Adam Smith, anti-business economist.

According to Warren Berryman in an Independent editorial (6 September, 1996), "radiotalkbackland is rife with anti-business conspiracy theories". # Of course such theories preceded the invention of the radio, let alone radio talkback. Business conspiracy theories go back to the origins of business. They reflect a genuine public fear of rule by Mammon.

The most eminent anti-business conspiracy theorist of the past was Adam Smith. In a well-known passage from Book I of The Wealth of Nations, Smith said "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

Smith concluded his chapter on profits with the comment: "Our merchants and master manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people."

Indeed, Smith's comments about profits and wages do amount to a possible explanation of the problem that the Reserve Bank and others see as New Zealand's greatest; high inflation in the non-tradeable sectors in which profits and top salaries have been outstripping wages.

What would Adam Smith have made of on organisation called the "Business Roundtable"? He says that while "the violence and injustice of the rulers of mankind is an ancient evil" it is not as bad as "the mean rapacity, the monopolising spirit of merchants and manufacturers, who neither are nor ought to be, the rulers of mankind". At the root of Smith's conspiracy theory is the tension that has always existed between economists and businessmen, a tension accentuated by the fact that governments and journalists have tended to listen to businessmen as if they were economists.

Writers on economics can be classified into three types: businessmen, philosophers and technocrats. Smith, the son of a customs official, was a professional philosopher, who, in his later years, also became a customs official. He will have had some knowledge of "the sneaking arts of underling tradesmen"; perhaps enough to permanently sour his views about the motives behind the policy arguments of businessmen.

Today, the business community feels threatened by even implied criticism from academic quarters, and indeed, as Berryman notes, from an independent business press. Yet the business community is not exempt from conspiracy theories of its own. Journalists, academics and political parties whose views are unlikely to be endorsed by Standard and Poors tend to be seen as having a conspiratorial anti-business agenda.

Given the assumption by economists that rational businesses act out of self-interest - an assumption rarely denied - it would be surprising if businessmen failed to take individual or collective advantage of any opportunities that avail themselves to raise their incomes, including political opportunities. It should be noted, however, that most policy entrepreneurship on behalf of business interests can be understood without resorting to conspiracy theories.

I myself believe that businessmen, on balance, are less narrowly rational and are more altruistic than Adam Smith supposed. Recent writings of for example Robert Putnam, Francis Fukuyama and Tim Hazledine suggest that not only does a modern market society require a sense of altruism, of civic virtue, but successful market societies have only emerged because of long-standing traditions of social empathy within urban business communities. Smith was too cynical by half. Business opinion plays an important part in public debate. So do the opinions of independent economists. And so do anyone else's coherently argued opinions.



# In early 1998, an XTRA Internet poll showed 85% support for the view that petrol prices in New Zealand are set through a conspiracy between the big four oil companies (BP, Mobil, Shell and Caltex). Conspiracy theories are popular with even the affluent generally pro-business constituency of the Internet. [back]