Category Archives: Capitalism

Smith, Free Markets & Human Life

During the hunting societies of the Old Stone Age, 200 sq mi of land was needed to support each person, so there were no more than 500 people on the whole island of the paleolithic United Kingdom.  If more than that would be born, more would starve – as Adam Smith’s famous equilibrium kicks in. Agricultural was a big step but it was the division of labor, specialization, rule of law and trade that enabled Britain to ultimately support 11,000 times that in 1696 when 5.5 million occupied the same island. Despite PC pronouncements to the contrary, it is this ability to allow millions to live that makes free markets and civilization superior to other types of societies.

Smith’s argument about population is like his ideas about country’s inventory of gold – it will seek a supply & demand equilibrium, that needn’t, and shouldn’t, have government’s attention. Specifically, he’s saying when the supply of workers is low (relative to demand), wages rise and people will feel more confident bringing children into the world. This is why, in the British colonies (back then), that were “much more thriving” than England, “those who live to old age…see…50 to 100 descendants from their own body” (p81). Without growth, or where wages are declining, the population at the very bottom suffer the most, and labor supply is reduced (through starvation).

Malthus, on the contrary, unpersuaded by claims that the population had declined over 30%, since the Restoration (1660), was alarmed the population would rise so quickly that his 1798 treatise says the geometric population growth could not keep pace with the arithmetic growth of cultivable land (p89) and that “premature death must…visit the human race”.   This static view fails to account for market adjustments. Growing populations => lower wages & higher food prices => innovations in food production => higher real wages / lower food prices…(cycle continues).

Smith’s purpose seems to be to show, if left alone, markets will adjust to meet consumer needs. Malthus’ purpose seems to foster panic to spur government intervention, or to reveal his ignorance about market dynamics, or both.  Neither, according to Robert Heilbroner, anticipated the role of affluence and urbanization on limiting the number of additional offspring born by the lower classes.  But the real lesson is how dynamic free markets allocate resources to enable human life to flourish.  What other system can do that?

Works Cited

  • Heilbroner, Robert L. The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers. Rev. 7th ed. New York: Simon & Schuster, 1999. Print
  • Smith, Adam, and Edwin Cannan. An Inquiry into the Nature and Causes of the Wealth of Nations. New York: Modern Library, 1994.

 

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