I consider it my duty to say a few words in regard to the delusion
caused by the words dear and cheap. At the first glance, I am aware,
you may be disposed to find these remarks somewhat subtile, but whether
subtile or not, the question is whether they are true. For my part I
consider them perfectly true, and particularly well adapted to cause
reflection among a large number of those who cherish a sincere faith in
fficacy of protection.
Whether advocates of free trade or defenders of protection, we are all
obliged to make use of the expression dearness and cheapness. The
former take sides in behalf of cheapness, having in view the interests
of consumers. The latter pronounce themselves in favor of dearness,
preoccupying themselves solely with the interests of the producer.
Others intervene, saying, producer and consumer are one and the same,
which leaves wholly undecided the question whether cheapness or dearness
ought to be the object of legislation.
In this conflict of opinion it seems to me that there is only one
position for the law to take--to allow prices to regulate themselves
naturally. But the principle of let alone has obstinate enemies. They
insist upon legislation without even knowing the desired objects of
legislation. It would seem, however, to be the duty of those who wish to
create high or low prices artificially, to state, and to substantiate,
the reasons of their preference. The burden of proof is upon them.
Liberty is always considered beneficial until the contrary is proved,
and to allow prices naturally to regulate themselves is liberty. But the
roles have been changed. The partisans of high prices have obtained a
triumph for their system, and it has fallen to defenders of natural
prices to prove the advantages of their system. The argument on both
sides is conducted with two words. It is very essential, then, to
understand their meaning.
It must be granted at the outset that a series of events have happened
well calculated to disconcert both sides.
In order to produce high prices the protectionists have obtained high
tariffs, and still low prices have come to disappoint their
In order to produce low prices, free traders have sometimes carried
their point, and, to their great astonishment, the result in some
instances has been an increase instead of a reduction in prices.
For instance, in France, to protect farmers, a law was passed imposing a
duty of twenty-two per cent. upon imported wools, and the result has
been that native wools have been sold for much lower prices than before
the passage of the law.
In England a law in behalf of the consumers was passed, exempting
foreign wools from duty, and the consequence has been that native wools
have sold higher than ever before.
And this is not an isolated fact, for the price of wool has no special
or peculiar nature which takes it out of the general law governing
prices. The same fact has been reproduced under analogous circumstances.
Contrary to all expectation, protection has frequently resulted in low
prices, and free trade in high prices. Hence there has been a deal of
perplexity in the discussion, the protectionists saying to their
adversaries: These low prices that you talk about so much are the
result of our system; and the free traders replying: Those high prices
which you find so profitable are the consequence of free trade.
There evidently is a misunderstanding, an illusion, which must be
dispelled. This I will endeavor to do.
Suppose two isolated nations, each composed of a million inhabitants;
admit that, other things being equal, one nation had exactly twice as
much of everything as the other--twice as much wheat, wine, iron, fuel,
books, clothing, furniture, etc. It will be conceded that one will have
twice as much wealth as the other.
There is, however, no reason for the statement that the absolute
prices are different in the two nations. They possibly may be higher in
the wealthiest nation. It may happen that in the United States
everything is nominally dearer than in Poland, and that, nevertheless,
the people there are less generally supplied with everything; by which
it may be seen that the abundance of products, and not the absolute
price, constitutes wealth. In order, then, accurately to compare free
trade and protection the inquiry should not be which of the two causes
high prices or low prices, but which of the two produces abundance or
For observe this: Products are exchanged, the one for the other, and a
relative scarcity and a relative abundance leave the absolute price
exactly at the same point, but not so the condition of men.
Let us look into the subject a little further.
Since the increase and the reduction of duties have been accompanied by
results so different from what had been expected, a fall of prices
frequently succeeding the increase of the tariff, and a rise sometimes
following a reduction of duties, it has become necessary for political
economy to attempt the explanation of a phenomenon which so overthrows
received ideas; for, whatever may be said, science is simply a faithful
exposition and a true explanation of facts.
This phenomenon may be easily explained by one circumstance which should
never be lost sight of.
It is that there are two causes for high prices, and not one merely.
The same is true of low prices. One of the best established principles
of political economy is that price is determined by the law of supply
The price is then affected by two conditions--the demand and the supply.
These conditions are necessarily subject to variation. The relations of
demand to supply may be exactly counterbalanced, or may be greatly
disproportionate, and the variations of price are almost interminable.
Prices rise either on account of augmented demand or diminished supply.
They fall by reason of an augmentation of the supply or a diminution of
Consequently there are two kinds of dearness and two kinds of
cheapness. There is a bad dearness, which results from a diminution of
the supply; for this implies scarcity and privation. There is a good
dearness--that which results from an increase of demand; for this
indicates the augmentation of the general wealth.
There is also a good cheapness, resulting from abundance. And there is a
baneful cheapness--such as results from the cessation of demand, the
inability of consumers to purchase.
And observe this: Prohibition causes at the same time both the dearness
and the cheapness which are of a bad nature; a bad dearness, resulting
from a diminution of the supply (this indeed is its avowed object), and
a bad cheapness, resulting from a diminution of the demand, because it
gives a false direction to capital and labor, and overwhelms consumers
with taxes and restrictions.
So that, as regards the price, these two tendencies neutralize each
other; and for this reason, the protective system, restricting the
supply and the demand at the same time, does not realize the high
prices which are its object.
But with respect to the condition of the people, these two tendencies do
not neutralize each other; on the contrary, they unite in impoverishing
The effect of free trade is exactly the opposite. Possibly it does not
cause the cheapness which it promises; for it also has two tendencies,
the one towards that desirable form of cheapness resulting from the
increase of supply, or from abundance; the other towards that dearness
consequent upon the increased demand and the development of the general
wealth. These two tendencies neutralize themselves as regards the mere
price; but they concur in their tendency to ameliorate the condition of
mankind. In a word, under the protective system men recede towards a
condition of feebleness as regards both supply and demand; under the
free trade system, they advance towards a condition where development is
gradual without any necessary increase in the absolute prices of things.
Price is not a good criterion of wealth. It might continue the same when
society had relapsed into the most abject misery, or had advanced to a
high state of prosperity.
Let me make application of this doctrine in a few words: A farmer in the
south of France supposes himself as rich as Croesus, because he is
protected by law from foreign competition. He is as poor as Job--no
matter, he will none the less suppose that this protection will sooner
or later make him rich. Under these circumstances, if the question was
propounded to him, as it was by the committee of the Legislature, in
these terms: Do you want to be subject to foreign competition? yes or
no, his first answer would be No, and the committee would record his
reply with great enthusiasm.
We should go, however, to the bottom of things. Doubtless foreign
competition, and competition of any kind, is always inopportune; and, if
any trade could be permanently rid of it, business, for a time, would be
But protection is not an isolated favor. It is a system. If, in order to
protect the farmer, it occasions a scarcity of wheat and of beef, in
behalf of other industries it produces a scarcity of iron, cloth, fuel,
tools, etc.--in short, a scarcity of everything.
If, then, the scarcity of wheat has a tendency to increase the price by
reason of the diminution of the supply, the scarcity of all other
products for which wheat is exchanged has likewise a tendency to
depreciate the value of wheat on account of a falling off of the demand;
so that it is by no means certain that wheat will be a mill dearer under
a protective tariff than under a system of free trade. This alone is
certain, that inasmuch as there is a smaller amount of everything in the
country, each individual will be more poorly provided with everything.
The farmer would do well to consider whether it would not be more
desirable for him to allow the importation of wheat and beef, and, as a
consequence, to be surrounded by a well-to-do community, able to consume
and to pay for every agricultural product.
There is a certain province where the men are covered with rags, dwell
in hovels, and subsist on chestnuts. How can agriculture flourish there?
What can they make the earth produce, with the expectation of profit?
Meat? They eat none. Milk? They drink only the water of springs. Butter?
It is an article of luxury far beyond them. Wool? They get along without
it as much as possible. Can any one imagine that all these objects of
consumption can be thus left untouched by the masses, without lowering
That which we say of a farmer, we can say of a manufacturer.
Cloth-makers assert that foreign competition will lower prices owing to
the increased quantity offered. Very well, but are not these prices
raised by the increase of the demand? Is the consumption of cloth a
fixed and invariable quantity? Is each one as well provided with it as
he might and should be? And if the general wealth were developed by the
abolition of all these taxes and hindrances, would not the first use
made of it by the population be to clothe themselves better?
Therefore the question, the eternal question, is not whether protection
favors this or that special branch of industry, but whether, all things
considered, restriction is, in its nature, more profitable than freedom?
Now, no person can maintain that proposition. And just this explains the
admission which our opponents continually make to us: You are right on
If that is true, if restriction aids each special industry only through
a greater injury to the general prosperity, let us understand, then,
that the price itself, considering that alone, expresses a relation
between each special industry and the general industry, between the
supply and the demand, and that, reasoning from these premises, this
remunerative price (the object of protection) is more hindered than
favored by it.