Balance scales.
Balance scales by Henry N. Hooper and Company. Human nature being what it is, business dealings are often unfair. “People of the same trade seldom meet together, even for merriment and diversion,” wrote Adam Smith in 1776, “but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” The most Government can do, said Smith, is to ensure that no investment programme, tax or regulation is helping them. But all too often Government obligingly weights the scales of business in favour of favoured partners, feebly compensates those voters whose goodwill it dare not lose, and sends the bill to the taxpayer.
Part 1 of 2
THE laws of every country prohibit force, and afford remedies against fraud. Unless this were done, society would not hold together. But they have also, from time to time, (always indeed ineffectually) tried to prevent or annul contracts which are made under circumstances unfavourable to one of the parties. Thus most legislatures have sought to restrain usury in the interest of borrowers, to fix prices in the interest of purchasers, to control wages in the interest of employers, and sometimes, but rarely, to fix minimum rates of wages, or to find employment, in the interest of labourers.
All these attempts have failed in the long run. The endeavour to lower the rate of interest, has in effect raised its rate. Regulations fixing prices have caused great fluctuations in prices; and so, for reasons which we shall see hereafter, have on the whole raised prices. The control of wages has been oppressive, without being effectual; and all attempts to find employment, or to raise wages above the rate at which they would naturally stand, have diminished employment, and so diminished wages.
Précis
Victorian economist Thorold Rogers said that Governments had a responsibility to ensure that all business deals were free and honest. However, they should avoid the temptation to try to correct what seem to be imbalances in trade. History showed, he believed, that such attempts are doomed to fail, from price controls to minimum wages, interest rate caps to job-creation schemes. (60 / 60 words)
Part Two
Thorold Rogers (1823-1890).
Thorold Rogers (1823-1890), in a photograph from the Archives of the Library of the London School of Economics and Political Science. Rogers, who held chairs of economics at King’s College in London and at Oxford, stood in a tradition of British economic liberalism going back at least to Adam Smith (1723-1790), and shared by Richard Cobden (1804-1865), whose sister was married to Rogers’s brother, and John Bright (1811-1889). Rogers campaigned boisterously (a habit that did not endear him to everyone) for free trade, and against military interventions and imperial expansion. He also supported the fledgling co-operative movement.
If therefore we are to understand the very elements of political economy, we must get rid of the impression, that if the contract be voluntary and the service be mutual, one man’s gain is another’s loss.*
This view of human society, and of international commerce, has been the cause of infinite evils to mankind.* It has introduced into the laws of various countries, regulations intended to grant privileges to certain classes, and to restrict the action of others by way of protection or compensation. It has induced a jealous foreign policy, and put a multitude of restrictions on trade.* It has been so inveterate a fallacy, that it affected the judgment of men like Bacon:* it still misleads the energies of communities which are otherwise intelligent. The real truth is exactly the reverse; for one man’s gain in all acts of free exchange is another man’s gain.
* This is known today as a ‘zero-sum game’, because when all the players’ scores are added together the total is zero — to every winner there is a corresponding loser. Admittedly, when the baker does a deal with the dairyman, the baker gains a pint of milk and the dairyman loses one. But Rogers’s point is that (assuming an honest and free transaction) the dairyman lost something of which he had too much for his personal use, and gained a loaf of bread; whereas the baker gained a pint of much-needed milk, and offloaded some of his excess bread. Both men feel like winners.
* “Most economic fallacies” confirmed Nobel laureate Milton Friedman in Free to Choose (1980), commenting on a passage in Adam Smith’s Wealth of Nations (1776), “derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.”
* See David Hume on The Jealousy of Trade.
* Francis Bacon (1561-1626) stated the fallacy succinctly in his essay On Sedition and Troubles: “whatsoever is somewhere gotten, is somewhere lost”. He assumed that ‘want and poverty’ cause sedition, and that Government should police citizens’ spending and forcibly redistribute wealth to ensure loyal contentment. Any demagogue or totalitarian dictator would heartily applaud the sentiment.
Précis
Underlying the ineffectual ‘fairness’ legislation was a common fallacy, said Rogers: the assumption that in business one party gains at the expense of another. It was a fallacy that had spawned war, fostered cronyism, and depressed trade. So long as deals are freely entered into and there is no deceit, both parties can emerge as winners. (56 / 60 words)
