Correct Use of Smith's Views on Monopolies

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Gavin Kennedy

Vinod Dhall, writing in The Economic Times, India (http://www.indiatimes.com) writes a most interesting article on cartels (11 October 2005), leading with a most famous quote from “Wealth of Nations”:
“Adam Smith wrote in 1776 in The Wealth of Nations, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”. Today, we know such collusive conduct simply as a cartel.

In competition law, cartels are regarded as the most pernicious form of violation. They cheat unsuspecting consumers, and create market power, waste and inefficiency in markets. Their conspiratorial nature lends them a criminal colour. An OECD survey indicated that in just 16 cartel cases, the commerce affected exceeded $55 bn world-wide. Considering that the cartel mark-up can be as high as 50per cent or more, it gives an idea of the magnitude of the harm done, including to poor or developing countries.”
Then follows a list of example of recent cartel scandals among several private sector organisations, together making a striking indictment of the proclivity of modern ‘merchants and manufacturers’ to act suspiciously and promote monopoly and cartel interests at the expense of consumers as Smith noted. These are part of the very good reasons why Smith did not endorse the extreme advocacy of laissez faire policies in respect of business, contrary to erroneous assertions (beginning with John Stewart Mill in 1849 and the editor of The Economist) that his political economy is synonymous with laissez faire, still widely believed and taught in academe (at least by those - the overwhelming majority - who have never read his books) and among politicians.

Disregard for consumers – the ultimate people for whom all production is undertaken (WN IV.viii.49: p 660) – is not confined to some businesses. It is also rampant in government and its agencies, whose disregard for consumers (and the same people as electors) is legion.

Supporters of big government love quoting Smith on the inequities of rogue ‘merchants and manufacturers’ but seldom question the sometimes pernicious role of state employees in their many rip-offs of the public committed in the name of Government, unless, of course, the employees concerned, and their Ministers, are in government and the politicans who comment are waiting to change from being the Opposition into a becoming the Government.