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Does Protection Raise Wages?

Mises Daily: Wednesday, October 03, 2012 by

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[Included in The Bastiat Collection (2011), this article appeared in Economic Sophisms (1845).]

Let us inquire whether injustice is not done you by fixing legislatively the people from whom you are to purchase the things you have need of — bread, meat, linens, or cloth; and in dictating, if I may say so, the artificial scale of prices which you are to adopt in your dealings.

Is it true that protection, which admittedly makes you pay dearer for everything, and entails a loss on you in this respect, raises proportionately your wages?

On what does the rate of wages depend?

One of your own class has put it forcefully, thus: when two workmen run after one master, wages fall; they rise when two masters run after one workman.

For the sake of brevity, allow me to make use of this formula, more scientific, although, perhaps, not quite so clear. The rate of wages depends on the proportion that the supply of labor bears to the demand for it.

Now, on what does the supply of labor depend?

On the number of men waiting for employment; and on this first element protection can have no effect.

On what does the rate of wages depend?

On the disposable capital of the nation. But does the law which says, "We shall no longer receive such or such a product from abroad; we shall make it at home," augment the capital? Not in the least degree. It may force capital from one employment to another, but it does not increase it by a single farthing. It does not then increase the demand for labor.

We point with pride to a certain manufacture. Is it established or maintained with capital that has fallen from the moon? No; that capital has been withdrawn from agriculture, from shipping, from the production of wines. And this is the reason why, under the system of protective tariffs, there are more workmen in our mines and in our manufacturing towns, and fewer sailors in our ports, and fewer laborers in our fields and vineyards. I could expatiate at length on this subject, but I prefer to explain what I mean by an example.

A countryman was possessed of 20 acres of land, which he worked with a capital of £400. He divided his land into four parts and established the following rotation of crops: 1st, corn; 2nd, wheat; 3rd, clover; 4th, rye. He required for his own family only a moderate portion of the grain, meat, and milk that his farm produced, and he sold the surplus to buy oil, flax, wine, etc. His whole capital was expended each year in wages, hires, and small payments to the working classes in his neighborhood. This capital was returned to him in his sales, and even went on increasing year by year; and our countryman, knowing very well that capital produces nothing when it is unemployed, benefited the working classes by devoting the annual surplus to enclosing and clearing his land, and to improving his agricultural implements and farm buildings. He had even some savings in the neighboring town with his banker, who, of course, did not let the money lie idle in his till, but lent it to shipowners and contractors for public works, so that these savings were always resolving themselves into wages.

At length the countryman died, and his son, who succeeded him, said to himself, "My father was a dupe all his life. He purchased oil, and so paid tribute to Provence, whilst our own land, with some pains, can be made to grow the olive. He bought cloth, wine, and oranges, and thus paid tribute to Brittany, Medoc, and Hyeres, while we can cultivate hemp, the vine, and the orange tree with more or less success. He paid tribute to the miller and the weaver, while our own domestics can weave our linen and grind our wheat. In this way he ruined himself, and spent among strangers that money which he might have spent at home."

Misled by such reasoning, the restive youth changed his rotation of crops. His land he divided into 20 divisions. In one he planted olives, in another mulberry trees, in a third he sowed flax, in a fourth he had vines, in a fifth wheat, and so on. By this means he succeeded in supplying his family with what they required, and felt himself independent. He no longer drew anything from the general circulation, nor did he add anything to it.

Was he the richer for this? No; for the soil was not adapted for the cultivation of the vine, and the climate was not fitted for the successful cultivation of the olive; and he was not long in finding out that his family was less plentifully provided with all the things they wanted than in the time of his father, who procured them by exchanging his surplus produce.

As regarded his workmen, they had no more employment than formerly. There were five times more fields, but each field was five times smaller; they produced oil, but they produced less wheat; he no longer purchased linens, but he no longer sold rye. Moreover, the farmer could expend in wages only the amount of his capital, and his capital went on constantly diminishing. A great part of it went for buildings, and the various implements needed for the more varied cultivation in which he had engaged. In short, the supply of labor remained the same, but as the means of remunerating that labor fell off, the ultimate result was a forcible reduction of wages.

On a greater scale, this is exactly what takes place in the case of a nation that isolates itself by adopting a prohibitive system. It multiplies its branches of industry, I grant, but they become of diminished scale; it adopts, so to speak, a more complicated industrial rotation, but it is not so productive, because its capital and labor have now to struggle with natural difficulties. A greater proportion of its circulating capital, which forms the wages fund, must be converted into fixed capital. What remains may have more varied employment, but the total mass is not increased. It is like distributing the water of a pond among a multitude of shallow reservoirs — it covers more ground, and presents a greater surface to the rays of the sun, and it is precisely for this reason that it is all the sooner absorbed, evaporated, and lost.

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The amount of capital and labor being given, they create a smaller amount of commodities in proportion as they encounter more obstacles. It is beyond doubt that when international obstructions force capital and labor into channels and localities where they meet with greater difficulties of soil and climate, the general result must be, fewer products created — that is to say, fewer enjoyments for consumers. Now, when there are fewer enjoyments on the whole, will the workman's share of them be augmented? If it were augmented, as is asserted, then the rich — the men who make the laws — would find their own share not only subject to the general diminution, but that diminished share would be still further reduced by what was added to the laborers' share. Is this possible? Is it credible? I advise you, workmen, to reject such suspicious generosity.