Introduction ~ Frédéric Bastiat is arguably one of the most important yet forgotten political economists of the eighteenth century. His defense of liberty, natural rights, private property rights, rule of law and justice make him a key figure in the development of classical liberal political thought. The purpose of this article is to analyze Bastiat’s insights into the nature of the rule of law and justice and how the perversion of law has been developed by Government authorities who in his own words, have used the power conferred to them by the electorate, to make use of “legal plunder” in order to pursue a private interests and advance a personal agenda in detriment of the individual in society.
The Purpose of Law
Bastiat’s text starts with an analysis of the purpose of law. Accordingly, Bastiat asserts that the purpose of the law is to “use the power of its collective force to stop the fatal tendency to plunder instead of work”. All the measures of law should protect private property and punish plunder”. The implications of this definition of the purpose of law provided by Bastiat are very important, and deserve to be thoroughly explained. However, before getting into the meaning of Bastiat’s purposeful definition of what the law should do, it is imperative to define the concept of “plunder” or “legal plunder” which Bastiat famously used to describe while explaining the perverse effects of state authorities in the affairs of the public. Basically, Frédéric Bastiat referred to “legal plunder” as the use of force and law by the State to expropriate private property in order to benefit a specific group or to benefit political objectives such as wealth redistribution. Having understood the meaning that Bastiat gives the notion of plunder, one can understand the purpose of law as explained by Bastiat. The purpose of law is then, to protect private individuals of their fundamental rights and their property, that is, to protect against plunder.
The Degradation of Law
After explaining why the purpose of the law is to protect citizen’s individual rights and private property, Bastiat goes on to explaining why the law generally speaking becomes degraded by State authorities. According to Bastiat, “generally, the law is made by one man or one class of men. And since law cannot operate without the sanction and support of a dominating force, this force must be entrusted to those who make the laws”. What Bastiat is basically referring by affirming here is in my view a case of public choice economics. Immediately following the passage above mentioned, Bastiat offers the following: “This fact, combined with the fatal tendency that exists in the heart of man to satisfy his wants with the least possible effort, explains the almost universal perversion of the law”. Bastiat is making a thorough economic analysis of incentive relationships that occur within institutions and decision making. Indeed, the mere fact that a certain type of men create the laws, which in modern days represent politicians and bureaucrats, mean that just as with any other “acting man” to take the words of Ludwig von Mises, incentives matter as well as institutional arrangements matter.
The fact that people respond to incentives and are motivated to accomplish goals and subjective, can help us understand why the rule of law has been degraded constantly by authorities of the State. Public Choice theorists such as Buchanan have long focused their analysis on the incentives that motivate Governmental intervention in the economy, public-private affairs as well as in law. The conclusion that Public Choice analysis reaches is quite similar to the analysis that Bastiat makes in his case of the law being “perverted” by the State. Bastiat mentions that “it is easy to understand why the law is used by the legislator to destroy in varying degrees among the rest of the people. This is done for the benefit of the person who makes the law, and in proportion to the power that he holds”. Bastiat is making his case for public choice analysis, and explains in clear cut how the law has become a tool for “legal plunder”, for the erosion of civil liberties and for the disrespect of property rights. I find Bastiat’s analysis very timely, even though this text was written in the eighteenth century.
Perversion of the Law in Modern Times
When Frédéric Bastiat wrote about the perversion of the law and the plundering of individuals in society by State authorities and law makers, he did so in the context in which he was living during the eighteenth century. Amazingly, the same analysis that Bastiat makes can be readily applied to today’s world. There are various cases that can be applied or used as examples to explain how the law has been established by legislators to the benefit of the rule making class. One of such example is what occurs in many privileged financial services entities, especially after the subprime crisis of 2007-2008. Lawmakers in the years prior to the financial crash and subprime crisis, enacted laws such as the community reinvestment act which would encourage private bankers to make mortgage loans to areas in which customers had poor credit standards. Most of these loans were backed up by taxpayer funded agencies such as Fannie Mae and Freddie Mac, which took massive losses when the housing bubble burst, putting taxpayers on the hook. Of course this was not the only cause for the subprime crisis, but the example shows one way in modern times in which the plundering of State officials via the perversion of the law was made possible. Fannie Mae and Freddie Mac were in possession of a direct credit line from the U.S. Treasury, which represents taxpayer’s funds.
Another example of plundering by government that becomes apparent in modern times is the necessity of state licensing and permissions to engage in voluntary exchange and commerce. It is unbelievable the amount of regulations, permissions, fines, taxes, permits and so on that businessmen need to comply, pay and complete in order to engage in voluntary market transactions. A clear example is in the case of liquor stores. In order for a store owner to buy and sell liquor, and offer these goods to the public, it must acquire a license from the state. The same occurs for other service industries such as the medical industry, or college and universities, where if not certified by the Department of Education, it could get shutdown or fined, usually driving them out of business or making it very difficult to compete.
Bastiat, in his text mentions that “It is not true that the function of law is to regulate our consciences, our ideas, our wills, our education, our opinions, our work, our trade, our talents, or our pleasures”. Here, Bastiat shows again his wisdom by explaining that the law has been perverted by those in power. The analysis, even though it is simple, it becomes powerful. By making economic activity illegal, unless it complies with regulations and one obtain the necessary licensing, the government is engaging in violation of individual rights and property, or “legally plundering” the individual. Going back to the Public Choice analysis made in the beginning, lawmakers and State authorities might seem that they impose these laws, regulations, permits and taxes for the benefit of the society, however, they respond purely to incentives. These incentives are motivated in this case by an ever increasing appetite towards power and monetary benefits that enlarge the State, allowing the plundering of the individual to become more and more expanded, to the point where individuals, law abiding citizens in society come to the conclusion that it is normal to have these licensing permits, regulations, taxes and fines in order to perform voluntary exchange.
The Importance of the Law in the context of International Trade and Commerce
Bastiat makes the case for the importance of the law in facilitating international trade and commerce. Bastiat also, throughout his analysis of plundering by the state, expresses the concerns that the law becomes “perverted” or misused in the realm of international trade. Bastiat mentions the following: “In meddling with the balance of trade by playing with tariffs, the government thereby contracts to make trade prosper; and if this results in destruction instead of prosperity, whose fault it is.? This goes to the analysis provided in the section before this one, in which came to the conclusion that government intervention and the rule making class respond to incentives which are motivated by personal objectives and goals.
Here Bastiat makes a case for the perversity of privilege in commercial trade. By privileging one sector over the other, or better yet, by picking winners and losers, real resources are misallocated, from sectors in which society would have preferred to employ these resources, to sectors that benefit the political prospects; and in the case of the government-directed enterprise to fail, he poses the interesting question of who bears the cost, which of course implies the individuals of society being plundered, e.g. the taxpayers. Bastiat even provides a clear example of this situation when he mentions that “in giving the maritime industries protection in exchange for their liberty, the government undertakes to make them profitable; and if they become a burden to taxpayers, whose fault it is?
It is impossible to talk about law and international trade without learning a little bit about history of economic thought, specifically the age of Mercantilism. Mercantilism was a political and economic theory which in practice meant that the State would regulate the economy, trade and commerce in order to increase the power of the Nation State. The obsession of mercantilists was to obtain a positive balance of trade, in which exports would exceed imports. Mercantilists would achieve this objective through a series of measures that required an active government interference in the economy, and in social life. Some of the classic mercantilist measures included privilege to industry, tariffs and quotas for trade, the accumulation of precious metal (gold, silver), and in many instances, the use of war in order to conquer territories and colonize areas. Mercantilism was a political theory and economic system that viewed the State as the main source of prosperity under the law. In a sense, Frédéric Bastiat opposed to mercantilist measures when in writing this text, expressed his concerns for plundering and the legislation.
Typical mercantilist measures included forbidding trade with other nations, creating monopolies of goods and services, creating subsidies for exports, promoting subsidies on manufacturing and other industries. Examples of mercantilist actions included privileges to Agriculture and Manufacturing. Examples of mercantilist measures during the time Bastiat wrote include the famous Corn Laws in Great Britain. The Corn Laws were restrictions to international trade. In this case, tariffs were imposed on imported grain; and it was designed to keep grain prices high in order to favor privileged producers of grain in the United Kingdom. The Corn Laws raised the price of grain and food prices (inflation). It was a clear example of mercantilism and favoritism given by government authorities. The Corn Laws were imposed in order to encourage exports in detriment of imports, and with that being said obtain a favorable balance of trade. The Corn Laws imposed import duties even through periods of supply shortages, making the situation far worse than before. Only after Richard Cobden and the Anti-Corn Law movement appeared, were the Corn Laws repealed.
Contrasting the mercantilist policy of the Corn Laws with modern times, we see that Bastiat’s analysis is more relevant than ever. Take for example the case of taxi cartels. Today, State authorities privilege taxi cartels creating a monopoly in some instances and in other instances, oligopolies. Monopolies and Oligopolies are known for providing low quality services or goods and higher prices than under market conditions where competition is the driving force. The irruption of ride sharing services such as Uber and Lyft have put tremendous pressures on taxi cartels worldwide, and this competition that appeared spontaneously in the market has driven the cost of riding a taxi down.. State authorities in many countries have either engaged in regulating the use of Uber and Lyft or flat out prohibited the use of these better quality transportation services. This is not done of course for the public benefit but at the public’s expense, simply because it benefits the privileged taxi cartels which represent a political objectives and votes in elections.
Other examples of modern mercantilist measures that affect international trade occur in the foreign exchange currency market. In Argentina, State authorities have imposed currency exchange controls on the selling and buying of U.S. dollars. This measures by the Argentinean authorities come as a result of poor macroeconomic conditions in which high inflation and excessive government spending have eroded the value of the Argentinean Peso, which has made the buying of U.S. dollars a necessity to Argentineans as they see the value of their savings evaporate. Due to this situation, the Argentinean authorities have imposed the “mercantilist” measure of putting a cap on the foreign exchange market for the dollar and thus restricting the Argentinean population to being forced to keep using debased Argentinean Pesos. Just as there is this example, there are other hundreds of examples of Bastiat’s insights on mercantilism that can easily be applied today.
Conclusion
Frédéric Bastiat is one of the most important economists and political thinkers of the eighteenth century. His work on the purpose of the law, the perversion that occurs through the law making process and the legal plunder that affects society is ever more relevant today as it was during the time that Bastiat wrote and publish his work. To paraphrase one of Bastiat’s favorite quotes, “When the law and morality contradict each other, the citizen finds himself in the difficult choice of either losing his moral sense or losing his respect for the law”, and I think that this is very true today as it was before.
Government interference in the affairs of individuals voluntarily engaging in free exchange and trade have done a great deal of harm to prosperity of nations, and when the law is purposely made not to protect citizens individual rights and private property, but to perform activities that represent the plundering of individuals for political benefit, then society falters and prosperity vanishes. This is seeing in the sphere of both local commerce and international trade, with tariffs, quotas, privileges, monopolies, subsidies, and with restrictions on imports. I hope that Bastiat’s teachings on the law and international trade become heeded and more relevant every day.
Written by Jaime Narbon for Sociedad Abierta ~ June 17, 2016