It’s great that so many people have copies of Adam Smith The wealth of nations, but a pity that so few have read it. The so-called “supply chain” problems that we are experiencing right now were explained by Smith in the first pages of the book.
Smith wrote of a pin factory and the then remarkable truth that a man in the factory working alone might – maybe – produce a pin every day. But several men working together could produce dozens of thousands.
Divided labor is what enables the very specialization of labor which results in enormous productivity. If this were true in an 18e pin factory of the century, imagine how vivid the truth is today. Imagine that something as basic as the creation of a pencil is the result of global cooperation, then what kind of remarkable global symmetry leads to the creation of an airplane, a car or a computer? The kind that can’t be planned is the short answer, but more realistically, the only answer.
Please keep this in mind when reading the media coverage of the so-called “supply chain disruptions” leading to “shortages” which are said to be the root cause of “inflation”. If you want to laugh harder, read what President Biden wants to do to put “supply” back on the market to restock the increasingly bare US retail shelves. He decreed port operations 24 hours a day! Yes, thanks to the 46e President, we now know what held back the Soviets and ultimately destroyed the Soviet Union: their ports were not open long enough; thus the shortages of all…
All of the above would be funny if it weren’t so sad. Members of the media, “experts”, economists and politicians no longer even disappoint. To say that they do would be to flatter them.
Either they think we have inflation, shortages, or a combination of the two. False in all respects. Really, who was talking about shortages in the supply chain or the impossibility of demand-driven inflation in early 2020? Very few were, and that’s because the US economy was largely free then. At that point, the politicians panicked. And in panic, they imposed a rather draconian form of command and control on the American economy.
Some were free to work, some were not, and still others were free to work and operate their businesses within strict political limits. From freedom to central planning in a very short time. How worth it to once again consider the simple pin factory that Smith witnessed at 18e century compared to the global cooperation that was the norm 19 months ago.
The February 2020 supply lines were incredibly complicated structures that no politician could ever hope to design. Think of the billions of individuals around the world pursuing their narrow professional specialization on the path to enormous global abundance. In other words, the shelves of economically free countries were teeming with all kinds of products based on economic cooperation of staggering scope. Shiny as some pundits claim to be, and shiny as some politicians think when they look in the mirror, they could never build the web of billions of economic relationships that prevailed before the shutdowns. But they could destroy the web. And they did; that, or they seriously altered it.
In which case, let us not insult reason by speaking now of “shortage” or “inflation”. Let’s be realistic and talk about central planning. We have known since the 20the century that when politicians, authoritarians or both substitute their intensely narrow knowledge for that of the market, this immense shortage for a very limited (and ugly) supply is the logical result. Yes it is. When we are not economically free, bare shelves are the inevitable result.
Conversely, the abundance of products and services is once again a certain consequence of the endless actions and billions of economic relationships made by billions of people. These commercial ties have been built by consenting individuals for many years and decades only to be destroyed by a political class arrogantly seeking to protect us from ourselves. This is what happens when command and control replace voluntary order. The remunerative ties that unite us are unraveling or disappearing altogether. Consenting and profitable economic activity was suddenly illegal. Yet politicians and other experts are wringing their hands over the lack of supply?
Really, what did they think was going to happen? While politicians could never create or legislate billions of dollars working together around the world, they could and certainly can break voluntary economic agreements. When you have guns, handcuffs, the power to literally cut off the sources of energy for the productive, not to mention the wealth produced by the productive, you have the power to impose command and control. And that is what they did, only to have the “supply chains” laboriously created in self-serving but spontaneous form for many decades suddenly collapsed. Don’t call it inflation or shortages.
Inflation is a devaluation of the unit of account. In our case, it is the devaluation of the dollar. And while the Treasury hasn’t always done a great job as steward of the dollar over the decades, that’s the point. Devaluation was a routine problem in the 1970s, it ceased to be in the 1980s and 1990s, but it resurfaced again under the administration of George W. Bush in the early 2000s. inflation is a “now” thing, ignoring that it has been more realistic a 21st a century old thing.
We don’t suddenly have an inflation problem. To say yes is to say that the Soviets had inflation because all goods worth buying were both hard to find and incredibly expensive if they could be found. In our case, we had a foreclosure issue with biting politicians who stifled trade cooperation around the world. And with labor less divided than before by government power, productivity is naturally lower than it used to be.
Please consider again modern productivity in terms of the example of Smith’s spindle factory and ask what it would do to deliver. The only thing is that supply shortages are not proof of inflation. A rise in one price for lack of supply implies a fall in other prices. Yes, we have a central planning problem. If he was here today, Adam Smith could diagnose this in seconds.