M. Bastiat ... is an author thoroughly embued with the democratic spirit; though we cannot yet call him a Socialist, he is surely more than a philanthropist already. The clearness with which he understands and explains political economy places him ... if not far above, at least far in advance of the other economists .... M. Bastiat, in a word, is devoted body and soul to the Republic, to Liberty, to Equality, to Progress, as he has proved brilliantly time and again by his votes in the National Assembly. In spite of this, we regard M. Bastiat as a member of the Party of Resistance; his theory of Capital and Interest, diametrically opposed to the most genuine tendencies and the most irresistible demands of the Revolution, justifies us in doing so.Bastiat, for his part, addresses himself in similar terms to Proudhon:
In all other respects do you not stand for that which is to all men a right, an attribute, a precept Liberty? Do you not demand liberty in buying and selling? And what, indeed, is a loan but a sale of use, a sale of time? Why should this transaction alone be controlled ...? Have you faith in human nature? Try to strike off its chains, not to forge new ones for it.The exchanges arent always so polite, however; in fact the two writers grow increasingly frustrated with each other over the course of the debate, until Proudhon ends by denouncing Bastiat as a man whose intellect is hermetically sealed, and to whom logic is as nought, and declaring him intellectually a dead man. Bastiat retorts that Proudhon has ended where one ends when one is in the wrong; he is in a rage. (We should probably bear in mind that at the time of this debate Bastiat was in the final stages of terminal illness [incidentally lending Proudhons metaphorical death sentence upon him an uncomfortable flavour a celebrity death match indeed!], while Proudhon had recently begun serving a three-year prison sentence for criticising the President; so neither can have been in the best of moods. In any case, Alain Laurent has suggested that the influence of Bastiats arguments in the debate may have played a role in the increasingly liberal cast of Proudhons later thought.)
The explanation we owe to Condillac seems to me entirely insufficient and empirical, or rather it fails to explain anything at all. ... By the mere fact of their union, efforts equal in intensity produce superior results. Here there is no trace ... of the double and empirical profit alleged by Condillac. ... The reader can now well perceive the true power of exchange. It does not imply, as Condillac says, two gains, because each of the contracting parties sets more store by what he receives than by what he gives. ... It is simply that, when one man says to another, You do only this, and I will do only that, and well share, there is better employment of labor, talents, natural resources, capital, and, consequently, there is more to share.Hence Bastiat is willing to conclude:
When two products or two services are bartered, we may say that they are of equal value.Or again, a chapter later:
The idea of value first entered the world when a man said to his brother, Do this for me, and I will do that for you, and the brother agreed; for then, for the first time, men were able to say, Two services that are exchanged are equal to each other.Bastiat goes on to clarify his position:
[S]uppose my neighbor ... goes to the spring, and I say to him, Spare me the trouble of making this trip; do me the service of bringing me some water. While you are so engaged, I will do something for you; I will teach your child to spell. It happens that this suits both of us. This is the exchange of two services, and we can say that the one is equal to the other. Note that what is compared here are the two efforts, not the two wants or the two satisfactions; for on what basis can we compare the relative merits of having a drink of water and learning how to spell?Bastiat is groping for a genuine Austrian point here that quantitative measures apply only to objective exchange ratios and not to subjective utilities. But his resistance to the double inequality of value prevents him from seeing the obvious answer to his question of how we can compare the relative merits of different satisfactions. The fact that I exchanged A for B shows that the satisfaction afforded by B had greater value to me than did the satisfaction afforded by A; the fact that the other party exchanged B for A shows that the satisfaction afforded by A had greater value to them than did the satisfaction afforded by B. Its true that we cant compare the value of either satisfaction to me with the value of either satisfaction to the other party; Bastiat sees that clearly enough, and so his talk of exchange as involving equal values is not as anti-Austrian as it seems. Still, his clinging to the formula of equality in exchange and his official dismissal of double inequality (despite its implicit all-pervasiveness in his thought) hampers his ability to reply to Proudhon. Proudhons foundation-stone is Bastiats albatross.
[T]he metaphysical act of exchange, in addition to labor, but by a different method from labor, is a producer of real value and of wealth. ... [P]agan antiquity, as well as the Church, has unjustly aspersed commerce, upon the pretext that its rewards were not the remuneration of real services. Once again, Exchange, an entirely immaterial operation, which is accomplished by the reciprocal consent of the parties, cost and distance of transportation being allowed for, is not merely a transposition or substitution, it is also a creation.And he invokes a similar idea against Bastiat in Letter 5:
J. B. Say has shown ... that the transportation of a value, be that value called money or merchandise, is a value in itself; that it is as real a product as wheat and wine; that consequently the service of the merchant and banker deserves to be remunerated equally with that of the husbandman and wine-grower. ... I am justified, then, in saying that it is not Capital itself, but the Circulation of Capital, that kind of service, product, merchandise, value, or reality, which political economy calls movement or circulation, and which, indeed, constitutes the whole subject-matter of economic science, that causes wealth.In the passage from Say that Proudhon is relying on, however, Say, while accepting transportation as a means of increasing value, resolutely refuses to see mere exchange in such terms, and proceeds to miss Condillacs point entirely:
Condillac .... pretends that, because all commodities cost to the seller less than the buyer, they derive an increase of value from the mere act of transfer from one hand to another. But this is not so; for, since a sale is nothing else but an act of barter, in which one kind of goods, silver for example, is received in lieu of another kind of goods, the loss which either of the parties dealing should sustain on one article would be equivalent to the profit he would make on the other, and there would be to the community no production of value whatsoever.Proudhon, by contrast, in identifying the mere metaphysical act of exchange as a creator of value, has apparently gone farther in the Austrian direction than Say and Bastiat; yet Proudhons argument against interest, by insisting on the exchange of equal values, seems to rely on denying the very double inequality of value that at other times he seems to grasp. (Bastiat, for his part, officially denies double inequality perhaps thanks to Says own influence yet his defense of interest implicitly requires it. Thus Proudhon has the premise but wont draw the conclusion, while Bastiat needs the conclusion but wont grant the premise.)
[C]ompetition would reduce the rate of discount, and therefore of interest on capital, to the mere cost of banking, which is much less than one per cent. And even this percentage would not be interest, properly speaking, but simply payment for the labor and expense of banking.Thus he might be willing to countenance returns on loans as wages paid to the lender. At least this is what he says about profit In the absence of monopoly of any kind, whatever the merchant makes out of his business is not strictly profit, but the wages of mercantile labor (though see by apparent contrast this passage); while his disciple Francis Tandy seems to say that under free competition the rate of interest just is the lenders wages. Are Tucker and Tandy thereby showing that Proudhons thesis can escape Bastiats objections? Or are they actually putting forward Bastiats position disguised in Proudhonian language? Its hard to say, since when Tucker and Tandy speak of competition reducing interest to cost, its unclear what is to be included in the latter. Do Tucker and Tandy recognise that costs are subjective? As egoists they certainly ought to; and once the subjectivity of costs is recognised, the notion that the cost of surrendering an item now is fully compensated by the return of that same item later becomes sheer nonsense.
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