The progress of the last two hundred fifty
years has been explosive. Year after year, the world and its people have grown more connected
and more prosperous. It seems unimaginable. And yet, a man who lived in a world of sailing
ships and horse drawn carriages, of great wealth, and great poverty, imagined our very
world. He set pen to paper and recorded the ideas that would revolutionize the world’s
marketplaces. Free markets and global trade have created
more prosperity, and for more people, in the past two hundred years, than was created in
the previous two thousand years. We are living longer and more comfortably than the vast
majority of people who ever lived. But in todays’ seemingly ruthless competitive
environment, where the stakes are high and winning is the name of the game; can an ethical
and honest business still prosper? Has the global economic system become so big
and complex, that morality and human empathy are no longer relevant? Where insiders and
the rich get richer and the middle class and the poor get poorer and the free market is
no longer “free”? I’m Johan Norberg, a writer and an analyst,
born and raised in Sweden, and these issues are of great concern to me. Therefore, I’ll
take a new look at the ideas of the man many consider to be the father of the modern world.
He was a Scotsman named Adam Smith: a moral philosopher, a bold voice of the Scottish
Enlightenment and the world’s first economist. He recorded his revolutionary ideas in two
remarkable books: The Theory of Moral Sentiments and The Wealth of Nations.
Those ideas changed the world and in the next hour we’ll explore how they continue to power
our world today. Funding for this program has been provided
by: John Templeton Foundation and Templeton Religion Trust.
The Maersk Mc-Kinney Moller is one of the largest ships in the world. It is also one
of the most modern cargo carriers on the oceans today, carrying Adam Smith’s ideas on world
trade to a level imagined by only one man. “By opening a more extensive market for … the
produce of their labour… it encourages them to improve productive powers… and thereby
to increase the real revenue and wealth of the society.”
In command of the huge ship is Captain Jes Meinertz, a 25-year veteran of the sea-lanes.
You see the vessels getting bigger and bigger; you have seen an increasing volume of cargo
going from one port to another port… and I think that trend will continue.
The massive scope of international trade today would have been unimaginable even a few decades
ago. But Adam Smith foresaw the workings of such a world more than 200 years ago. He wrote
that free markets and free trade would connect the continents and result in global prosperity.
Today’s markets have grown to global proportions and revenue and wealth have soared: just one
way that Adam Smith’s ideas continue to change the world.
Captain Meinertz and his crew are on a journey that will take them over twelve thousand nautical
miles from Shanghai to three more stops in mainland China, Hong Kong and then through
the Suez Canal. Now, after 20 days at sea, they are nearing
Algeciras, Spain. Then it will be on to Rotterdam and other European ports. The economic facts
of life in the cargo business mean that bigger is better. Size is everything.
The Maersk Mc-Kinney Moller is over twenty stories high and 1,300 feet long. This ocean-going
behemoth carries 18,000 containers. If they were loaded aboard a train, the train would
be 68 miles long The containers hold everything from fruits
and vegetables to furniture and electronics, from appliances and kitchenware to vehicles
and auto parts; a vast variety of consumer and industrial goods to feed the growing demand
of a globalized world. In China, for example, you have 1.2- 1.3 billion
people and the middle class is growing. And of course, they will be consumers like in
the U.S. and like in Europe. And, of course that will- that will create
even more demand for goods to be transported around the world.
It’s early evening when the ship arrives in Algeciras, Spain. Now, working through the
night, over 2,500 containers will be offloaded within 10 hours. Then, once again, the ship
will be on its way. Every day of the year, thousands of container
ships enter hundreds of ports around the world. Adam Smith would be amazed: every corner of
the earth is now linked to every other. Each day, more people become connected by global
trade. Each day, because of it, life gets better for millions of people.
So, who was this man who predicted that trade would lead to prosperity? Who foresaw this
global progression out of poverty? Smith took ideas of economics that were really
in the bow and arrow stage and made them into a modern theory, which actually still drives
our economic thinking today. People call him an economist; he was really
a social psychologist. He wrote about ethics, he wrote about law, he wrote about politics
and obviously, he wrote about economics. The man many consider most responsible for
today’s prosperity. Indeed, the father of modern economics first made a name for himself
as a young man here, in Edinburgh, Scotland. This historic city was then the center of
the Scottish Enlightenment and Adam Smith was one of its brightest lights.
He had written an amazing book, The Theory of Moral Sentiments, and that had propelled
him into popularity. He would go on to write another, which was equally popular and eventually
better known, The Wealth of Nations. Together these two books described a powerful
system of guidelines linking morality and economics.
Adam Smith was one of the greatest minds of all time.
His great gift was observation, and his study of human nature as it appeared in different
types of society at different periods of history- is absolutely awesome.
Adam Smith was born in 1723, in the small seaside town of Kirkcaldy, Scotland, where
he learned about morality and economics at the local merchants’ market.
He studied at Glasgow University, became its top administrator and then a pillar of the
unlikely intellectual revolution called the Scottish Enlightenment.
He lived, lectured and socialized in Scotland’s capital city of Edinburgh.
He had eloquently argued the power of free markets and the division of labor, to enable
people at all strata of society to become more prosperous.
The institutions that Adam Smith recommended have proved- empirically and historically
now- to correlate positively with all of these metrics of human well-being.
Smith was particularly concerned about the well-being of the least well-off, and thought
that markets, especially the type of commercial society he wished to defend, would be of immense
benefit to precisely those people. He was the man that gave us modern economics
with concepts like gross national product, and productivity, and supply and demand, and
labor, and capital, and all of these things we just take for granted today.
Smith matters, because he posed a question that every single government since has had
to address. Should governments intervene in the management of economies? Should they leave
it to market forces? Could market forces- on their own- alleviate
poverty? Smith actually believed that they could.
He had lived to see that his revolutionary ideas worked, to see life for the average
Scotsman actually improve. And most important for Smith, that the poor were beginning to
do better. So, do Adam Smith’s revolutionary ideas, now
over two centuries old, apply to the poor in today’s developing world, as they did in
Europe and America in Smith’s day? Do they still have the power to transform the world?
One success story with a surprising Scottish connection is Hong Kong.
For much of its past, Hong Kong had been one of the great trading cities on earth. Packed
with thriving businesses, large and small, Hong Kong had no natural resources and little
agricultural land… only a beautiful harbor and a population of remarkably industrious
people. By the 1960s, the colony was crammed with
millions of refugees fleeing the civil war in mainland China
Hong Kong was a city hobbled by poverty. There were water shortages and thousands of refugee
families called the harbor home. But everything would change because of the
vision of one determined man, Sir John James Cowperthwaite, Hong Kong’s financial secretary
from 1961 to 1971. He was also a Scotsman and very much a disciple of Adam Smith.
Sir John Cowperthwaite is one of the great-unappreciated heroes of political economy. He implemented,
in Hong Kong, an experiment. He applied his theory of what he called benign neglect, so
he instituted in Hong Kong the system of Smithian political economy to see what would happen.
Cowperthwaite built a Hong Kong that had relatively little corruption, an efficient and independent
judiciary, individual property rights, and respect for the rule of law. He instituted
an uncomplicated tax system with low rates on both individuals and business. The overall
tax burden was half that of the United States at the time.
And he implemented the Smithian system of peace, easy taxes, and a tolerable administration
of justice… and look what happened. “Little else is requisite to carry a state
to the highest degree of opulence … but peace, easy taxes and a tolerable administration
of justice; all the rest being brought about by the natural course of things.”
In Cowperthwaite’s decade as financial secretary, real wages rose by fifty percent. Between
1960 and 2014, Hong Kong’s GDP per capita adjusted for inflation, increased more than
ten times. And they turned what was effectively a rock
in the 1950s to one of the most prosperous places on earth today.
Even now, under Chinese rule, Hong Kong remains one of the world’s most important financial
centers. It’s proof that with the right policies in
place, change can come quickly. And today, the people of Hong Kong, despite continued
unrest and demands for a greater say in their future, have a higher income per capita than
their old colonial masters in Britain. While Hong Kong- along with Japan and the
other Asian Tigers- was prospering, China was stagnating.
Twenty years of Soviet-style centralized planning and control had crippled the country.
After Mao died both the Chinese leaders and the Chinese people recognized that socialism
didn’t work. Ning Wang is professor of economics at the
Ronald Coase Institute, and author with Ronald Coase of the book How China Became Capitalist.
They tried new ways to organize the economy. What emerged was spontaneous, was something
we here recognize as the market economy. And in China it’s called socialism, with Chinese
characteristics. Socialism with Chinese characteristics translates
to change from the ground up or spontaneous development. Add to this the power of a market
economy and you have two of Adam Smith’s most essential concepts.
They gradually opened up the economy, allowed private sector to enter in one industry after
another, and of course, once the private enterprises entered any sector, they quickly out-performed
state enterprises. The small market economy, which leaders had
allowed to even out the rough spots in centralized planning, mushroomed. Today, China’s private
sector contributes 60 to 80% to the country’s job growth and 60 to 70% of its GDP.
So, that forced them to resort to their own tradition: seeking truth from facts. Be practical.
Be open minded, not trapped by any preexisting ideology.
It’s estimated that in the last three decades, over 600 million people have risen out of
poverty in China. That’s an accomplishment unmatched anywhere, at any time, on earth.
And today, thousands of young Chinese are joining a global movement to discover how
to maximize their nation’s potential. Tens of thousands of students, from all over
the world, have come to America to study. Many of them are here at the University of
Chicago, one of the world’s foremost academic institutions.
Xingxing Li is a PhD student at the University of Chicago Law School and she’s studying the
effects of government regulation on the economy. And I just wanted to come here and learn from
the best of the best and then return to China and help to spread the knowledge to Chinese
students. This may be the best place on earth to study
the causes of wealth and poverty: almost thirty professors, students, and alumni have won
Nobel Prizes in economics. Today, Professor Ning Wang is at the University
of Chicago to preside over a unique seminar. These University of Chicago scholars and students
are from China and they’ve all come together for a luncheon and a seminar to explore an
interesting and surprising mix: Adam Smith, capitalism, and communist China.
Such a conversation, even their presence here in the west, would have been unthinkable just
a few years ago. Good afternoon, welcome everyone, and a welcome
to have this seminar, Adam Smith in China. And we have a group of scholars, students,
who have expertise on Adam Smith. Adam Smith is the first generation of economic
theorist. I think classical economics would believe
that like, until [the] market fails, there’s no need for governmental intervention.
It is the highest impertinence and presumption in kings and ministers, to pretend to watch
over the economy of private people.” Yes market works, but market needs something
like morality. So people will trust each other, or at least they want to try to trust each
other. Adam Smith not only has one book called, Wealth
of Nations, he also has another great book, called The Theory of Moral Sentiments, and in that
book he really lays out what kind of morality standards should the people have when they
have the market kind of exchange. I think they were surprised, happily surprised
that actually what they got from Adam Smith actually consistent with their own tradition,
traditions from Confucianism and traditions from Taoism.
Chinese students are not just studying Adam Smith in the west… they’re studying him
in China. All of the major Chinese universities teach the ideas of Adam Smith. And they are
learning how their own traditions are similar to those of the west.
It doesn’t surprise me at all that more people in China read Adam Smith, than, you know,
people here in the States. The previous Chinese Premier, Wen Jiabao,
on many occasions praised The Theory of Moral Sentiments, and I remember once, he- visiting
a Chinese campus, and in front of students, he raised that book, “Hey guys, you have to
read this book, The Theory of Moral Sentiments.” Is China coming full circle? Will it once
again embrace its cultural roots, with a deeper understanding of how its history and commercial
traditions merge naturally with the ideas of Adam Smith and contemporary market economics?
Is communism the future of China, or will it be seen as just an aberration, a blip,
in China’s long history? But for China to move forward it has to strengthen
its own innovative capacity. The most severe defect of the Chinese system
is that China now has an open market for goods, but doesn’t have a free market for ideas.
A free market not only opens our minds to new ideas, it helps us to be far more productive.
From thousands of independent suppliers around the world, millions of parts have been shipped
to Airbus in Toulouse, France. Here they will be assembled into the largest
and most modern airliner on earth… a product of the vast benefits of a global division
of labor, a concept popularized by Adam Smith. “The division of labor, so far as it can be
introduced, occasions in every art, a proportional increase of the productive powers of labor.”
Few things better illustrate the benefits of the division of labor, than factories like
this. Smith would have been amazed. What was an extraordinary insight in Smith’s
day; the productive potential of the division of labor is now a commonplace, common sense
global phenomenon. Here we are in our mockup hall here in Toulouse;
we have full size models of the major models that we produce for Airbus.
Alan Pardoe is the head of marketing communications at Airbus in Toulouse, France.
They’re fully furnished so they have seats and galleys and furnishings just like a real
airplane. If you like, it’s sort of a showroom. We are many thousands of people in Toulouse,
but we are of course a global company, we’re not just French.
So an A380 is a very big airplane; in fact, it’s the world’s largest commercial airplane.
And what really distinguishes it- is the fact that it’s got two decks, two levels, two cabins.
And it’s an airplane that probably has something in the order of four million individual parts.
Two and a half million of those are unique part numbers. We must have something in the
order of 1,500 suppliers in probably about 30 countries.
And each of those suppliers does what they do best. They specialize in their own area
of expertise. The wings are constructed in England and each
contains 32,000 individual parts. The wing is enormous; it’s huge. The wingspan
of this airplane is about 80 meters. That’s something in the order of 250 feet, so it’s
bigger than almost every other airplane ever flown, and certainly the largest commercial
airplane flown. Smith first described the division of labor
by looking at the manufacture of simple pins. We’ve come a long way since, but the principle
is still the same: the larger the scale of the cooperation, the greater the chance of
specializing. I think for one company to try to do everything
on its own would be prohibitively expensive in terms of just not money, but resource,
people… know-how. It’s a global business. People fly around the world day in, day out.
It’s a global supply business. It’s a global manufacturing business.
You concentrate on doing the things that you’re good at. I concentrate on doing the things
that I’m good at, and then we exchange, and then we’re both really much, much better off,
because we’re very much more efficient. What we see in the world today in a globalized
economy is millions, indeed, billions of people who are cooperating with one another in innovative
new ways around the world. In some sense, that really is the Adam Smithian world
With incredible machines like these, we can travel from one continent to the other, supported
by a vast network of millions of people and thousands of systems that keep everything
up in the air. And while we’re flying, tons of freight is
traveling with us in the cargo holds. But by far, most products traded between nations,
still travel, as they did in Smith’s day… on the seas.
With every one of the allotted containers unloaded in Algeciras, the Maersk Mc-Kinney
Moller is ready to depart. A cargo ship rests at its dock only long enough
to unload and load. At most ports, the crew never leaves the ship.
Before dawn, with the moon setting behind the mountains, she heads into the crowded
Strait of Gibraltar. I would say that’s a favorite place to be-
on the bridge- watch the sunrise. And you have this deep orange sun coming up.
And you see the light changing in the horizon just before it breaks.
Aboard the Maersk Mc-Kinney Moller, the crew on the giant ship settles into their daily
rhythm: Checking the bracing on the containers, keeping the ship clean and performing routine
maintenance. Maersk is a Danish company; the captain and
his senior officers are from Denmark. The rest of the crew is international.
In the past, everything had to be done manually. Nowadays, a lot of the functions that we control
are done automatically via computers and- and monitors and that, of course, requires
less manpower. An officer or a navigator nowadays is actually,
he’s not steering the big wheel anymore; he’s basically monitoring all the automated systems
on board. The 24 crew who run the ship are spread over
its quarter mile length. They seldom see one another. They come together at mealtime, three
times a day. Romey, the Phillipino cook and the oldest
member of the crew, prepares a diverse menu with dishes that make the men feel at home.
It’s a time to relax, share information and plan for the work ahead.
This huge ship demonstrates the impact Adam Smith envisioned international trade would
have on prosperity. It’s not what’s in the containers, but what they represent that’s
important. Smith believed that wealth is not just the
things you own- like gold in the bank- but also your labor, and the things you can get
in exchange. The more others create and the more you trade with them, the better off you
are. And with ships like this, world trade is much
more efficient and environmentally friendly. At the heart of the vessel is its unique state
of the art propulsion system. They are what they call super long stroke,
when you have super long stroke you have a slower speed.
Per Schilling Nielsen is chief engineer. He’s been with Maersk for 25 years.
They’re doing maximum 73 revolutions per minute. They’re directly linked to the propeller;
that means the propeller is doing maximum 73 RPM.
The long stroke engine is designed to squeeze the most miles possible out of every drop
of oil. It lowers fuel consumption by 37% and carbon dioxide emissions per container
by 50%. We spend a lot less fuel consumption moving
one box from one of the major ports in the Far East to one of the major ports in Europe.
In fact, per container, this ship emits less greenhouse gas than almost any other method
of transportation. It emits less CO2 per ton of goods moved;
fifteen times less than a truck and six times less than rail. Much of this efficiency is
due to the sheer number of containers secured on board.
We are carrying at least close to 60% of the cargo below the deck. So people have a tendency
to forget that because you don’t see it; it’s just hidden below the hatches of the ship.
Rene Hansen is the ship’s chief officer and among other tasks, is in control of the cargo.
Looking at a stack like this we see we have: one, two, three, four, five, six, seven, eight,
nine ten, stacked on top of each other. This, combined with loading nine on deck, gives
a very good idea that the vast amount of cargo that is being carried, which you cannot see
when the ship just passes by on the open oceans. So, whatever you can imagine that can be put
inside this box we can more or less carry. And today more and more of what’s carried
aboard ship are perishable goods, enabling growers to sell into markets thousands of
miles away, at a fraction of the cost of airfreight. Torben Andersen is the electrical engineer
aboard ship. Every morning I go around- look at every single
container; see if there’s any malfunction, if the temperature is as it’s supposed to
be. Everything that you put in your refrigerator
at home we put in the refrigerators on board the ship just in vast scales.
And if you look at our refrigerator containers we can carry flower bulbs from Netherland
for tulips. We can carry chocolate from Poland. We can carry wine, expensive French wine we
carry in refrigerated containers. Fruits and vegetables stay fresh for dramatically
longer periods of time… We can make an artificial atmosphere in our
containers. …by controlling the levels of oxygen, carbon
dioxide and nitrogen . And then, as we’re getting closer to the port
of delivery, then we will start increasing the oxygen level in the container and then
the bananas are so to speak ready, when they hit the supermarket
The shelves of supermarkets throughout the world are stocked with goods transported aboard
cargo ships like the Maersk Mc-Kinney Moeller. This is a Whole Foods Market in Austin, Texas.
There are over 400 Whole Foods Markets in the United States, Canada and the United Kingdom.
They sell products from around the world. Their “Whole Trade Guarantee” promises that
consumers can shop with a conscience. Most businesspeople are honest and ethical.
In fact, it turns out that the more ethical they are, the better the company performance.
In the cutthroat supermarket business it’s important to stake out your own territory.
The company’s motto is “Whole Foods, Whole People, Whole Planet.”
At the center of this amazing story is Co-Founder John Mackey. To understand Whole Foods Market,
you have to understand him. The original vision for Whole Foods was- very
simply is: we wanted to sell healthy food to people, earn a living, and have fun.
The higher purpose of Whole Foods has become a lot deeper and more complex than it was
back 34 years ago. And that brings us to mission. Mission is
something Mackey takes seriously. It’s not just platitudes for a wall plaque in a corporate
lobby. It’s the statement that embodies his ethical perspective.
We want to sell healthy food to people, help people to reach their highest potential through
having good health. We also have a sense that the people that work for us should be flourishing
and should be happy in their work, and we also feel a responsibility for the larger
communities that we’re trading with. It’s been on Fortune’s 100 Best Companies
to Work For list for eighteen years in a row. What seems to make Whole Foods so successful
is that the people who work here are strongly committed to all the stakeholders, to customers
and team members, to stockholders and suppliers, which has resulted in highly committed employees
and very faithful customers. And a lot of John Mackey’s philosophy is based
solidly on Adam Smith. I mean… Adam Smith was so far ahead of his
time. The totality of his ideas are still very,
very important and very relevant today. Smith gives us a way of thinking about markets
and morality together. For Smith, these are not two things that can easily be extricated
from each other, as if one can simply talk about rational, economic men on one hand and
then moral men in a different sphere on another. Smith understood that you’re going to be better
at business if you can understand your customers and generally sympathize with them, as well
as understanding and sympathizing with your employees.
I think that most of our guests when they walk in the door know that there’s something
different. For a lot of people it’s the energy of the
team members, right? I think a lot of our team members feel empowered and feel fulfilled
and therefore feel happy and satisfied in their work.
Lindsay Mucha is store team leader of one of the Whole Foods Markets in Austin. She’s
been with Whole Foods for over 10 years. My goal was to work here for six months, graduate
from college and then go off and find my career path, and I very quickly fell in love with
Whole Foods. I loved the values and the mission. The greatest source of creativity and innovation
exists in our team member base. A big part of what we’re trying to do is allow them to-
to be themselves, to be authentic, to be spontaneous, allow them to- to experiment, to create new
things, to create the innovations. This helps to illustrate Adam Smith’s principle
that top down command structures aren’t always the best. Things organize themselves better
from the bottom up. “The natural effort of every individual to
better his own condition… is so powerful, that it is, alone… capable of carrying on
the society to wealth and prosperity.” Many of the institutions that we have, language,
markets, you name it, these are indeed the results of human action, but they’re not the
results of human design. We never planned these things; they just evolve naturally.
So note that phrasing, “individual human action, but not individual human design.”
You don’t need a central planning authority to run your society well.
And that’s a really cool thing about the Whole Foods Market culture. You know it’s not top
down. It’s not a mandate on everything. If someone has a good idea that someone else
likes, there’s a good chance it’s going to spread and- and work for a lot of people.
Carol Medeiros is produce coordinator at Whole Foods Markets in Austin, Texas.
I would say that you know we’re always trying to find what’s new and what’s next, and a
lot of the times- most of the time- our best ideas come from the team members that work
in the stores every day. Because the team members genuinely care…
because it’s theirs, right? Whole Foods Market’s success in promoting
healthy foods has spawned increased competition in the marketplace. In response, the company
is opening a new line of stores called “365 by Whole Foods Market,” which they hope will
make their products more accessible to more consumers.
When stakeholder philosophy is adopted in a more conscious way and businesses begin
to act in more conscious way for higher purpose, I think most of the hostility towards business
and capitalism will disappear. And I think what’s really nice about this,
and companies that are able to be mission driven and purpose driven, and still be profitable,
is that when you put that out there for people to choose there are people who choose it and
there are people who will vote with their dollars, right? And do it because that’s what’s
valuable to them. So I think that’s nice, it’s about choice.
For markets to make good on the hope that they would bring, what Smith called, universal
opulence to all ranks of people, Smith thought that it was necessary for them to be supplemented
by a certain conception of morality. By “morality” Smith meant fairness and a level
playing field for all. But what happens when some are able to tilt the market to their
advantage? Adam Smith asked the very same question 250
years ago. And the problem can be easily illustrated by taking a walk in the woods.
In state and national parks all across the United States you’ll often find signs like
this that say, “Please do not feed the animals.” Because if you feed the wild animals they
lose their ability to gather food in the wilderness and as a result, they tend to be less resilient
and their survival is at risk. Luigi Zingales is professor of entrepreneurship
and finance at the Booth School of Business at the University of Chicago.
I think that a similar sign should be put in Washington to say, “Please don’t feed business,”
precisely because I love business I don’t want business to become fat and unable to
compete in the global marketplace. Smith was very suspicious of partnerships
between government and business. That’s effectively what we call cronyism today.
This is the result of feeding the animals, Washington style. In recent years housing
values around the U.S. capital have skyrocketed. There is no real industry, there is no real
commerce and it’s pretty scary that the wealthiest counties in the United States are in the suburbs
of Washington, D.C. The top two richest counties in the United
States, and 6 of the top ten, are suburbs of Washington, D.C.
All that money is basically money that is sucked from the system and wasted in lobbying.
Lobbying pays very well. And not just for the lobbyists. The real payoffs go to the
corporations they represent. Smith thought that any institution- government
included- could become corrupted if it was too big and made too many decisions centrally.
“To widen the market and to narrow the competition is always the interest of the dealers… Any
new law or regulation of commerce… ought always to be listened to with great precaution.”
A series of recent governmental regulations illustrates Adam Smith’s fear.
Corn ethanol is a bio-fuel. It’s basically fuel that comes from corn. It’s more costly
and far more inefficient to make than ethanol from sugar.
But now almost 40% of the nation’s corn crop goes into making ethanol, which has driven
the price of corn way up. It makes corn farmers and processors happy because it gives them
a guaranteed profit. But all of us have to pay more for foods that use corn, especially
meat and poultry. The fuel companies are required by federal
law to buy ethanol whether they want it or not, or whether motorists want it or not.
Between 2007 and 2012, the corn ethanol lobby spent 139 million dollars, and in return,
gained over 28 billion dollars in corn ethanol tax credits.
So once you have this kind of returns then people will not invest in R&D. They will not
invest in new sort of organizational form. They will not invest in new technology. They
will not invest in new property plant and equipment. They will invest in lobbying.
Many corporations prefer to get their profits by legislating them rather than by selling
goods and services that people want in an open market. Adam Smith saw exactly the same
forces at work in his day. What Smith saw was that when business people
go to the government and they say we want a special royal charter, we want special protections
from competition, we are a vital national industry and we need special privileges, you’ve
got to be careful, because when this happens, this is really people conspiring to protect
their own interests at the expense of others. Adam Smith understands that in order for competition
to work its magic you need to have rules in place because otherwise rather than competition,
you have the law of the jungle. This is Adam Smith’s key insight; competition
is not a way of giving power to companies. It’s a way of giving us power over them.
The Founding Fathers not only established a government of the people, by the people,
for the people. They also established a economic system of the people, by the people, for the
people. This is what distinguishes the United States from the rest of the world, and this
is what gives us hope. But is it possible to have markets that operate
in the interests of sellers and buyers, without a lot of government regulation? The answer
might be yes, if they embody Adam Smith’s ideas.
It used to be that when you wanted to go someplace in a city you had to wait for a taxi or rent
a car. But now, with apps like Uber and Lyft, that’s all changed. Lyft?
Yes. Hi are you David?
Yes. People today ride with strangers in their
cars and with sites like Airbnb they sleep in strangers’ homes. It’s just a tiny part
of a much larger, and much more important, social trend: an explosion of trust, enabled
by the internet. And the granddaddy of them all is eBay.
Almost every country in the world has buyers and sellers who work inside the eBay marketplace.
Devin Wenig is CEO of eBay Marketplaces. eBay is founded on this principle of economic
democracy; that individuals around the world who don’t know each other and have never met
can work in a system to be able to conduct economic transactions fairly and securely
and have confidence in that. eBay was founded in 1995 by Pierre Omidyar.
Pierre thought very strongly about the notion of the free market. He believed in Adam Smith’s
principles. He believed that an economic democracy would not only be a great business, but it
had the potential to do immense amounts of good around the world.
eBay has hundreds of thousands of small sellers around the world that are now doing more than
half their business outside of their national borders. One retailer that is profiting in
this new era is Gelb Music. Gelb was started in 1939… about 75 years
ago. Located right here in Redwood City, California, it’s been here ever since. And about- carry
about a little over 50,000 products here. Mike Craig is Gelb’s ecommerce/marketing manager.
We have a complete line of drums, bass guitars, recording equipment.
We were waiting for our-our own website to be built, we took about 200 products, mostly
snare drums, did about $200,000. The test definitely worked.
The following year we put up about a thousand products, maybe a little bit over and we did
about $750,000 in sales. We now have about 160 million active consumers
who buy and sell in our marketplace every day. We now sell a little less than $90 billion
of goods every year. And consumers access us from over 190 countries.
Well, eBay has saved the store number one. But has also opened our eyes to markets that
we didn’t think were obtainable. One of the great things about marketplaces
is that they act as an incredible price discovery mechanism.
Because if you’re looking at a collectable or a coin or a comic book or a rare automobile,
the likelihood is that there were more sales in eBay for that particular item than in any
other marketplace in the world. Adam Smith would have said that an “invisible
hand” guides eBay sellers around the world. As prices are on the rise, because buyers
want a particular item, sellers stream into the market to satisfy that demand. And when
demand drops… prices go down. Imagine a world where there’re screens everywhere.
Those screens are connected to a global marketplace. That global marketplace has all the worlds’
inventory- priced fairly- because it’s an open marketplace. And you’re one click away
from buying anything you want at any time for a fair price.
There are millions of exchanges, each minute, all of them without regulation, among strangers,
across borders and oceans. It’s an enormous amount of business… based solely on trust.
Pierre’s notion was, let the buyers and sellers in the marketplace determine who the best
buyers and sellers are. So the eBay feedback system was born.
The way ratings work is that when you sell a product, the customer can go back and rate
you: Was it a good experience? Was it a bad experience? And that goes onto your record
where everyone sees it. “Public services are never better performed
than when their reward comes in consequence of their being performed, and is proportioned
to the diligence employed in performing them.” I think being judged by your customers is
a wonderful idea. I think that keeps us as-as sellers on our toes. You have to deliver on
what you promise, and if you do, that you’re rewarded by more customers and you’ll grow.
The free market isn’t about robbing people or cheating them, stealing from them; it is
about cooperating with them. If people trust you, if you’re giving them a good service,
they will do business with you. If you’re trying to cheat them, they might deal with
you once, but once they’ve been cheated, you’ll never see them again.
Part one of the promise is a fair, open, fast, trusted marketplace that’s enabled by technology.
Coordinating a global marketplace like this takes one of the largest site operation centers
in the world. We do about 300 million searches a day on
the eBay marketplace. There are computers and people, and systems and processes that
all have to work in sync to make sure that that’s working 24/7.
When we look at forecasting and eBay’s going to make up anywhere from 50 to 80% of our-our
sales, that’s- that’s a huge number. There is a concept of a micro-multinational,
which I think is fascinating. And there are hundreds of thousands of them alive inside
the eBay marketplace. It’s that family owned independent, just homegrown
kind of store. We’re just being able to sell around the world now.
So, without either a strong corporate intervention in the sense of eBay, or a strong government
or regulatory intervention, this is a community that has grown enormously because in essence
it’s self-regulated. A free market is one of the most powerful
forces on earth. And we’ve seen that with our business.
Adam Smith presented his ideas on the free market in his second great book, The Wealth
of Nations which was published in 1776, just months before the American colonies exploded
in revolution. Copies made their way across the Atlantic and into the hands of those shaping
the structure of the new republic. The Founders were dealing with things like
how to structure a government, an economy, the banking system, the church… the military.
And Smith had a lot of things to say on all these points. So does the United States follow
Smith’s principles? The answer can be found here, at the Library of Congress, in Washington,
D.C. The Library of Congress is the largest library
in the world. Its holdings include more than 32 million
cataloged books and other print materials, and the largest rare book collection in North
America. Included in the collections is the personal
library of Founder, Thomas Jefferson, author of the Declaration of Independence, and a
lifelong admirer of Adam Smith. His library at the time numbered 6,487 volumes.
Mark Dimunation is chief of the Rare Book and Special Collections Division at the Library
of Congress. Certainly one thing you can learn by looking
at Jefferson’s library is the pervasiveness of Enlightenment Philosophy, and intellectual
conversation that plays throughout the creation of the American government.
In fact, you could claim that Jefferson’s book collection brings the enlightenment to
America. In 1814, the British attacked and burned Washington.
On learning of the burning of the Capitol and the loss of the 3,000-volume Library of
Congress, Jefferson offers Congress his personal library as a replacement.
And in 1815, gentlemen arrived with horse drawn wagons, took a collection that took
Jefferson 50 years to build, left him in Monticello, he never saw his books again, never went to
Washington again. But a second fire on Christmas Eve in 1851,
destroyed two-thirds of those volumes. Through a private grant, the Library of Congress
is now reassembling Jefferson’s Library, as it was when he sold it to Congress 200 years
ago. It was the entire world of Thomas Jefferson’s
mind… the understanding of the roots of so much of what influences American culture,
the nature of the Constitution, the nature of the revolution, the foundation of separation
of church and state, the whole philosophy of politics as it is in the United States
is embedded in that collection. One book that has survived is Thomas Jefferson’s
original copy of The Wealth of Nations. This is the three-volume set of Inquiry into
the Nature and Causes of the Wealth of Nations by Adam Smith. These are books that belonged
to Thomas Jefferson. He writes a lot about his reading but he very
rarely marks his books. There’s no underlining here, there’s no, “Good idea use in the Declaration
of Independence,” there’s nothing like that, so you really have to read what Jefferson
says about books in order to understand what he gains from them.
Jefferson didn’t just read Smith’s book; he frequently studied it, referenced it, and
recommended it to others. In a letter to John Norvell, Jefferson writes:
“If your views of political enquiry go further to the subjects of money and commerce, Smith’s
Wealth of Nations is the best book to be read…” There has to have been a moment in which Jefferson
and Hamilton had a conversation that was at least laced with Smithian philosophy if nothing
else- whether they identified him or not. This is a book however that- that Jefferson
would take seriously. But Jefferson wasn’t the only Smith devotee
among the Founders. James Madison, considered the principal author of the Constitution,
was also an admirer. I think of Madison as having a view of government
very similar to Smith’s in a very, very deep way.
Sam Fleischhacker has written extensively about Adam Smith’s influences in Colonial
America. Both Madison and Smith believed that human
beings are strongly motivated by self-interests, but also capable of virtue, and that what
you want to do is design institutions such that first of all, freedom is protected, whether
people are acting in a self-interested fashion or not. And secondly, they have
the opportunity to develop their virtues. So the Founders certainly knew of Smith and
his works. But to what extent did Smith influence the American character? Is the United States
“Smithian”? I think the United States is Smithian in its
bones. Smith fits extremely well with the vision
of the Founders, and indeed, of the vision of most Americans from that time until our
own. And what you see in the Constitution is an
attempt to implement and integrate into a governmental plan some of the ideas Smith
had about what could allow for a prosperous society.
“Every man is left perfectly free to pursue his own interest in his own way… The sovereign
is completely discharged from a duty [for which] no human wisdom or knowledge could
ever be sufficient; the duty of superintending the industry of private people.”
The United States sees itself and talks about itself as a land of opportunity. That’s really
the Smithian vision in a nutshell. You have a limited government with a few but
specific and robust protections. Much of the actual work of making your life better was
left to the individuals. But to do that in a way that was stable, to
do it in a way that had long term benefits, to do it in a way in which there weren’t simply
the concerns of the moment but to have a lasting constitutional order. This, I think, binds
the American Founders to the Scots and especially to Smith in a deep way.
Well, here you have a groundbreaking book in how to run an economy and more than that,
it’s really a general book on politics. So, it makes a good deal of sense that these people
who were founding a new country would look over to the best work in the Enlightenment,
not just to Smith, but to the other great social scientists of the day, as it were,
and be particularly interested in them. Ideas matter. When faced with the challenge
of how to create and structure a new nation, the Founders turned to the Enlightenment-
and to Adam Smith- for guidance. As the Maersk Mc-Kinney Moller steams across
the English Channel, she is just a day from her next port of call. Now the pace aboard
ship quickens. Lines are prepared for tomorrow’s docking.
Unloading and loading schedules are reviewed. And charts for the approach to the next harbor
are studied. Their destination is the largest port in Europe.
Here, where the Rhine meets the North Sea, is the Port of Rotterdam, in the Netherlands.
It is the gateway to the markets of Western Europe. It is the point of entry to a vast
network of rail, highways, and inland waterways that serves 350 million people.
It’s pitch dark and hours from dawn when the Maersk Mc-Kinney Moller finally nears the
entrance channel to the Port of Rotterdam. Bringing a ship this size to a safe berth
in such crowded sea-lanes will require keen judgment and expert skills.
Maas Approach, Maas Approach this is Maersk Mc-Kinney Moller, Maersk Mc-Kinney Moller.
Maersk Mc-Kinney Moller, Maas Approach, go ahead…
When, when the vessel approaches the- the port you have this interaction, informing
you about the in and out bound traffic, the weather conditions… if there’s any change
to the pilot time. Maersk Mc-Kinney Moller, ETA 06:45, your draft
1-4, decimal 9, is that correct, over? Maas Approach, Maersk Mc-Kinney Moller, that’s
correct, over. Still hours before dawn and 14 miles off the
Dutch coast, the boat carrying the pilot pulls alongside. To guide the vessel into the crowded
port, the local pilot will rely on his unique knowledge and experience.
From now until they dock, the pilot and the captain are a team.
We slowly maneuver the vessel into the port… and it’s a quite kind of slow process but
Rotterdam Port, it’s one of the biggest ports in the world.
A vessel like this you can’t turn like a car so every maneuver, and every turn, and every
swing takes time. A vessel this size you cannot stop like this. You’ve got to plan your maneuver
and you always need to have a plan B if plan A is not working.
Joining the Maersk Mc-Kinney Moller are almost one hundred other cargo ships; a third of
them from Asia. In the last forty years, global trade increased
from less than two trillion dollars to almost nineteen trillion dollars. And Adam Smith
predicted that that kind of development would also result in a reduction in global poverty.
In fact, 750 million people were lifted out of poverty over those forty years.
As the last containers are unloaded from the Maersk Mc-Kinney Moller… those offloaded
first are making their way to waiting trucks, where they will be delivered throughout Europe.
And Adam Smith would argue that those containers don’t just carry products, they carry prosperity
and a better quality of life. Two hundred years ago, a man who lived in
a world of sailing ships and horse drawn carriages, imagined how much better the world could be.
He wrote two masterpieces providing an astonishing road map.
He wanted to create the conditions by which ordinary people could go about their own business
and to work, and save, and prosper, and help themselves and their families.
He wasn’t interested in protecting the wealth of the already privileged, the monied, the
aristocrats, what he was interested in is: How can we raise the estates of the least
among us? And I think that the two books together form
a coherent project in trying to give a vision of a commercial society that was not just
a market society but also a market society built on a very particular conception of morality.
Every generation has to cope with the problem of how far should governments intervene in
the business of trying to maximize the wealth of their own country.
Perhaps more than any other person, Adam Smith’s ideas have led directly to the first real,
broad-based advancements in mankind’s quality of life in thousands of years.
He was a proponent of free markets and morality. His writings and ideas have spread around
the globe. And in spite of the progress we have yet to make, his ideas truly changed
our world. Funding for this program has been provided
by: John Templeton Foundation and Templeton Religion Trust.