Throughout his writing career, Frederic Bastiat repeatedly emphasized that consumption is the end goal of economic activity, that the consumer should be the focus of economic analysis. While each man is both producer and consumer, man produces so he can consume. In other words, production is the means and consumption is the ends. This makes sense if we look at our own lives: we go to work so we can afford our homes, food, cars, clothes, etc. We don’t consume our clothes, cars, food, homes, so that we can work more!
Although not considered much of a theorist, Bastiat was a bit ahead of his time with this emphasis.* It would be another 50 years before the commonly-recognized supply and demand curve we use today was developed by Alfred Marshall. Using the Marshallian Curve, we can explore Bastiat’s** insights with regard to international trade.
Let’s ask the question: what happens when we impose a tariff on international trade?
First, let’s start with our standard supply and demand curve:
The green-shaded areas are “consumer surplus,” or what the consumer gains from the international trade. The orange is domestic producer surplus (what domestic producers gain). Domestic producers supply some of the quantity demanded (Qs) and the rest is made up in imports (Qd-Qs). The total societal surplus is the green and the orange areas added together.
What happens when we impose a tariff? This:
Green is, as above, consumer surplus. Orange is producer surplus. Added in here is the blue area (tax revenue) and red (deadweight loss). What’s going on here? Much of what we have is a transfer of wealth: producers gain (from the consumer), government gains (from the consumer). But where does the deadweight loss come from? The consumer! Not only is there a total reduction in welfare in the society (not merely a redistribution), but it all comes from one segment, the segment that is the ends of all production. The entire welfare loss is borne by the consumer!
The implications of this analysis are stunning, at least from an economic perspective: you reduce the ends to get more means; Protectionism results in more effort for less welfare! The supposed blessings of scarcity that protectionism promises never materialize.
*Nor should Bastiat be considered a theorist. He wasn’t. He was a great distributor of economic ideas, but didn’t form any himself.
**And Say’s, Smith’s, and Ricardo’s