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 Crœsus, 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.