Adam Smith on Who Benefits?

American Enterprise Institute Dr. Mark J. Perry is a full professor of economics at the Flint campus of The University of Michigan, where he has taught undergraduate and graduate courses in economics and finance since 1996. Starting in the fall of 2009, Perry has also held a joint appointment as a scholar at The American Enterprise Institute HERE 

Quotation of the day: Adam Smith

Mark J. Perry | July 18, (Prompted by Don Boudreaux and Tim Worstall):

From Adam Smith’s “An Inquiry into the Nature and Causes of the Wealth of Nations":

”Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.”

Comment

It is also quite common to find commentators quoting the number of jobs “created” by this or that public investment that the state has attracted by it agencies lobbying multi-national corporation or being lobbied by professional lobbyists or professional pressure groups. The number of jobs potentially “created” becomes a controversial agenda when local interests or the professional interest activists get wind of a “development”.

These arguments forget that employment is a cost in an investment; it is not automatically a benefit.  It is about production not consumption, which is the more important criteria in making decisions.   Does the investment benefit consumers?  That is the prime interest. 

Though in benefitting the producers involved it may also benefit them as consumers in regard to their incomes and the expenditures they necessarily make from them. It is therefore a matter of judgement, which is down to specific cases. 

For example the modern road suspension bridge over the River Humber in England is still used well below capacity, even 20 years later. It is a bridge to ‘nowhere’. 

It was built with taxpayers’ money, largely by what US voters call “pork barrel politics” (I think!), to support local Labour Party interests.  Clearly it benefited bridge-building producer interests at the expense of alternative projects that may have benefitted consumers’ more.