Collective Conscious

Adam Smith presents a the­ory of price and value in The Wealth of Nations:

The com­mod­ity is then sold for pre­cisely what it is worth.

Joan Robin­son sav­ages it:

As a the­ory of prices this is rather simple-​​minded, but it is doubt­ful whether the doc­trines taught nowa­days, though so much more elab­o­rate, are any more penetrating.

Smith presents the mar­ket as a sys­tem of ‘nat­ural’ prices, claim­ing that the prices set by the open mar­ket are equiv­a­lent to the proper val­ues of the items being sold. In Smith’s account­ing it is appar­ent that the mar­ket is being mea­sured against some exter­nal stan­dard of value, and that his asser­tion is that the mar­ket econ­omy must nec­es­sar­ily repli­cate true val­ues in its sys­tem of pricing.

Robin­son is right to say that present ortho­doxy does not go much deeper, but she over­looks the philo­soph­i­cal turn which the story had taken even by the time of her 1962 writ­ing. The mythol­ogy of the mar­ket no longer asserts that the prices gen­er­ated by open exchange are fair as mea­sured by a sen­si­ble exter­nal stan­dard; it has divorced Smith’s orig­i­nal claim from the con­cept of value. The stan­dard has been reduced from “mar­ket prices match true val­ues” to “mar­ket prices are true values”.

One who believes it firmly will cite proof of the effi­ciency of mar­kets; but these proofs are applic­a­ble in only the most lim­ited cir­cum­stances (com­plete and unre­stricted mar­kets for all pos­si­ble com­modi­ties and ser­vices being one require­ment) and they ignore com­pletely the ques­tion of dis­tri­b­u­tion. Effi­cient mar­kets of even the most rig­or­ous sort turn a blind eye to pre­ex­ist­ing inequal­i­ties. Mar­kets are forward-​​looking. To assert that the out­puts of a mar­ket are just, one must first do so for its inputs. That is, the phi­los­o­phy of a staunch free-​​marketer must be “what is, is right”, and this is a plainly unten­able position.

Smith’s case was dubi­ous, but the cur­rent phi­los­o­phy is absurd on its face.