Friday, January 18, 2008

Adam Smith on Low Consumer Prices

Tom Van Riper reports on “Why Wal-Mart may just be good for the U.S.” quoting Minneapolis Fed which shows “economic growth in communities with [Wall-Mart] stores” (Forbes,17 Jan; here)

The study shows that between 1985 and 2003, personal income, overall employment and retail employment grew faster in counties with a Wal-Mart than in those without one.

Surprised? Don't be. Just acknowledge that Adam Smith was probably right: An exchange of goods at low prices benefits everyone. In the case of Wal-Mart, it seems evident that its model of low prices brings more choice to consumers, which is why so many choose to shop there

Wal-Mart has been at the forefront of the productivity boom,’ says Ohio University professor Richard Vedder, co-author (with Wendall Cox) of ‘The Wal-Mart Revolution: How Big Box Stores Benefit Consumers, Workers, and the Economy’ (AEI Press, 2007)

Yet Wall-Mart has a bad press: 24 percent of Americans think the company is bad for the economy, and 31 percent had an unfavourable view of it. Disapproval is sometimes expressed in the UK about its operations (ASDA), yet other low-price stores (for example, Lidl, a German trans-European operation) attract little comment.

Maybe it’s size that matters. Lidl is ubiquitous in Europe. We have one here in Edinburgh and we have one not far from our house in rural France.

Adam Smith was conscious of the possibility that a commercial economy could help ‘spread opulence’ among the ‘inferior’ orders, which certainly was not in prospect under feudalism. Low retail prices raise real incomes and this makes a difference for less well-off families. Less packaging waste relieves resources for other uses. Employment gives opportunities for people who find it difficult to enter the labour market and their wages buy their entry into consumption markets. It also gives dignity where handouts bring felt shame.

The ‘higher orders’ do not understand what they condemn. They do not share the pain of lifelong deprivation. Adam Smith understood these realities. The Edinburgh he lived in on and off for most of his adult life was a mixture of all levels of the natural orders of life, rich and poor, beggarly and prodigal, aristocrats and commoners, educated and ignorant, drunk and sober, moral and immoral, and he observed how they got by or were left behind.

Running all through Wealth Of Nations is the constant measuring rod of did this or that political economy help the ‘progress towards opulence’ and its ‘spread’ to those whose labours fed, clothed and sheltered everybody above them, or did it perpetuate the status quo?

He saw the growth of the annual production of the ‘necessaries, conveniences, and amusements of life’ as the transformation of all societies hitherto known (and those he suspected had preceded literacy) to one in which the majority living on bare subsistence would be a fading memory and not a constant reality.


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