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Mar 19

Free markets need reins

  • According to Adam Smith in his The Wealth of Nations:  ‘When a businessman has greater profits than he needs to maintain his own family he uses the surplus to employ more assistants to further increase his profits -and the more profits he has, the more assistants he can employ – thus an increase in profits leads to an increase in collective wealth and prosperity’

  • In other words:

    • The selfish human urge to increase private profits is the basis for collective wealth

    • Greed is good

    • By becoming richer I benefit everybody, not just myself

    • My profits are also your profits

    • Not only can we both enjoy a bigger slice of pie at the same time but the increase in your slice depends on the increase in my slice

    • People become rich by increasing the overall size of the pie, not at the expense of others overall

    • When the pie grows, everyone benefits

    • The rich are thus the most useful and benevolent people in society because they turn the wheels of growth for everyone’s advantage

  • All this depends on the rich using their profits to open new factories and hire new employees rather than wasting them on non-productive activities

  • Profits must be invested in even more production which brings about more and more profits and employment – leading to more and more

  • But what of greed if one allows markets a completely free rein?

  • What if employers seek to maximise profits by paying employees less and increasing their work hours?

  • Surely employees would leave for employment elsewhere, and employers would go out of business – so employers would be compelled to treat their employees well, if only to survive

  • Not so if they had built a monopoly or cartel where all employers acted the same way preventing employees from switching jobs to better themselves

  • Or, worse still, if they made slaves of them

  • When Europeans conquered America, they opened up new gold and silver mines and established sugar, tobacco and cotton plantations – all labour intensive businesses – which became the mainstay of American production and exports

  • As European demand for their outputs increased, labour availability became a problem – few wanted to labour long hours in the hot sun – contract labourers would have been too expensive for the mass consumption – business owners, greedy for profits, thus switched to the use of slaves

  • From the 16th to 19th centuries, the shameful slave trade thrived

  • About 10 million African slaves were imported to America – about 70% working on the sugar plantations – all so Europeans could enjoy their sweet tea and candy – not through racial hatred – purely for more profits

  • And the trade was not even controlled by any government – only by the free market and the laws of supply and demand

  • Thus free markets are flawed – they cannot ensure profits are gained or distributed in a fair way – the craving to increase profits and production blinds people to anything that might stand in their way

  • Governments have since made efforts to constrain many abuses with human rights legislation, monopoly commissions, minimum wages and the like – but massive inequality still remains today between rich and poor

  • Why so, when the global economic pie keeps growing bigger and bigger?

  • Because we’re a selfish lot, we humans – no matter how much we have, it’s never enough – many if not most of us usually want more

  • Conveniently, we say ‘charity begins at home’ and proceed to fill our home(s) with stuff we don’t need whilst only a few offer relative crumbs from their tables to the poor and needy

  • Why again?

  • Because we can – because there’s no laws or social mores stopping us

  • It’s the ugly face of capitalism writ large

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