“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interests.” Adam Smith, Wealth of Nations (1776)
Lately, Joe Biden, Elizabeth Warren and many others have been blaming “greedy corporations” for high inflation. Here is the secret most people miss: corporations are greedy, but corporate greed has nothing to do with inflation. I’ll make my point with gasoline.
In 1964, gasoline was 30 cents per gallon. As prices in Tennessee reveal, gasoline prices today are more than ten times higher at $3.25/gallon than in 1964. Esso in 1964 was as greedy as Exxon is today even though gas prices were one tenth the current price. If anyone would like to buy gasoline for 30 cents per gallon, I will gladly sell it to you at that price. There is a catch; you must pay me in money from 1964, specifically dimes, quarters, half dollars or silver dollars. I will sell you as much gas as you would like at this price here in Tennessee.
Am I making this offer out of generosity? No, three silver dimes are worth $6.75 today. The problem is not that prices have gone up; the problem is that the dollar is worth less. The government is responsible for debasing the currency, not greedy corporations.
In fact, greedy corporations like Exxon have become far more efficient at extracting, shipping, refining, and transporting their oil products. They have done this by investing their earlier profits into new technologies like offshore drilling, better equipment like pipelines and larger oil tankers, and more efficient oil refineries. They did not make these capital investments out of goodwill, but in hopes of further improving their profits. We have benefited from these improvements.
Most people would agree that companies in the 1800’s were also greedy. Famous business tycoons like Cornelius Vanderbilt, John D. Rockefeller, Andrew Carnegie, and J.P. Morgan are often referred to as “robber barons.” If corporate greed is the cause of inflation, then inflation should have been rampant in the 1800’s when these men were the heads of industry. Instead, we see something completely different. Overall, for the 19th century, prices fell 50%. The same ten dollar gold piece could buy twice as much in 1900 as in 1800. Corporate greed plus sound money generates deflation, not inflation.
