What Did Adam Smith Say?

John Bunting posts (16 April) HERE 

“What Would Adam Say?”

“Adam Smith is known as the “father of capitalism.”  His main work published in January 1776, the “Wealth of Nations” is the basis for much contemporary economic thinking.  From his work the concept of the ” invisible hand” working for everyone’s benefit originated.

Smith, however saw the market, where prices are determined, as a meeting of equals.  What would Smith have to say about dairy trading on the Chicago Mercantile Exchange (CME) where the powerful determine farm milk price, and blame the lowing of prices on dairy farmers producing too much milk?

Take the idea back a step further.  Most cheese is only recognizable as cheese because the changes happened over a few years.  The basis of modern capitalism is not a utopian meeting of equals but, of the powerful and greedy cheating both farmers and consumers.

Milk protein concentrate added to the cheese vat produces more cheese but, it is inferior cheese.  The U.S. government just looks the other way as “standards of identity” are ignored.

Cheese prices on the CME fell in February 2012 even though inventories of cheese were down.  To add insult to the whole process, look at MPC imports, as we know them through February.

The import unit prices for MPCs are up this year, so it cannot be the great deals.  Naturally, all the details about who, what and why are not to be known…so much for a meeting of equals.”

Comment

John is somewhat incorrect in his suppositions about Adam Smith. 

The “supposition” that “the concept of the ” invisible hand” working for everyone’s benefit originated”, is a myth of modern derivation and is not supported by Adam Smith’s text, “The Wealth Of Nations”, where he mentions the metaphor “an invisible hand” only once, in reference to a particular case of a merchant who feels insecure about sending his capital to trade abroad, and therefore prefers to invest in the “domestick industry”.   This adds to domestic “revenue and employment” (the whole is the sum of its parts) and thereby that outcome is a public benefit.  He said nothing about other merchants, either exporting abroad (not so insecure) or already investing domestically, perhaps out of habit.  See Smith, “Wealth Of Nations”, Book IV, chapter 2, paragraphs 1 – 9.

The idea that there is an “invisible hand” operating in society that “benefits society” is not a concept of Adam Smith's; many merchants operate to the detriment of consumer interests, engaging in monopolistic practices to “narrow the market to raise prices”, “supporting tariffs to reduce competition”, or outright prohibitions with the same end in view. 

That “concept” was not part of Adam Smith’s Works.  In fact, it is the opposite of Smith’s views.  That it is widely believed to be so, is an invention of modern economists since the later 1940s and inverts Smith’s ideas from his more modest observations.

Nor did Smith talk about “the market, where prices are determined, as a meeting of equals”.  Whether there was “equality” between buyers and sellers depended on a lot of other factors, not the least of which was the absence of monopoly, the presence of numerous sellers competing for the buyers’ agreement, a general prevalence of liberty, and the rule of law.   The case John describes in Cheese production, is not a competitive market.