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.
1 Comments:
Very interesting comment you have made! No sarcasm, it was informing. I'll need to make a follow up to my "Iron Calculator vs. The Invisible Hand" post that made your Looney Tunes list. doh!
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