What does this quote from The Wealth of Nations say about the merits of a free-market system of resource allocation? “People of the same trade seldom meet together even for merriment and...
What does this quote from The Wealth of Nations say about the merits of a free-market system of resource allocation?
“People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public or contrivance to raise prices” (Adam Smith, 1776, Book 10, Ch. VIII).
This quote from Adam Smith is often taken to be a criticism of the free market. In a way, it is because it does say that people engaged in free enterprise will try to collude and manipulate the system for their own benefit and against the benefit of the people.
However, what Smith is really arguing here is against government interventions in the economy. He is saying that the government should not do anything that encourages those people to meet with one another since those meetings would lead to collusion against the public interest. After he says that, he goes on to warn against various kinds of regulations that would induce the "people of the same trade" to meet.
Essentially, what he is doing here is warning against government policies that would create interest groups. He is saying that the government should not enact policies like workman's compensation laws that would give the various people in an industry the motivation to get together in a group and lobby the government.
So, what Smith is arguing is that completely free competition is better for society. He does not want the government to do anything that would encourage those in an industry to form an interest group and start to "conspire against the public."