Should Public Policy Support Abundance or Scarcity?: Frederic Bastiat knew, we should, but we apparently don’t.

schenectady_libertyWith sincere apologies to Frederic Bastiat…

Are we better off with more options or less? More food, water, clothing, housing or less of  those things?

The answer is obvious: abundance is in the interest of people. But there is some confusion about how we accomplish the goal of abundance. The public policies being promoted by the Trump administration and supported by the people at large lead to scarcity instead. Why would we do that? Frederic Bastiat had the answer more than 200 years ago and it is as applicable today as it was then.

In the first chapter of his work, Economic Sophisms, Bastiat poses the question, “Which is preferable for man and for society, abundance or scarcity?” Anyone but a Luddite would agree that society is better off with more, rather than less food, water, clothing, housing, etc. Choices, even beyond the necessities of life are synonymous with a growing, successful society. No one could sensibly argue that it is in the interest of a man or of society that he struggle against shortages and high costs to achieve the things that make life better as long as the opposite is possible.

Bastiat contrasts two theories for satisfying the interest of society, the theory of scarcity and the theory of abundance.

The most popular then, and I suggest now as well is the theory of scarcity: a worker becomes richer in proportion as he sells his labor more expensively. He sells his labor more expensively as the commodity he produces is scarce. Scarcity enriches him.

Applied generally to all workers, we can deduce that all workers will be enriched by artificially inducing more scarcity in what they produce. This scarcity is the result of higher prices. This will enrich all workers. You can apply the same theory to producers of any kind, not just laborers. What you are left with is the theory of scarcity logically acceptable.

Just how do we go about creating this scarcity in what is produced? In Bastiat’s time, people were known to destroy tools that were invented to increase efficiency. The increase in efficiency meant fewer people were needed to get the same amount of work done. Or, more production occurred in the same amount of time-and increase in goods available for sale. Tariffs were placed on imported goods in order to protect domestic jobs. Pleas that “they will dump their goods on our shores and ship all of our money back to their ports” was common. Deliberate interference in markets either by the State or by the workers themselves with the goal of limiting or reducing the amount of goods produced was (and is) the accepted method for enriching society.

But what of abundance? Did we not agree that abundance of goods is what is in the interest of society? The most sensible, but unfortunately least popular theory, the theory of abundance posits that the consumer becomes richer in proportion as the amount of goods available increases and is made available more cheaply. Abundance enriches him. Applied generally, society is more enriched as all goods are made more abundant and purchased at a lower cost.

How do we go about creating this abundance? By doing just the opposite of what we do to create scarcity: we encourage innovation so that tools are developed and used that increase efficiency in production. By opening up the borders to as much trade as markets will bear. By realizing that men eat food, and use goods to enrich their lives. Abundance is created by lowering prices. If a good can be imported and sold at a lower cost than it can be produced domestically, we are fools to keep people from buying it. No one can eat the money that leaves our shores anyway.

Both syllogisms are logically correct in as far as what is stated, but they are self-contradicting. They proscribe opposite means to reach the same end. Only one can truly lead us to an enriched individual or society. We can only deduce which one if we understand how exchange works in markets.

If the entirety of society were only Robinson Crusoe, alone on an island, an understanding of exchange would not be necessary. Crusoe could consume only what he produced. If gathering water to drink for a day took two hours, he could not gather water for one hour and expect to have enough to drink. A plank needed would have to be carved from a tree in order to exist. Unless one were to wash up on shore. Would any reasonable person believe that the best way for Crusoe to enrich himself would be to kick it back into the ocean in order to protect his valuable labor? Of course not, we can all see immediately that abundance benefits Crusoe, and that the means to the end of the benefiting of society must necessarily bring abundance as well.

But none of us are Crusoe. We live in together in society. Because of the gains of the distribution of labor, each member of society is both a producer and a consumer at the same time. In fact, we produce in order to consume. But few us spend most of our productive time producing WHAT we consume. We all produce all or part of what ANOTHER consumes.  Both production and consumption must be encouraged but if we are to generate public policy that encourages a means that results in the general enrichment of society, we must look to the secret desires of those who would benefit from each of the two theories before we pick one.

The secret desires of the producer are anti-social: taken to the fullest extent, what benefits the producer would lead to no goods at all (after extreme scarcity at extremely high prices). If the producer of the world were to have complete power to make laws that promoted the theory of scarcity there would eventually be no goods produced. Producers would follow their secret desires that less and less was produced at higher and higher prices. Does that sound like the foundation of an enriched society? No goods at all?

But the secret desires of the consumer are vast amounts of goods at the lowest possible price. The secret desires of the consumer are obviously social: taken to the fullest, even if only theoretically possible completion, there would be unlimited goods available at zero cost. Who could complain about that?

Bastiat’s message to the people of France so long ago, and to us today is that it is easy to fall for the syllogisms that public policy that benefits the producers like tariffs, minimum wages, limits on technological innovation, and deliberate shortages caused by policies that pay people to not produce in order to keep supply low and prices high are not in the self-interest of the members of society. Even as we seek what would be an initial, if impermanent benefit as individuals, the end would be poverty and scarcity instead of abundance.

Thanks for reading.