Bastiat: What Is Money?

First published in 1849, this is the audio version of the Mises Daily article for May 27, 2011. Written by Frédéric Bastiat and read by Holly Hinton and Joel Sams.

Frédéric Bastiat was the great French proto-Austrolibertarian whose polemics and analytics run circles around every statist cliché. His primary desire as a writer was to reach people in the most practical way with the message of the moral and material urgency of freedom.

“Hateful money! Hateful money!” cried F——, the economist, despairingly, as he came from the Committee of Finance, where a project of paper money had just been discussed.

“What’s the matter?” I said. “What is the meaning of this sudden dislike to the most extolled of all the divinities of this world?”

Claude Frédéric Bastiat was a French economist, legislator, and writer who championed private property, free markets, and limited government. Perhaps the main underlying theme of Bastiat’s writings was that the free market was inherently a source of “economic harmony” among individuals, as long as government was restricted to the function of protecting the lives, liberties, and property of citizens from theft or aggression. To Bastiat, governmental coercion was only legitimate if it served “to guarantee security of person, liberty, and property rights, to cause justice to reign over all.”

Bastiat emphasized the plan-coordination function of the free market, a major theme of the Austrian School, because his thinking was influenced by some of Adam Smith’s writings and by the great French free-market economists Jean-Baptiste Say, Francois Quesnay, Destutt de Tracy, Charles Comte, Richard Cantillon (who was born in Ireland and emigrated to France), and Anne Robert Jacques Turgot. These French economists were among the precursors to the modern Austrian School, having first developed such concepts as the market as a dynamic, rivalrous process, the free-market evolution of money, subjective value theory, the laws of diminishing marginal utility and marginal returns, the marginal productivity theory of resource pricing, and the futility of price controls in particular and of the government’s economic interventionism in general.

While Bastiat was shaping economic opinion in France, Karl Marx was writing Das Kapital, and the socialist notion of “class conflict” that the economic gains of capitalists necessarily came at the expense of workers was gaining in popularity. Bastiat’s Economic Harmonies explained why the opposite is true that the interests of mankind are essentially harmonious if they can be cultivated in a free society where government confines its responsibilities to suppressing thieves, murderers, and special-interest groups who seek to use the state as a means of plundering their fellow citizens.

Bastiat contributed to Austrian capital theory by masterfully explaining how the accumulation of capital results in the enrichment of the workers by raising labor s marginal productivity and, consequently, its remuneration. Capital accumulation, wrote Bastiat, would also result in cheaper and better quality consumer goods, which would also raise real wages. He also explained how the interest on capital declines as it becomes more plentiful.

Thus, the interests of capitalists and labor are indeed harmonious, and government interventions into capital markets will impoverish the workers as well as the owners of capital. Bastiat also explained why in a free market no one can accumulate capital unless he uses it in a way that benefits others, i.e., consumers. In reality, wrote Bastiat, capital is always used to satisfy the desires of people who do not own it. In sharp contrast to most of his predecessors, Bastiat believed that “it is necessary to view economics from the viewpoint of the consumer. . . . All economic phenomena . . . must be judged by the advantages and disadvantages they bring to the consumer.” Mises repeated this point in Human Action when he noted that although bankers may seem to “control” the allocation of capital by their day-by-day decisions, it is the consumers who are the “captains” of the economic ship, because it is their preferences to which successful businesses cater.

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