The information about Adam Smith and Mercantilism is from a lecture of February 17, 1976, at the Taft School, Watertown, Connecticut, by Edmund A. Optiz. “We celebrate in 1976 the bicentennial of two significant events, the signing of the American Declaration of Independence, and the publication of The Wealth of Nations by Adam Smith. Smith had made a name for himself with an earlier volume entitled Theory of the Moral Sentiments, published in 1759, but he is now remembered mainly for his Wealth of Nations, on which he labored for ten years. The Wealth of Nations sold briskly in the American colonies, some 2,500 copies within five years of publication, even though our people were at war. This is a remarkable fact, for there were only three million people living on these shores two centuries ago, and about one-third of these were Loyalists. In England, as in the colonies, there were two opposed political factions—Whigs and Tories. The Tories favored the King and the old regime; the Whigs worked to increase freedom in society. Adam Smith was a Whig; the men we call Founding Fathers were Whigs. There was a Whig faction in the British Parliament and many Englishmen were bound to the American cause by strong intellectual and emotional ties.
“Adam Smith’s book was warmly received here, not only because it was a great work of literature, but also because it provided a philosophical justification for individual freedom in the areas of manufacture and trade. The colonies, of course, were largely agricultural; but of necessity there were also artisans of all sorts. There had to be carpenters and cabinet makers, bricklayers and blacksmiths, weavers and tailors, gunsmiths and bootmakers. These colonial manufacturers and farmers had been practicing economic freedom all along; simply because the Crown was too busy with other matters to interfere seriously. There were numerous laws designed to regulate trade, but the laws were difficult to enforce, and so they were ignored.
“The nations of Europe at this time embraced a theory of economic organization called ‘Mercantilism.’ Mercantilism was based upon the idea of national rivalry, and each nation sought to get the better of other nations by exporting merchandise in exchange for gold and silver. The goal of Mercantilism was the enhancement of national prestige by accumulating the precious metals, but the goal was not nearly so significant as the means employed to reach it. Mercantilism was the planned economy par excellence; the nation was trussed up in a strait jacket of regulations just about as severe as the controls imposed today upon the people of Russia or China. The modern authoritarian state, of course, has more efficient methods of surveillance and control than did the governments of the seventeenth and eighteenth centuries, but the basic idea is similar.
“Take the theory of Mercantilism and boil it down. What do you get? You get political control over what you eat. Now, if someone holds the power of decision over you as to whether you eat or starve, he’s acquired considerable leverage over every aspect of your life; you do not bite the hand that feeds you! If someone controls your livelihood, you do his bidding, or people start talking about you in the past tense! Mercantilism, in short, is the prototype of today’s totalitarian state, where government — by controlling the economy — exerts a commanding influence over people in every sector of their lives.
Twentieth century political despotism is much more extensive and severe than the monarchial rule of Smith’s day, which is why The Wealth of Nations is still a relevant book. Smith demonstrated that a country does not need an overall national plan enforced upon people in order to achieve social harmony. This is not to say that a peaceful, orderly society comes about by accident, or as the result of doing nothing. Certain requirements must be met if people are to live at peace with their neighbors. It is required, first of all, that there be widespread obedience to the moral commandments which forbid murder, theft, misrepresentation, and covetousness. The second requirement is for a legal system which secures equal justice before the law for every person. When these moral and legal requirements are met, then the people will be led into a system of social cooperation under the division of labor “as if by an invisible hand.”
Adam Smith liked this metaphor of “an invisible hand” and used it in Theory of the Moral Sentiments as well as in The Wealth of Nations. Every person, Smith writes, employs his time, his talents, his capital, so as to direct “industry that its produce may be of the greatest value…. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it…. 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 intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intentions.” Smith concludes this passage by adding, sardonically, “I have never known much good done by those who affected to trade for the public good.”
“Price gouging” refers to a phenomenon wherein customers at an especially vulnerable time are charged unusually high prices by “greedy” business owners taking advantage of their need. So why do prices rise during times of need? Prices are a rationing device and signal of scarcity, so this higher price naturally encourages customers to make do with less while simultaneously indicating to producers to expand production. Another, more subtle example and justification for “price gouging” is movie snacks, especially popcorn! You are gouged every time you buy popcorn at the movies, yet the lines for popcorn, candy and drinks are usually consistent. Why? Demand is always high, since you are not allowed to bring your own, and because the venue and snacks–popcorn–are paired in your mind; a habit pattern waiting for the stimulus….and no longer think about the money.
Back to t.p. Though buyers have to pay more for each product, it reduces the risk of shortages by making it easier for suppliers to meet the increased demand for their goods. What’s perhaps more relevant to our current situation is that hoarders are indirectly discouraged from hoarding. A higher price makes consumers think twice before buying a cart-full of toilet paper, leaving more product on the shelves and limiting or delaying, perhaps indefinitely, any shortage. But that’s not all, remember that the higher price is only temporary, since higher prices will spur production. Sellers see product flying off the shelves and note that they need to ramp up production to meet the growing demand. Potential entrepreneurs also recognize that there may be room for extra business in this particular market, so they start production. We’ve already seen these forces at work in the past few weeks. Distilleries have taken note of hand sanitizer shortages and are helping to meet the increased demand by producing their own—some even giving their product away for free. Just imagine, Jim Beam and Wild Turkey hand sanitizer! Yumm!
Last week Georgia-Pacific increased production t.p. capacity by 120 percent. Amplified production by existing companies, and the entrance of new business into markets, will lower prices to pre-crisis levels. Referring to rising prices as “price gouging” will not change the economic fact: in a free economy, prices are a vital signal to producers and consumers alike. It’s incredible that a single number can do so much. This is the miracle inherent in free markets—no solitary, all-knowing authority is dictating the direction of prices or production in a single market (let alone an entire economy). It happens naturally, as if led by an “invisible hand”.
But if you are still angry about either prices or scarcity of t.p., nature comes to the rescue. The following are among the best leaves to use as t.p. substitutes. Since you’re probably locked down anyway, it’s a good time for hiking and plucking up your own supply (for those hoarding beans especially!).
Leaves to avoid: Anything waxy (smears rather than absorbs); Leaves grouped in threes (might be poisonous) or growing in alternating, as opposed to mirroring, positions on the branch (might be poisonous). I guarantee you, if you use the wrong leaf and get poison ivy on the butt, you will never complain about the price of toilet paper! Hand bidets, anyone?