Adam Smith, Professor of Moral Philosophy at the University of Glasgow, is on his way to deliver some lectures at Leuven. He finds himself in the shade of Saint Sixtus’ Abbey in West Flanders. A monk passes by.
Adam Smith: Good sir, I have heard that the Brothers here brew a passing goode Ale. Might I impose upon you to do me the great Favour of furnishing me with a Flask?
Brother Anselm: Why, of course, it would be my pleasure. I hear from your accent that you are not from around these parts?
Adam Smith: No, indeed, I am from Glasgow. I teach at the University there. I am on my way to the University of Leuven where I am invited, much to my Delight & Honour, to deliver a Programme of Lectures on “The Mercantile System of Trade in the Imperial Eckonomie”.
Brother Anselm: You are an economist?
Adam Smith: An Eckonomist? Well, Sir, as a Discipline I should rather say that I practise Morall Philosophie. But “Eckonomist” is an intriguing Coinage, certainely, and one that could serve tollerably well to describe my late Ideas.
Brother Anselm: God works in mysterious ways! As it happens, we at Saint Sixtus’ Abbey face a knotty problem of economics—and indeed of moral philosophy. Perhaps you could advise us?
Adam Smith: I am your Humble Servant.
Brother Anselm: Here is our dilemma. As Cistercians, we believe that we ought to sustain our lives and our mission through the work of our own hands.
Adam Smith: A most noble Sentiment.
Brother Anselm: As you know, one of the ways by which we sustain ourselves is by the brewing and selling of beer.
Adam Smith: Quite so. I am acquainted with the Fame & Reputation of the Abbey’s Ales through my reading of those esteem’d Journales of the Trade, Rate My Beer, The Generall Advocator of Beere, & Untapp’d. Your Dark & Stronge Ale, by some styl’d “Quadrupelle”, stands Third in Ranke in the Top Fifty of Rate My Beer, a notable & widely dockumented achievement.
Brother Anselm: And therein lies our dilemma. We are pleased, of course, that our products are so admired. But we consider it best that they be sold only here, at the abbey, at what we consider to be the correct price, to use the words of my colleague, Brother Manu Van Hecke. We have therefore required our customers to call ahead and order a crate of beer, before collecting it from us in person; or to enjoy a glass of beer in our café, In De Vrede. We sell a crate of our strong dark ale for €45, which is a rate of €1.88 per bottle. In the café one can usually get a box of six bottles for around twice that price, or a bottle to drink for around three times that price. We insist that this beer should be for personal consumption and not for retailing. But, unfortunately, we live in a corrupted and fallen world. Human weakness and the greed for profit leads some of our customers to sell our beer again, in their shops or on the internet markets, at six, seven or eight times the price we sell it, here in Saint Sixtus.
Adam Smith: And your Objection, Sir, is that the Machinations of these severall Intermediarie Merchants embroiles your Godlie Institution in the Impoverishment of innocent Lovers of Beere?
Brother Anselm: Indeed, Professor, to the gain only of the speculator.
Adam Smith: I beginne to discerne the Nature of the Problem. Let me first question your Premisse concerning Humane Weakenesse & Greede for Profit. We are told of the Dangers of Avarice & Coveting and that Love of Money is the very Root of all Evile. It would be a grave & profounde thing to lay questions against this universall Truth. I am humble enoughe not to concerne myself with the Universall. The Administration of the great Systeme of the Universe and the Care of the universall happinesse of all rational & sensible Beings, is the Businesse of God and not of Man. To Man is allotted a much humbler Department, but one much more suitable to the Weaknesse of his Powers, and to the Narrowness of his Comprehension: the care of his own Happinesse, of that of his Familie, his Friends, his Country. Now, Nature has directed us to the Greater Parte of these by originall and immediate Instinctes. Hunger, Thirst, the Passion which unites the two Sexes, & the Dread of Paine, &c., prompt us to applie those Means for their own Sakes, and without any consideration of their Tendencie to those Beneficent Endes which the great Director of Nature intended to produce by them.
Brother Anselm: Do you mean to argue that the world is not corrupted and fallen? And how does all this relate to the brewing and selling of beer at a fair price?
Adam Smith: I have no Doubt that the World is indeed a fallen one and riven with Corruption and the Pursuit of selfish and evil Ends. Nonetheless, it is not from the Benevolence of the Brewer—or the Butcher or the Baker, &c.—that we expect our Dinner, but from their Regarde to their owne Interest. We addresse ourselves, not to their Humanity but to their Self-Love, and never talk to them of our Necessities but of their Advantages. By directing his Industrie in such a Manner as its Produce may be of the greatest Value, he intendes only his owne Gaine, and he is in this, as in many other Cases, led by an Invisible Hand to promote an End which was noe Parte of his Intention.
Brother Anselm: I understand. But we have defined our own interest, here at the abbey, as selling our beer at the correct price to sustain our mission. What we object to is that other parties pursue their own interests with our beer, and in doing so they make the larger part of our customers pay an incorrect price—a high price.
Adam Smith: Againe, Sir, I must respectfully lay questions against your Premisses. It is typical of Men of Systeme, who would order and direct the Actions of Men according to the Vanitie of their Designs, to Presume to know the “Correcte Price” of some Commoditie or another. But this “Naturall Price”, as I should prefer to style it, is merely the whole Value of the Rent, Labour & Profit, marke thee well, Sir, which must be paid in order to bring it thither. Now, it is true that the Market Price of every particular commodity is regulated by the Proportion between the Quantity which is actually brought to Market, and the Demand of those who are willing to pay the Natural Price. When the Quantitie falls short of the Effectuall Demand, all those who are willing to pay the Natural Price cannot be supply’d. Rather than want it altogether, some of them will be willing to give more, & the Market Price will rise more or less above the Natural Price, according as either the Greatness of the Deficiency, or the Wealth & wanton Luxurie of the Competitors. In this Eventualitie, some of the component parts of the Price of the Commoditie must rise above their Natural Rate. If it is Rent, the Interest of all other Landlords will naturally prompt them to prepare more Land for the raising of this Commodity; if it is Wages or Profitte, the interest of all other Labourers & Dealers will soon prompt them to employe more Labour and Stock in preparing and bringing it to Market. The Quantity brought thither will soon be sufficient to supply the Effectual Demand. All the different Partes of its Price will soon sink to their Natural Rate, and the Wholle Price to its Naturall Price.
Brother Anselm: Your argument is that the best cure for high prices is high prices. Whatever the merits of that argument, I certainly can confirm that the dealers do their best to employ more labour and stock in bringing our beer to the market: they telephone us in ever greater numbers and ever more frequently to collect beer, with a view to selling it on to their own customers. We have recently taken further steps against this practice. By making it possible to place an order for beer on our website, we have made it easier for genuine customers to buy our beer, but also easier to monitor and regulate who is buying, and how often, and whether they are respecting our injunction against retailing.
Adam Smith: But are these Genuine Customers yet requir’d to collect their Beere here, at the Abbey?
Brother Anselm: They are. It is not in our interest to incur further costs for packaging and distribution, when local demand for our product outstrips supply.
Adam Smith: Then, forgive me, Sir, but the Abbey merely exacerbates & frustrates the Very Nubbe of the Predicament!
Brother Anselm: How so?
Adam Smith: You acknowledge that there are Men & Women in far-off Countries, Realmes & Republicks who would fain Partake of your excelling Ale?
Brother Anselm: I believe that is so, yes.
Adam Smith: And you accepte that, notwithstanding the Miraculous Enhancements to Globall Perambulation of these late Times, a journey from distant Colonies amounts to a supremelie Tall Order in Pursuit of a mere Crate of Beere?
Brother Anselm: I suppose it would, yes.
Adam Smith: Ergo, you must acknowledge the Great Servise that these Intermediaries doe, in supplying those same far-flung Consumers. It is the Maxim of every prudent Master of a Familie, never to attempt to make at Home what it will cost him more to make than to buy, & what is Prudence in the Conduct of every private Familie, can scarce be Follie in that of an Enterprise of Businesse. The Brothers pray, brew & manufacture Cheese. As you saye, it would be prohibitively costlie for them to acte also as a Dealer & Distributor to far-flung Markets. That is the Purpose of Employing an Intermediarie, which, by the bye, is a Good in itself. For it is the great Multiplication of the Productions of all the different Artes, in consequence of the Division of Labour, which occasions, in a well-governed Society, that universall Opulence which extends itself to the lowest Ranks of the People. It is in this way that the Invisible Hand, the which I had Occasion to mention earlier, makes nearly the same Distribution of the Necessaries of Life, which would have been made, had the Earth been divided into Equal Portions among all its Inhabitants.
Brother Anselm: Your advice would be to encourage these retailers, then?
Adam Smith: Most certainely, Sir. In generall, if any Branch of Trade, or any Division of Labor, be advantageous to the Publick, the freer & more general the Competition, it will always be the more so. To Returne unto our Discourse concerning Natural & Market Prices, consider that, tho’ the Market Price of every particuler Commoditie is continually gravitating, if one may say soe, towards the Natural Price, yet sometimes particular Accidentes, sometimes Natural Causes, and sometimes particuler Regulations of Police, may, in many Commodities, keep up the Market Price, for a long time together, a good deal above the Natural Price. A Monopolie granted either to an Individual or to a Trading Company has the same Effect: The Monopolists, by keeping the Market constantly understock’d, by never fully supplying the Effectual Demand, sell their Commodities much above the Natural Price, and raise their Emoluments, whether they consist in Wages or Profite, greatly above their Natural Rate.
Brother Anselm: While I agree that we understock the market, and could produce more than our current output of around 6,000 hectolitres if we were to brew on more than 40 days of the year, surely it our prerogative not do so, that is, not to pursue an interest in profit but rather to pursue only a necessary income?
Adam Smith: Since you aske, I am bound to remark that, as a matter of Principle, my Belief is that Publick Services are never better perform’d than when their Reward comes in Consequence of their being performed—as oppos’d to their not being perform’d—& is proportion’d to the Diligence emploied in performing them. But let us get beyond Principles and settle instead upon Empiricall Factes & Practicalities. Your 6,000 hectolitres approximates to some 2,400 of the old Ale Hogsheads with which I am more familier. Now, your Cistercian Brothers at Notre Dame de Saint Remy in Rochefort produce 16,000 Hogsheads of their good Ale, which is somewhat more. But at the Achelse Kluis they brew little more than Two Thirdes of the Volume that Saint Sixtus manufactures. Moreover, in mine owne United Kingdome, the monks at Mount Saint Bernard Abbey brew only Half as much of their splendide Tynt Meadow Beere as is manufactured at Achelse Kluis.
Brother Anselm: You are well-versed in the industry of Trappist brewing!
Adam Smith: For my Sinnes, you might saye. I entered into a most enlightening conversation upon the Subjecte with a red-nos’d Gentleman at an Inn in Brugge, over a Goblet or two of Achel Bruin, pour’d out for us by Madame Daisy (of local Fame). I enquir’d upon his Favorite of the Cistercian Brewes, and shall be Politick enough to keep his Answere to Myselfe! In shorte, Sir, every one of these other Brewing Concernes employes specialised Labor for the Distribution of its Ales to the far Corners of this Earth, with the happie Result that they retaille at markedly similar Market Prices, the which I canne onlie assume to be within Spillinge Distance of their Respective Natural Prices, & which I doe know to bee substantially lesse then the Market Price of thine owne Westvleteren Brewes. From these Factes, I conclude, Sir, that your Dilemma has not its Origins in Supply, nor in the outstanding Qualities of the Beere, but rather in Demande.
Brother Anselm: These insights are most interesting, Professor Smith. Might I therefore conclude that there is nothing to be done about our problem, since the issue is not one of supply, over which we have some control, but one of demand, over which we have none?
Adam Smith: By noe meanes, Good Sir! Againe I must implore you to give due Consideration unto Humane Nature, and the fact that Men are, before all else, Social Creatures. Among Competitors of equal Wealth and Luxurie the same Deficiency of Supply will generally occasion a more or less eager Competition, according as the Acquisition of the Commoditie happens to be of more or less Importance to them. Hence the exorbitant Price of the Necessaries of Life during the Blockade of a Towne or in a Famine.
Brother Anselm: But beer is not a necessary of life, and neither are we beset by a blockade or famine.
Adam Smith: Indeede, wee are so lucky. Consider, however, the Mechanism by which your Restriction of the Supply of your Commodities—by Meanes of Prohibiting Distribution by specialis’d Intermediaries and requiring Consumers to make a Pilgrimage to collecte their Beere Purchase—has rais’d the Importance of your Beere for the Consumer and thereby Increas’d the Eagerness of Competition for it in the Market. With the Greater Parte of riche People, the Chief Enjoiement of Riches consists in the Parade of Riches, which in their Eye is never so compleet as when they appear to possesse those Decisive Markes of Opulence which Nobodie can possess but themselves. Now, it should be granted that the Saint Sixtus Beere is noe great Luxurie as the Silks of Araby or, much less, the Black Tea shipp’d by the Carrying Trade from China in lock’d Strongboxes. Even at its excessive Market Price it is not beyond the Person of modest Meanes. And yet, your Restrictions have designated this Commoditie as one that does require vast Reserves and Richnesse of Time and Dedication. Not unlike those Mediaeval Actes of Alchemie that transubstantiated some ragged olde Dogges Bones into the Forearme of the Prophet Elijah, so thine owne interventiones have driven Consumers of Beere (imagining the Tumult of Approbation that will greete their opulently adorn’d Portraites on The Instant-Gramme) into great Frenzies of Covetousnesse and Competition. Those interventions doe but stay the Workinges of the Invisible Hande, enslaving all the World in a less enlighten’d Time, whereas the Merchants and Artificers, much less ridiculous, acting merely from a view to their own Interest, and in Pursuit of their own Pedlar Principle of turning a Penny wherever a Penny was to be got, with their Industrie do scrubbe clean away the numinous glow of Superstition, and the childish Vanitie of Untapp’d Medallion Hunters, thus enabling the Market to cleare at a lower, more Naturall Price, & moreover, cleare in such a way that all true Lovers of Beere receive just as much Westvleteren XII as they should like to, with regard neither to Meanes nor Nation—just as they do with the much rarer, but less feverishly storied, Achel Bruin or Tynt Meadowe.
Brother Anselm: Now I understand! How could we have been so misguided for so long? Professor Smith, excuse me, but I must report your advice to the Brothers and urge them to change our beer-retailing policy immediately!
Adam Smith: In so doing, you do God’s work. And when you return, it would please me if you would do so with a Chalice of the Abbey’s Ale, to be sold to me at Market Price. I am keen enough to knowe what all the Fusse is about.