Tuesday 29 January 2008

Subsidies are Oppressive

232 years ago, a Scottish Gentleman wrote a tome, which is still enlightening, relevant and forward looking.

Here in Malaysia, we still have an artificial, skewed economy in which many daily necessities are subsidised, and thus these are unrealistically low priced.

Some think that this is beneficial, but it fact it is detrimental, unhealthy and oppressive.

If wages were fair and equitable everyone could afford to buy goods and services at the market price.

Malaysia needs someone with the foresight and wisdom of Adam Smith - picture to the left- (born 1723, died 1790) to rejuvenate and regenerate the economy into a free market economy, and not as it is now a patronisingly pathetic subsidy orientated one.

Below is a brief outline of Adam Smith’s great work.

An Inquiry into the Nature and Causes of the Wealth of Nations is the magnum opus of Scottish economist Adam Smith; it was first published on 9th March 1776, during the period known as the Scottish Enlightenment

It is a clearly written account of political economy at the dawn of the Industrial Revolution, and is considered by many to be the first modern work in the field of economics

The work is also the first comprehensive defence of free market policies; it is broken down into five books, contained in two volumes.

The Wealth of Nations was written for the benefit of average educated individuals of the 18th century, rather than for economic specialists, mathematicians, or academics

There are three main concepts which Adam Smith expounds upon and these form the foundation of free market economics:

· division of labour,

· pursuit of self interest, and

· freedom of trade.

An Inquiry into the Nature and Causes of the Wealth of Nations


Introduction and plan of the work

Book I:

Of the Causes of Improvement in the productive Powers of Labour, and of the Order according to which its Produce is naturally distributed among the different Ranks of the People

  • Chapter 1: Division of Labour
  • Chapter 2: The Principle which gives Occasion to the Division of Labour
  • Chapter 3: That the Division of Labour is Limited by the Extent of the Market
  • Chapter 4: Origin and Use of Money
  • Chapter 5: The Real and Nominal Price of Commodities, or of their Price in Labour, and their Price in Money
  • Chapter 6: The Component Parts of the Price of Commodities
  • Chapter 7: The natural and market Price of Commodities
  • Chapter 8: The Wages of Labour
  • Chapter 9: The Profits of Stock
  • Chapter 10: Wages and Profit in the different Employments of Labour and Stock
  • Chapter 11: The Rent of Land

Book II:

Of the Nature, Accumulation, and Employment of Stock

  • Chapter 1: The Division of Stock
  • Chapter 2: Money considered as a particular Branch of the general Stock of the Society, or of the Experience of maintaining the National Capital
  • Chapter 3: The Accumulation of Capital, or of productive and unproductive Labour
  • Chapter 4: Stock lent at Interest
  • Chapter 5: The different Employment of Capital

Book III: Of the different Progress of Opulence in different Nations

  • Chapter 1: The Natural Progress of Opulence
  • Chapter 2: The Discouragement of Agriculture in the Ancient State of Europe after the Fall of the Roman Empire
  • Chapter 3: The Rise and Progress of Cities and Towns, after the Fall of the Roman Empire
  • Chapter 4: How the Commerce of the Towns contributed to the Improvement of the Country

Book IV:

Of Systems of Political Economy

  • Chapter 1: The Principle of the commercial, or mercantile System
  • Chapter 2: Restraints upon the Importation from foreign Countries of such Goods as can be produced at Home
  • Chapter 3: The extraordinary Restraints upon the Importation of Goods of almost all Kinds, from those Countries with which the Balance is supposed to be disadvantageous
  • Chapter 4: Drawbacks
  • Chapter 5: Bounties
  • Chapter 6: Treaties of Commerce
  • Chapter 7: Colonies
  • Chapter 8: Conclusion of the Mercantile System
  • Chapter 9: The Agricultural Systems, or of those Systems of Political Economy, which represent the Produce of Land, as either the sole or the principal Source of the Revenue and Wealth of every Country

Book V:

Of the Revenue of the Sovereign or Commonwealth

  • Chapter 1: The Expenses of the Sovereign or Commonwealth
  • Chapter 2: The Sources of the General or Public Revenue of the Society
  • Chapter 3: Public Debts
'Slainte, here's tae ye' to Adam Smith


Mr Bojangles said...

Can't argue against what you said about subsidies. But all that assumes that market forces are really allowed to work the way they should and not be subject to other distortions by a government that has motives other than the interests of its people at heart.

Anyway, I always thought that JM Keynes was also up there with economists like Adam Smith especially with his General Theory of Employment, Interest and Money which looked at the feasibility and wisdom of public sector management and intervention towards the aggregate level of demand in the economy.

And if you think that economic language is boring or dry, Keynes who was also considered a craftsman with the language came up with "the marginal propensity to consume" to describe some economic activity. It’s in the same league as “spurious correlation” or “Giffen’s paradox” when you want to impress the girls with your intellectual sophistication.

My fascination with Keynes was, however, somewhat diminished when I found out that his seminal work was actually preceded by Michael Kalecki, a Polish economist, who introduced concepts that Keynes later used. Kalecki didn't get the recognition he deserved because his works were, well, published in Polish.

That’s it for serious talk about the "dismal" science. Here's something to hopefully bring on some smiles even after having to put up with the parcel of rogues in bolehland.

Economy 101...or the Bovid Model of Explaining Economics

You have 2 cows.
You give one to your neighbor.

You have 2 cows.
The State takes both and gives you some milk.

You have 2 cows.
The State takes both and sells you some milk.

You have 2 cows.
The State takes both and shoots you.

You have 2 cows.
The State takes both, shoots one, milks the other, and then throws the milk away…

You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income.

You have two giraffes.
The government requires you to take harmonica lessons

You have two cows.
You sell one, and force the other to produce the milk of four cows.
Later, you hire a consultant to analyze why the cow has dropped dead.

You have two cows.
You sell three of them to your publicly listed company, using letters of
credit opened by your brother-in-law at the bank, then execute a
debt/equity swap with an associated general offer so that you get all
four cows back, with a tax exemption for five cows.
The milk rights of the six cows are transferred via an intermediary to a
Cayman Island Company secretly owned by the majority shareholder who
sells the rights to all seven cows back to your listed company.
The annual report says the company owns eight cows, with an option on
one more. You sell one cow to buy a new president of the United States,
leaving you with nine cows.

No balance sheet provided with the release.
The public then buys your bull.

You have two cows.
You shred them.

You have two cows.
You go on strike, organize a riot, and block the roads, because you want
three cows.

You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow and
produce twenty times the milk.
You then create a clever cow cartoon image called ‘Cowkimon’ and market
it worldwide.

You have two cows.
You re-engineer them so they live for 100 years, eat once a month, and
milk themselves.

You have two cows, but you don’t know where they are.
You decide to have lunch.

You have two cows.
You count them and learn you have five cows.
You count them again and learn you have 42 cows.
You count them again and learn you have 2 cows.
You stop counting cows and open another bottle of vodka.

You have 5000 cows. None of them belong to you.
You charge the owners for storing them.

You have two cows.
You have 300 people milking them.
You claim that you have full employment, and high bovine productivity.
You arrest the newsman who reported the real situation.

You have two cows.
You worship them.

You have two cows.
Both are mad.

Everyone thinks you have lots of cows.
You tell them that you have none.
No-one believes you, so they bomb the **** out of you and invade your
country. You still have no cows, but at least now you are part of a

You have two cows.
The one on the left looks very attractive.

You have two cows.
Life seems pretty good.
You close the office and go for a few beers

and, finally,

The Malaysian Corporation

You have no cows; but you have friends in high places
They urge you to make two cows
but claim that you have made 1000 cows
Charge the people toll for milking 1000 cows
The above mentioned friends and you pocket the difference.

Cheers, Captain.

mindful mariner said...

What can I say Mr. B.

Your comments, as all can see,
enhance the post to the Ntn degree.

The start was enlightening and the middle was delighting,

The finale was frightening,
but alas refects the truth.