Fixing the price of wheat through legislation is deceptive and dire towards all interested parties, mainly towards those who are supposed to be helped by it.
Complete Works, Volume 2, pages 48 to 57 (in French)
May 1st, 1847
Four months after exposing briefly the drawbacks of the sliding scale, Frédéric Bastiat reverts back to this topic much more in details. His objective is to describe the consequences of it. After noticing that the United Kingdom had adopted in 1815 the same mechanism as France had in place by 1847 (the difference being then only in degrees), he digs in and reasons around the British data because they were of better quality and led after 30 years to substitute a free-trade approach to this catastrophic policy.
The unintended consequences of “protection” through the mobile scale, that was aiming at guaranteeing a high price to wheat producers, are described in this article. The first one which is also the funniest is that it did not guarantee anything and that the British producers ended up constrained to sell all their wheat when the prices were low, without the foreigners losing a penny on their market which they avoided, while the foreign producers made extraordinary profits without the British ones benefitting when the prices were high because the latter had then produced quantities that were too low to be profitable.
The worst consequence had been misallocation of capital, starving the industry when farmers hoped for high decreed prices and creating the inverse effect of industry squandering capital when the plethoric investments into agriculture had led to market prices below the production costs for wheat. Frédéric Bastiat describes three cycles of high and low prices between 1815 and 1845 as well as the crises (farming, industrial, commercial, monetary…) that could be attributed to them.
It is good to note that this type of unintended consequences can be observed each time a government decides to set one or more prices by decree rather than let the free market discover the real price of goods and services. Sometimes, they are just a painless nuisance against efficacy but most of the time, they are as dramatic as what Frédéric Bastiat described 175 years ago!