Monday, April 17, 2006

Peanuts and the Markets

This article by Jim Blasingame is an excellent (and overdue) example of the correct use of Adam Smith’s legacy and worth reading in full from,1426,MCA_440_4626139,00.html)

Connecting the division of labour (which, incidentally, was not invented or first high-lighted by Adam Smith and he never claimed it was) to a basic example of its effects on economic development through the gradual extention of markets. The woman in question, Biutou Doumbia, humble station in life and illiterate, going about her small-scale business, does more to illustrate how markets grow in power to change the lives for the better of those touched by them.

The makers of the diesel powered grinder do their bit too (as do the maintenance workers and repairers). Scores of others besides Biutou Doumbia will add the services of the grinder to their processes, saving enormously on using their energies, physical strength, and above all time, which has opportunity costs on family life and obligations. So will the suppliers of the diesel fuels, the tranporters of the fuel, and back through its own supply chain and processes.

A small example, as the one that Smith borrowed from Diderot’s Enclyclopedia (1755), the pin factory he made famous in ‘Wealth of Nations’ (1766), carries significance if it educates general readers and students to understand an aspect of commercial societies than is important in Mail, Africa, and in developed capitalist societies in North America and Europe.

Congratulations to Jim Blasingame - potential April winner of the "Lost legacy Monthly Prize" for excellence in promoting the real Adam Smith - for providing this example of good writing - and for for publishing it.

Outsourcing savings may be peanuts by Jim Blasingame (in in Memphis, Tennessee, USA (©. All Rights Reserved) [,1426,MCA_440_4626139,00.html]

"Biutou Doumbia lives in a tiny village in the West African country of Mali. Biutou (sounds like Bee-oo-too) and her family live in poverty, very close to the line between survival and, well, you know.

Oh, one more thing: Biutou is a small business owner. She makes and sells peanut butter.
In Mali, as Roger Thurow reports in a Wall Street Journal article, peanut butter is made the same way African women have made other staples for millennia: by grinding the seeds on a rock with a large wooden pestle.

You might say that Biutou's operation is vertically integrated: She grows the peanuts, and then manufactures, sells and distributes her product.

Over two centuries ago, in "The Wealth Of Nations," Adam Smith explained how markets are made by the division of labor. And free markets created capitalism, which Ayn Rand called, "the only system geared to the life of a rational being."

Biutou doesn't know Smith or Rand from a warthog -- she's illiterate.

But she is one of Rand's rational beings. And as such, she recognized the efficiencies offered by the division of labor when a diesel-powered grinder/ blender became available. Now for 25 cent and a 10-minute wait, the sack of peanuts Biutou carries to the central grinding location turns into better peanut butter than she could make pounding all day with a pestle.

So Biutou now practices intermediation -- a fancy modern-day word for division of labor -- which is the process of employing contractors to create efficiencies. It's a valid business strategy, as is its opposite -- you guessed it -- disintermediation, the process of removing vendor layers, usually to get closer to our customers

(Jim Blasingame is the award-winning host of "The Small Business Advocate Show," and author of "Three Minutes to Success." Find Jim at


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