Saturday, August 15, 2009

Hayek on Bastiat

The great free market intellectual Friedrich Hayek (1899 - 1992) wrote the following introduction to an edition of Bastiat's selected essays:

"Even those who may question the eminence of Frédéric Bastiat as an economic theorist will grant that he was a publicist of genius. Joseph Schumpeter calls him "the most brilliant economic journalist who ever lived." For the purpose of introducing the present volume, which contains some of the most successful of his writings for the general public, we might well leave it at that. One might even grant Schumpeter's harsh assessment of Bastiat that "he was not a theorist" without seriously diminishing his stature. It is true that when, at the end of his extremely short career as a writer, he attempted to provide a theoretical justification for his general conceptions, he did not satisfy the professionals. It would indeed have been a miracle if a man who, after only five years as a regular writer on public affairs, attempted in a few months, and with a mortal illness rapidly closing in on him, to defend the points on which he differed from established doctrine, had fully succeeded in this too. Yet one may ask whether it was not only his early death at the age of forty-nine that prevented him. His polemical writings, which in consequence are the most important ones he has left, certainly prove that he had an insight into what was significant and a gift for going to the heart of the matter that would have provided him with ample material for real contributions to science.

Nothing illustrates this better than the celebrated title of the first essay in the present volume. "What is seen and what is not seen in political economy!" No one has ever stated more clearly in a single phrase the central difficulty of a rational economic policy and, I would like to add, the decisive argument for economic freedom. It is the idea compressed into these few words that made me use the word "genius" in the opening sentence. It is indeed a text around which one might expound a whole system of libertarian economic policy. And though it constitutes the title for only the first essay in this volume, it provides the leading idea for all. Bastiat illustrates its meaning over and over again in refuting the current fallacies of his time. I shall later indicate that, though the views he combats are today usually advanced only in a more sophisticated guise, they have basically not changed very much since Bastiat's time. But first I want to say a few words about the more general significance of his central idea.

This is simply that if we judge measures of economic policy solely by their immediate and concretely foreseeable effects, we shall not only not achieve a viable order but shall be certain progressively to extinguish freedom and thereby prevent more good than our measures will produce. Freedom is important in order that all the different individuals can make full use of the particular circumstances of which only they know. We therefore never know what beneficial actions we prevent if we restrict their freedom to serve their fellows in whatever manner they wish. All acts of interference, however, amount to such restrictions. They are, of course, always undertaken to achieve some definite objective. Against the foreseen direct results of such actions of government we shall in each individual case be able to balance only the mere probability that some unknown but beneficial actions by some individuals will be prevented. In consequence, if such decisions are made from case to case and not governed by an attachment to freedom as a general principle, freedom is bound to lose in almost every case. Bastiat was indeed right in treating freedom of choice as a moral principle that must never be sacrificed to considerations of expediency; because there is perhaps no aspect of freedom that would not be abolished if it were to be respected only where the concrete damage caused by its abolition can be pointed out.

Bastiat directed his arguments against certain ever recurring fallacies as they were employed in his time. Few people would employ them today quite as naively as it was still possible to do then. But let the reader not deceive himself that these same fallacies no longer play an important role in contemporary economic discussion: they are today expressed merely in a more sophisticated form and are therefore more difficult to detect. The reader who has learnt to recognize these stock fallacies in their simpler manifestations will at least be on his guard when he finds the same conclusions derived from what appears to be a more scientific argument. It is characteristic of much of recent economics that by ever new arguments it has tried to vindicate those very prejudices which are so attractive because the maxims that follow from them are so pleasant or convenient: spending is a good thing, and saving is bad; waste benefits and economy harms the mass of the people; money will do more good in the hands of the government than in those of the people; it is the duty of government to see that everybody gets what he deserves; etc., etc.

None of these ideas has lost any of its power in our time. The only difference is that Bastiat, in combatting them, was on the whole fighting on the side of the professional economists against popular beliefs exploited by interested parties, while similar proposals are today propagated by an influential school of economists in a most impressive and, to the layman, largely unintelligible garb. It is doubtful whether there is one among the fallacies which one might have hoped Bastiat had killed once and for all that has not experienced its resurrection. I shall give only one example. To an account of Bastiat's best-known economic fable, The Petition of the Candlemakers against the Competition of the Sun (contained in a companion volume to this), in which it is demanded that windows should be prohibited because of the benefit which the prosperity of the candlemakers would confer on everyone else, a well-known French textbook of the history of economics adds in its latest edition the following footnote: "It should be noted that according to Keynes—on the assumption of underemployment and in accordance with the theory of the multiplier—this argument of the candlemakers is literally and fully valid.

The attentive reader will notice that, while Bastiat grapples with so many economic panaceas which are familiar to us, one of the main dangers of our time does not appear in his pages. Though he has to deal with various queer proposals for using credit which were current in his time, straight inflation through a government deficit seemed in his age not a major danger. An increase of expenditure means for him necessarily and immediately an increase in taxation. The reason is that, as among all people who have gone through a major inflation within living memory, a continuous depreciation of money was not a thing with which people would have put up with in his day. So if the reader should be inclined to feel superior to the rather simple fallacies that Bastiat often finds it necessary to refute, he should remember that in some other respects his compatriots of more than a hundred years ago were considerably wiser than our generation."

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