"Natives who beat drums to drive off evil spirits are objects of scorn to smart Americans who blow horns to break up traffic jams."--Mary Ellen Kelly (anthropologist) (found in Whatever It Is, I'm Against It, Nat Hentoff, ed.)
At fourteen, I discovered that I was addicted to axiomatic questions. They were the only ones worth a fig, the only ones that could make people upset, and the only ones that opened the door to a new world. "What if space is an illusion, and we never move, but, instead, we're all stuck in some remote viewing platfom, imagining it" was equal parts silly and exhilarating. I swore that my adult self would never get numb to challenging axioms. I promised myself that, if my grown up mutation just accepted truisms, I'd get a box of ammo and end it.
I was an obnoxious kid.
However, I try to honor what was good about him. Poking at the gelatinous institutions of thought always gives us something, after all, even if it's merely humility.
The shining armor of what "everybody knows" is quite often the shabby petticoats of merely what "everyone believes." After all, everybody knows that everybody knows more now than everybody knew before and that people are more educated now than before. There is a deeply ingrafted belief in progress in modern man and woman. History, like time, is directed at the present moment, we feel, and the history book ends with the chapter entitled, "Modern understanding." The history of humanity is, in the "everybody knows" narrative, a history that is evolutionary and resulting in the most adapted and fit thing, us, or cumulative material accomplishment, or dialectical civilization.
Even people who shake free of the teleological assumptions of naive history agree that, whether it's by accident or natural coincidence, we have had progress. Technology is a story of labor saving and unqualified amelioration of harm and mollification of the bumps and bruises of life. Medicine, most of all, is a roaring success.
I do not disagree. (As McMurphy says in One Flew Over the Cuckoo's Nest, "I'm a g--d--n miracle of modern f---ing medicine, Doc.") It's just that, well... errm... that progress... errr. . . .
People are funny. Every school boy knows that back in the day medicine was barbaric. In fact, we laugh at how stupid it was. They bled people! They put leeches on each other! They used to knock holes in the skulls of healthy people to "let the humours out!" Doctors used to study poop and pee excessively. It's positively hilarious.
Even after the microscope came along (1674), doctors were convinced that disease was caused by places. Seriously! Newton is making his reflecting telescope, and cells are discovered, and the circulation of the blood (1628), and anatomy is marked out, but everyone is convinced that "Southwark causes disease" because it has "bad air." They kept right on thinking this absolutely stupid thing until the cholera bacterium was discovered, and beyond (to 1889).
You know what's really weird? People called for doctors. What's more, and this will really blow your mind, some people got better. It's true: doctors employing the humour theory had a cure rate. Those who used cupping (pressing hot glasses to a person's flesh to draw out the humours) and fasting and emetics and bleeding actually seem to have sped some recoveries. I cannot say that the trepanning doctors did any good, but their patients didn't die, and the "mad" patients were more manageable.
As far back as Aesop we have the sentiment that, "Nature cures the patient, and the physician takes the fee," and it is difficult for me, without an in-depth study of hospital records of the era, to tell whether they achieved a greater cure rate than chance. (I should assume that even getting to today's chance rate would indicate medicinal value, given sanitation of the period.) However, the doctors were intelligent men, and they received confirming, empirical data. They worked scientifically and confirmed their humour theory.
For hundreds of years, "everybody knew" that the body had four substances in it, and a surfeit or lack of any of them would lead to disease. "Everybody knew" that miasmas and bad air would cause disease. (Their advice was effective, because air-borne diseases would be tantamount to "bad air.") For centuries, the smartest people in the universities investigated and confirmed these findings, and anyone suggesting otherwise was a fool at best.
Is this because of psychosomatic cures? I don't know. Is it because the people would have gotten better anyway? I don't know that, either. Is it because they had religious faith in "the ancients?" I don't know. [Side note for the detail oriented: This is an open call for a research project for anyone currently in a Philadelphia, New York, London, or York graduate school. Grab those primary accounts from the hospital from the 18th or early 19th century. Take recognizable maladies. Index admissions for gravity of case. Find a way to filter sanitation, if possible. Then see the non-treatment rate vs. the hospital's treatment rate. Don't expect the hospital to be your friend in this.]
Anyway, I recently came across E. P. Thompson's discussion of Adam Smith's The Wealth of Nations, and he described it as an intellectually accomplished and systematic work that rings with an air of empiricism, that it is, in the end, a long self-confirming essay in logic rather than an empirical or scientific work ("The Moral Economy of the Crowd" 1992).
"Even the first letter of Smith's alphabet -- the assumption that high prices were an effective form of rationing -- remains no more than an assertion" ("Moral Economy of the Crowd" III, 1992)
This struck a very loud chord with me. While Thompson was referring to a specific epoch and commodity -- wheat in the markets of 1700 - 1800 -- the underlying critique applies more broadly. Just how much scientific proof is there that Smith's fundamental assertion (high demand will stimulate supply) is true?
It is impossible, of course, that it is not true. After all, everybody knows that supply and demand is a law of nature. It's the way of the world. It's self evident. It is as plain as the nose on your neighbor's face.
Maybe. Let's read on and talk about it. Thinking won't hurt us any.
"I don't pretend to understand the Universe--it's a great deal bigger than I
am...People ought to be modester."--Carlyle (from Table Talk)
Thompson's criticism of Smith's book is not that it's wrong, but that it reeks of validation that is lacking. It has a factitiousness about it that ought to be familiar to anyone debating an opponent armed with an Econ. 101 class. It argues a position that claims amorality and sentiment-free efficiency, allowing in considerations of such things as "good" and "propriety" only as long term effects of a mechanism that is natural and systemic. Smith's capitalism is an abstract set of principles that cannot be immoral, because it has no intentions. It is a set of principles observed in nature.
In fact, Smith's book arose in opposition to a paternalistic model of the economy. Paternalism had been the ideological content of late feudalism, and, after feudalism died, it informed the rest of the land, county, city economy in England (I like that article; the author is arguing the same stuff as I, but from a different, more eminent point of view). To put this in plainer language, feudalism was an arrangement of power and titles and land ownership, but its cultural content had been a reciprocal set of moral obligations between the master and servant. When the fact of the feudal power died in England, the same culture of 'those with power owe the powerless money and care to the same degree that the powerless owe those with power obedience' existed for the country estate, the county justices, and the city warrens. Capitalism was not the emergence of market economics. It was the emergence of this new amorality. Paternalism was at war with capitalism for. . . well . . . that's the question.
Thompson puts it nicely. He says that paternalism is a set of moral obligations of what each man ought to do, whereas capitalism in Smith's formulation appeared to say,
"This is simply the way the world works, or the way the world would work, if the state did not interfere with it."Adam Smith posited, as today's libertarians and libertarian-flavored Republicans do, that any group with any intention, any moral stance who constrain the market in any form, even for the good, are violating the Natural Order.
The stakes of the game
This is the question: Is supply and demand a law? Rephrased to be more precise, the question is: Is, specifically, the idea that entirely elastic price an effective and efficient natural method of rationing true? On one side of the table is Adam Smith and a gang of thousands. On the other side of the table is the mob, the church, and the Marxists. On the table between them, though is the following:
*If price leads to modulation of supply efficiently, then it is a natural method of provision. Any human shaping of this natural force would need to be assessed carefully as a significant deficit against this established good.
*If price does not, or may not, or could not modulate supply efficiently, then there is no natural mechanism of supplying commodities to members of society, and there is a compulsion for the state to intervene morally.
The Natural Philosophy of Economics
If supply and demand is a natural law, how did Smith determine it? If he were investigating a physical phenomenon, we should get verification experimentally. We would posit this hypothesis, control for variables, and gather results, and we would need to repeat the experiment and refine it. Further, because the law is "demand will lead to supply," rather than "demand for food will lead to growing food," we would need to see it true across commodities.
I hope I can safely say that Adam Smith did not come up with this "law" from experiment, that it was not the result of inductive reasoning. Rather it is an analytical principle derived by an examination of history. In that regard, it is as valid as the law that bad air causes disease.
If Adam Smith, and our college sophomore with his Business 202 class, are certain that demand means supply, the proof will frequently come from case studies. We will hear about price curves and how demand increases price, and then . . . it's just logical that someone will come to get that money. By looking through history and finding examples that fit the proposition, we get no truth at all. Looking through the long stretch of history for this or that instance where the market asked for things and got them does not mean that the market did it, or demand did it. After all, I can look through the centur... decades and point at Enron, where supply of electricity was decreased by the carrier to increase demand, and, when the price went up, they decreased supply more to make even more money on futures.
Smith's conclusion that increasing demand will result in quick sales in response is surmise. The "law" involved comes from social science, not physical science. Like all of economic, it examines actions as fossils of intent and constructs an alternative narrative for their context. (The narratives are secondary, because the person who sold bacon sold it "to make money," and the economist must find a second narrative, whereby "market conditions were favorable for an early sale.")
I will list some conditions whereby demand does not lead to supply, and I predict that, if there are comments, some of those comments will explain that these are foul play examples, that the rules work, if the market is free, etc.
1. Food, housing, water, are staple goods and resources. If the price of food goes up and up and up, that will not make the harvest improve. If the price of water goes up and up and up, the rains will not care. If the cost of housing goes up, the people will not lessen, and housing will not increase.
2. Finite resources such as oil will experience explosive price curves that will not generate anything but panic and pain and war.
3. Cartel and collusion, oligopoly form quickly, and these things do not require conspiracies. People who never speak to each other perceive quite soon that it is in their interests to withhold goods from market. It took ten years or less for the wheat merchants of England to realize that they should drive up the wheat price. No telephone or Internet was involved. Enron, modern banking, oil . . . each works in lockstep without ever any communication.
Most importantly, though, if we granted every condition of Adam Smith's logic, we would gain only a world where a panic in food led to an increase in planting, an increase in the next harvest, and a lower price the next year, so the survivors of a year without bread would have price relief. Furthermore, it means that the market, while it "responds," puts goods far, far, far out of the reach of the poor.
If there is not enough food, the price of food will go up. Will that make more food?
Smith's model, if it works, is not amoral, in the end, but immoral, because working ideally means working to inflict pain on the poor.
E. P. Thompson says that, given the period of the corn riots, Smith's model is unpersuasive. He says that it seems to be accurate in some instances, but not all, and that there are strong counter-examples (i.e. examples where the supply not only did not respond, but actually continued to diminish, in the face of price increases, or where high prices did not mean the flow of corn from place to place efficiently).
If we allow ourselves the same liberties that economists use when they "prove" that prices will generate supplies, which is to say the liberties of looking for anecdotes and case studies from any time or place that affirm our position, then we can say that it never works, that it is always inefficient, or that it is antiquated.
I invite you, too, to ask these questions. If everybody knows that increasing prices will lead to increasing supplies, and if everybody knows that the market will naturally take care of things, then ask the question. I could be entirely wrong, after all, in my conclusions, but not, I hope, in asking.