Sunday, January 01, 2012

Once More on Smith's Parable of the "Poor Man's Son"

Steve Ross posts in Vibinc Blog (self-described as ‘progressive politics from Memphis, TN’ HERE

We’ve been locked in this misguided notion of the Adam Smith’s “Invisible Hand” of the marketplace for a very long time. Smith was commenting more on how commerce, in a pre-industrial revolution economy, will produce goods in high demand and distribute the excess of those goods to the needy out of self-interest.

How does Adam Smith’s largely agrarian idea of an “Invisible Hand” apply to our current scenario? In the 18th Century it was customary for producers, be they farmers, bakers, or other merchants, to produce as much as they could which in turn resulted in an excess. Dealing with that excess left two possibilities: give it away (or sell below market) or allow it to spoil.
Given those two scenarios, the natural conclusion is to ensure that it is productive in some way, which may mean giving it away.

An interesting, because uncommon, take on Adam Smith’s meaning in using the invisible hand metaphor once in Moral Sentiments (1759). Steve's unusual interpretation is open to serious challenge by examining Smith’s point in his text.

It reminds me of the only other time where I read a similar assertion in an article by William Gamp, which was challenged by Peter Minowitz in a detailed response HERE . Gamp claimed that the ‘proud and unfeeling’ landlord was immortalised by Adam Smith as charity for the poor in pursuit of national defence! But neither Steve Ross nor William Gamp are supported by Adam Smith’s text.

Steve Ross develops his theme that in the 18th century “it was customary for producers, be they farmers, bakers, or other merchants, to produce as much as they could which in turn resulted in an excess”, a wholly speculative and unlikely assertion, not supported by credible evidence, nor by the context referred to by Adam Smith in Moral Sentiments.

There was no refrigeration available for butchers to kill stock beyond what they were likely (barring occasional accidents) to sell in markets on any day, even with a regular backstop of giving it away, nor for bakers to mill more flour to bake excess bread. Prudent petty-producers do not behave that way. Producers of storable commodities had the safer assurance that what they didn’t sell on a particular day they could sell to recover their costs and earn a profit on another day. There were, of course, excess – and deficit – product supplies in the normal course of marketing things, especially in farming, fishing, livestock, perishable vegetables, and fruits, and such like, but such mismatches between supplies and demands were unreliable events beyond the control of producers to make charity a significant source of subsistence for the unemployed poor. It is also debatable that such charity was ‘customary’ except at the margin. Regular free surpluses would undermine markets - the poor and the greedy were not stupid - and neither were the middle classes, nor even the "unfeeling" rich producers.

Smith’s far more penetrating observation was that the distribution that took place consisted of the ‘unfeeling’ landlord, viewing his fields, imagining that he consumed all the produce as evidence of his pride, forgetting momentarily, that some considerable proportion of his products were distributed in those feudal (or Southern US slave-worked plantation) times, not as charity (nor for Gramm's ‘national defence’. The distribution, out of the "unfeeling" owner's necessity, to the ‘thousands’ he ‘employed’ in his fields, was because without regular distribution from his fields, his labourers and their families would not survive – they had no other source of subsistence. And if they didn’t survive, who then would be fit enough to sustain the greatness of the ambitious, ‘unfeeling’, masters of change who had altered ‘the face’ and explored the ‘oceans’ of ‘the earth’ by the humble labour of the thousands whom they employed?

All parables have a punch line, and the invisible hand of mutual dependence was Smith's on this occasion, leading the"unfeeling" landlord, from his absolute dependence, to share some of the annual product of his fields with the 'thousands whom he employed', which, thereby, unintentionally, led him to help to "propagate and ensure the survival of the species".

Smith’s whole point in his Moral Sentiments (check the text!) was that this was part of the ‘delusion’ that the wealthy ‘unfeeling’ landlords (and US slave owners) had of their social role in life, and it was this delusion that drove the ambitions of the ‘poor man’s son’ in his parable in TMS (Book IV, Chapter 2), in which he used the IH metaphor.

(Note: in Moral Sentiments his use of the IH metaphor had nothing to do with ‘markets’!).



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