Dearness Cheapness

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

the 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

expectations.



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

scarcity.



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

and demand.



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

the demand.



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

them.



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

prosperous.



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

prices?



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

principle.



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.