Money, again

Last time, I wrote a post about Mises and money. This post is about money according to Frederic Bastiat. I found an essay at bastiat.org; the website is a good resource as far as Bastiat’s works are concerned. You can either read the html version or download it from Mises.org – “What is Money?”(pdf). And also read Mark Thornton’s explanation of Bastiat’s views on money.

The essay is a dialog between an economist, F-something, and Bastiat. “Hateful money! Hateful money!” F-something cries out, and Bastiat is surprised. So he asks a few questions and then says-

You, too, are the inventor of a social reorganization — of the F—-system, in fact. Your society is to be more perfect than that of Sparta, and, therefore, all money is to be rigidly banished from it. And the thing that troubles you is, how to persuade your people to throw away the contents of their purses. What would you have? This is the rock on which all reorganizers split. There is not one but would do wonders, if he could contrive to overcome all resisting influences, and if all mankind would consent to become soft wax in his fingers; but men are resolved not to be soft wax; they listen, applaud, or reject and — go on as before.

Not the case. Then “you must be a disciple of [the “all property is theft” anarchist] Proudhon.” No. Then what?
F-something explains-

I cry out against money, just because everybody confounds it, as you did just now, with riches, and that this confusion is the cause of errors and calamities without number. I cry out against it because its function in society is not understood, and very difficult to explain. I cry out against it because it jumbles all ideas, causes the means to be taken for the end, the obstacle for the cause, the alpha for the omega; because its presence in the world, though in itself beneficial, has, nevertheless, introduced a fatal notion, a perversion of principles, a contradictory theory, which, in a multitude of forms, has impoverished mankind and deluged the earth with blood. I cry out against it, because I feel that I am incapable of contending against the error to which it has given birth, otherwise than by a long and fastidious dissertation to which no one would listen. Oh! if I could only find a patient and benevolent listener!

A listener is available – Bastiat. So they continue-

F. Suppose, again, that you were perfectly convinced of this, — that wealth consists solely and exclusively of money, to what conclusion would you come?
B. I should conclude that there was no other means for me to enrich my people, or for them to enrich themselves, but to draw away the money from other nations.
F. That is to say, to impoverish them. The first conclusion, then, to which you would arrive would be this, — a nation can only gain when another loses.
B. This axiom has the authority of Bacon and Montaigne.
F. It is not the less sorrowful for that, for it implies — that progress is impossible. Two nations, no more than two men, cannot prosper side by side.
B. It would seem that such is the result of this principle.
F. And as all men are ambitious to enrich themselves, it follows that all are desirous, according to a law of Providence, of ruining their fellow-creatures.
B. This is not Christianity, but it is political economy.
F. Such a doctrine is detestable. But, to continue, I have made you an absolute king. You must not be satisfied with reasoning, you must act. There is no limit to your power. How would you treat this doctrine — wealth is money?
B. It would be my endeavor to increase, incessantly, among my people the quantity of money.
F. But there are no mines in your kingdom. How would you set about it? What would you do?
B. I should do nothing: I should merely forbid, on pain of death, that a single dollar should leave the country.
F. And if your people should happen to be hungry as well as rich?
B. Never mind. In the system we are discussing, to allow them to export dollars, would be to allow them to impoverish themselves.
F. So that, by your own confession, you would force them to act upon a principle equally opposite to that upon which you would yourself act under similar circumstances. Why so?
B. Just because my own hunger touches me, and the hunger of a nation does not touch legislators.
F. Well, I can tell you that your plan would fail, and that no superintendence would be sufficiently vigilant, when the people were hungry, to prevent the dollars from going out and the grain from coming in.
B. If so, this plan, whether erroneous or not, would effect nothing; it would do neither good nor harm, and therefore requires no further consideration.
F. You forget that you are a legislator. A legislator must not be disheartened at trifles, when he is making experiments on others. The first measure not having succeeded, you ought to take some other means of attaining your end.
B. What end?
F. You must have a bad memory. Why, that of increasing, in the midst of your people, the quantity of money, which is presumed to be true wealth.
B. Ah! to be sure; I beg your pardon. But then you see, as they say of music, a little is enough; and this may be said, I think, with still more reason, of political economy. I must consider. But really I don’t know how to contrive —
F. Ponder it well. First, I would have you observe that your first plan solved the problem only negatively. To prevent the dollars from going out of the country is the way to prevent the wealth from diminishing, but it is not the way to increase
B. Ah! now I am beginning to see… the grain which is allowed to come in… a bright idea strikes me… the contrivance is ingenious, the means infallible; I am coming to it now.
F. Now, I, in turn, must ask you — to what?
B. Why, to a means of increasing the quantity of money.
F. How would you set about it, if you please?
B. Is it not evident that if the heap of money is to be constantly increasing, the first condition is that none must be taken from it?
F. Certainly.
B. And the second, that additions must constantly be made to it?
F. To be sure.
B. Then the problem will be solved, either negatively or positively; if on the one hand I prevent the foreigner from taking from it, and on the other I oblige him to add to it.
F. Better and better.
B. And for this there must be two simple laws made, in which money will not even be mentioned. By the one, my subjects will be forbidden to buy anything abroad; and by the other, they will be required to sell a great deal.
F. A well-advised plan.
B. Is it new? I must take out a patent for the invention.
F. You need do no such thing; you have been forestalled. But you must take care of one thing.
B. What is that?
F. I have made you an absolute king. I understand that you are going to prevent your subjects from buying foreign productions. It will be enough if you prevent them from entering the country. Thirty or forty thousand customhouse officers will do the business.
B. It would be rather expensive. But what does that signify? The money they receive will not go out of the country.
F. True; and in this system it is the grand point. But to insure a sale abroad, how would you proceed?
B. I should encourage it by prizes, obtained by means of some good taxes laid upon my people.
F. In this case, the exporters, constrained by competition among themselves, would lower their prices in proportion, and it would be like making a present to the foreigner of the prizes or of the taxes.
B. Still, the money would not go out of the country.
F. Of course. That is understood. But if your system is beneficial, the governments of other countries will adopt it. They will make similar plans to yours; they will have their custom-house officers, and reject your productions; so that with them, as with you, the heap of money may not be diminished.
B. I shall have an army and force their barriers.
F. They will have an army and force yours.
B. I shall arm vessels, make conquests, acquire colonies, and create consumers for my people, who will be obliged to eat our corn and drink our wine.
F. The other governments will do the same. They will dispute your conquests, your colonies, and your consumers; then on all sides there will be war, and all will be uproar.
B. I shall raise my taxes, and increase my custom-house officers, my army, and my navy.
F. The others will do the same.
B. I shall redouble my exertions.
F. The others will redouble theirs. In the meantime, we have no proof that you would succeed in selling to a great extent.
B. It is but too true. It would be well if the commercial efforts would neutralize each other.
F. And the military efforts also. And, tell me, are not these custom-house officers, soldiers, and vessels, these oppressive taxes, this perpetual struggle towards an impossible result, this permanent state of open or secret war with the whole world, are they not the logical and inevitable consequence of the legislators having adopted an idea, which you admit is acted upon by no man who is his own master, that “wealth is money; and to increase the amount of money is to increase wealth?”
B. I grant it. Either the axiom is true, and then the legislator ought to act as I have described, although universal war should be the consequence; or it is false; and in this case men, in destroying each other, only ruin themselves.
F. And, remember, that before you became a king, this same axiom had led you by a logical process to the following maxims: — That which one gains, another loses. The profit of one is the loss of the other: — which maxims imply an unavoidable antagonism amongst all men.
B. It is only too certain. Whether I am a philosopher or a legislator, whether I reason or act upon the principle that money is wealth, I always arrive at one conclusion, or one result: — universal war.

F-something then goes on to explain that money is not wealth. “[The ‘money is wealth’] doctrine is one of a very numerous family. The eldest, whose acquaintance we have just made, is called the prohibitive system; the next, the colonial system; the third, hatred of capital; the last and worst, paper money.”

Bastiat covers everything from fiat currency to inflation to protectionism to commodity money in a single essay, which is classic Bastiat and a must read for all the fallacies about money it demolishes. Unfortunately, we are governed by prize asses – the Keynesians, Kamal Naths and Obamas of the world – who will never recognize “money” for what it is even if it hit them in the face. Well, what’s the point worrying about them? There are better things to do; like reading the complete essay – html or pdf.

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