Thursday, 12 August 2010

Smith for my Supper

Most of last terms lectures were dominated by revision for our unseen test.
We were spat out of Horrie's classroom with more information to digest than a nun in a strip joint.
Our revision brought together the vast, broad topics we had touched on over the year.
As a romantic thinker, the topic with gave me the most indigestion was Economic Theory.

I'd met Adam Smith in first year lectures but still felt if I saw him again, I wouldn't recognise him, let alone be able to tell you what he stood for.
Seeing as the test was fast approaching I set about trying to decipher my notes and here's what I understand of this Smith chap.
So as far as I can gather, Smith wanted to initiate a shift from mercantilism- Economic activity which solely benefits king or country, to encourage more production to help distribute the wealth of the country.
Smith felt feudalism-where citizens produced only what they needed for survival, curtailed 'the individual's right to wealth'.
To combat this, Smith pioneered 'the free market' which enabled individuals to pursue their inalienable rights, such as the right to the acquisition of wealth.

Smith pushed the idea that more production would bring the cost of products down and make products more available whilst insisting that the quality of the product would not decrease.
By these means, no doubt many of my dutch ancestors flourished, for the dutch had been busy manufacturing slim, fast ships which when legal restrictions were removed and free market trading was introduced, began jetting off to create a huge commercial empire for the Dutch.

The Brits of course, along with the Spanish and pretty much the rest of Europe (us Dutch are so advanced) were busy building huge, lumbering great vessels for war and defence.

Soon the rest of Europe caught on and the free market blossomed.
Smith pointed out in his work 'The Wealth of Nations' that the reason the free market was so proficient was because it relied on something called 'Spontaneous Order' or 'the hidden hand'.
This hand was regulating the economy in no organized or controlled way at all, Smith maintained that simply each individual pursuing their own economic interest would keep the economy afloat. There was no need for governmental control or a devised structure; this 'hands-off' objective became known as 'laissez faire' economics (essentially-leave alone).

If you leave everyone alone to seek out their own profit and produce then everything, eventually on a large scale, will even out. He uses the example of a man buying dinner.
"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 self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."

i.e. they produce these goods for their own benefit and it's just a happy coincidence that we all benefit too.
I say hand me the Gaviscon!