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.
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