AN ECONOMIC TRAGEDY.
HUMANITY has prayed for plenty since the beginning of recorded time. Yet everywhere we find schemes for the limitation of supply, and therefore for the nega- tMn of plenty, part of the practical policy of the world. We work for abundance with one hand, and strive for
scarcity with the other. Why is this ? How has a situation so mad arisen ? Because Mankind has adopted a theory of value which, if correct in essence, is easily misunderstood. So disastrous, indeed, has been this misunderstanding that it is quite possible that the social philosopher of the future may say that it was the greatest source of human disaster and misery and the greatest impediment to material and economic progress in our epoch. Owing to a wrong emphasis on one of the terms, Mankind was led upon a false scent.
The accepted theory since the days of Jevons is that value depends entirely upon utility—not, however, on abstract usefulness, but on final utility. In other words, the only thing that can give value to any commodity or service is the dependence of some concrete want for satis- faction on that commodity or service. Divested of technical terms, this does not differ materially from the old and familiar way of putting it that value arises or attaches to any exchangeable object owing to the presence of two things, a positive and a negative — Demand and the Limitation of Supply. Tho ratio between the demand and the supply makes the variation of high or low in price, but the two things that must be present to give value are Demand and the Limitation of Supply. The air we breathe has usually no value in the economic sense because the supply is illimitable. Everyone must have air, but since there is no limit in the supply, value does not attach to it. Such is the accepted theory of value. In this statement, apparently so innocent, lies concealed something like a serpent in the grass, or, to vary the metaphor, a deceitful spirit ready to whisper in man's ear that the quick way to increase values is to increase scarcity. It tells him to get abundance out of dearth, to seek plenty beneath the ribs of famine. Pestilence and hunger may have slain their thousands, but in very truth the misunderstanding of which we speak has slain its tens of thousands. It is the tragedy of economics. Yet the abstract statement is correct. All that was wanted to make it adequate was to put the emphasis on the one term, the positive, and to insist that without demand there is no value, that limitation of supply alone can never give value. It is quite true that, in the presence of superfluity of any "good," demand seems to disappear, because no human want is dependent on any particular portion of that "good," however useful and desirable the whole may be. But the moment a thing is demanded it has value. On the other hand, that which no man wants, however rich and rare, has no value. That is the teaching of all human experience. That is the fact. Doubtless we shall be told : You cannot stop here. It is also a fact that if there is limitation in the supply of a thing demanded, its value is increased. Admitted. But value here is only a matter of degree. Value attaches the instant the demand takes place, though it may be a value which, when you begin to measure it in the specific terms of price, seems infinitesimal. Yet, though very small, it will be there. It will not be zero or a menus quantity, but always a positive. Price, the measure of value, will vary with the ratio between the demand and the amount of the supply. It will rise or fall in accordance with the way in which that ratio is maintained.
"But why all this pother and word-spinning ? " the plain man will say. "I need not trouble about these fine distinctions." But he must trouble about them. If he does not he will find he is deceived by a chimera that will haunt him and delude him to his ruin. It is all-important to him to remember that demand is the essential, is the only true begetter of value—the canes comma. Limita- tion of supply is but the attendant influence which, in combination with demand, makes the difference between a greater and a lesser value in exchange.
The reason why it is necessary to concern ourselves with what is the essential origin of value, the causa calumets, can be seen by the way in which the plain man has taken up the theory of value and worked it to his own injury. In effect the individual has said "I have got something to sell or to
exchange, and I want, of course, to get the best possible price for that thing. Economic science tells me that there are two things which will raise prices—demand and the limitation of supply. Now, demand is a thing which it is very difficult for me to affect. It is usually out of my reach or control. If I want to get my price increased, then the best thing is to limit the supply—i.e., prevent myself being
undersold. If the thing I have got to sell is confined to narrow limits, I shall do well. If the market is flooded, I shall do badly. Limitation of supply thus becomes the economic ideal for me and for the group of people who are my colleagues and are working with me. My interests tell me to concentrate upon that. When there are two levers I must work at the lever within my reach."
The result, as Bastiat said so well, is that though in one sense men recognize that abundance of all the things they desire is the ideal, yet they are always striving to produce an artificial scarcity. The working man says that he does not intend to be undersold by pauper labour, or bounty- fed labour, or sweated labour, or Asiatic labour, or prison labour, or whatever may be the fashionable vituperative epithet of the moment. If he can get rid of these things and limit the supply to what he produces him- self, he will do well. And so he becomes a Protectionist. Take an extreme case, that of the old Dutch East India Company. If too much of the spices and luxuries of the East were brought by the Company's ships into Europe, they burnt half the supply in order to keep prices up to "a decent level." No doubt man is not logical even to his own false premises. As Bastiat told him, if he were a true Protectionist he ought not to improve ports and build railways to the frontiers, and HO forth, but ought rather to limit supply by vetoing railways by means of which foreign goods might pour in, or even support his theories by tearing up the existing roads and going back to pack-mules—loyal and sterile friends of the limitation of supply.
The Trade Unionist acts, of course, on the same lines, but even more fiercely and with a more desperate logic. He is always seeking abundance and wealth through the production of an artificial scarcity. Only members of his group or guild or trade union ought, he thinks, to be allowed to practise his particular trade or voca- tion, and in order that the supply shall be properly limited and the price kept up he has a definite practical policy. His trade must not be flooded by the admission of an unlimited number of men, apprentices must be restricted in number, and underselling by " blackleg " labour prevented by physical force. The population even must be kept down in order to limit the supply. "We are ruined by Chinese cheap labour" is his motto. And yet while in his own trade he breaks the machinery which increases supply and he stones " blacklegs," he is always pathetically asking for abundance and free exchange in other industries. While perverted reasoning and the tyranny of a syllogism based on false premisses make one voice in him shout for limitation of supply, the other voice is shouting for plenty and low prices. But, like an owner who is running two horses in a race, Mankind ought to declare which voice he means to win with. And here he is sorely puzzled, and sometimes says one thing and sometimes another. What is the reconciling word ? Which is to prevail for the welfare of the world, the interests of the consumer or of the producer ? No doubt if Bastiat had finished L'Ilartnoniellconamigue, that noble work of which only the torso exists, he would have revealed with his exquisite clarity the truth, the whole truth, and nothing but the truth. As it is, he only approached it, hinted at it, and died. Yet he told us in effect that if a choice must be made, man must lean to the benign extreme. He must choose that which makes for the good of all—abundance—rather than that which benefits, or appears to benefit, the individual— scarcity. Another way of showing this truth is to point to the fact that, even granted that an increase of value in the things he sells is what man most desires, he must put his money upon Demand and not upon Limitation of Supply. And for this plain reason. Limitation of supply, though to begin with and for a time it raises prices, in the end kills them. It carries within itself the seeds of its own destruction. As prices rise, demand is checked and limited. So though you may be temporarily raising prices, what you are building up with one hand you are pulling down with the other. You are killing the essential cause of value. You are sawing off the bough upon which you are sitting. If, however, man puts his money upon Demand, and elects to be on the aide of abundance and the consumer, this does not happen. As Demand rises the price will rise. But if there is no artificial interference with supply, the supply tends at once to expand also. Man's unconquerable mind either finds new ways of meeting the demand or finds a substitute for the thing in demand. The supply spreads, and instead of shrinking we have growth and expansion. Demand is now seen to have a double power and a double function. It not only attaches value and stimulates price, but it carries within itself a creative power—the power of calling forth fresh supplies as it goes along. As its magic wand waves over land and sea, supply starts up to meet it. No doubt in science it is dangerous to use such words as " good " or "bad," " beneficent " or " unbenefieent," but, at any rate, we may say without danger of paradox or sophism that a movement towards that which all men instinctively desire — abundance, material expansion, production, creation, life, as contrasted with sterilization, death, and destruction—is a beneficent movement, the movement which is best for Mankind.
And here we may note that the fact that Demand is the horse upon which the man who wants to create wealth must put his money is recognized in the clearest way in modern commerce. Mr. Dibblee has lately told us the enormous part which the selling or marketing of an object plays in its cost. The price which you pay for a razor is not merely what it costs to produce tho razor, but includes the cost of selling it—i.e., advertising it and putting it on the market. But, when we com- plete our analysis, all that the cost of selling means is that men have realized that if they want to get the best price for a thing they must create a demand for it. Merely producing a thing, or even producing it cheaply, is no good unless demand is set going. Therefore when men have produced their article they must, by every sort of cunning device, get at the consumer and teach him, nay, almost force him, to demand it. When they have set Demand going by whispering or shouting in Mankind's ear, they have attached value to their article. They have "done the trick." They have Nit something which will sell because it is something, whether good or bad per se, which is wanted. Here, then, is the best possible proof of what we have urged—that it is demand, and demand alone, that gives value, and that to bring in any other element such as the limitation of supply is to set one's foot upon a false track. Demand, and denzand alone, is the cause of value, and the mainspring of the science of exchange. Man has not blundered only in the theory of value. He has "produced" an allied tragedy by his attitude towards exchange. He has almost always thought of exchange as a one-sided action, a kind of robbery, or at any rate as if, as in kissing, there was one who kissed and another who merely presented the cheek—one who got the pleasure and the benefit, and the other who was either passive or else actually injured in the trans- action. To look upon exchange in that way—i.e., as a deal in which one party must be to some extent "done," and not as if there were two equal beneficiaries— is a fatal error. Bastiat destroyed this error and gave us the truth when he told us, in words which are like a searchlight on a dark sea, that exchange is really "a union of forces." Exchange is an act of co-operation. A is blind, but has got two legs. B has got the use of his eyes, but has lost one of his legs and can only hop. If, however, they exchange services and link arms they may get home before night, and have their will through a union of forces. So it is with every exchange. Men put their heads and their forces together to their mutual benefit.
If only Mankind would remember that demand, and not limitation of supply, is that which attaches value to things, that abundance is what he wants and never scarcity, and that an exchange is always a union of forces, what an element of tragedy would be eliminated from human life I Sons of the world, oh, haste those years, But till they come allow our tears."
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