Harmonies of Political Economy / Translated from the Third French Edition, with a Notice of the Life and Writings of the Author

by Frédéric Bastiat

Observe, too, that as yet mankind, with the exception of the inventor, have gained nothing unless virtually, and in perspective, so to speak, since in order to procure the commodity x, each acquirer must make a sacrifice equal to the former cost.

Now, however, the invention enters its second phase—that of imitation. Excessive remuneration awakens covetousness. The new process is more generally adopted; the price of the commodity x continues to fall, and the remuneration goes on diminishing in proportion as the imitation becomes more distant in date from the original invention, that is to say, in proportion as it becomes more easy, and for that reason less meritorious. Surely there is nothing in all this that cannot be avowed by a legislation the most advanced and the most impartial.

At length the invention reaches its third phase, its final stage, that of universal diffusion, when it becomes common and gratuitous. The cycle has been completed when Competition has brought back the remuneration of the producers of x to the general and normal rate yielded by all analogous work. Then the nine-tenths of the labour, which by the hypothesis we supposed to be saved by the invention, become an acquisition to mankind at large. The utility of the commodity x remains the same; but nine-tenths of that commodity are now the product of gravitation, a force which was formerly common to all in principle, but has now become common to all in this special application. So true is this, that all the consumers of that commodity throughout the world may now acquire it with one-tenth of the labour which it formerly cost. The surplus labour has been entirely annihilated by the new process.

If we consider that there is no human invention which has not described this circle, that x is here an algebraical sign which represents corn, clothing, books, ships,—in the production of which an [p301] incalculable amount of Labour or Value has been annihilated, by the plough, the spinning-jenny, the printing-press, and the sail; that this observation is applicable to the humblest of tools as well as to the most complicated mechanism, to the nail, the wedge, the lever, as well as to the steam-engine and the electric telegraph, we shall come, I trust, to understand the solution of this grand problem of human society, that an amount of utility and enjoyment, always greater, and more and more equally distributed, comes to remunerate each determinate quantity of human labour.

3. I have shown how Competition brings into the domain of the common and gratuitous both natural agents and the processes by which they are made operative. It remains to show that Competition executes the same function with reference to the instruments by means of which we set these agents to work. It is not enough that there should exist in nature a force, such as heat, light, gravitation, electricity; it is not enough that intelligence conceives the means of making that force available;—there must be instruments to realize this conception of the mind, and provisions to maintain those who devote themselves to it during the operation.

As regards remuneration, there is a third circumstance which favours a man, or a class of men, namely, the possession of Capital. The man who has in his hands the tools necessary for labour, the materials to work upon, and the provisions for his subsistence during the operation, is in a situation to determine his own remuneration. The principle of this is equitable, for capital is only anterior labour which has not yet been remunerated. The capitalist is in a good position to impose terms; but observe that, even when free from Competition, there is a limit which his demands never can exceed—this limit is the point at which his remuneration would absorb all the advantages of the service which he renders. In these circumstances, it is unreasonable to talk, as is so often done, of the tyranny of capital, seeing that even in the most extreme cases neither its presence nor its absence can injure the condition of the labourer. Like the inhabitant of the tropics, who has an intensity of heat at his disposal which nature has denied to colder regions—or like the inventor, who possesses the secret of a process unknown to other men—all that the capitalist can say is: “Would you profit by my labour—I set such a price upon it; if you find it too high, do as you have done hitherto—do without it.”

But Competition takes place among capitalists. Tools, materials, and provisions, contribute to the creation of utilities only [p302] when employed. There is an emulation, then, among capitalists to find employment for their capital. All that this emulation forces them to abate from the extreme demand, of which I have just assigned the limits, resolving itself into a reduction of the price of the commodity, is so much clear profit, so much gratuitous gain, for the consumer, that is to say, for mankind.

This gain, however, can clearly never be absolutely gratuitous; for, since capital represents labour, that capital must always possess in itself the principle of remuneration.

Transactions relative to Capital are subject to the universal law of exchanges; and exchanges take place only because there is an advantage for the two contracting parties in effecting them,—an advantage which has no doubt a tendency to be equalized, but which accidentally may be greater for the one than for the other. There is a limit to the remuneration of capital, beyond which limit no one will consent to borrow it. This limit is the minimum of service for the borrower. In the same way, there is a limit beyond which no one will consent to lend, and this limit is the minimum of remuneration for the lender. This is self-evident. If the requirements of one of the contracting parties are pushed so far as to reduce to zero the benefit to be derived by the other from the transaction, the loan becomes impossible. The remuneration of capital oscillates between these two extreme terms, pressed towards the maximum by the Competition of borrowers, brought back towards the minimum by the Competition of lenders; so that, by a necessity which is in harmony with justice, it rises when capital is scarce, and falls when it is abundant.

Many Economists imagine that the number of borrowers increases more rapidly than it is possible to create capital to lend to them, whence it would follow that the natural tendency of interest is to rise. The fact is decidedly the other way, and on all sides accordingly we perceive civilisation lowering the return for capital. This return, it is said, is 30 or 40 per cent. at Rome, 20 per cent. in Brazil, 10 per cent. in Algeria, 8 per cent. in Spain, 6 per cent. in Italy, 5 per cent. in Germany, 4 per cent. in France, 3 per cent. in England, and still less in Holland. Now all that part of the return for capital which is annihilated by progress, although lost to the capitalist, is not lost to mankind. If interest, originally at 40 per cent., is reduced to 2 per cent., all commodities will be freed from 38 parts in 40 of this element of cost. They will reach the consumer freed from this charge to the extent of nineteen-twentieths. This is a force which, like natural agents, like expeditive processes, resolves itself into abundance, equalization, [p303] and, finally, into an elevation of the general level of the human race.