The Negative Railroad is named for a famous argument made by a French economist and writer, Frederic Bastiat.
Bastiat 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.”
One of Bastiat’s significant contributions to the study of political economy was an essay titled, What is Seen and What is Not Seen. In this essay he describes what has become an axiom in economic thought, the broken window fallacy:
Suppose that it will cost six francs to repair the [broken window]. If you mean that the accident gives six francs' worth of encouragement to the aforesaid industry, I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.
But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.
It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them.
Let us next consider industry in general. The window having been broken, the glass industry gets six francs' worth of encouragement; that is what is seen.
If the window had not been broken, the shoe industry (or some other) would have received six francs' worth of encouragement; that is what is not seen.
And if we were to take into consideration what is not seen, because it is a negative factor, as well as what is seen, because it is a positive factor, we should understand that there is no benefit to industry in general or to national employment as a whole, whether windows are broken or not broken.
Revealing the unseen is a central purpose here at the NRR. But, it was in Bastiat’s seminal book, Economic Sophisms, that he described our namesake, The Negative Railroad.
I have said that as long as one has regard, as unfortunately happens, only to the interest of the producer, it is impossible to avoid running counter to the general interest, since the producer, as such, demands nothing but the multiplication of obstacles, wants, and efforts.
I find a remarkable illustration of this in a Bordeaux newspaper. M. Simiot raises the following question:
Should there be a break in the tracks at Bordeaux on the railroad from Paris to Spain?
He answers the question in the affirmative and offers a number of reasons, of which I propose to examine only this:
There should be a break in the railroad from Paris to Bayonne at Bordeaux; for, if goods and passengers are forced to stop at that city, this will be profitable for boatmen, porters, owners of hotels, etc.
Here again we see clearly how the interests of those who perform services are given priority over the interests of the consumers.
But if Bordeaux has a right to profit from a break in the tracks, and if this profit is consistent with the public interest, then Angoulême, Poitiers, Tours, Orléans, and, in fact, all the intermediate points, including Ruffec, Châtellerault, etc., etc., ought also to demand breaks in the tracks, on the ground of the general interest—in the interest, that is, of domestic industry—for the more there are of these breaks in the line, the greater will be the amount paid for storage, porters, and cartage at every point along the way. By this means, we shall end by having a railroad composed of a whole series of breaks in the tracks, i.e., a negative railroad.
Whatever the protectionists may say, it is no less certain that the basic principle of restriction is the same as the basic principle of breaks in the tracks: the sacrifice of the consumer to the producer, of the end to the means.
To restate the idea:
Due to the transport efficiency of a proposed new rail line between France and Spain, each country's producers will be able to provide certain goods to the foreign market at a lower price. Domestic producers of these goods are afraid of being out-competed by the newly viable foreign industry. These domestic producers petition government for tariffs raise the cost of the foreign goods to their pre-railroad levels to preserve their sales.
Bastiat suggests that, rather than enacting tariffs, the government should simply destroy the railroad anywhere that foreign goods are sold for less than local goods. He goes on to suggest that that government should simply build a broken or *negative* railroad right from the start, and not waste time with tariffs and rail building.
Taking Bastiat's argument farther, by examining everything from the perspective of the producer, society would be "best" if we were regressed to a cave-man state where supply of goods was at maximum scarcity. Then people would have to work as hard as possible for as little as possible and never have to fear outside competition.
Bastiat's negative railroad illustrates two major points: