Bastiat the Theorist

   

Here's a theory for why nearly all prominent economic theorists who are aware of Frédéric Bastiat dismiss him as a theorist: he was insufficiently abstruse.

A reader isn't supposed to have fun when reading theory. But fun is certainly what's experienced by those who read Bastiat. Therefore (the conclusion is drawn) Bastiat was only a proselytizer even if one with unusual gifts. He was no theorist.

I believe, on the contrary, that Bastiat was indeed an economic theorist and an excellent one at that.

Above all, a theory is a story. But it is not just a story. A theory is a story with two critical features. First, the story is one that we tell to ourselves and to others to improve our understanding of observed or experienced reality. Second, the story can usefully be generalized to fit different particular details.

To be generalizable, a story whose creator wishes it to be regarded as a serious theory must be abstract. Being abstract, however, makes the story -- standing alone -- barren, engendering no understanding of the physical or social world. It proves itself to be a good theory if, when relevant details of reality are added, those of us who encounter it go, "Ah ha! Now I understand reality better than I did before!"

Supply-and-demand analysis, for example, is a general story of how prices are formed and change. It's not a story about the formation of the price of only one item, such as peanuts. It's an outline for telling believable stories about the formation of all prices -- from the prices of toy planes to those of jumbo jetliners, from the wages earned by motel maids to those earned by Lady Gaga. A story that explains the price only of peanuts is not a proper theory of prices even if it is highly believable.

The core purpose of all theories -- in both their construction and application -- is  improved understanding. A theory that does not cause those who encounter it to go, "Ah ha!" is worthless.

A theorist is a teller of such stories. He or she has a knack for understanding just what story best explains a particular observation or experience. Sometimes theorists tell original stories. Other times theorists apply existing stories in creative ways to new and different circumstances. Significantly, economists have long recognized the important role play by applied theorists.

Bastiat is one of history's greatest applied economic theorists.

Consider Bastiat's famous 1843 satire, "Petition of the Manufacturers of Candles." In this short essay Bastiat radiantly conveyed economists' understanding that artificially contrived scarcities make the general population worse off even if they increase the wealth of a small handful of individuals. Who other than the most benighted protectionist can read Bastiat's portrayal of sunlight as an unfairly low-priced import and not go, "Ah ha! Now I see why low-priced imports -- whether of wheat, watches, or whatchamacallits -- that 'flood' into a country no more impoverish that country than does light sent to us free by the sun!"

In this essay Bastiat applied economic theory to demonstrate simultaneously the absolute indefensibility of two common assertions about protectionist policies. The first is that the domestic economy is damaged if its people import more than they export; the second is that the domestic economy is damaged if its people acquire imports at prices that are "too low." To my knowledge, no one before Bastiat had applied sound economic theory in quite this way -- and I'm sure that no one before (or since) Bastiat had (or has) done so with such vividness. Word for word, I doubt that any work in economics has caused more "Ah ha!" moments than has Bastiat's "Petition."

Had Bastiat instead written a paper explaining directly that imports are benefits and exports are costs and that people are not enriched by rejecting benefits and by paying unnecessarily high costs, he might well have proven the point with a chain of impeccable logic or even with graphs or a set of equations. Indeed, he might also have seized the opportunity to name some phenomenon identified in his paper -- perhaps, say, labeling the gain that domestic consumers enjoy when they purchase imports at prices below costs "the Bastiat area." That is, Bastiat might have instead written a paper that fits the conventional form of a work in applied theory.

But had he chosen this conventional path he would have, at best, formalized a theoretical point long understood by most economists. And while his explanation would have undoubtedly been correct, it would also likely have been read by few and long ago lost to history. Such a paper would have elicited almost no "Ah ha!s"

Another example of Bastiat's skill as an applied theorist is his even-shorter essay "A Negative Railway." Here Bastiat revealed the flaw in the argument that if a railroad connecting Paris to Bayonne were forced to stop at Bordeaux, the wealth of the French people would be enhanced. The hapless target of Bastiat's brilliance is the interventionist who based his conclusion on the correct observation that forcing trains to stop at Bordeaux would increase the incomes of porters, restaurateurs, and some other people in Bordeaux.Yet Bastiat didn't settle -- as a more conventional theorist would have settled -- for drily noting that, after paying these higher incomes, railways and their passengers would have less money to spend on goods and services offered by suppliers in locations other than Bordeaux. Instead, Bastiat followed the proposal's logic in a way uniquely and brilliantly revealing: if forcing trains to stop at Bordeaux would increase the total wealth of the people of France, so too would the total wealth of the people of France be increased if trains were obliged to stop also at Angoulême. And if also at Angoulême, then the French would be enriched even further if a third stop were required at Poitiers. And if at Poitiers, then at each and every location between Paris and Bayonne.

Bastiat revealed the proposal to be flawed by showing that if its logic were sound, the railway that would do the most good for the French people was one that was nothing but a series of stops -- a negative railway!

Every essay in Bastiat's Economic Sophisms is the work of a masterful applied economic theorist.

But what of pure theory? David Hart makes a strong case that Bastiat's creativity lay not only in applying existing theory but also in crafting new theories to explain -- new generalizable stories to tell about -- economic reality. After careful study of Bastiat's Economic Harmonies, Hart concludes that Bastiat's contributions to pure theory are 11 in number. Hart's case is solid.

I dissent from Hart's assessment only very slightly and only to defend what Hart calls Bastiat's "service theory of value."

Hart is correct that Bastiat -- writing before economics's marginal revolution of the early 1870s -- did not offer a complete and flawless theory of value. Yet there nevertheless is something insightful and important in Bastiat's recognition that the value to us human beings of all but the most final of consumer goods is tied to the amount of effort that non-final goods (and services) save us in our quests to acquire the satisfactions that we expect from final consumer goods.

Time is scarce and toiling away at activities that do not directly yield utility is unpleasant. Bastiat was onto something when he recognized that humans attach economic value to goods, services, and economic arrangements that reduce the amount of time and toil we must spend to obtain the utility we seek from final consumer goods and services. Bastiat's recognition of this reality did not propel him to construct a complete and correct theory of value, but this recognition, as used by Bastiat, nevertheless yields important and interesting insights about reality.

The most familiar serious objection that modern economists level against Bastiat is that he allegedly had a fairytale, Pollyannaish view of market economies. Such a view seems to be suggested by the very title of Bastiat's economics treatise: Economic Harmonies. Yet as becomes abundantly clear from reading this book, Bastiat did not believe that human beings live together in a harmony ordained by God or by nature. The "harmonies" to which Bastiat referred obtain only as a result of production and trade guided by market prices and only insofar as human-created obstructions, such as tariffs, do not exist.

Bastiat's point, as I understand it, is the same as that summarized more famously in Adam Smith's recognition that the butcher's, brewer's, and baker's pursuits of their own self-interest serve the self-interest of those of us seeking dinner. Just as Smith explained that market competition under an "obvious and simple system of natural liberty" weaves us all into a productive society the whole of which is greater than the sum of its parts, Bastiat explained how markets in a regime of private property rights turn what would otherwise be destructive negative-sum competition and antagonism into productive positive-sum competition and cooperation.

Scholars can argue that Bastiat failed to recognize this or that source of "market failure." Yet they could argue the same about Adam Smith or Alfred Marshall -- and even, for that matter, about Paul Samuelson or Paul Krugman. But nothing about Bastiat's explanation of how competitive market processes spur each of us self-interested individuals to peacefully serve the interests of strangers differs fundamentally from similar explanations offered by other economists through the centuries. (By the way, as David Hart makes clear, what scholars cannot argue is that Bastiat failed to recognize the reality of government failure. On this front, Bastiat was more astute and scientific than many other economists, past and present.)

A closing note: Bastiat did not write anything, including Economic Harmonies, to be read only by specialized theorists of political economy. His audience was broader. By the time Bastiat wrote Harmonies, scholars specializing in political economy had already absorbed the reality of what F.A. Hayek later called the "spontaneous order." But nonspecialists had not -- a fact that surely prompted Bastiat to emphasize the fact that private pursuit of self-interest within markets is not only compatible with a peaceful and prosperous society but also essential to such a society.

Did Bastiat overstate the case? Certainly he did in some particulars. I'm sure, for example, that Bastiat was overly optimistic about human beings being perfectible. But I think that, on the whole, Bastiat did not overstate his case. He was rightly impressed with the vast coordination of plans engendered by market processes, and he didn't mask with dry prose his admiration for this coordination. Dry prose was becoming commonplace among professional economists by the mid-19th century, and such sleep-inducing prose is the norm among today's economists.  It would be a shame if scholars continued to ignore Bastiat's brilliant theoretical prowess because of his equally brilliant and crystal-clear prose style.