops are “coming from the pocket of the taxpayers” and “cease to provide a living for these taxpayers and their suppliers ...” (pp. 4-5). New economic activity is not created, but simply shifted from one person to another. Ideas Come to Life Following the wake of Hurricane Isabel in 2003, National Oceanic and Atmospheric research meteorologist Frank Marks, in a failed attempt at contrarian’s logic, argued that the destruction would be good for the economy. “A lot of money gets spent and it flows through the community for years,” he said in his story “The Bright Side of Hurricanes” (Marks, 2003). Yet, the riches used for repair must first be diverted from higher order needs to those of rebuilding a house and the like. The labor isn’t idle before the disaster, but rather directed toward creating some other good or service. Certainly, Bastiat’s ideas haven’t won over all his protectionist foes, as was seen on the bicentennial ceremony of his birth in 2001. Anti-Globalizers and wine makers protested the ceremony, calling for increased subsidies to compete with cheaper imported wine. As France’s forgotten son is noted as saying in Economic Harmonies, “The plans differ; the planners are all alike ...” (Bastiat, 1996a, para 83). Take the most recent presidential election cycles. The most heated debates have centered on foreign policy. But when it comes to domestic issues, there is a near universal clamoring against “outsourcing” (Chidanand, 2008). That ominous term is used to describe a millennia-old practice of hiring people who work more cheaply or efficiently than domestic labor (Hazlitt, 1946/1979, p. 86). Bastiat tackled this issue 150 years before in his Economic Sophisms. In it, he recognizes the cord of the protectionist discomfort. “They charge it with encouraging foreigners who are more skillful than we are … to produce things that, in the absence of free trade, we should produce ourselves. In short, they accuse it of injuring domestic labor” (1996b, para 3). But Bastiat questions why there is no same call to abolish machinery. “If, therefore, it is expedient to protect domestic labor from the competition of foreign labor, it is no less expedient to protect human labor from the competition of mechanical labor.” The protectionists neglect the harm to the unknown laborers who would have been employed and the ultimate consumers of those goods produced. Conclusion His most potent tool was satire, as even his most ardent critics confide. “As an economic theorist, he was third-rate, but as a populist of economic ideas, employing satire and

irony with the skills of Daniel Defoe or George Bernard Shaw, he has no equal in the history of economic thought” (Blaug, 1986, p. 15). Bastiat never lived to see just what an impact his work would become, as quite literally he survived the first half of the 19th century. McTeer retold in his speech maybe the greatest lesson of Bastiat is the insight of appreciating the seen as well as the unseen, which by comparison he called the difference between “the truth and the half-truth, the short run and the long run.” It is easy to relinquish responsibility and rest hopes for economic growth with short-sided circumventions of the economy. Bastiat's insights should nag at our conscious, lest these hardships may worsen.

References Bastiat, F. (1965). Selected essays on political economy. (S. Cain, Trans. G. B. Huszar, Ed.). New York: Van Nostrand. (Original Work Published 1849) Bastiat, F. (1996a ) Economic harmonies. Library of Economics and Liberty. Retrieved February 2, 2005, from http://www.econlib.org/library/Bastiat/basHar1.html. Bastiat, F. (1996b) Economic sophisms. Library of Economics and Liberty. Retrieved February 2, 2005, from http://www.econlib.org/library/Bastiat/basSoph4.html. Blaug, M. (1986). Great economists before Keynes. New York: Cambridge University Press. Hazlitt, H. (1979). Economics in one lesson. New York: Three Rivers Press. (Original Work Published 1946) Marks, F. (2003, September 19). “The bright side of hurricanes.” Retrieved February 2, 2005, from http://msnbc.msn.com/news/968884.asp?0cv=ca00. McTeer, B. (Speaker). (February 24, 2002). Why Bastiat is my hero. Montreal Economic Institute. Rajghatta, Chidanand (2008, June 10). “Obama or McCain: How will job outsourcing be affected?” Retrieved January 21, 2009, from http://economictimes.indiatimes.com/ Obama_or_McCain_How_will_job_outsourcing_be_affected/articleshow/3117510.cms