A (Modern) Letter From Adam Smith

Dear Professor Cowen,

I realise that this might be an occasion of some surprise, your receiving an open letter of this sort from one who has been safely in their grave for two centuries and more, but I simply wanted to congratulate you upon your perspicacity on the subject of the trade in corn and other foodstuffs. Would that more news sheets would carry such obvious truths.

A big problem is that the world doesn’t have enough trade in foodstuffs.

The damage that trade restrictions cause is probably most evident in the case of rice. Although rice is the major foodstuff for about half of the world, it is highly protected and regulated. Only about 5 to 7 percent of the world’s rice production is traded across borders; that’s unusually low for an agricultural commodity.

So when the price goes up — indeed, many varieties of rice have roughly doubled in price since 2007 — this highly segmented market means that the trade in rice doesn’t flow to the places of highest demand.

That these are indeed obvious truths I consider self-evident: as I did when composing my book, The Wealth of Nations, all those years ago.

Were all nations to follow the liberal system of free exportation and free importation, the different states into which a great continent was divided would so far resemble the different provinces of a great empire. As among the different provinces of a great empire the freedom of the inland trade appears, both from reason and experience, not only the best palliative of a dearth, but the most effectual preventative of a famine; so would the freedom of the exportation and importation trade be among the different states into which a great continent was divided. The larger the continent, the easier the communication through all the different parts of it, both by land and by water, the less would any one particular part of it ever be exposed to either of these calamities, the scarcity of any one country being more likely to be relieved by the plenty of some other. But very few countries have entirely adopted this liberal system. The freedom of the corn trade is almost every-where more or less restrained, and, in many countries, is confined by such absurd regulations as frequently aggravate the unavoidable misfortune of a dearth into the dreadful calamity of a famine. The demand of such countries for corn may frequently become so great and so urgent that a small state in their neighbourhood, which happened at the same time to be labouring under some degree of dearth, could not venture to supply them without exposing itself to the like dreadful calamity. The very bad policy of one country may thus render it in some measure dangerous and imprudent to establish what would otherwise be the best policy in another. The unlimited freedom of exportation, however, would be much less dangerous in great states, in which the growth being much greater, the supply could seldom be much affected by any quantity of corn that was likely to be exported. In a Swiss canton, or in some of the little states of Italy, it may perhaps sometimes be necessary to restrain the exportation of corn. In such great countries as France or England it scarce ever can. To hinder, besides, the farmer from sending his goods at all times to the best market is evidently to sacrifice the ordinary laws of justice to an idea of public utility, to a sort of reasons of state; an act of legislative authority which ought to be exercised only, which can be pardoned only in cases of the most urgent necessity. The price at which the exportation of corn is prohibited, if it is ever to be prohibited, ought always to be a very high price.

The laws concerning corn may every-where be compared to the laws concerning religion. The people feel themselves so much interested in what relates either of their subsistence in this life, or to their happiness in a life to come, that government must yield to their prejudices, and, in order to preserve the public tranquillity, establish that system which they approve of. It is upon this account, perhaps, that we so seldom find a reasonable system established with regard to either of those two capital objects.
Further

As I note in the same chapter, if prices are to rise in the future, better that they do so now, as a result of such speculation and hoarding, so that the rise in prices indicates the dearth to come and thus the consumers moderate their behaviour now, rather than later when dearth turns to famine.

For example, if demand for rice rises, Vietnamese farmers — who remain shackled by many longstanding regulations of communism — aren’t always able to respond quickly. They don’t even have complete freedom to ship and trade rice within their own country.

Again, I can do nothing but applaud your perspicacity, for I make very much the same point when discussing the inland trade in corn in my own day.

As I understand matters reside currently, transport costs have fallen greatly since my day and thus the global trade is best viewed as was that inland trade of the 18th century.

As might be obvious, my death has not diminished my interest in matters of oeconomy, but from the short space which you were allowed to develop your arguments, the mere one page to marshall and emphasise your facts, I fear that even with the near infinite time available to me now I would not be able to essay such pieces for the newsheets, for my writing style was of course forged in an earlier time, when more leisure was allowed both the writer and the reader to lay out and understand the details, the points upon which a train of thought relied.

One other matter remains, after my praise for one who so clearly agrees with me (tell me, is my book still read and understood? or are these arguments rediscovered, time and again?) just what is this blog thing? Is it something to do with LoLcats, a fashion that has recently reached this place? As my fellow student of the world and life in it, Mr. JBS Haldane, noted, God does indeed have an inordinate fondness for beetles, but Death, as chronicled by Mr. T Pratchett, thinks rather a lot of cats.

Yours etc.

Adam Smith.