The Mercantile System

The family is both producer and consumer of everything it has. Despite Bastiat's satire on Robinson Crusoe, it is un thinkable that Crusoe would have hesitated to take the plank washed in by the waves, thus saving himself the labor of hewing one from a log. Nowadays, with our high degree of specialization, production and consumption may be widely separated. For example, a worker, may have a small part in pro ducing the steel which will eventually be used to make a watch spring. But his wages are in money, not in steel or watches. While he may be a consumer of watches through a roundabout exchange process, he may over look the fact that what he helps to produce determines what he may consume. The Mercantile System Adam Smith explained the relation between produc tion and consumption nearly 200 years ago. In his The Wealth of Nations, published in the year of the signing of our Declaration of Independence, Smith said: "Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to at tempt to prove it. But in the mercantile system, the 28 interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider pro duction, and not consumption, as the ultimate end and object of all industry and commerce."· In his discussion of tariffs, Bastiat compares trade with a horse race. He begins by quoting the statement of M.

Ie Vicomte de Romanet, a fellow Frenchman: "It has been thought that protection in our case should simply represent the difference which exists between the cost price of a commodity which we pro duce and the cost price of the same commodity pro duced by our neighbors. . . . A protective duty calculated on this basis·would only ensure free com petition. . . ; free competition exists only when there is equality in the conditions and in the charges. In the case of a horse-race, we ascertain the weight which each horse has to carry, and so equalise the condi. tions; without that there could be no fair competition. In the case of trade, if one' of the sellers can bring his commodity to market at less cost, he ceases to be a competitor, and becomes a monopolist. ... Do away with this protection which represents the difference of cost price, and the foreigner invades our markets and acquires a monopoly."

This says, in effect, that competition is not present if any competitor wins by his efficiency.Bastiatreplies: *Smith was speaking of the mercantilists' point of view, which was that exports were to be promoted while domestic production was "safeguarded" against competing imports. Adam Smith, The Wealth of Nations (Modern Library ed.; New York: Random House, Inc., 1937), p. 625. 29 "In this, as in other cases, we shall find protection ist theorists viewing their subject from the producer's standpoint, whilst we advocate the cause of the un fortunate consumers, whose interests they studiously keep out of sight. ... The race is at once the means and the end. . . . When you start your horses, your end, your object, is to find out which is the swiftest runner, and I see your reason for equalising the weights. But if your end, your object, were to secure the arrival of some important and urgent news at the winning-post, could you, without inconsistency, throw obstacles in the way of anyone who should offer you fne best means of expediting your message?"

The end with which Bastiat was concerned was con sumption-not production, which is _merely a means to that end. Using Romanet's reasoning, we would place a very high tariff on bananas. Suppose, for example, that the cost of raising hothouse bananas in New York is one dollar a pound and that they can be imported from Cen tral America for ten cents a pound. A tariff of 90 cents a pound would then insure "fair" competition between New York and Central American producers. On this basis, it is probably true that the New York producer would stay in business and grow bananas. But what of the consumer? What price would he have to pay for bananas? What would happen to the consumption of bananas? And while the New Yorker was producing high-priced bananas, might he not have been producing something else that would yield many times the amount 30 of satisfaction to the consumers-and to himself as one of those consumers?