My wife gave me The Bastiat Collection for Christmas. It’s a fantastic two-volume set offered by the Mises Institute containing the collected works of Frederic Bastiat, a 19th century French economist. As far as I’m concerned, Bastiat represents France’s greatest contribution to mankind (with the possible exception of Sophie Marceau). If you haven’t read him before, I cannot recommend his work highly enough. Although written in the mid-1800s and translated from French, Bastiat’s style remains fresh, witty, and engaging - and he can couper par le merde like nobody’s business (I know, I know, they don’t say that in French, but you get my point).
The very first essay in the collection is Bastiat’s classic That Which Is Seen, and That Which Is Not Seen. I had read it before, of course, but as I went through it a second time, its relevance to today’s issues leaped off the page. Let’s take a look at Bastiat’s treatment of the economic issues of his day, and see if there are any 19th century lessons than can be applied to the 21st century's problems.
The Broken Window
Have you ever witnessed the anger of the good shopkeeper, John Q. Citizen, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even 30 of them, by common consent apparently, offered the unfortunate owner this invariable consolation: “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions. Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”
It is not seen that our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented.
…the glazier’s trade is encouraged to the amount of six francs: this is that which is seen. If the window had not been broken, the shoemaker’s trade (or some other) would have been encouraged to the amount of six francs: this is that which is not seen.
And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labor, is affected, whether windows are broken or not.
Now let us consider John Q. Citizen himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window. In the second, where we suppose the window not to have been broken, he would have spent six francs in shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window. Now, as John Q. Citizen forms a part of society, we must come to the conclusion that, taking it all together, and making an estimate of its enjoyments and its labors, it has lost the value of the broken window.
Whence we arrive at this unexpected conclusion: “Society loses the value of things which are uselessly destroyed;” and we must assent to a maxim which will make the hair of protectionists stand on end – to break, to spoil, to waste, is not to encourage national labor; or more briefly, “destruction is not profit.”
How many times have you heard someone claim that World War II got us out of the Great Depression? Or that the silver lining to a natural disaster like Hurricane Katrina is that it will stimulate the economy and jobs? If the claim comes from someone with an impressive-sounding title, it might be easy to forget that it’s complete nonsense. Destruction is not profit. Spending money just so we can replace those things that have been destroyed does nothing to help macroeconomic growth – it simply means we have less money to buy all the other goods and services that would go to make our lives better.
Public Works
Nothing is more natural than that a nation, after having assured itself that an enterprise will benefit the community, should have it executed by means of a general assessment. But I lose patience, I confess, when I hear this economic blunder advanced in support of such a project: “Besides, it will be a means of creating labor for the workmen.”
The State opens a road, builds a palace, straightens a street, cuts a canal, and so gives work to certain workmen – this is what is seen: but it deprives certain other workmen of work – and that is what is not seen.
The road is begun. A thousand workmen come every morning, leave every evening, and take their wages – this is certain. If the road had not been decreed, if the supplies had not been voted, these good people would have had neither work nor salary there; this also is certain.
But is this all? Does not the operation, as a whole, contain something else? At the moment when Mr. Dupin pronounces the emphatic words, “The Assembly has adopted,” do the millions descend miraculously on a moonbeam into the coffers of Misters Fould and Bineau? In order that the evolution may be complete, as it is said, must not the State organize the receipts as well as the expenditure? Must it not set its tax-gatherers and taxpayers to work, the former to gather and the latter to pay?
Study the question, now, in both its elements. While you state the destination given by the State to the millions voted, do not neglect to state also the destination which the taxpayer would have given, but cannot now give, to the same. Then you will understand that a public enterprise is a coin with two sides. Upon one is engraved a laborer at work, with this device, that which is seen; on the other is a laborer out of work, with the device, that which Is not seen.
How does President-Elect Obama’s plan to “create” three million jobs through massive public works programs look in light of Bastiat’s straightforward analysis? Keeping in mind that the government has nothing but that which it first extracts from the taxpayer, in what sense will jobs be created? Even if we were to make the outlandish assumptions that the government could precisely identify those programs that were most valued by all the members of society, and that it could provide the goods and services as cheaply as the private sector could, and that transaction costs were zero, then the most we could possibly say about the effect on employment is that it would be no better than it would have been absent any public works program at all. This is not to say that there is never a need to build roads or improve infrastructure. But we should be very skeptical when someone claims that such projects will create jobs. The government cannot create anything - the best it can do is shuffle taxpayer money around.
The Intermediaries
“What can be the use,” they [the socialists] say, “of leaving to the merchants the care of importing food from the United States and the Crimea? Why do not the State, the departments, and the towns, organize a service for provisions and a magazine for stores? They would sell at a just price, and the people, poor things, would be exempted from the tribute which they pay to free, that is, to greedy, selfish, and anarchical commerce.”
The tribute paid by the people to commerce is that which is seen. The tribute which the people would pay to the State, or to its agents, in the Socialist system, is what is not seen.
In what does this pretended tribute, which the people pay to commerce, consist? In this: that two men render each other mutual service, in all freedom, and under the pressure of competition and reduced prices.
When the hungry stomach is at Paris, and corn which can satisfy it is at Odessa, the suffering cannot cease till the corn is brought into contact with the stomach. There are three means by which this contact may be effected. First, the famished men may go themselves and fetch the corn. Second, they may leave this task to those whose trade it belongs. Third, they may club together and give the office in charge to public functionaries. Which of these three methods possesses the greatest advantages? In every time, in all countries, and the more free, enlightened, and experienced they are, men have voluntarily chosen the second. I confess that this is sufficient, in my opinion, to justify this choice. I cannot believe that mankind, as a whole, is deceiving itself upon a point which touches it so nearly.
This passage reminds me of a time not so long ago when it seemed that no one had a kind word to say about all those greedy oil companies. When prices were hovering around $4 a gallon, the talk was all about imposing a windfall profits tax or even nationalizing the entire industry. For some reason, though, I don’t hear nearly as many calls to help those same companies now that the price of gas has plummeted to below $1.50 a gallon. Keep Bastiat’s lesson in mind the next time your empty car is on 5th Street, and the gas that can satisfy it is somewhere in the Middle East. Do you want to head over to Saudi Arabia yourself, or would you rather have a greedy oil company handle that little chore for you?
Protectionism
Mr. Protectionist (it was not I who gave him this name, but Mr. Charles Dupin) devoted his time and capital to converting the ore found on his land into iron. As nature had been more lavish toward the Belgians, they furnished the French with iron cheaper than Mr. Protectionist; which means, that all the French, or France, could obtain a given quantity of iron with less labor by buying it of the honest Flemings. Therefore, guided by their own interest, they did not fail to do so; and every day there might be seen a multitude of nail-smiths, blacksmiths, cartwrights, machinists, farriers, and laborers, going themselves, or sending intermediaries, to supply themselves in Belgium. This displeased Mr. Protectionist exceedingly.
At first, it occurred to him to put an end to this abuse by his own efforts: it was the least he could do, for he was the only sufferer. “I will take my carbine,” said he; “I will put four pistols into my belt; I will fill my cartridge box; I will gird on my sword, and go thus equipped to the frontier. There, the first blacksmith, nail-smith, farrier, machinist, or locksmith, who presents himself to do his own business and not mine, I will kill, to teach him how to live.” At the moment of starting, Mr. Protectionist made a few reflections which calmed down his warlike ardor a little. He said to himself, “In the first place, it is not absolutely impossible that the purchasers of iron, my countrymen and enemies, should take this thing ill, and, instead of letting me kill them, should kill me instead; and then, even were I to call out all my servants, we should not be able to defend the passages. In short, this proceeding would cost me very dear, much more so than the result would be worth.”
Mr. Protectionist was on the point of resigning himself to his sad fate, that of being only as free as the rest of the world, when a ray of light darted across his brain. He recollected that at Paris there is a great factory of laws. “What is a law?” said he to himself. “It is a measure to which, when once it is decreed, be it good or bad, everybody is bound to conform. For the execution of the same a public force is organized, and to constitute the said public force, men and money are drawn from the whole nation. If, then, I could only get the great Parisian manufactory to pass a little law, ‘Belgian iron is prohibited,’ I should obtain the following results: The Government would replace the few valets that I was going to send to the frontier by 20,000 of the sons of those refractory blacksmiths, farriers, artisans, machinists, locksmiths, nail-smiths, and laborers. Then to keep these 20,000 custom-house officers in health and good humor, it would distribute among them 25,000,000 francs taken from these blacksmiths, nail-smiths, artisans, and laborers. They would guard the frontier much better; would cost me nothing; I should not be exposed to the brutality of the brokers; should sell the iron at my own price, and have the sweet satisfaction of seeing our great people shamefully mystified. That would teach them to proclaim themselves perpetually the harbingers and promoters of progress in Europe. Oh! It would be a capital joke, and deserves to be tried.”
So Mr. Protectionist went to the law factory. Another time, perhaps, I shall relate the story of his underhanded dealings, but now I shall merely mention his visible proceedings. He brought the following consideration before the view of the legislating gentlemen.
"Belgian iron is sold in France at ten francs, which obliges me to sell mine at the same price. I should like to sell at fifteen, but cannot do so on account of this Belgian iron, which I wish was at the bottom of the Red Sea. I beg you will make a law that no more Belgian iron shall enter France. Immediately I raise my price five francs, and these are the consequences:
"For every hundred-weight of iron that I shall deliver to the public, I shall receive fifteen francs instead of ten; I shall grow rich more rapidly, extend my traffic, and employ more workmen. My workmen and I shall spend much more freely, to the great advantage of our tradesmen for miles around. These latter, having more custom, will furnish more employment to trade, and activity on both sides will increase in the country. This fortunate piece of money, which you will drop into my strong-box, will, like a stone thrown into a lake, give birth to an infinite number of concentric circles."
Charmed with his discourse, delighted to learn that it is so easy to promote, by legislating, the prosperity of a people, the law-makers voted the restriction. "Talk of labor and economy," they said, "what is the use of these painful means of increasing the national wealth, when all that is wanted for this object is a decree?"
And, in fact, the law produced all the consequences announced by Mr. Protectionist: the only thing was, it produced others which he had not foreseen. To do him justice, his reasoning was not false, but only incomplete. In endeavoring to obtain a privilege, he had taken cognizance of the effects which are seen, leaving in the background those which are not seen. He had pointed out two personages, whereas there are three concerned in the affair. It is for us to supply this involuntary or premeditated omission.
It is true, the crown-piece, thus directed by law into Mr. Protectionist's strong-box, is advantageous to him and to those whose labor it would encourage; and if the Act had caused the pot of gold to descend from the moon, these good effects would not have been counterbalanced by any corresponding evils. Unfortunately, the mysterious gold does not come from the moon, but from the pocket of a blacksmith, or a nail-smith, or a cartwright, or a farrier, or a laborer, or a shipwright; in a word, from John Q. Citizen, who gives it now without receiving a grain more of iron than when he was paying ten francs. Thus, we can see at a glance that this very much alters the state of the case; for it is very evident that Mr. Protectionist's profit is compensated by John Q. Citizen’s loss, and all that Mr. Protectionist can do with the pot of gold, for the encouragement of national labor, John Q. Citizen might have done himself. The stone has only been thrown upon one part of the lake, because the law has prevented it from being thrown upon another.
Therefore, that which is not seen supersedes that which is seen, and at this point there remains, as the residue of the operation, a piece of injustice, and, sad to say, a piece of injustice perpetrated by the law!
This is not all. I have said that there is always a third person left in the background. I must now bring him forward, that he may reveal to us a second loss of five francs. Then we shall have the entire results of the transaction.
John Q. Citizen is the possessor of fifteen francs, the fruit of his labor. He is now free. What does he do with his fifteen francs? He purchases some article of fashion for ten francs, and with it he pays (or the intermediary pays for him) for the hundredweight of Belgian iron. After this he has five francs left. He does not throw them into the river, but (and this is what is not seen) he gives them to some tradesman in exchange for some enjoyment; to a bookseller, for instance, for Bossuet's "Discourse on Universal History."
Thus, as far as national labor is concerned, it is encouraged to the amount of fifteen francs, viz.: ten francs for the Paris article, five francs to the bookselling trade.
As to John Q. Citizen, he obtains for his fifteen francs two gratifications, viz.:
First, a hundred-weight of iron. Second, a book.
The decree is put in force. How does it affect the condition of John Q. Citizen? How does it affect the national labor?
John Q. Citizen pays every centime of his five francs to Mr. Protectionist, and therefore is deprived of the pleasure of a book, or of some other thing of equal value. He loses five francs. This must be admitted; it cannot fail to be admitted, that when restriction raises the price of things, the consumer loses the difference.
But, then, it is said, national labor is the gainer.
No, it is not the gainer; for since the Act, it is no more encouraged than it was before, to the amount of fifteen francs.
The only thing is that, since the Act, the fifteen francs of John Q. Citizen go to the metal trade, while before it was put in force, they were divided between the milliner and the bookseller.
The violence used by Mr. Protectionist on the frontier, or that which he causes to be used by the law, may be judged very differently in a moral point of view. Some persons consider that plunder is perfectly justifiable, if only sanctioned by law. But, for myself, I cannot imagine anything more aggravating. However it may be, the economical results are the same in both cases.
I love Bastiat’s ability to illustrate the simple truth that lies behind all of the nonsense. Protectionists may be better than anyone else at highlighting the obvious benefits that accrue to a privileged few while obscuring the hidden costs that must be absorbed by everyone else.
Take the latest example of protectionist nonsense from my home away from home, Bolivia. President Evo Morales has now decided to ban the import of used cars. It appears that the taxi drivers who already bought used imported cars have now determined that there are too many cabs on the streets. Therefore, they’ve lobbied Morales to outlaw the importation of the kinds of cars that might wind up on the streets with the word “TAXI” painted on them. Certainly this restriction will help the current cab drivers, but only at the expense of all the other Bolivians who either wish to own a car themselves or just want to be able to get across town as cheaply as possible. Morales, who always claims to be on the side of the poor, is siding with the cabbies. Apparently Evo believes that the best way to help the poor is to make it more expensive for them to get to work. Of course, this is the same guy who thinks that the poor are better off by being forced to buy more expensive clothes, too. He banned the importation of used garments because he felt it wasn’t “dignified” for poor Bolivians to wear gringo hand-me-downs. Much more dignified for them to go hungry, I suppose.
Machinery
"A curse on machines! Every year, their increasing power devotes millions of workmen to pauperism, by depriving them of work, and therefore of wages and bread. A curse on machines!"
This is the cry which is raised by vulgar prejudice, and echoed in the journals.
But to curse machines is to curse the spirit of humanity!
It puzzles me to conceive how any man can feel any satisfaction in such a doctrine…
…Men have a natural propensity to make the best bargain they can, when not prevented by an opposing force; that is, they like to obtain as much as they possibly can for their labor, whether advantage is obtained from a foreign producer or a skillful mechanical producer.
The theoretical objection which is made to this propensity is the same in both cases. In each case it is reproached with the apparent inactivity which it causes to labor. Now, labor rendered available, not inactive, is the very thing which determines it. And, therefore, in both cases, the same practical obstacle—force, is opposed to it also.
The legislator prohibits foreign competition, and forbids mechanical competition. For what other means can exist for arresting a propensity which is natural to all men, but that of depriving them of their liberty?
In many countries, it is true, the legislator strikes at only one of these competitions, and confines himself to grumbling at the other. This only proves one thing, that is, that the legislator is inconsistent.
We need not be surprised at this. On a wrong road, inconsistency is inevitable; if it were not so, mankind would be sacrificed. A false principle never has been, and never will be, carried out to the end.
Now for our demonstration, which shall not be a long one.
John Q. Citizen had two francs with which he paid two workmen; but it occurs to him that an arrangement of ropes and weights might be made which would diminish the labor by half. Therefore he obtains the same advantage, saves a franc, and discharges a workman.
He discharges a workman: this is that which is seen.
And seeing this only, it is said, "See how misery attends civilization; this is the way that liberty is fatal to equality. The human mind has made a conquest, and immediately a workman is cast into the gulf of pauperism. John Q. Citizen may possibly employ the two workmen, but then he will give them only half their wages, for they will compete with each other, and offer themselves at the lowest price. Thus the rich are always growing richer, and the poor, poorer. Society wants remodeling." A very fine conclusion, and worthy of the preamble.
Happily, preamble and conclusion are both false, because, behind the half of the phenomenon which is seen, lies the other half which is not seen.
The franc saved by John Q. Citizen is not seen, no more are the necessary effects of this saving.
Since, in consequence of his invention, John Q. Citizen spends only one franc on hand labor in the pursuit, of a determined advantage, another franc remains to him.
If, then, there is in the world a workman with unemployed arms, there is also in the world a capitalist with an unemployed franc. These two elements meet and combine, and it is as clear as daylight, that between the supply and demand of labor, and between the supply and demand of wages, the relation is in no way changed.
The invention and the workman paid with the first franc now perform the work which was formerly accomplished by two workmen. The second workman, paid with the second franc, realizes a new kind of work.
What is the change, then, which has taken place? An additional national advantage has been gained; in other words, the invention is a gratuitous triumph—a gratuitous profit for mankind.
From the form which I have given to my demonstration, the following inference might be drawn: "It is the capitalist who reaps all the advantage from machinery. The working class, if it suffers only temporarily, never profits by it, since, by your own showing, they displace a portion of the national labor, without diminishing it, it is true, but also without increasing it."
I do not pretend, in this slight treatise, to answer every objection; the only end I have in view, is to combat a vulgar, widely spread, and dangerous prejudice. I want to prove that a new machine only causes the discharge of a certain number of hands, when the remuneration which pays them is abstracted by force. These hands and this remuneration would combine to produce what it was impossible to produce before the invention; whence it follows, that the final result is an increase of advantages for equal labor.
Who is the gainer by these additional advantages?
First, it is true, the capitalist, the inventor; the first who succeeds in using the machine; and this is the reward of his genius and courage. In this case, as we have just seen, he effects a saving upon the expense of production, which, in whatever way it may be spent (and it always is spent), employs exactly as many hands as the machine caused to be dismissed.
But soon competition obliges him to lower his prices in proportion to the saving itself; and then it is no longer the inventor who reaps the benefit of the invention-it is the purchaser of what is produced, the consumer, the public, including the workman; in a word, mankind.
And that which is not seen is, that the saving thus procured for all consumers creates a fund whence wages may be supplied, and which replaces that which the machine has exhausted.
Thus, to recur to the aforementioned example, John Q. Citizen obtains a profit by spending two francs in wages. Thanks to his invention, the hand labor costs him only one franc. So long as he sells the thing produced at the same price, he employs one workman less in producing this particular thing, and that is what is seen; but there is an additional workman employed by the franc that John Q. Citizen has saved. This is that which is not seen.
When, by the natural progress of things, John Q. Citizen is obliged to lower the price of the thing produced by one franc, then he no longer realizes a saving; then he has no longer a franc to dispose of to procure for the national labor a new production. But then another gainer takes his place, and this gainer is mankind. Whoever buys the thing he has produced, pays a franc less, and necessarily adds this saving to the fund of wages; and this, again, is what is not seen.
Alright, so there aren’t too many people these days arguing the Luddite position against machines (although you might be surprised). But now try re-reading the passage above, and replace any reference to machinery with “illegal immigrants.”
Although there are obviously other issues involved with illegal immigration, the economic benefits that come from reducing production costs are the same regardless of whether those costs are reduced as a result of improved technology or through the use of cheaper labor. The consumer benefits from lower prices, which frees up money to enable demand for additional goods and services, which in turn increases the demand for labor. Although there are certainly disruptions involved whenever someone loses a job, that labor unit is not lost forever – it is released from one use to be utilized in another.
Credit
In all times, but more especially of late years, attempts have been made to extend wealth by the extension of credit.
I believe it is no exaggeration to say that since the revolution of February, the Parisian presses have issued more than 10,000 pamphlets, advocating this solution of the social problem.
The only basis, alas! of this solution, is an optical illusion—if, indeed, an optical illusion can be called a basis at all.
The first thing done is to confuse cash with products, then paper money with cash; and from these two confusions it is pretended that a reality can be drawn.
It is absolutely necessary in this question to forget money, coin, bills, and the other instruments by means of which products pass from hand to hand. Our business is with the products themselves, which are the real objects of the loan; for when a farmer borrows fifty francs to buy a plow, it is not, in reality, the fifty francs that are lent to him, but the plow; and when a merchant borrows 20,000 francs to purchase a house, it is not the 20,000 francs that he owes, but the house. Money only appears for the sake of facilitating the arrangements between the parties.
Peter may not be disposed to lend his plow, but James may be willing to lend his money. What does William do in this case? He borrows money of James, and with this money he buys the plow of Peter.
But, in point of fact, no one borrows money for the sake of the money itself; money is only the medium by which to obtain possession of products. Now, it is impossible in any country to transmit from one person to another more products than that country contains.
Whatever may be the amount of cash and of paper which is in circulation, the whole of the borrowers cannot receive more plows, houses, tools, and supplies of raw material, than the lenders all together can furnish; for we must take care not to forget that every borrower supposes a lender, and that what is once borrowed implies a loan.
This granted, what advantage is there in institutions of credit? It is, that they facilitate, between borrowers and lenders, the means of finding and treating with each other; but it is not in their power to cause an instantaneous increase of the things to be borrowed and lent. And yet they ought to be able to do so, if the aim of the reformers is to be attained, since they aspire to nothing less than to place plows, houses, tools, and provisions in the hands of all those who desire them.
And how do they intend to effect this?
By making the State security for the loan.
Let us try and fathom the subject, for it contains something which is seen, and also something which is not seen. We must endeavor to look at both.
We will suppose that there is but one plow in the world, and that two farmers apply for it.
Peter is the possessor of the only plow which is to be had in France; John and James wish to borrow it. John, by his honesty, his property, and good reputation, offers security. He inspires confidence; he has credit. James inspires little or no confidence. It naturally happens that Peter lends his plow to John.
But now, according to the Socialist plan, the State interferes, and says to Peter, "Lend your plow to James, I will be security for its return, and this security will be better than that of John, for he has no one to be responsible for him but himself; and I, although it is true that I have nothing, dispose of the fortune of the tax-payers, and it is with their money that, in case of need, I shall pay you the principal and interest." Consequently, Peter lends his plow to James: this is what is seen.
And the Socialists rub their hands, and say, "See how well our plan has answered. Thanks to the intervention of the State, poor James has a plow. He will no longer be obliged to dig the ground; he is on the road to make a fortune. It is a good thing for him, and an advantage to the nation as a whole."
Indeed, it is no such thing; it is no advantage to the nation, for there is something behind which is not seen.
It is not seen, that the plow is in the hands of James, only because it is not in those of John.
It is not seen, that if James farms instead of digging, John will be reduced to the necessity of digging instead of farming.
That, consequently, what was considered an increase of loan, is nothing but a displacement of loan. Besides, it is not seen that this displacement implies two acts of deep injustice.
It is an injustice to John, who, after having deserved and obtained credit by his honesty and activity, sees himself robbed of it.
It is an injustice to the taxpayers, who are made to pay a debt which is no concern of theirs.
Will any one say, that Government offers the same facilities to John as it does to James? But as there is only one plow to be had, two cannot be lent. The argument always maintains that, thanks to the intervention of the State, more will be borrowed than there are things to be lent; for the plow represents here the bulk of available capital.
It is true, I have reduced the operation to the most simple expression of it, but if you submit the most complicated Government institutions of credit to the same test, you will be convinced that they can have but one result; viz., to displace credit, not to augment it. In one country, and in a given time, there is only a certain amount of capital available, and all is employed. In guaranteeing the non-payers, the State may, indeed, increase the number of borrowers, and thus raise the rate of interest (always to the prejudice of the taxpayer), but it has no power to increase the number of lenders, and the importance of the total of the loans.
Who could have imagined that an economist living in France 150 years ago would be able to predict the US subprime mortgage crisis brought about by government intervention in the real estate market, including the Fed’s loose monetary policy, the New Deal creations of Fannie Mae and Freddie Mac, and the Community Reinvestment Act of 1977?
Could someone please send a copy of The Bastiat Collection to Barney Frank? I’m still reading mine…
