AN ECONOMIST LOOKS BACK AT EARLY MARKETS

James P. Pinkerton posts (30 August) on Breitbart News HERE

“On the Origins of the Orthodoxy: Adam Smith and David Ricardo”

“The beginnings of an intellectually rigorous discussion of trade can be traced to 1776, when Adam Smith published his famous work, An Inquiry into the Nature and Causes of the Wealth of Nations.

One passage in that volume considers how individuals might optimize their own production and consumption:

It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy.

Smith is right, of course; everyone should always be calculating, however informally, whether or not it’s cheaper to make it at home or buy it from someone else.

We can quickly see: If each family must make its own clothes and grow its own food, it’s likely to be worse off than if it can buy its necessities from a large-scale producer. Why? Because, to be blunt about it, most of us don’t really know how to make clothes and grow food, and it’s expensive and difficult—if not downright impossible—to learn how. So we can conclude that self-sufficiency, however rustic and charming, is almost always a recipe for poverty.

Smith had a better idea: specialization. That is, people would specialize in one line of work, gain skills, earn more money, and then use that money in the marketplace, buying what they needed from other kinds of specialists.

Moreover, the even better news, in Smith’s mind, was that this kind of specialization came naturally to people—that is, if they were free to scheme out their own advancement.  As Smith argued, the ideal system would allow “every man to pursue his own interest his own way, upon the liberal plan of equality, liberty and justice.”

That is, men (and women) would do that which they did best, and then they would all come together in the free marketplace—each person being inspired to do better, thanks to, as Smith so memorably put it, the “invisible hand.” Thus Smith articulated a key insight that undergirds the whole of modern economics—and, of course, modern-day prosperity.”

COMMENT

Most of what James P. Pinkerton alludes to is unexceptional and fairly accurate historically. For most human societies for thousands of years, the making or adapting of nature’s provisions for instance was based on self-sufficiency and the necessity of the resultant relative poverty. The absence of specialisation, apart from the sex/gender division of labour, was the most common characteristic of our species. This did not preclude variations in the quality of what individuals produced. Some were better at tracking animals - and strangers from other tribes or clans - as well as all the other daily tasks of self-sufficiency. 

The resultant differences in quality were just the way it was over the millennia.  These individual diferrences probably were a basis, eventually, for the emergence of rude forms of exchange in the inevitable trade-offs by non-monetary exchanges of roles between individuals. Trackers, stalkers/chasers/killers/carriers/skinners/
butchers and cookers which were likely the basis for elementary and natural specialisation, again over millennia.

However, what basis there was for using the metaphor of ‘an invisible hand’ is an open question. Market places were a long way in the future.

James P. Pinkerton jumps ahead too fast. ‘Free marketplaces’ do not spring to mind as an early practice of human kind, nor does the "invisible hand" metaphor have any relevance.