Tuesday, December 31, 2013

...Earth Calling Adam Smith....hiss...

by Zach Neal

Earth calling Adam Smith. Earth calling Adam Smith…

Come in, please.

,,,,,hisss……………………………………………………………………….  …………     ……..    ….


He’s been called away or something. We’ll try again later.

So anyways, Wikipedia has a little article on Adam Smith.

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”

And of course my interest lies in having dinner. I give the butcher money, he gives me some meat, the brewer gives me beer, (hey, this is fun) and so on and so forth.

As aphorisms go, that one seems fair enough.

I’m only going to discuss one of his points, just to show how it’s done:

“Agriculture is less amenable than industry to division of labour; hence, rich nations are not so far ahead of poor nations in agriculture as in industry.”

The last part of the sentence holds true. There are plenty of undeveloped parts of the world where agriculture is still conducted with a low level of technology, not much better than Smith’s time, with predictable results.

Things are a little different now.

The gulf between the developed nations and undeveloped nations in terms of agriculture is vast.

That spread, that ratio has changed since Smith’s time. Back then, the gap in technology between the developed and undeveloped world was much narrower. The world has changed, and to the nth degree.

Nothing written hundreds of years ago on the subject of economics is Gospel. Too much has changed. 

Another of his points supports this thesis by saying, ‘manufacturing lends itself to the division of labour more than agriculture.’

That’s probably still mostly true. Partially true…

That’s due to the complexity of the processes, for example making steel—and feeding raw materials, labour and some kind of motive power into the plant that makes it.

But in the 21st century, agriculture is more than just lambs in a field and a wife drawing the iron plough with the baby in a bowl at the end of the furrow, which back then was divided up to approximately what a man and an oxen could plow in a day. The fields were common land, narrow strips that were rotated in terms of crops, fallow and pasture.

Now, agriculture includes a certain amount of high-technology industrial plant for producing corn starch. It includes a plant for making vegetable oil, and it includes the makers of combines, tractors, specialty tires and the chemical industry. It includes distribution warehouses, transportation systems by land, air and sea, and buyers scouring the world for new and marketable flavours. All of it is now connected digitally in a system that allows instantaneous communication globally, something that would have taken months, back in Smith’s time.

The visualization required by the modern commercial landscape is inconceivable to a man of Smith’s day. 

They didn’t have the electronic and digital terms of reference. They wouldn’t have known what we were talking about, and yet we have the advantage of knowing what they were talking about.

They are history and we are the future of their agricultural knowledge of the time—some of the speculative philosophers of Smith’s time might have theorized us, but only in the most limited fashion.

The division of labour would seem to be fairly complex, when you consider the GPS and the onboard computers, engine and brake and transmission control, and all the cell phones and hearing aids, spectacles on the farmer’s eyes and in the farmer’s pockets and the satellites in space needed to make such a vast information and communication system actually work.

In that sense, agriculture is totally integrated into the overall economy. It’s not that it wasn’t before, but now it is more complex and more far-reaching in the sense of global commerce. This might include a sixty-cent New Zealand apple, shipped and trucked 12,000 miles, ending up in your supermarket, (and how much of the food in there doesn’t have some kind of agricultural basis?)

Someone had to figure out how to make that happen, and surely it’s not a farmer, it’s a specialist.

We are so much more specialized now, and in that sense the system has evolved into something new.

Our food chain is un-recognizable to our ancestors.

That process, from start to finish, has mushroomed, and in a sense flourished, all based on some motives of enlightened self-interest and mutual benefit, all based on that simple notion of a division of labour. Division of labour causes efficiency in this great economic engine.

There is also such a thing as division of rewards, especially when labour is exchanged for money, as this isn’t exactly the same as an exchange of commodities.

Anything Adam Smith said, way back when, is only of historical note at this point in time. He set the art of formulating economic theories on a rational basis, a scientific basis, one using measurable quantities, and leaving out all supernatural and mystical elements.

Also, I doubt if he foresaw globalization, or if he could account for a sort of fungus-ring effect, like ripples going out in a pond from a rock being tossed in. The way industry and jobs were farmed out and outsourced and ultimately exported to less expensive labour markets, even in the face of growing prosperity for an ever-increasing number of people.

Maybe free trade is a good thing, but unregulated free trade might not be such a good thing. Unsupervised and uninspected free trade might not be such a good thing.

According to Thomas Hobbes (or somebody) ancient men led lives that were ‘nasty, brutish, poor and short.’

Their lives were pretty simple back then. The human condition has improved by all statistical measures, and with the increase in population we can take a better sample even.

You have to be able to measure things, even such things as progress.

Are we making progress?

Are we backsliding, or is this just a temporary glitch in a system that works?

What causes such glitches?

When all this has worked itself out, what comes next?


Back then, Smith knew virtually nothing of ‘entitlements,’ everything from the GST rebate here in Canada to pensions, home heating grants, student grants, all kinds of government largesse. Although he would have recognized patronage, even corruption, as some of the Prime Ministers of the time (back then, when the whole notion of party was coming into being) governed by patronage, handing out key appointments, and they somehow kept a government going. Some would forget that that’s what a government is for—to manage and run a country. As to whether Smith had any great philosophical notions about social questions, such as the rise of social capital or the welfare state, or secular humanism, or social democracy, that is unknown to me. These entitlements are a tool of government fiscal policy, make no mistake. The government has a social agenda, and well it should have.

“A monarch’s greatest glory lies in the health and happiness of the people,” still holds true today although I forget who said it—probably some monarchist somewhere.

However, the point I am trying to make is that a marketplace, which is what Smith was talking about in his book, is certainly social, but it is not a government in any sense of the world.

These are two different things, no matter how closely intertwined in mutually dependent self-interest.

It is a dichotomy, and a struggle at times to see which system will rule the other.

It is cause and effect, supply and demand, but it is up to the government to manage the equitable redistribution of excess wealth—and the wealth of nations was the subject of his book after all—for the market seems incapable of doing that fairly and equitably.

Surpluses and excesses that are not reinvested into the marketplace end up being hoarded and essentially dead to the economy when its reinjection would do much social good. Cash flow trumps bullion held in reserve any day of the week.

A nation’s wealth consists not in its visible wealth, the result of seven or ten years output, but in its actual output at any given moment in the instantaneous digital world we now inhabit.

As for pensions and the like, which tend to stimulate local economies, (and everything is politics, and all politics is local politics,) rather than the government develop an infrastructure of arbitrary redistribution (strictly merit-based) they have delegated the supervision of aforesaid monies to me.

Maintaining the health and welfare of the people, and without people a state has little or no reason (or right) to exist, creates its own commerce. Adam Smith, I think, would have, or at least should have, been opposed to austerity. To him, the ideal marketplace was a model of rationality, but of course real life isn’t like that all of the time.

I choose to redistribute the funds to a local grocer. They are the most efficient local grocer—hence their prices are lower and I get more bang for my buck. They have merit. Some folks patronize other stores—based on their relative perceived merits.

The citizen subsists, commerce flows, the progress of civilization continues, and the state is perpetuated in a symbolic dance.

The interconnection between commerce for all, and prosperity for all, is easy enough to see.


Check out ‘The Vatican Caper,’ my debut thriller at Barnes & Noble. Available as an ebook or in 5 x 8” paperback.

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