In his excellent book Basic Economics, Thomas Sowell makes a startling observation on page 508 regarding the great economist Adam Smith—nowhere in Smith’s The Wealth of Nations does Smith say anything nice about businesspeople. Here are a few gems from The Wealth of Nations:
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. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary. (Book I, Chapter X, at 144)
The last part must have been lost on the framers of the Sherman Act.
The proposal of any new law or regulation which comes from [businessmen], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it. (Book I, Chapter XI, at 278)
So many examples, but ethanol comes to mind.
The enhancement of price occasioned by both [high tariffs and government granted monopolies] is every-where paid by the landlord, farmers, and labourers of the country, who have seldom opposed the establishment of such monopolies. They have commonly neither inclination nor fitness to enter into combinations; and the clamour and sophistry of merchants and manufacturers easily persuade them that the private interest of a part, and of a subordinate part of the society, is the general interest of the whole. (Book I, Chapter X, at 142-143)
This is the reason Americans pay double the world price for sugar and do not notice.
The capricious ambitions of kings and ministers has not, during the present and preceding century, been more fatal to the repose of Europe, than the impertinent jealously of merchants and manufacturers. … But the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind, though it cannot perhaps be corrected, may very easily be prevented from disturbing the tranquility of any body but themselves. (Book IV, Chapter III, at 519)
Ouch! Granted this is before Kaiser Bill, Hitler, Stalin, Mao, and Paul Pot.
Even his famous butcher (of the butcher, brewer, and baker) is not immune:
The trade of butcher is a brutal and odious business. (Book I, Chapter X, at 112)
So why did Adam Smith, the father of modern economics and perceived patron saint of all markets and business, say such nasty things about businesspeople? The answer lies in how most businesspeople used to make their money. In free markets, sellers can only make money by serving their fellow men. In Smith’s time, many businesses and interest groups enjoyed government protections and subsequently charged higher prices. Although the abuses in Great Britain had not been as bad as under the Tudors and Stuarts one hundred years earlier, many government monopolies (including a Revolutionary War igniting monopoly on tea) still operated at considerable expense to the public. In short, thanks to the backing of the state, the average businessperson was more crook than servant. In fact, our modern perception of the entrepreneur as one who strives to deliver a superior product at a lower cost only started to emerge two hundred years ago. For most of history, the “rich” have been so because of their pseudo-kleptocratic relationship with the state. Incidentally, this is probably the source of the famous Bible verse regarding camels going through the eyes of needles and rich men not going to Heaven. Market-Based Management uses a mental model known as profiting by the political means to define such relationships—where a business profits via government sanctioned force or fraud.
MBM considers any form of political profit completely unacceptable. In a MBM culture, the only acceptable profit is via a mutually beneficial and voluntary exchange between customer and company, which we call profiting by the economic means. Despite his disdain for businesspeople, Smith noticed that once deprived of their government-granted privileges, the still-contemptible merchants and manufacturers could only profit by serving their fellow humans. This is Smith’s lasting legacy. He did not appear to have a high opinion of his fellow man but observed that free markets forced even the worst people to provide for others—even those who might hate one another. The real Adam Smith was no ideologue, but a careful observer of human beings. Incidentally, he also gave away most of his money to the needy, which remains a little known fact—probably because he didn’t tell anyone. I like to think that Smith might have a different opinion of today’s businesspeople, but he would probably tell us not to kid ourselves. The many cheap and high quality products we enjoy today are not there because human beings are any better than they were in Smith’s day, but because the invisible hand forces them into what is best described as public service.
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