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Apr-15-2009 07:40printcomments

The Conservative Dilemma 3

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Adam Smith
Adam Smith

(CALGARY, Alberta) - For those conservatives who still maintain that Adam Smith supports their anti-social ideology, here is an extended “interview” gleaned from Smith’s most famous work The Wealth of Nations.

Johnson: Capitalism is very competitive. Is there no room for cooperation?

Smith: Without the assistance and cooperation of many thousands, the very meanest person in a civilized country could not be provided, even according to what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.

Johnson: Speaking of the meanest person, what about the poor who always seem to be with us?

Smith: No society can surely be flourishing and happy, of which the far greater part of the members and poor and miserable. It is but equity, besides, that they who feed, clothe and lodge the whole body of the people should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged.

When the stock which man possesses is no more than sufficient to maintain him for a few days or a few weeks, he seldom thinks of deriving any revenue from it. He consumes it sparingly as he can, and endeavors by his labour to acquire something which may supply its place before it is consumed altogether. His revenue is, in this case, derived of the labouring poor of all countries.

Johnson: What of the gap between the very rich and the very poor?

Smith: For one very rich man, there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of the valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security. He is at all times surrounded by unknown enemies, whom, though he never provoked, he can never appease, and from whose injustice he can be protected only by the powerful arm of the civil magistrate continually help up to chastise it.

Johnson: What is the relationship between employer and employee?

Smith: The workmen desire to get as much, the masters to give as little, as possible. In all such disputes, the master can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run, the workman may be as necessary to his master as his master is to him, but the necessity is not so immediate.

Johnson: What is the purpose of money?

Smith: The sole use of money is to circulate consumable goods. By means of it, provisions, materials, and finished work are bought and sold and distributed to their proper consumers. The quantity of money, therefore, which can be annually employed in any country must be determined by the value of the consumable goods annually circulated within it. The quantity of money must in every country naturally increase as the value of the annual produce increases. The value of the consumable goods annually circulated within a society being greater, will require a greater quantity of money to circulate them.

Money, says the proverb, makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little.

Johnson: And capital?

Smith: Whatever part of his stock a man employs as capital, he always expects it to be replaced to him with a profit. He employs it, therefore, in maintaining productive hands only; and after having served in the function of capital to him, it constitutes revenue to them.

Capitals are increased by parsimony, and diminished by prodigality and misconduct. Parsimony, and not industry, is the immediate cause of the increase in capital. Industry, indeed, provides the subject which parsimony accumulates. But whatever industry might acquire, if parsimony did not save and store up, the capital would never be the greater.

Whatever a person saves from this revenue he adds to his capital, and either employs it himself in maintaining an additional number of productive hands, or enables some other person to do so, by lending it to him for an interest, that is, for a share of the profits. As the capital of an individual can be increased only by what he saves from his annual revenue or his annual gains, so the capital of a society, which is the same as with that of all the individuals who compose it, can be increased only in the same manner.

Johnson: How do prices fit into your scheme?

Smith: The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose on other people.

Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.

Johnson: And wages?

Smith: Wages, profit and rent, are the three original sources of all revenue as well as of all exchangeable value. As any particular commodity comes to be manufactured, that part of the price which resolves itself into wages and profit, comes to be greater in proportion to that which resolves itself into rent.

When in any country the demand for those who live by wages is continually increasing; when in every year furnishes employment for a greater number than had been employed the year before, the workmen have no occasion to combine in order to raise their wages. It is not the actual greatness of the national wealth, but its continual increase, which occasions a rise in the wages of labour.

Johnson: What role might government have in balancing prices with wages?

Smith: Whenever the law has attempted to regulate the wages of workmen it has always been rather to lower than to raise them.

Johnson: What are the factors that influence profits?

Smith: Disagreeableness and disgrace affect the profits of stock in the same manner as the wages of labour. The keeper of an inn or tavern, who is never master of his own house, and who is exposed to the brutality of every drunkard, exercises neither a very agreeable nor a very creditable business. But there is scarce any common trade in which a small stock yields so great a profit.

Our merchants and master-manufacturers complain much of the bad effects of high wages raising the price, and thereby lessening the sale of their goods both at home and abroad. They saying 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.

Johnson: How could a fair profit be determined?

Smith: The lowest ordinary rate of profit must always be something more than what is sufficient to compensate the occasional losses to which every employment of stock is exposed. It is this surplus only which is net or clear profit. What is called gross profit comprehends frequently, not only this surplus, but what is retained for compensating such extraordinary losses. The interest which the borrow can afford to pay is in proportion to clear profit only.

The lowest ordinary rate of interest must, in the same manner, be something more than sufficient to compensate the occasional losses to which lending, even with tolerable prudence, is exposed. Were it not more, charity or friendship could be the only motive for lending.

It may well be laid down as a maxim, that wherever a great deal can be made by the use of money, a great deal will commonly be given for the use of it; and that wherever little can be made from it, less will commonly be given for it.

Johnson: Some professions, such as law and medicine, are sometimes criticized for having too highly paid practitioners. Your view?

Smith: We trust our health to the physician; our fortune and sometimes our life and reputation to the lawyer and attorney. Such confidence could not be safely reposed in people of a very mean or low condition. Their reward must be such, therefore, as may give them that rank in the society which so important a trust requires. The long time and great expense which must be laid out in their education, when combined with this circumstance, necessarily enhance further the price of their labour.

Johnson: You have even argued that lawyers should be paid more.

Smith: Put your son apprentice to a shoemaker, there is little doubt of his learning to make a pair or shoes. But send him to study law, it is at least twenty to one if ever he makes such proficiency as will enable him to live by the business. It is a perfectly fair lottery, those who draw the prizes ought to gain all that is lost by those who draw the blanks. In a profession where twenty fail for one that succeeds, that one ought to gain all that should have been gained by the unsuccessful majority.

The counsellor at law who, perhaps, at near forty years of age, begins to make something of his profession, ought to receive the retribution, not only of his own so tedious and expensive education, but that of more than twenty others who are never likely to make anything by it. However extravagant soever the fees of law may sometimes appear, their real retribution is never equal to this. The lottery of the law, therefore, is very far from being a perfectly fair lottery; and that, as well as many other liberal and honourable professions, is, in point of pecuniary gain evidently under-recompensed.

Johnson: You did not anticipate the rise of the multinational corporation or the potential for industrial monopolization.

Smith: A merchant, it has been said very properly, is not necessarily the citizen of any particular country. It is in great measure indifferent to him from what place he carries on his trade.

The price of monopoly is upon every occasion the highest which can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken, not upon every occasion, indeed, but for any considerable time altogether. The market price of any particular commodity, though it may continue long above, can seldom continue long below its natural price.

Johnson: A question relating to what made you famous. How does the invisible hand work?

Smith: The individual generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. But preferring the support of domestic to foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he only intends his own gain, and he is in this, as in many other cases, led by an invisible hand to promote such an end which was no part of his intention. Nor is it always worse for the society that is not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed dissuading them from it.

Johnson: You mentioned earlier that capitalists see high wages as damaging and high profits as good. Doesn’t this bode ill for a democratic society, considering how many businessmen are elected on so many levels of government, both locally and nationally?

Smith: Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbors and equals. We seldom, indeed, hear of this combination, because it is the usual, and one may say, the natural state of things that nobody ever hears of.

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Daniel Johnson was born near the midpoint of the twentieth century in Calgary, Alberta. In his teens he knew he was going to be a writer, which is why he was one of only a handful of boys in his high school typing class—a skill he knew was going to be necessary. He defines himself as a social reformer, not a left winger, the latter being an ideological label which, he says, is why he is not an ideologue. From 1975 to 1981 he was reporter, photographer, then editor of the weekly Airdrie Echo. For more than ten years after that he worked with Peter C. Newman, Canada’s top business writer (notably a series of books, The Canadian Establishment). Through this period Daniel also did some national radio and TV broadcasting. He gave up journalism in the early 1980s because he had no interest in being a hack writer for the mainstream media and became a software developer and programmer. He retired from computers last year and is now back to doing what he loves—writing and trying to make the world a better place




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Margee Elb April 15, 2009 10:21 am (Pacific time)

Nice piece Daniel, you're sharing some good information.

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