Many know Frederic Bastiat for his famous pamphlet, The Law. However, not as many have read his series of essays, Economic Sophisms, which contains a short piece titled ‘A Negative Railroad’.
Economic inefficiency explained
Here, Bastiat questions the idea of economic (in)efficiency. Simply put, the issue in question is this: Why is there no break in the tracks at Bordeaux, on the railroad between Paris and Spain, if having such a stop would bring about more economic activity for the Bordeaux region?
Better yet, why only Bordeaux, when we could introduce such stops at many other places along the main line to Spain, in order to stimulate economic activity in these areas as well?
The answer, in short, is economic inefficiency. If it was more efficient to have more stops, this would already have been done.
Otherwise, entrepreneurs, driven by the profit motive, would have been vigorously seeking to establish the correct number of stops. This works very well, of course, when both the benefits and costs of operating in such an industry are privatized.
Central planning: a recipe for stagnation
However, the picture changes once the rules of the game are altered. Public enterprise is plagued by calculation and knowledge problems, but even if we can imagine that somehow centrally planned agencies can come up with the most efficient solutions regarding the number of stops, implementing such a plan would remain impossible to envision.
After all, the legislators and their appointed agents are no different from the rest of us. As we all want to further our own goals, the difference lies in the goal we’re trying to reach. While consumers yearn for lower prices, legislators yearn for re-election.
A lesson taken from 19th century railroads
The U.S. railroad system during the late nineteenth century is the perfect case to illustrate this. As it happened, the public-private railroad system was significantly more costly than that of its purely public counterpart.
A more important note here is that the public-private system ran many more stops than its counterpart. The reason for such an occurrence was, as stated by Thomas DiLorenzo in his book, How Capitalism Saved America, “Political interference also meant that separate rail lines were required to be built to serve communities represented by influential members of Congress even if those lines were uneconomical.”
To paraphrase this, the shortest distance between two points is a straight line. However, in order to receive subsidies, it was necessary to diverge considerably from this line and disregard the obvious truism.
Therefore, it should be of little surprise that a map of the US railroad system would look a lot like a child’s scribble. Nevertheless, being in league with government officials comes with its own costs.
Consequently, many companies went bankrupt at one point or another. In fact, the only transcontinental railroad company that didn’t go bankrupt was James Hill’s Great Northern, a completely private enterprise.
The case against tariffs
Bastiat’s genius goes even further, as can be seen in the second part of the question, on the topic of domestic producers being hurt by foreign competition.
Simply put, if opening up borders hurt the domestic producers, and tariffs are needed to offset the lower prices, then what ought to be done is to not even bother imposing tariffs in the first place.
Instead, we should just build the ‘negative railroad’ from the get-go and not waste time or resources by initially pretending to be doing otherwise.
If we take his argument to its logical conclusion, as seen through the eyes of the producers, society would be most prosperous if it regressed to a caveman state, where supply would be as local as possible and people would work as hard as possible for as little as possible.
At least this way they will never have to fear foreign competition. Thus, the producer reigns supreme.
Why governments should take a page from Bastiat
Protectionism, to different extents and in various forms, existed before Bastiat’s time and remains an issue today.
Even now, as recent events show, protectionism wins the political vote and people today are just as ignorant of the fundamentals of trade as they were at the time of Bastiat’s writing – i.e. restricting trade, be it foreign or domestic, is exactly like creating a negative railroad.
Despite being written more than 150 years ago, the timelessness of Bastiat’s insights and the recent uproar of protectionists around the world makes his work to be as important and relevant as ever before.
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Edited by Russell Coates
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