Quotes of The Day #6: Adam Smith – Socialist?
No, not really, but almost. Here’s a couple of quotes – both from “The Wealth of Nations” – that would not sit well in contemporary right wing American politics:
“Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
The second gets quoted a fair bit because it seems to be a significant cautionary note when considered alongside the rest of “The Wealth Of Nations” in its broadly understood role as a peon to free market capitalism. We all know that Smith was way too sophisticated to be so easily bracketed, but you rarely come across the many such cautions he issued alongside his near mythological reference to what we call the invisible hand.
Now I think about it these two quotes are a ringing indictment of modern business school education and its paradoxical relationship with free market economics.
It is, apparently, not odd to attend classes in a business school and learn all about modern microeconomic theory. The lessons hammer away at efficiency and marginal pricing. They drill home the arguments about efficient markets, especially those that relate to capital. And they go on about the great laws of supply and demand that operate in the timeless vacuum of a market uncluttered by human frailties.
Then off go the students to be drilled into how to make those very frailties into weapons for profit. These other lessons are about how to impede the free market by rigging the game, and by building ‘barriers to entry’, by enforcing patents and copyrights, by eliminating competition, and by interfering in the labor markets to reduce wage bills.
What is learned in a business school education is almost exactly a negation of what is taught to economics students. Both sets of students are taught the wonders of market magic, but then the business school students are taught a myriad tricks to defeat that magic in order to produce long term profits and rents unsustainable under a true market magic regime. Only the economics students, cut off from reality as they are, continue on blissfully unaware that their magical world is being riddled with holes dug by their business school peers.
There is one point where the two groups may still coincide: the minimum wage. As Smith points out business types look at high wages as a cost that raises prices and gets in the way of the delivery of an abundance of goods and services to society. Somehow they never seem to see high profits in the same light. Yet society at large is paying for both.
Should society be indifferent to profit levels but scandalized by higher wages? Does a rise in the minimum wage undermine employment the way the economists preach? If so, does not high profit?
Smith certainly seemed to know the answer. I will leave it to you to think about. I know what I think.
