ADAM SMITH'S UNIQUE REFERENCE TO THE BARGAINER'S CONDITIONAL PROPOSITION

Morgan Liddick posts (27 June) in The News Virginian HERE

OPINION: Pay for My Own Train Ticket? Perish the thought?

“Wherein lies the problem with much of modern America: we all want the best, fastest, most convenient everything – and we want someone else to pay for it.

A capitalist economy works efficiently to determine what people really want, as opposed to what they say they want. As Adam Smith explained, free markets do so by following the principle ”give me what I ask, and I will give you what you desire.” Simple, elegant, functional and ultimately fair, this exchange cares not one whit about the age, race, sex, status, occupation, connections or politics of either party.

On the other hand, government interference in markets has perverse effects: it introduces inefficiency, noise and friction, distorting economic signals and making it harder to determine true values and costs. “

COMMENT

Morgan Liddick deserves a prize for his utilising a most neglected idea enunciated by Adam Smith, but largrly ignored by modern economists, specifcally Smith’s pioneering assessment of the roles of ‘truck, barter and exchange’ in the opening chapters of the Wealth of Nations; specifically (WN I.ii.1-5. pp 25-30).

However, notwithstanding his reference to Adam Smith’s insights, I am not convinced that he has properly understood to what Smith referred.

Long after the “propensity to truck, barter, and exchange one thing for another was utilsed uniquely by human beings in the deep pre-history of our species, it was applied across the species in all of the modes of associated with human history. Even the Bible opens with the breach of bargaining faith by Adam and Eve in the Eden Garden.

In short, exchange behaviours are not unique to a “capitalist economy’, nor specifically only to markets.  Smith notes that the “exchange propensity” functioned long before ‘capitalism’ (a word first used in 1833). Exchange was “one of those original principle of human nature” and a “necessary consequence of the faculties of reason and speech” that are unique to our species (WN I.ii.1-2 p. 25).

The notion that a “capitalist economy works efficiently to determine what people really want, as opposed to what they say they want” is pure fantasy. That capitalism can be more efficient than non-capitalist and pre-capitalist economies is broadly true; that they are always faltless is less certain. And anyway, long before capitalism, people bargained with each other in exchange transactions, using what Smith described as persuasion by speech to: 

‘interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this, Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is this manner that we obtain from one another the greater part of the good offfices that we stand in need of.” (WN I.ii.2. p 26)

This is the clearist statement of the negotiator’s conditional proposition (IF-THEN) that I have found in my 40-year academic career teaching negotiation skills internationally.

Morgan Liddick’s version is somewhat different:” ”give me what I ask, and I will give you what you desire.” He also limits it to a unique feature of capitalism when in fact the bargainer’s conditional proposition is as old as human history.

Free markets do not, and arguably never have, operated in the real world. Smith understood this and indeed makes many references to the behaviour of ‘merchants and manufacturers’, who in his day, (and still in ours), colluded with each other and with governments to introduce the very same ‘peverse effects” that he deprecates, such as tariff charges and outright prohibitions on foreign imports, and regulatory controls to reduce competition.

In short, there are no “free markets” and arguably there never has been. In fact, “merchants and manufacturers” individually and through their trade associations have been the authors of much of the restrctive legislation that governments have enforced on their behalf.

However, I applaud Morgan Liddick’s relatively unique reference to the conditional proposition as explified by Adam Smith in 1776. Readers who want to find out more about exchange conditionality can read about it in my recently re-issued paper-back: 

Kennedy on Negotiation

(1998; paperback 2016)

Routledge,  London and New York