Tuesday, October 27, 2009

When Wealth Isn't Wealth

Andy Absher writes in the Herald Bulletin online HERE

Businesses compete because they must Discouraging risk-taking is a red herring”

“When you read Nancy Turner’s viewpoint, you would think the name of Adam Smith’s book was, “The Wealth of the Wealthy”. Though Smith makes many points, the point of competition isn’t so that the rich can get richer but so the common consumer can have the best price via market competition

Andy Absher makes this comment in the course of a local debate on Health Insurance, which is outside my remit on Lost Legacy (I only comment on political topics in the country where I vote – Scotland).

However, it is worth noting that Andy appears to confuse a different meaning of the word “wealth” with Adam Smith’s. Smith wrote Wealth Of Nations to clarify the real meaning of wealth from its confused meaning. That confusion remains active today.

The prevailing meaning of “wealth” in 18th-century Britain was that it manifested itself in gold and silver bullion (paper money in the form of promissory notes were of recent vintage – most people preferred their money in bullion form). A consequence of this version of money is that Sovereigns were supportive of policies that seemed to assure them of the greatest amount of gold and silver bullion accumulating in their treasuries year by year,

From this obsession they approved all kinds of policies that ensured they exported products abroad to earn more gold and silver than they had to send out of the country to pay foreigners for those products they imported. And they kept a tight reign on exports of gold and silver by means of protection (tariffs, prohibitions, monopolies of shipping and general hostilities towards other countries).

Adam Smith taught that the real wealth of a country was measured in the “annual output of the necessaries, conveniences, and amusements of life”, in short, what a country produced annually. Policies that led to more output were wealth creating; policies that restricted imports caused the purchase of expensive products that could be produced more cheaply at home, thus reducing the “annual output of the necessaries, conveniences, and amusements of life”, and made the country poorer as a result.

“The Wealth of the Wealthy” on this measure is meaningless. It smacks of a radical student’s slogan.



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