People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices….
That was Adam Smith’s perceptive dismissal of any trading cartel be it an association of manufacturers, retailers or trade unions because every one of them was constantly seeking to fix a common price for goods or labour to avoid the dangers of individual members lowering their prices and thus offering a more competitive market to consumers. Smith placed demand at the centre of any economic activity
Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.
Any attempt to fix or manipulate price outside the mechanism of the market for the short term “common good” would in the long term produce distortions (business closures, repossessions, unemployment, shorages etc) that would cause even greater social misery.
Including the price of credit over the last decade says Steve Baker MP in the UK Spectator
Central banks held down interest rates to stimulate economies with new credit, to push impending corrections out of sight. Those artificially low interest rates discouraged saving and encouraged borrowing but banks can extend credit into existence to cover the gap. With moral hazard endemic, banks loaned recklessly, using derivatives to book unrealised cash flows as profit up front. Some individuals went home unjustly rich and politicians won elections as the system over-extended itself.
Such shenanigans have been blamed on relying too much on market forces and so recently there have been cries for greater degrees of supervision and regulation.
If there had been a truly free market for credit the corrections would have been self generating according to the ebb and flow of demand. Closer supervision and regulation merely makes it easier for powerful elites to impose “adjustments” to suit their own particular political/cultural agendas.
The really important question today is not whether the Bank of England encouraged manipulation of credit markets by self-interested rogues but why we tolerate systematic credit market manipulation by the central banks as a matter of policy: nowhere else in the economic system would we accept explicit planning of the price and quantity of a vital commodity. If it worked, we’d all be communists.
In other words – beware of the man with a plan because it will inevitably lead to your own true interests being subsumed for “the greater good”…as perceived by the man with the plan.
If a man has a plan use another four letter word to tell him where to go…..