Thursday, July 10, 2008

Adam Smith's Question for Political Candidates

Henry Clay Ruark writes about three conclusions to his “Op Ed: 'Econ 101' Corrupted By Corporate Design”, HERE the third of which was:

Third - only because it is the driving force behind the other two is "free trade": The laissez-faire theory that the less-restricted any commercial transaction is, the better for all concerned.

That theory is always supported by carefully-stated reference to the “invisible hand” first conceived by Adam Smith; but also always overlooking Smith’s "careful and complete definition of an honest, open, balanced, two-sides-gaining transaction."
That’s NOT how corporate/business interests choose to operate, as we have painfully learned over the past half-century.

Market fundamentalism, based on “free trade” theory as overwhelming driving/force, was "born in the U.S.A." On its worldwide record NOW, as the 21st Century grinds unmercifully on, it deserves to die here, too.

No longer can it continue domination by aggressive non-union activities; by manipulation and massive machinations to assure longer hours; less share of gains from growing productivity; and more stock-holder 'profits' via dividends, and management-gains by stock and cash-paid lush bonuses.

It is natural fact, too, that those must always come at the cost of cooperative principle and practical satisfactions-sharing for all; as in living wages and benefits for the worker-side of this natural equation.
"From whence-else?", we must ask --and insist on a straightforward sensible, checkable answer, always.

We need --indeed, we MUST have !-- a new model based on what we now know, having learned it "the hard way" ever since the first Great Depression --if we are to offset and prevent the Second GD, already in sight

The fact is there has never been free trade in post-Smithian economies.

Britain, smarting from its ‘wounds’ from the rejection by its colonists in North America, instead of heeding Adam Smith’s final paragraph of Wealth of Nations – to adjust its foreign policy to ‘the mediocrity of its circumstances’ – gradually slid into a second empire project in Canada, the Caribbean, Australia, New Zealand and, in an exhibition of its ultimate and original folly, in India and Asia.

It also continued to engage in wars on the continent of Europe and at sea (the latter with more justice in view of its island vulnerability). This acted as drag anchor on the spread of opulence in the 19th century, as governments spent millions on wars for trivial ends, instead of lowering taxes to all individuals to choose to invest in fixed and circulating capital.

The second empire was finished off, effectively, by two world wars, though still the British state continues to ignore the ‘mediocrity of its circumstances’ and bask in its self-awarded status as a ‘world power’.

We should note that the “invisible hand” was not “first conceived by Adam Smith” (see entries in Lost Legacy passim). It was a metaphor conceived by modern, mainly US, economists seeking a handy benediction for the applicability of their abstract mathematical theories of General Equilibrium, a sort of Holy Grail in Economics, its marvellous perfectibility compromised by the total absence of human beings in its models of the real world economies.

In practice, economics does more than ‘always overlooking Smith’s "careful and complete definition of an honest, open, balanced, two-sides-gaining transaction".’ Home policies of import restrictions, tariffs and non-tariff barriers and subsidies and dumping agricultural exports, combine to undo any pretensions to free trade.

The “new model based” we now need is actually an old 18th-century model but which Adam Smith was sanguine about its chances ever being adopted by the British Government (and by extension from the experiences of Europe, USA, most developed countries, and almost all developing countries too) comes up against the domestic resistance of those who gain from the non-free trade arrangements (including, I suspect, Henry Clay Ruark, the author seeking a ‘new model’ distant from ‘free trade’).

Smith wrote in Wealth Of Nations this stinging, sardonic, and absolutely credible paragraph, true for his days and outs:

To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the publick, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it. Were the officers of the army to oppose with the same zeal and unanimity any reduction in the numbers of forces, with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home-market; were the former to animate their soldier, in the same manner as the latter enflame their workmen, to attack with violence and outrage the proposers of any such regulation; to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of the, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The Member of Parliament [read: member of Congress and candidate for President] who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest publick services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.” [WN IV.ii.43: p 471]

Readers should send a copy of this extract from the Wealth Of Nations to their local politicians, who join the clamour among business owners and trade unionists for protection from rival business owners and foreign workers, and who pocket their protected profits and higher wages at their domestic consumers’ expense.

Ask which type of legislator they are (and which type of President they will be): the one favouring their constituents paying more for what they need, or the other (rare) type favouring raising their constituents real incomes by extending competition, the only lasting measure against monopolies, misbehaviour, and higher prices?


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