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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Common Error No. 70

Written by Dr Madsen Pirie | Monday 24 March 2008

70. "A sensibly planned economy is more efficient than random chaos."

But who advocates random chaos?  The market economy is not random disorder; it is a spontaneous and unplanned order. The so-called "planned" society means one which is planned at the centre by one mind or a few. The free society is one in which planning by individuals of their own lives and circumstances cumulatively produces an overall order not planned by a few, but emerging from the actions of the many.

The free economy is more rational than the planned society. First of all, it contains far more information than can be held by one human mind. Secondly, that information is continually being updated by individuals. Thirdly, it is constantly changing and adapting to new circumstances, and modifying itself, learning from errors and improving itself. The planned society has none of these improving characteristics. It makes one giant forecast and attempts to fulfill it, where the spontaneous society makes millions of small-scale forecasts and constantly modifies them.

The planned society responds imperfectly to the priorities of the planners. The spontaneous society responds constantly to the needs and desires of its citizens. Its overall order is at once more efficient and more moral. It converges on consumer satisfaction and directs resources to those who are successful at achieving it. At the same time, it allows individuals to nominate their priorities and freely to pursue them, instead of making them live as the planners decide is appropriate.

So a free society is more organized than random chaos, and cleverer than any centrally-planned alternative. It meets our needs efficiently and continually directs resources to those who are good at doing so. It enables millions of us to pursue different goals at the same time, while inadvertently aiding each other. Central planning forfeits that spontaneity and that problem-solving ability. It substitutes the priorities of the few for the needs and aspirations of the many.

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The Adam Smith statue

Written by Dr Eamonn Butler | Monday 24 March 2008

adamsmithstatue.jpgThe statue of Adam Smith which will soon go up in the historic heart of Edinburgh is taking shape. It's currently in the workshops of Morris Singer, the specialist art founders, where sculptor Alexander Stoddart has been adding some finishing touches. According to Stoddart it is one of the best castings he has ever worked with, faithfully reproducing every detail of his original model.

The statue shows Smith in later life – he spent the last twelve years of his life in Edinburgh, where he had been appointed a Commissioner of Customs, which might explain his slightly stern look.

Behind him is a ploughshare, modelled from a contemporary plough in the Scottish Farming Museum, which reminds us of an economic doctrine from which Smith made great advances – the physiocrat doctrine that all wealth stemmed ultimately from agriculture. To his front is a beehive, a symbol of industry, topped by a globe on which Smith rests his hand - made invisible by his academic gown. When viewed from the High Street, Smith's academic dress will dominate, reminding us of Smith the philosopher; and behind him we will see St. Giles's Cathedral, complementing the evocation of eternal ideas. Viewed from the other side, Smith's everyday wear dominates, reminding us of Smith the economist; and behind, the City Chambers (on the site of the office where Smith used to work) complements the evocation of the changing, current ideas of economics and politics.

There are even references in the work to Smith's support for trade with America. His neckware is modelled on that worn by Thomas Jefferson, his wig on a likeness of George Washington.

The most likely date of the unveiling is Friday 4 July, but as yet this has not been confirmed. We will post further information as and when it becomes available.

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Blog Review 545

Written by Netsmith | Sunday 23 March 2008

Why is it that politicians are delighted to create incentives but then insist that no one will be influenced by them?

Big Egg, coming to a holiday celebration near you.

This statement is somewhat startling, if true. 

A list of the top 75 (UK) political books. Netsmith's personal view is that it explains an awful lot of what is in fact wrong with UK politics. Not one of them is about economics (or, to be fair, sociology, philosophy or indeed any other ology).

The root causes of divorce. Strangely, intimacy breeding contempt doesn't make the list.

Creating smaller, more sustainable economies. Isn't this a synonym for "poorer people"?

And finally, the ban Alistair Darling campaign scores another victory. 

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How to replace the profit motive

Written by Tim Worstall | Sunday 23 March 2008

Or, at least, how to try and replace the profit motive. One of the things that can be very hard to get across is the idea that making a profit isn't simply or solely a manifestation of human greed: it's also information. Making a loss is the market's way of telling you that you're doing something stupid.

But what if you don't actually want to make a profit? What if, say, you're a charity? How do you get that same information, about whether you're doing to right thing or not? Jamie Oliver's charity, the restaurant project Fifteen, is working hard on this problem:

But perhaps the most surprising aspect of this warts-and-all assessment is that it was commissioned by Jamie Oliver and Fifteen itself, who wanted to know exactly where they had gone wrong and how to improve. Few charities assess their work in this systematic and critical way. Fifteen will publish the report, Life in the Present Tense, next month in the hope that it emboldens other charities to do the same.

As the Director of the project goes on:

“Second, there is a a straight business case. If you don’t understand what you are doing, if you don’t get someone from outside the culture to verify it, how do you know how to improve things?” he said.

Well, quite. I'm not holding my breath for a surge of charities allowing others to investigate themselves in this way though, there are rather too many comfortable enough fundraising, agitating and achieving not all that much. 

I might also note that the Public Accounts Committee and the National Audit Office investigate the actions of government in very much the same manner. One question I have though: has either body ever looked at any branch or activity of said government and reported "Yes, well done, top marks"?

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Common Error No. 69

Written by Dr Madsen Pirie | Sunday 23 March 2008

69. "Britain's wealth came from exploiting its colonies, and should be repaid to some degree."

The source of this error is interesting. When the British economy neither collapsed  nor produced greater poverty as Marx had predicted, communist theorists invented the imperial excuse. The British had postponed the evil day by exploiting their empire as a source of cheap raw materials, and as a captive market for their finished goods.

The theory ignores the facts. During most of that imperial period the rates of return on capital were higher in advanced countries such as the United States or Germany, or in undeveloped areas outside the empire, such as Argentina. When the British did invest in the empire, in many cases it was against their economic interest. In other words, they invested in the empire because they believed in it, not because it was where the greatest return was to be made. Indeed, in opportunity terms, this is equivalent to the empire costing Britain money.

The empire also cost money to administer, to police, and to develop with roads, railways, bridges and harbours. In many cases these were done for military and political purposes which owed more to Britain's self-perception as a world power than to any economic gain. Furthermore, much of the wealth that did accrue from Britain's colonies was not wealth until the processes and products were developed which needed it. The rubber trees in Malaysia had negligible value to the native inhabitants. Only an industry which used rubber turned them into wealth. The ore deposits in central Africa had far less value to the indigent population who walked and hunted over them than they did to the British, who were developing industries to use them.

The world did not have a fixed supply of wealth, and Britain's was not 'taken' from other countries. It was created by trade and manufacture, for which Britain should not be apologetic but proud.

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Quote of the week

Written by Wordsmith | Sunday 23 March 2008

A libertarian is someone who believes in liberty, not in chaos; in the rule of law, not in lawlessness; and in a voluntary social order, not in anomie and isolation. Libertarianism is the heart and soul of the modern world. There's no reason to run away from it.

David Boaz

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Blog Review 544

Written by Netsmith | Saturday 22 March 2008

And now for the third and final installment of the video series on the Laffer Curve. Perhaps the most important insight is that we should not be scoring tax changes statically, but dynamically.

Beware of those comparisons between today and the Great Depression. Or an alternative description, bad regulation may well be worse than none.

A further bulletin from the campaign to get WalMart the Nobel Peace Prize. 

We may indeed not be at Peak Oil: it could just be excessive saving by oil producers. There's also cause to think that if the oil price starts to slip, that it will tumble. 

Many people have many ideas about what started the Industrial Rebolution. Could it have been something as simple as coffee houses?

These online databases: how can they be kept secure when so many people are being granted access to them? 

And finally, bad analogy of the day watch. Government is Mother and we are hormonal teenagers? Surely we are adults?

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Nothing on offer

Written by Steve Bettison | Saturday 22 March 2008

money_notes.jpg
And so it continues. The debate between those who favour tax cuts and those who say they do yet will not offer them is not leaving quietly. Should the economy worsen over the coming 18 months there is little doubt that between now and the next election this debate will intensify, especially if the Conservative assume power after 2009/10.

The reason that this issue needs addressing is that public opinion now shows a majority believe taxation levels are too high and that large amounts of public spending are wasteful. The taxpayers of the United Kingdom are beginning to feel uneasy about how well prepared they are to face a downturn in the economy. They now want some of their coerced investment in UK Inc to be handed back as the promised returns haven’t realised. Yet despite these demands there is little on offer.

The Conservatives need to develop principled arguments that can be used to support limited tax cuts in their first term should they become the majority party in Westminster. They need to focus on alleviating the crippling income tax and National Insurance burden on the low paid and making Britain a leading place to create wealth through a reduction in taxes on business. By encouraging economic growth this way they can tackle the massive debt they are likely to inherit through improved receipts (see: the Laffer Curve). In conjunction with a reform programme centred on cutting public sector waste they could have the country back on its feet in no time.

Aping the government's promises will not aid any necessary recovery. The public is looking for leadership on this issue, a leadership that would take a well set out risk or two so that we do not have to suffer for any longer than is necessary. Yet from Westminster all that we are offered is indecision, is it any wonder we are increasingly turning our backs on the ballot box.

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Common Error No. 68

Written by Dr Madsen Pirie | Saturday 22 March 2008

68. "Great inequalities of income cannot be justified."

Inequalities of income do not need to be justified. The economic rewards in market-oriented societies are not supposed to be just. They reflect the economic worth of the goods and services provided, and in no sense correspond to our notion of justice or moral worth.

It might not be "fair" that a dedicated nurse earns so little, when a popular entertainer can pocket millions by recording a few songs. It is not supposed to be fair. The point is that, vital and worthwhile though the nurse's services are, they are performed to few people. The popular entertainer, on the other hand, performs a service which millions of people are prepared to pay for. The economic reward is greater because he or she satisfies greater numbers. There is nothing fair or unfair about it.

Attempts to replace the rewards given dispassionately by the market with ones corresponding to our scale of values lead to disruptions and shortages. If we pay social workers more than truck drivers because we think they are "worth" more, this will cause a surplus of social workers and a shortage of truck drivers. The wages of truck drivers will no longer attract sufficient numbers of ambitious youngsters into the profession, whereas more will go into social work than are needed.

Wages tell us what certain jobs are worth and if we try to set them arbitrarily we lose the spontaneity and self-correcting mechanisms of the marketplace. The prospect of high incomes attracts people into certain types of economic activity which bring widespread benefits, and rewards usually come to those who provide popular services. Income inequalities, far from being bad, are what encourage more people to undertake activities there is a demand for. The prospect of high incomes spurs people to ambition and achievement, and to bring benefit and satisfaction to other members of society in the process of attaining them.

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Into the red

Written by Philip Salter | Saturday 22 March 2008

With the news that the Green Party’s London mayoral candidate Sian Berry has urged her backers to give their second preference votes for the current mayor Ken Livingstone and visa versa, it is worth taking a look at what the Green Party is offering London.

Here are a few of the policy ideas straight from Berry’s website:

  • “I would use the Mayor's planning powers to require all new large business developments to provide affordable premises for small enterprises, amounting to at least 50% of the total trading space.”
  • “As Mayor, I would ensure all public employers pay their workers a living wage of £7.20 an hour and roll this out to cover companies who want to get contracts with public bodies as well. And then I'd shame any private employer who refused to follow suit.”
  • “Closing London City Airport and using the land as a new Green Industries Park to encourage new enterprise in the growing environmental sector, especially manufacturing.”
  • “As Mayor, I will have solar panels up and running on 100,000 roofs by 2015. And I will give free loans to householders, community groups and businesses to make use of new, clean energy technology.”
  • “A 20 mph city-wide speed limit on all but a small number of major routes, will bring a dramatic improvement in road safety and help smooth traffic flow.”
  • “Demand the write-off of housing debt so London can get building social housing again.”

It is essentially a dummy’s guide on how to financially cripple the capital and by consequence the country. Scary stuff.

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