Sismondi Critics of Competition

Critics of Competition and the Laws of the Market: Sismondi

There were but few critics of the classical ideas of competition during the early decades of the 19th century. Most writers agreed that the economic system could regulate itself, at least within the borders of the nation if not in international trade. Yet there were some who at first subscribed to classical doctrine and later became severe'critics of it. One of these was Sismondi. Although a sincere admirer of Adam Smith, he was impressed by the poverty and the economic crises that accompanied the advance of industrial­ization. As a result Sismondi re-examined the assumptions which formed the foundation of classical doctrine, and for all of his admiration he eventually challenged the fundamental ideas of the master.

First of all, Sismondi was impressed by the immobility of labor and capital. It was all very well, said he, for the economist to claim that an oversupply of a product and a falling price would result in a decrease in supply until price was stabilized and supply and demand were equal. But looking at the human factor, the process was not so simple. The workingmen instead of giving up their jobs were likely to accept lower pay and work longer hours in order to hold on to their jobs. Competition became more bitter, wages were further reduced, and a lower standard of living became fixed. The owners reacted in much the same way, he continued. It is not easy to give up a business in which a major share of one’s fortune hasbeen invested, and to which years of effort have been given. Under certain circumstances the owner would not be able to withdraw his capital even if he could. Consequently, the owners of the business would continue to produce, cutting costs, pilling up debts, finally abandoning their enterprises when ruin overtook them. This was the course of events as sismondi saw them. He believed that equilibrium, that is a balance of supply and demand, was achieved in the long run but only at the cost of great suffering and hardship.

Sismondi was extremely fearful of an increased production that was not preceded by an increased demand. He could not accept the idea so generally held today that an increase in production might easily create its own market. Thus competition was only beneficial when it encouraged an increased production in response to an increased demand. If it encouraged production in advance of demand the result was distress and impoverishment for workers and manufacturers alike, for only by emphasizing cheapness could any manufacturer survive. But the pursuit of cheapnes meant lowering of wages, lengthening hours of toil, and the employment of women and children. Sismondi asks, of what value are increased production and lowered price, if the net result is a poor and unhealthy class of workingmen?

It must be admitted that there was justice in much of Sismondi’s criticism. As he said, his eye was not fixed either upon the long run effects or the mechanical perfection of competition and supply and demand as regulators of the market, it was fastened upon the obvious human consequences of the period of transition from a society based upon agriculture and commerce to one founded upon large scale industry. He was likewise concerned with what Sumner Slichter a few years ago called the human costs as related to the money costs of economic activity. Sismondi was not a Socialist, even though his writings frequently sound like the Socialist denunciation of capitalism. He justified the re­turn to the land owner and the manufacturer, and his alterna­tives to modern capitalism have little in common with socialistic programs. At this point it is sufficient to note that he advocated the intervention of the state to safeguard human welfare. He sug­gested that the rapid increase in inventions be restrained and that competition in production should be controlled. Futher discus­sion of Sismondi's reforms will be reserved for a later chapter. Whereas Adam Smith had applied the doctrine of free competi­tion to production and had judged it good because of the abundance of goods produced, Sismondi applied free competition to distribution and found its effect bad when judged from its human consequences.