London Summer 2016

The Source of Wealth: Abundance/Scarcity?

In the opening chapter of Economic Sophisms Bastiat clarifies why people desire scarcity over abundance. That is, why people in general view scarcity as the source of wealth, not abundance. Of course when that statement is read one immediately balks and disagrees. The family with an abundance of food, land, toys, leisure time, and money is the wealthy family, not the one with scarce resources. Yet this is not how many view society at large.

Cheap foreign cars impoverish the domestic car industry. So tariffs are levied to raise prices which will diminish supply. (i.e. make cars more scarce.)

Uber drivers flood the market with alternatives to taxi drivers. Cities ban Uber, or levy taxes upon them to diminish their ability to produce. Again, an external force (government) decreases the supply of a resource to ensure the wealth of a certain group of people.

Dominican sugar, Canadian lumber and steel, Chinese toys and shoes…the general consensus is that if we have too many of these foreign goods at too low a cost it will impoverish our nation. Why would an abundance of goods make our nation poor?

Bastiat proposes the problem comes from the following reasoning:

1. The individual is enriched when he can charge a high price for his goods.

2. The individual therefore desires that the goods he provides remain scarce.

3. To maintain this scarcity all other producers need to be limited in their production.

4. To do this, government passes import taxes and limits outside competition.

This seems like very logical reasoning. Protectionism is a good idea, right?

Bastiat says no.

So where is the fallacy in the Theory of Scarcity? It lies in ignoring why we produce. The human race produces to consume. We do not live to work, but work to live.

It is because the above reasoning has only focused on the producer that a false conclusion has been reached. The producer and consumer are at odds with each other in the market place. The producer wants limited competition so he can raise his prices. The consumer wants lots of competition so he can purchase at low prices. The problem is we as individuals are both consumers and producers desiring an abundance of products to choose from as buyers and scarce competition as sellers.

So who, if anyone, should society at large favor? Which perspective is more beneficial for society at large? The consumer who desires an abundance and low prices, or the producer who desires a monopoly?

In trying to secure a market for local producers (artificially through government dictate) resources are made more scarce and true wealth is withheld from the masses.