Adam Smith, Where are You?

Let me please clarify, I am not a scholarly economist.  

But there are certain principles of economic theory that I observe.  When supply is short and the demand is high, the price of an item increases, and the reverse is true when the supply is great and the demand is low, the price of an item decreases as well.

There is a big difference between “wants” and “needs.”  I would imagine those two ideas become confusing at times. 
 
I also am aware how high interest rates for credit effects price of housing and transportation.  That in itself has contributed to the thought of “affordability” now being bandied about by many.
  
What we as a nation are now experiencing in the economic policy coming out of Washington DC, be it good or bad, and how it is directly and indirectly effecting our pocketbooks.  So, with that in mind, I thought it would be good for me to review the works of the “father” of capitalism, Adam Smith.

Here is what I found.  Adam Smith published “The Wealth of Nations” in 1776.  Yes, the same year the colonies broke from Great Britain.  In his book, Smith wrote about the “invisible hand” and how it helped shape individual economic policy…after all, as individuals we determine what we need, what we want, what we can afford.

But Smith’s work goes a bit farther than that simple supposition.

In his work, Smith lays out these basic principles:

Core Concepts

• Division of Labor: Breaking a big job down into tiny, specialized tasks makes workers much faster and more productive. (For example, making pins goes much faster if one person cuts the wire, another sharpens it, and a third puts on the head). 
• Self-Interest: People work hard and trade with others not out of charity, but because it benefits them. (The butcher sells you meat because he wants to make a profit, which in turn gives you the food you need).
• The Invisible Hand: When everyone is allowed to freely buy, sell, and chase their own honest goals in a competitive market, an unseen "invisible hand" guides the economy to benefit society as a whole. 
• Free Markets (Laissez-Faire): Governments should mostly stay out of the economy, keep taxes low, and let trade happen freely without heavy rules or monopolies

 
In examination of these core concepts, one may understand how the economics of our nation has developed. 


The division of labor creates jobs and expertise.  Instead of one person performing all tasks to complete a job, several people perform individual tasks with greater expertise allowing the job to be completed in a more rapid fashion. 
 
One must understand how the core concept of self-interest applies to the economic system.  People work to acquire capital to exchange for goods, those needed and those wanted.  But I contend this basic core goes a bit deeper than that.  The individual is allowed to CHOOSE where to work, where to live, in what to invest, and what to purchase.  Everyone has that opportunity…sometimes that opportunity is taken, other times it is not.
 
As the “the invisible hand” of the economy silently has operated in my lifetime I have seen air travel evolve from four propeller Tri-Star TWA airliners to a four-jet engine jumbo Boeing 747.  I have seen automobiles fitted with the most current technology, when 50 years ago, a backyard mechanic could set the points in a distributor using a matchbook cover.  What is most evident is the “invisible hand” is determined by the consumer wants and needs, and with that, the cost of living and lifestyle has risen.
 
While many would say the economy should be classified as capitalism, in truth, it is often called a mixed economy; one that requires governmental intervention on behalf of the citizenry.  The government intervention is an evil necessity.  The time frame from 1870 to 1900 is characterized as the era of Robber Barons.  Men called “Robber Barons” were powerful industrialists and financiers who amassed immense fortunes through monopolistic control of heavy industries, ruthless competition, and the exploitation of workers, though supporters also viewed them as vital "captains of industry" who modernized the nation.  These men accomplished this without governmental restraints.
 
Enter President Theodore Roosevelt, a Republican President.  If memory serves me correctly, Roosevelt used the Sherman Anti-Trust Act to break up monopolies, with the Northern Securities Company being the first to fall.  In all Roosevelt sued 47 companies and won.  
 
All of this action of Roosevelt would be consistent with Adam Smith’s thoughts about capitalism.  With capitalism, there needs to be small governmental regulation to prevent large businesses we call monopolies;  monopolies created to take advantage of labor and create large sums of wealth for a few.
 
It would appear the current administration in Washington is not quite in line with Smith.  In my opinion, the single most important part of Smith’s book is the idea of free trade.  And I believe, with the evolution of the standard of living, the economic system of the United States is actually an international system of trade as well as a domestic trade.  This is driven by the wants and needs (the invisible hand) of the consumer.
 
So, when the President of the United States imposes tariffs on foreign nations as they trade with the United States, how does that jell with the idea of Laissez-Faire and that government should mostly stay out of the economy?  The tariffs are to “protect American businesses or farmers or cattlemen”…but in reality, does it?  If the President believes those tariffs placed on a foreign nation will result in lower prices for the American consumer, then, in my opinion he is wrong.
 
On August 27th, the Associated Press reported Iran’s economy, already strained by high inflation, years of Western sanctions and a war that has sharply reduced oil revenue, is poised for more instability as the Trump administration tries to coerce other countries into ending all financial dealings with the Islamic Republic.  So far, the United Arab Emirates has suspended all trade with Iran…and that is a big deal for Iran.  BUT the caveat is China.  China is one of, if not the largest buyers of Iranian crude.  The result of the sanctions imposed by the United States is yet to be seen.
Treasury Secretary Bessent recently said “Those who stand with the United States will reap the rewards of our partnership,” while outlining the plan he called “Operation Economic Outcast.” “Those who tether themselves to the Iranian regime should expect to share in the isolation.”
 
How does all of this effect the American consumer?  All one has to do is look at the price of gasoline at the nearest filling station.  The President can tie his actions to Iran in the name of national security, but the fact remains, the American consumer is paying for more for gasoline than they should be.  
 
The President is instituting a plan to import up to 300,000 metric tons of ground beef (or lean beef trimmings) to be imported with reduced or removed tariffs. 
​ 
Key Details of the Plan

• Amount: Up to 300,000 metric tons.
• Timeframe: Over a 90-day (3-month) period.
• Tariff Status: Waived out-of-quota tariffs.
• Price Target: Importers committed to selling the beef 25% below current market prices to help lower grocery costs for consumers.

 
This plan is supposed to ease the price of beef in the United States as well as help ranchers “grow the herd”.  The national herd of cattle is at an all-time low in numbers and experts predict it will take at least 24 months to get the herd somewhere close to the previous size it was.  There are several factors regarding the lack of production due to a small herd, drought, and feed constraints.
 
The United States generally produces about 11 million metric tons of beef a year.  The 300000 metric tons of imported beef represents about 2.75 percent of the annual production of beef in the United States.  With that in mind, are the consumers of the US to expect prices of beef to go down in price by 2.75 percent?  Think about what that means…2.75 percent of 10 dollars is a mere 27/28 cents.
 
One a side note, I also would like to know who and where the inspection of the imported beef will take place.  That information needs to be known so the public can rest assure the imported beef is not tainted.  
 
Finally, the President is placing more tariffs on Canadian products…with lumber being one of the largest imports to the United States.  That may seem to be insignificant to some, but Canada delivers about 28 percent of softwood lumber used in the United States.  And, of all of the foreign lumber brought into the United States, Canada accounts for about 82 percent of all imported lumber.
 
I will ask of you, what industry uses more lumber than any other industry in the United States?  Answer:  The construction industry…the building of new homes, the repair and remodeling of existing homes, and non-residential buildings (think commercial, schools, hospitals for a few examples).  The term “affordability” comes to mind.
 
What I know about tariffs:  The nation paying the tariff to trade in the United States will pass that cost on to the consumers of America.  Some call it an indirect tax.  Who gains from the tariffs?  The government of the United States.  Who pays more for need goods?  The American consumer.
 
As I wrote earlier, I’m not a scholarly economist, but I understand cost of living, affordability, indirect taxes call tariffs, supply and demand, and how price is determined.  I understand “wants and needs”.  I also understand how oil is tied to most everything the average American purchases.  With that being said, just what in the hell is this administration doing to help John Q. Citizen?   It is my position if the current economic trend continues as Washington D.C. wishes, the separation of those who are wealthy and those who are not will be as wide as the Grand Canyon, and it may be impossible to bridge that gap.  Maybe members of this administration should read the works of Adam Smith.  It is a good blueprint for economic prosperity for all.
 
I have my opinion…I hope you have one as well.