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by Charles Carreon
Invisible Hand, 101
Adam Smith was one of the first
economists, and those who feel that the government should stay out of
labor relations, or at least refrain from supporting the goals of
workers and restrict itself to benefiting industry, often claim to quote
Adam Smith. They say Smith’s “invisible hand of commerce” will guide the
operations of the economy, setting prices for labor, food, and
commodities, making wage and price controls such as those Nixon imposed,
completely unnecessary and totally objectionable. The invisible hand
makes no distinction between licit and illicit trade, and for years kept
the retail price of a quarter-ounce of marijuana at parity with an ounce
of gold, and provided johns with twenty-dollar prostitutes and
prostitutes with twenty-dollar bags of heroin. All things work together
for good in this best of all possible worlds, as Dr. Pangloss might say.
Your average person’s knowledge of Adam Smith usually stops at this
level, but Smith’s massive work, An Inquiry Into The Nature And Causes
of The Wealth of Nations, does not exhort us to have faith in an
invisible hand that will adjust our economic fortunes into the black,
but rather advises us to watch the movement of labor, goods, and money
to learn how people adjust prices and engage in trade.
The Policies of Communities Affect The
Creation of Wealth
People, not an invisible force, drive
production and trade. Smith’s metaphor was meant to turn attention to
the rather amazing characteristics of the marketplace, much as modern
scientists have pointed out the marvelous operations that the planet and
living beings perform without conscious thought. It is true that Smith
was sanguine about the coexistence of poverty and wealth in a single
society, and saw no inherent evil in an economic order that he could
describe thus:
“Among civilized and thriving nations … a
great number of people do not labour at all [but] consume the produce of
ten times, frequently of a hundred times more labour than the greater
part of those who work; yet the produce of the whole labour of the
society is so great, that all are often abundantly supplied, and a
workman, even of the lowest and poorest order, if he is frugal and
industrious, may enjoy a greater share of the necessaries and
conveniences of life than it is possible for any savage to acquire.”
One would certainly agree that today many
consume hundreds or thousands of times what one other person can produce
– a fast-food worker working all day in Los Angeles would be unable to
even pay for a day’s worth of parking that an executive would simply put
on an expense account. It is also true that Ray Kroc, the popularizer of
the McDonald’s fast-food system, got his big idea when he was but a
traveling salesman selling milkshake mixers in Southern California, so
he may very well count as a “frugal and industrious” workman who rose to
“enjoy a greater share of the necessaries and conveniencies of life.”
But Smith’s positive attitude toward disparity of wealth is not the
point of his book, and he is well aware that government policies affect
the occupations and prosperity of nations and their citizens:
“The policy of some nations has given
extraordinary encouragement to the industry of the country; that of
others to the industry of towns. Scarce any nation has dealt equally and
impartially with every sort of industry. Since the downfall of the Roman
empire, the policy of Europe has been more favourable to arts,
manufactures, and commerce, the industry of towns; than to agriculture,
the industry of the country.”
A good example of differing policies
toward similar industries might be the US government practice of
licensing industrially-produced narcotics manufactured by pharmaceutical
giants, while simultaneously fighting a “war on drugs” by spraying toxic
materials on coca crops in Colombia and Bolivia, while simultaneously
pumping new life into the opium economies of Afghanistan and Pakistan by
getting evil tyrants like “the Taliban” off the backs of legitimate
poppy growers who supply the increasingly bargain-priced street heroin
now flooding American cities. Eventually the invisible hand will bring
this strong, cheap heroin to Ashland, but for now our local junkies will
have to stick with Mexican “black tar” heroin.
The new president of Bolivia wants to
legitimize coca growing and use of the native plant, that has no more
harmful effects on the native population than tea has on the English. He
says it can be used to make soap, toothpaste, herbal remedies, and many
other useful substances. Dr. Andrew Weil, the new age doctor whose
paunchy good health is now advertised from a thousand Sunday magazines,
once suggested we substitute coca chewing gum for coffee. Of course, in
the US, we’d have people buying a thousand packs of gum, soaking them in
a bathtub, washing the result with gasoline to extract the cocaine, and
blowing up their house and kids trying to get a buzz. As Adam Smith
might say, some people are just savages.
Everything Has Its Price
Having dispensed with the idea that
Smith’s Invisible Hand is predestined to provide benefit for humanity,
or that it will do the work of wholesome laws made by ethical
politicians with the approval of informed citizens, we can move on to
what Smith was really saying. Smith’s thesis is that the cost of goods
is established by the cost of the labor required to produce them.
Nothing has an intrinsic value. Everything is priced according to how
much it costs to get a skilled person to produce it.
Gold and Oregon green bud remained at
parity for a long time because it cost a similar amount of money in
labor to employ poor blacks at starvation wages in South Africa to
produce, smelt and ship bars of gold as it did to employ hippies (not
very hard workers, but willing to risk getting arrested and to be paid
in product) to grow a finicky psychoactive weed in a secret location
someplace near Williams, Oregon, and smuggle it to San Francisco. Take
note, however, that gold lasts forever unless you lose it down a rathole,
and cannabis must be consumed to extract its value, and will become
worthless after a couple of years. So you might argue that cannabis is
far more costly, since your ounce of gold will last a lifetime, but your
bag of pot will be empty next week.
Raiders of The Labor of Others
Now that more Indian and Chinese people
are getting into the middle class, they are buying more gold for
marriage ceremonies, there is greater demand for gold, apartheid is over
in South Africa, and people are getting paid a wee bit more to extract
gold from the earth, and of course, people who think the dollar is going
to sink in value want to buy “hard money.” The notion that gold has a
fixed value is, however, utterly mythical. During the “Age of Gold,”
Spain and Portugal stole so much gold from the Incas and Aztecs that
they flooded the European economy with the damned shiny stuff, reducing
its value to one-third, much to the chagrin of other European nations,
who found their existing stock of gold ever shrinking in value as the
conquerors of the New World became the dominant players in the precious
metals market. Spanish gold was cheap, please take note, because they
didn’t pay for it – they stole it – so it didn’t reflect the cost of
feeding, clothing, and managing the dead Incas and Aztecs whose wealth
was thus acquired.
Stealing from other nations is what one
anthropology professor of mine called “a raiding economy,” such as was
traditional among the Apache Indians of Arizona and Sonora. Once they
got horses from the Spanish, who had introduced the whole concept of
mounted cavalry to the New World, they started raiding other, richer
tribes, and their mounted warriors were skilled at scooping up a goat, a
child, or a bag of corn with equal facility while marauding through a
little village full of squash-growers. Labor costs are affected by many
factors, and different “nations” require people with different skills. A
farmer would have fared badly in an Apache tribe, but would be
appreciated by the Hopis, who moved way up on high mesas to avoid
raiders, and there skillfully collected water in cisterns to feed small
irrigated plots of beans, corn and squash using unique methods of
dry-farming. Interestingly, the Apaches have adapted to the ways of the
white invaders better than most tribes, as their facility on horseback
and indisposition to surrender gave them a leg up in the larger economy,
and many tribes adopted ranching, farming and logging when they were
forced to give up raiding.
Of Brickmakers & Woodcutters
The productivity of a community is
enhanced, Smith explained, as people become more skilled in particular
productive activities. This is called the “specialization of labor” to
exploit “the relative advantage” of different workers. Exploiting
“relative advantage” can be illustrated by the story of two couples with
different skills. The first couple was Jane and Wanda, two lesbian
brickmakers. The second couple was Jeff and Sally, two heterosexual
woodcutters. Since they enjoyed each other’s company, the two couples at
first decided to work Mondays, Wednesdays and Fridays on brickmaking,
and Tuesdays, Thursdays and Saturdays cutting wood. After about a month
they took a tally of the bricks and the cords of wood produced, and
discovered that they had produced both less bricks and less firewood
than when the two couples worked separately. Why? Jeff and Sally were
unskilled at making bricks, so they made errors, and Jane and Wanda had
to spend time training them, and even then the hetero couple didn’t
produce as many usable bricks. The same result occurred when the
lesbians tried to cut wood. They weren’t as good at it as Jeff and
Sally, and due to their inexperience, produced less wood at greater cost
in time. Facing the possibility of not having enough bricks to build the
house or enough wood to get through the winter, the two couples focused
on what each was best at, and in the end there were not only enough
bricks and firewood for their personal use, they had some left over to
sell. Eventually, Jane and Wanda adopted some war orphans that they
turned into a tribe of little brickmakers, and Jeff and Sally gave birth
to several children who were handy with the saw, loved the smell of the
woods, and branched off into reforestation. A few generations later, the
two couples were barely remembered, but their wise choices left a legacy
of brick homes and leafy avenues in a town where sexual inequality was a
forgotten memory.
The Roots of Modern Underemployment
In story of the brickmakers and the
woodcutters, everything is happy, because workers specialize by choice
to their greater communal benefit. Of course, this is not how it works
in the real world, where people no longer follow the traditional
occupations of their parents, and acquire few specialized skills besides
what are gleaned from channel surfing, playing video games, driving
dad’s car, and purchasing fast food. Most young people are losing
specialized abilities like cooking, sewing, and gardening, that help
them keep expenses down. The value of acquiring a standard credential
like a high school diploma has become vague to many young people.
College degrees are very costly to procure, and employers increasingly
doubt that college graduates have the skills needed. Top hourly wages in
our techno-driven economy go to people with certifications issued by
private computer companies like Cisco, Microsoft, and Novell, not to
college graduates. The old question, “What do you want to be when you
grow up?” is now impolite to ask, since it is likely to throw the child
into a quandary that, parents fear, will cause anxiety. Besides which,
how could a child be qualified to decide that he wants to be a Linux
networking specialist until after he hacks his way into the school
network to change his girlfriend’s biology grade? Experiences guide
choices, and in this world, choosing what type of labor to specialize in
often defaults to “whatever someone will pay me to do.” Which explains
why the price of marijuana keeps dropping.
The War Economy and the Market For
Soldiers
The disconnect between young people and
gainful employment explains why the sudden desire to go open a can o’
whupass on them Arabs took root so quickly in the apocalyptic soil of
the unemployed, working-class young people in this country. There was a
genuine crisis on hand, fueled by the public murder of over four
thousand people in downtown New York. There was a charismatic president
leading the nation, there was a fire in the desert, a Holy Grail to
chase, and a lot of people wanted in. Money was easy to get in Iraq. In
fact, huge stashes of bundled hundred-dollar bills were left completely
unguarded, and uncounted billions have gone missing. War is good
business, especially when the Vice President is still getting a $300,000
annual payment from Halliburton, the prime no-bid contractor on the
project to level Iraq under the guise of nation-building. The invisible
hand is working overtime these days.
Two billion dollars have been spent
developing and deploying technology to block increasingly sophisticated
cell-phone-detonated bombs in Iraq. People often say “think what that
would have done if spent on schools.” But they don’t say it when the
nation is “at war.” Typically, too much is being claimed for the use of
this term. Certainly we aren’t at war like we were in World War II, when
we entered a two-front war against two industrial giants that had
defeated all of Continental Europe and the South Pacific. Certainly we
aren’t at war like we were when I was in high school, the American death
toll stood at over 40,000, everybody was buckling down in school to
avoid being drafted, and ultimately they turned it into a negative lotto
game where the unlucky ones got picked out of a hat, and student or no,
it was time to go. We are “at war” because the president said we were.
“Being at war forever” has officially become our policy, and like all
other policies, it is an economic policy.
Since we are at war, money goes first to
guns, then to butter for the soldiers, then to pay for the creation of a
gigantic, unwieldy security apparatus to strangle the airline industry,
then to pork-barrel projects necessary to grease all of the palms that
wrote the campaign checks and bought the dinners and paid for the trips
that a Congressperson just can’t live without. If the sleaze of politics
seems far from you, be assured it is not. The wages that never go up,
the jobs that cannot be found, the housing that isn’t available, the
opportunities that don’t appear, have all been swallowed up by a
national economic policy that is far more monstrous than one would think
from watching TV. Some folks don’t believe in conspiracies. Okay, we’ll
chalk it up to the work of the invisible hand.
What Money Buys
No one is going to advocate the end of
money if they are sane, because money is the most amazing thing in the
universe – it is the equals sign between anything and anything. Using
“money,” we can put a value on anything from apple pie to a course in
Zen, and the price will always be based on how much it costs to produce
the product. It may be more charming to pay for Zen in apple pies, but
most Zen masters want cash, because using money, they can buy whatever
they want. The flexibility of money makes it useful, but it doesn’t give
it any intrinsic qualities of value. A lot of the time we think we want
money, and forget that ultimately, we want what money buys. We usually
don’t think about this until we go out looking for a midnight snack, and
unable to find a grocery store open, return home with gratitude to find
a single ice cream bar stuffed in the freezer.
Nevertheless, the vast majority of
exchanges are going to be facilitated by money, including, ironically,
the establishment of social policy to expand productivity beyond the
monetary realm. There is a cost for everything, including an economic
policy to increase real wealth among the citizens. The calculation of
wealth goes beyond tallying dollars, because one may be wealthy without
having a dollar, like an eccentric hermit living happily in a distant
location, tending a garden and feeding the birds. Wealth, distinct from
money, is an abundance of what we want and need. If our community
priorities are straight, we will strive to become rich in essential
goods like clean air, fresh water, arable land, inspiring housing and
livable towns. We will give people an incentive to increase the wealth
of knowledge and skills they carry within them, so we can have excellent
teachers in our schools, skilled medical care for those in ill health,
and media resources that foster communication in an environment of free
thought. These things usually cost money, because people create them,
but they can be created and exchanged without money, and can enrich us
concretely and directly, giving us more of what makes life worth living.
Markets Encourage Trade and Increase
Actual Wealth
Leaving money out of the equation, we
still have our skills and creations to exchange, but we lack a “medium
of exchange.” A medium of exchange is used to reduce what economists
call “transaction costs.” Transaction costs are evident in all
activities. Take sending someone a letter. It involves the following
transaction costs: time spent writing the letter and addressing the
envelope, plus the expense of a piece of paper, a stamp, the time it
took to buy the stamp, the time you’ll spend mailing it, and a few days
waiting time for your recipient to receive it. The telephone reduces the
human transaction cost of having to write the letter, which blocks
innumerable communications from taking place. Email reduces the
transaction costs greatly, but only at the cost of knowing how to use
email and getting access to a machine with Internet. Transaction costs
prevent communications and productive exchanges from taking place.
Markets are intended to overcome
transaction costs by having everyone bring their product to the same
place, so a purchaser can visit many merchants at once. Nowadays,
markets have migrated online. Everyone is getting in on the action.
Myspace is a marketplace for attention. Craigslist is a marketplace for
everything that’s cool. eBay is a marketplace for people who are willing
to take risks to get a bargain, and for many legitimate sellers, as well
as for scammers looking to turn over questionable goods.
The Missing Marketplace
Local marketplaces, however, have
disappeared, especially ones that serve the needs of young people
looking for work, housing, rides, or musical and cultural events that
don’t cost a bundle. While granting full dignity to all those people who
work the outdoor markets here in Ashland, their offerings are largely
focused on the tourist trade, and boxing the farmer’s market into the
Armory instead of allowing it to operate in the open air like Portland,
Santa Monica, and other cool towns, seems altogether too resonant of the
state-of-war attitude that somehow is trickling down to the local level.
The entire length of our main drag is dedicated to supplying young
people with trinkets, media discs, and t-shirts and supplying older
people with pricey food. Miraculously, a laundromat and a drugstore, the
last bastions of ordinary commerce, cling to life in the heart of town,
but we know this is not forever.
Recently The Tidings ran an article on
how much money there is in being spiritual. The next day they ran an
article on how much money there is in being fun. Ashland is both
spiritual and fun, so let’s make money! Ah, if it were only that easy.
The most spiritual people I know are the poorest, and it is impossible
to generate enthusiasm for the teachings of people who are making money
in the spirit business. All of the money in the guru business is at the
top. Everybody else works for smiles.
Taking Stock of Our Assets
If we’re going to find any way to
increase the productivity of Ashland people, we’re going to have to do
what the hero Wesley does in The Princess Bride when it’s time to storm
the castle and rescue Princess Buttercup. Even though Wesley himself is
limp and unable to move due to the effects of Prince Humperdinck’s
poison, he asks his companions, the Spanish swordsman and Fezzick the
Giant, “What are our assets?” By skillfully using each one of the
assets, he storms the castle, captures the Prince, and frees Buttercup.
The Spaniard also kills the Six-Fingered Man, thus avenging the death of
his father. Fezzick procures four white horses, and they all ride off
happily together. If we are to accomplish anything remotely as
miraculous, we must remember to first take stock our assets.
Listing Ashland’s assets, first I see the
amazing environment, then the strategic location on the highway between
San Francisco and Portland, then the intelligence and sensitivity of the
citizens, coupled with intellectual and information resources like the
University, the municipal fibernet, the new libraries, and the theatres.
I also see the large population of professionals, and the sensitive
people who are talented cooks and gourmet food crafters, and
institutions like the Geppetto’s garden, blending into the larger
texture of family farms and vineyards that surround the area. Finally, I
count as an asset the convenient proximity to Medford, with its many
gritty, useful realities and international airport.
Alternatives to Money As A Medium of
Exchange
When we remember that money is but a
mechanism for equating one person’s labor to another, we may intuit
something clever – we don’t need US Treasury Notes to keep track of
people’s labor. We can record their relative work outputs in a
spreadsheet or other database, or even on a piece of paper. Strictly
speaking, that is all the banks are doing anyway, and people who move
large amounts of money around are well aware of this. Computers allow us
to create and manage databases quite easily. Your paycheck is only good
if your boss’s account has enough money in it, which is to say, it
appears to have enough money in it when the bank teller looks on her
screen. What is handy about the designation of your labor as money is
that anyone else will take it in exchange for their goods and services.
What is not handy is that you can’t get enough of it to do everything
that you want to do.
People will trade for what they could not
pay for with cash. Why? Between rent, gas, food, insurance, child
support and a DUI diversion, there’s no money available. Statistically,
a guy like this in Oregon will likely go bankrupt trying to make money
at video poker, which is statistically unlikely. Instead of pecking at a
screen like a pigeon, a guy in this situation might wisely choose
instead to spend his time sawing boards and pounding nails – building
stuff for a friend in exchange for some goods or skills. Maybe he’ll
pick up a nice TV by building some shelves for a friend, and then he’ll
end up with a girlfriend to clean up a little. Skills and goods
exchanges allow a community to grow more wealthy by consuming its own
local products and employing its own people. Local skills and goods
trading improves individual living standards, gives young people a
chance to apprentice in a non-wage environment, and allows community
members to preserve cash resources by reducing reliance on money.
Money developed based upon exchanges of
concrete trade items or particular services, and was used to facilitate
exchanges, not to monopolize the means of exchange. Where economic
squeezes by national governments and international bankers impose
embargoes and sanctions, barter can keep national economies alive. For
example, Venezuela ships oil to Cuba, that sends back medicines, doctors
and teachers. Thus Venezuela supplies Cuba’s energy needs, and Cuba
helps Venezuela care for the education and health of its people, and
they both get the satisfaction of telling Uncle Sam to pound sand.
Historically, people in love have
exploited their relative advantages by dividing labor along classic
sex-role lines, and family life has been the great factory of
non-monetary wealth-generation. People used to routinely help each other
build a house, then spend a lifetime washing clothes, making and raising
babies, cooking food, growing gardens, fixing cars, chopping weeds, all
that stuff Some relationships are very elevated transactions that
produce works of art that humanity will enjoy forever, like the music of
Chopin and the writings of George Sand, or the sculptures of Camille
Claudel and Rodin. For this and many other reasons besides producing
soldiers for the fatherland, society has for a long time made it a
legitimate social and governmental goal to make it easier for young
people to get married, have children, live productive lives, and
contribute to the life of the community. Skills and goods exchanges can
be great resources for young people who have the energy and motivation
to help themselves by working for others, because they benefit three
ways – connecting with creative people, learning skills, and getting
something valuable from their labor.
Putting The Invisible Hand To Work For
the Good of the People
Skills and goods exchanges between
individuals don’t happen on our local level mainly because there’s
little thought given to non-monetary exchanges, and no place is
dedicated to making them happen. There is no forum that is specifically
focused on facilitating skills and goods exchanges within our community,
and thus money is virtually the only avenue for trade in goods and
services. Particularly at a time when the capital for business
development is so difficult to obtain, the City would demonstrate vision
by establishing a local skills and goods exchange database, available
online and in a walk-in office open to the public.
Money can be used to build a community,
but it is ultimately so only because money commands the power of human
labor. It is of great benefit to a community to mobilize all of the
creative resources of its people, including that which cannot be tapped
by spending money. The City should first explicitly declare that the
primary asset of the City is its people, and that the care, cultivation
and development of their welfare, wealth, and well-being are the primary
concern of City leaders. The City should establish a skills and goods
exchange, using City office and technological resources to increase
non-monetary economic activity. The City should establish grants and
subsidies to supplement the efforts of gleaners, food banks, and
homeless shelter-providers, who are distributing actual wealth to those
in need. The City should also adopt a purchasing and hiring policy that
requires giving first consideration to local goods and service providers
in all City purchasing decisions. Such policies will put Adam Smith’s
invisible hand to work accomplishing acts of social benefit, and we will
all be the gainers.
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