Wednesday, March 28, 2007

Some People Quote Smith Appropriately

It’s great when an author quotes from Wealth Of Nations and puts in its proper context, especially when it is one of his most oft repeated quotations – the one about people of ‘the same trade’, etc., ….

Jake Mortenson of the University of South Dakota contributes a column to ‘USD Volante’ at Vermillion, South Dakota, and writes about Smith’s quotation and the strange inconsistency in state sponsored interventions in different markets:

“As a general rule, beware of any laws concerning economic transactions with "fair" in the title. They are usually no more than means for well-organized producer groups to gain an "unfair" advantage over consumers by limiting competition. As Adam Smith once wrote: "People of the same trade seldom meet together ... but the conversation ends in ... some contrivance to raise prices ... [Government] ought to do nothing to facilitate such assemblies, much less render them necessary."

In other markets, most notably gasoline, Mr. Smith's words are heeded. Price collusion is strictly prohibited. In alcohol sales, it is apparently against the law to NOT collude at a certain price level. With all of the vague, biased language stripped away, what SDCL 37-10A-1 boils down to is a legalized form of price collusion. In a state which supposedly favors limited intervention in markets, it is disappointing that the 1989 South Dakota legislature had not read Mr. Smith or chose not to heed his warning. It is the hope of this columnist that future lawmakers will not so easily succumb to well-organized producer groups.”

Perfect. See the original quotation in context at: WN I.x.c.27: p 143.

Note the contradiction: encouraging competition, with a great deal of suspicion that it is not operating effectively, in the oil industry and on garage forecourts, and blocking competition in alcohol sales and being pleased with the non-competitive results.

I am aware of the 'moral hazard' arguments for alcohol and tobacco sales, though even here there is a contradiction in respect of the outright prohibition of drug sales, a policy that has been an absolute failure in neither preventing consumption or supply, and have filled out jails with thousands, plus the many thousands of others who remain uncaught from committing crimes to acquire the money to purchase the drugs and, as a byeproduct, enrich the criminal suppliers. But that's another story.

[Read Jake Mortenson at:


Blogger Jake said...

Mr. Kennedy,

Thank you for noticing and commenting on my column.

And I agree with your analysis whole-heartedly.


Jake Mortenson

2:52 am  
Blogger Gavin Kennedy said...

Hi Jake

Many thanks for your comment and agreement.

7:59 am  

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