2015-10-14
574
with other students @ @
The Betrayal Of Adam Smith
Part 1
Smith's epic work The Wealth of Nations, which was first published ___ 1776, presents a radical
condemnation ___ business monopolies sustained and protected ___ the state. Adam Smith's ideal was a
market comprised solely ___ small buyers and sellers. He showed how the workings ___ such a market
would tend toward a price that provides a fair return to land, labor, and capital, produce a satisfactory
outcome ___ both buyers and sellers, and result ___ an optimal outcome ___ society ___ terms ___ the
allocation ___ its resources. He made clear, however, that this outcome can result only when no buyer or
seller is sufficiently large to influence the market price—a point many who invoke his name prefer not to
mention. Such a market implicitly assumes a significant degree ___ equality ___ the distribution ___
economic power—another widely neglected point.
Indeed, Smith was almost fanatical ___ his opposition to any kind ___ monopoly power, which he defined as
the power of a seller to maintain a price ___ an indefinite time above its natural price. Indeed, he asserted
that trade secrets confer a monopoly advantage and are contrary ___ the principles ___ a free market. He
would surely have strongly opposed current efforts ___ market libertarians to strengthen corporate monopoly
control ___ intellectual property rights through the General Agreement ___ Tariffs and Trade (GATT). The
idea that a major corporation might have exclusive control ___ a lifesaving drug or device and thereby be
able to charge whatever the market will bear would have been anathema ___ him.
Part 2
Furthermore, Smith did not advocate a market system based ___ unrestrained greed. He was talking ___
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small farmers and artisans trying to get the best price ___ their products to provide ___ themselves and their
families. That is self-interest—but it is not greed. Greed is a high paid corporate executive firing 10,000
employees and then rewarding himself ___ a multimillion dollar bonus ___ having saved the company so
much money. Greed is what the economic system being constructed ___ the corporate libertarians
encourages and rewards.
Smith had a strong dislike ___ both governments and corporations. He viewed government primarily as
instruments ___ extracting taxes to subsidize elites and ___ intervening __ the market to protect monopoly.
In his words, "Civil government, so far as it is instituted ___ the security ___ property, is in reality instituted
___ the defence ___ the rich ___ the poor, or of those who have some property against those who have
none at all." Smith made no mention ___ government intervention to set and enforce minimum social, health,
worker safety, and environmental standards ___ the common interest—to protect the poor ___ the rich. We
can imagine that given the experience ___ his day the possibility never occurred ___ him.
Part 3
The theory of market economics, as contrasted ___ free market ideology, specifies a number ___ basic
conditions needed ___ a market to set prices efficiently ___ the public interest. The greater the violation ___
these conditions, the less efficient the market system. Most basic is the condition that markets must be
competitive. I recall the professor in my elementary economics course using the example ___ a market
comprised ___ small wheat farmers selling ___ small grain millers to illustrate the idea ___ perfect market
competition. Today, four companies—Conagra, ADM Milling, Cargill, and Pillsbury—mill nearly 60 percent
___ all flour produced in the United States, and two ___ them—Conagra and Cargill—control 50 percent ___
grain exports.
In the real world ___ unregulated markets, successful players get larger and ___ many instances use the
resulting economic power to drive or buy out weaker players to gain control ___ ever larger shares ___ the
market. ___ other instances "competitors" collude through cartels or strategic alliances to increase profits
___ setting market prices ___ the level ___ optimal efficiency. The larger individual and more collusive
market players become, the more difficult it is ___ newcomers and small independent firms to survive, the
more monopolistic and less competitive the market becomes, and the more political power the biggest firms
wield behind demands ___ concessions ___ governments that allow them to externalize ever more ___ their
costs ___ the community.
Part 4
One of the main points of The Wealth of Nations is that the free market, while appearing chaotic and
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unrestrained, is actually guided to produce the right amount and variety ___ goods ___ a so-called "invisible
hand". If a product shortage occurs, ___ instance, its price rises, creating a profit margin that creates an
incentive ___ others to enter production, eventually curing the shortage. If too many producers enter the
market, the increased competition ___ manufacturers and increased supply would lower the price ___ the
product to its production cost, the "natural price". Even as profits are zeroed out at the "natural price," there
would be incentives to produce goods and services, as all costs of production, including compensation ___
the owner's labour, are also built ___ the price of the goods. If prices dip ___ a zero profit, producers would
drop ___ of the market; if they were ___ a zero profit, producers would enter the market. Smith believed that
while human motives are often selfish and greedy, the competition ___ the free market would tend to benefit
society as a whole ___ keeping prices low, while still building in an incentive ___ a wide variety of goods and
services. Nevertheless, he was wary ___ businessmen and argued ___ the formation ___ monopolies. Smith
vigorously attacked the antiquated government restrictions which he thought were hindering industrial
expansion. In fact, he attacked most forms of government interference ___ the economic process, including
tariffs, arguing that this creates inefficiency and high prices ___ the long run. This theory, now referred to as
"laissez-faire", which means "let them do", influenced government legislation ___ later years, especially ___
the 19th century.
