The Real Adam Smith: Morality and Markets - Full Video

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Corruption, fraud, and greed continue to dominate
media here in the United States and around

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the world. As high unemployment and wage stagnation
plague the middle class...and growing income

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inequality has caused millions to wonder:
is the system rigged? Is the free market,

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in its very nature, corrupt? What is the relationship
between morality and markets? Amazingly-a

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Scottish philosopher and economist explored
that very relationship nearly 250 years

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ago in the 18th century. His
name was Adam Smith.

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Adam Smith was first and foremost a moral
philosopher.

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His great gift was observation.
But perhaps he is best known for his groundbreaking

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work in economics.
Some people say that he is really the father

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of modern economics.
He's a synthetic thinker that crosses these

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disciplinary boundaries.
Adam Smith was born in a small Scottish town

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and learned early in life about morality and
economics at the local merchants' market.

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He went on to study at Glasgow University,
became its top administrator, and then a pillar

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of the most unlikely intellectual revolution
the world had ever known... the Scottish Enlightenment.

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He lived, lectured and socialized in Scotland's
capitol city of Edinburgh, created the unique

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economic concept of an "invisible hand" to
describe what happens when we act in our own

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"self interest"; and invented the idea of
the "impartial spectator" in his surprising

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analysis of the evolution of morality.
And I'm fascinated by Adam Smith, a man who

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would turn the notion of how societies and
economics work on its head, and make way for

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the modern age.
He recorded his ideas in two comprehensive

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books, The Theory of Moral Sentiments, and
The Wealth of Nations.

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Was he a revolutionary moralist, an uncompromising
advocate of self-interest and free markets,

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or something altogether different? Who was
the real Adam Smith?

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Funding for this program has been provided
by John Templeton Foundation, and Templeton

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Religion Trust.
Historic Edinburgh still reflects the energy

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and cultural vitality for which it was known
in the 1700s. A dramatic castle still dominates

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the landscape above the old town. Below stretches
the "Royal Mile" and the hustle and bustle

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of modern city life. Edinburgh today is a
haven for the arts, full of open, warm and

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welcoming people.
In 1707, Scotland had joined with Ireland

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and Wales, to become the United Kingdom. It
would be Europe's largest free trade zone.

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And the great cultural and intellectual revolution,
to be known as "The Scottish Enlightenment,"

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would soon transform Scotland and much of
the world. Adam Smith was destined to be part

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of that change.
He was born in 1723, in the town of Kirkcaldy,

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just across the bay from Edinburgh. His father,
also named Adam Smith, was a lawyer and customs

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inspector, who spent many of his working days
chasing whisky smugglers, and who died several

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months before his son was born. The young
boy's widowed mother, Margaret, would devote

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the rest of her life to raising her son, and
would become his lifelong companion. Adam

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Smith loved growing up on the shores of the
river estuary known as the Firth of Forth.

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This small town of Kirkcaldy would remain
his spiritual home for most of his life.

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I'm Johan Norberg, a writer and an analyst,
born and raised in Sweden. For many years,

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I've studied markets and global trade. And
no one thinker has been more important to

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the development of today's widespread prosperity
than the revolutionary 18th century philosopher,

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Adam Smith.
Most people today remember only half of what

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makes him important: his economic principles.
They associate Adam Smith with free markets,

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but few think of him as the great moral philosopher
that he was. We need to put both sides of

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the man together to find The Real Adam Smith.
Smith's primary concern as a political economist

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and a moral philosopher is the well-being
of the poor.

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Ryan Hanley is associate professor of political
philosophy at Marquette University. His work

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concerns the moral aspects of Adam Smith's
worldview.

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So in many ways, Smith subverts our conventional
distinction between left and right by sharing

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with the contemporary left a deep concern
for the goods and the well-being of the poor

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and with the contemporary right a belief that
the proper means for achieving this, the most

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efficient means are, in fact, free markets.
These steps lead up to the church that Smith's

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mother, and sometimes he himself attended.
Hi George!

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Hi Johan... let me show you around.
Thanks. George Proudfoot is a local historian,

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college professor and trustee of the Adam
Smith Global Foundation.

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Can you tell me a little bit about the church?
Well, this was the church that Adam Smith

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was baptized in, on the 5th of June 1723.
Adam Smith and his mother would have attended

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the church on a Sunday, and these are the
very steps that they would have climbed from

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the house, up to the church.
So Smith walked on these steps.

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On these very steps, that's correct.
And he went to school somewhere around here?

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Yes, the Barrow School was just across the
way there; it was a very good school and its

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headmaster, David Miller was exceptionally
good.

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Apparently, all of the students received a
good grounding in classical education, and

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Smith was instilled with a life-long appreciation
of learning.

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His mother's house stood right there and across
there was where the outdoor market was; and

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of course, he would be able to see the market
from one of his windows.

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Imagine him waking up early in the morning
and seeing the market through his window...

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and on his way home from school, watching
the buyers and sellers in action. From an

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early age, he was a keen observer. And the
economics and morality in the marketplace

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of his youth inspired his written word.
"The propensity to truck, barter and exchange

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one thing for another is common to all man."
They were exchanging ideas. They were exchanging

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gossip. They were exchanging goods. They were
exchanging money.

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Nick Phillipson is an honorary fellow at the
University of Edinburgh and the author of

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the award-winning biography, Adam Smith: An
Enlightened Life.

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And that notion of exchange and watching people
exchanging things... that's something which

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I'm pretty sure was with Adam Smith right
from the word "go".

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Exchange... and through exchange, trust. He
sees trust and the morality underpinning it

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as the key to any successful society.
And this rather curious, withdrawn, observant

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chap simply spent his life observing the peculiarities
of human behavior. Cataloging them, turning

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them into systems, theorizing about them,
building up this portrait of what human behavior

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tells us about human beings in general.
He will return to Kirkcaldy again and again,

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to think and to write, and to take long walks
along this beach. And Smith was quite a walker.

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There is a story that one morning Smith walked
along the beach in his bathrobe, and got so

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caught up in his own train of thought, that
he went 12 miles before he knew it. It's in

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this small seaside town where he would be
most productive.

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At the very young age of fourteen, Smith leaves
home and travels to Glasgow, the seat of one

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of Scotland's four ancient universities. The
University of Glasgow was founded in 1451.

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Here he begins his studies and almost immediately
is immersed in the revolutionary thinking

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of the Scottish Enlightenment.
The University of Glasgow is fast becoming

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one of the best universities in Europe. Here
he will build the intellectual foundation

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of his life's work- one constructed on the
firm base of Enlightenment values.

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Scottish Enlightenment thinkers are deeply
rooted in reality. They value reason, debates,

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evidence, and reject any authority that facts
cannot justify; but it also enables them to

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develop an astonishingly powerful tool: the
Scientific Method.

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His favorite professor is Francis Hutcheson,
a respected father of the Scottish Enlightenment

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and the first to teach in English and not
the traditional Latin. Hutcheson's thoughts

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will guide Smith's early education and influence
his later writings. This is Adam Smith's personal

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copy of Hutcheson's book, Illustrations on
the Moral Sense with Smith's notations in

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the margins.
He was marked out as a star, as a university

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student. He got a special fellowship to take
him to Oxford for six years for study.

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Something happens in Oxford that will change
the direction of Smith's life forever. He

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reads the work of David Hume, one of the most
prominent philosophers of the Enlightenment.

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Reading Hume introduces the young student
to an entirely new set of ideas. Hume explains

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how human beings can grow and develop, survive
and prosper, without once drawing an assumption

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about God. It is dangerous thinking.
The authorities at Oxford are not fans of

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Hume and they punish Smith for his self-education.
In protest, Adam leaves Oxford and England.

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It's the Scottish thinkers, like David Hume,
who appeal to Smith's intellect and he is

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eager to share his ideas with them.
When he arrives back in Scotland, he settles

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here, in Edinburgh, just across the Firth
of Forth from his hometown of Kirkcaldy. And

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when he gets here the Scottish Enlightenment
is in full swing.

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If you had wondered in the 17th century or
the 16th century what country would be a likely

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place for an enlightenment, Scotland would
not have probably been on the list.

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James Otteson is an Adam Smith scholar and
professor of political economy at Wake Forest

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University.
For that magical period in the 18th century,

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Edinburgh had a lot of things come together.
A country, with no apparent warning at all,

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suddenly developed a small but extraordinarily
sophisticated and creative group of philosophers,

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scientists, men of letters.
The central figures of the Scottish Enlightenment

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were not just interested in material prosperity.
They were also interested in the character

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of people.
Are human beings naturally selfish? Are they

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naturally benevolent? The Scots decided that
you couldn't really answer these questions.

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They're all speculative. All you could do
is observe the world around you.

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And that's exactly what the Enlightenment
thinkers did: Observe.

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For example, it was common knowledge in the
1700s that the earth was less than 6,000 years

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old. It was the Irish Bishop, James Ussher,
who had carefully researched the issue.

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"And Adam begat Seth, and Seth lived 105 years
and begat Enos..."

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By adding up each and every one of the "begats"-
or generations- in the Bible's Old Testament,

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Bishop Ussher declared that the earth was
created on Sunday, October 26th, 4004 B.C.

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The issue was "settled."
Until James Hutton, a medical doctor from

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Edinburgh and a keen observer of the world
around him, takes a walk in the British countryside

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and comes upon a section of Hadrian's Wall.
The wall is most certainly old. The Emperor

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Hadrian built it during the Roman occupation
of Britain in about 120 A.D. Hutton sees almost

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no signs of erosion.
Yet these nearby volcanic mountains have been

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almost completely eroded by the same processes.
To Hutton the conclusion is obvious: the earth

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is much older than 6,000 years. The bishop
must be wrong.

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But challenging the Church on any issue without
suffering reprisals was something new. Even

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now there were hardliners in the Church opposed
to the ideas of the Enlightenment thinkers.

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It's this combination of keenly observing
the world and bravely challenging conventional

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thought that is at the heart of the Scottish
Enlightenment, just as critical thinking is

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at the heart of the scientific method today...
and that inspires Smith.

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Oh and today's best estimate of the age of
the earth... is about four and a half billion

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years.
Finished with Oxford and his formal education,

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Smith finds himself out of work. He is now
an educated young man looking for a job, and

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by a stroke of good luck, he's invited to
give two series of public lectures to Edinburgh's

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movers and shakers.
He will focus on human behavior and morality,

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in what will be known as his lectures on jurisprudence
and rhetoric.

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He begins by wondering how humans acquired
the gift of language. These college students

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have just met and are getting to know something
of each other through their conversation.

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Traditionalists considered language a special
gift from God. Smith thought otherwise.

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The earliest human beings, he thought, lived
in a dangerous world, and had to communicate

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to survive. And that meant using signs and
sounds. From these first signs and sounds

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and under the pressure of life, language developed.
Smith argues that society and civilization

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were born as people, like these students,
traded information through language, and built

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a common understanding of the world around
them through this exchange.

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But Smith considers other forms of "trading."
"The offering of a shilling, which to us appears

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to have so plain and simple a meaning, is
in reality offering an argument to persuade...

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And in this manner everyone is practicing
oratory on others through the whole of his

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life."
What Smith sees from a very early stage is

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that this business of exchange can actually
lead us into investigating how we acquire

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values, not just information, but values,
how we acquire ideas of what's good and evil.

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Good and evil fascinate Smith and in his lectures
he asks, "How do human beings develop a sense

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of morality?"
Before Smith, people thought that morality

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was somehow out there. It was objective.
Eamonn Butler is co-founder and director of

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the Adam Smith Institute in London.
And then Smith came along and said no, morality

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is not something that's objective and that
it is out there... it is inside ourselves.

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The "sine qua non" of Smith's moral theory is
what he called "sympathy," what we might today

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call empathy. It was not feeling sorry for
other people. What it was ,instead, was this

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idea that we desire to see our sentiments
echoed in other people.

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By "echoed in other people" Smith means that
we all want to be liked, and will do things

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to gain approval. He thinks that in ordinary,
everyday interactions with people, we come

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to learn when others like us and when they
don't.

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Kind of like the Rockefeller Center in New
York, that really Christmassy vibe...

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This fellow is a bore and he's insensitive.
His friends are getting tired of him... and

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their expressions and body language reveal
their disapproval.

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We ourselves, we're approved of when we do
certain things; we're disapproved of when

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we do other things. We watch other people
in society, we see the way in which they're

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approved of and they're disapproved of, when
they say certain things, when they do certain

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things.
Smith took a kind of evolutionary view 100

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years before Darwin.
He knew that there was something in us as

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social creatures that made us follow a moral
path, because if we didn't, if we went around

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robbing, and stealing, and killing each other,
then we wouldn't get very far as a species.

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How do we move from knowing how to act in
social settings, of how to be approved of

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and disapproved of, to knowing the difference
between right and wrong?

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How do we solve the moral dilemmas that we
all face each and every day? This man is in

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danger of losing his wallet. It's full of
cash. What do you do? Keep it all? Keep the

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cash but return the wallet? Or do you just
give the wallet back, untouched? What do we

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do?
We all know what we do. We turn in on ourselves,

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and we start to have conversations with ourselves,
internal, private conversations. And the funny

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thing about these internal conversations is
that they are with a fictitious person, and

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he calls it an "impartial spectator."
Smith says that the impartial spectator is

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the sum total of everything that we've ever
learned about what's polite and rude, what's

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right and wrong. Built up over time, it's
our moral compass.

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"We endeavor to examine our own conduct as
we imagine any other fair and impartial spectator

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would examine it."
Putting ourselves in the position of a spectator

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of ourselves, imagining a third figure outside
of us. What does he or she see when she's

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looking at us?
Sir, you left your wallet.

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Thank you. Thank you so much.
The impartial spectator will become one of

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Smith's most important concepts and the centerpiece
of his first book, The Theory of Moral Sentiments.

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He will spend the rest of his life refining
these ideas. But for now, he's caught the

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public's attention and established himself
as an innovative member of the Scottish Enlightenment.

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He's moving from rhetoric, from questions
of religion, to questions of morality and

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moral philosophy, to questions of political
economy.

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You can't have ideas of fairness without getting-
having ideas of justice. I think what is happening

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to that man over there, I might say, is just
unfair, and someone ought to do something

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about it. And so, it leads me to thinking
about what governments ought to do. And so,

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there's a natural progression from Smith's
new "science of man," which studies exchange

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in terms of language, to studying how we acquire
moral ideas, ideas of justice, even ideas

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and thoughts about what governments ought to do.
Smith is on a big trajectory, and he knows it.

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In 1751, at age 27, he's appointed professor
of logic and metaphysics here at his alma

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mater, the University of Glasgow. He will
be a teacher, a researcher and an administrator,

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all at the same time.
"By far the most useful, and therefore by

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far the happiest and most honorable period
of my life."

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Smith throws himself into day-to-day operations,
even the minutiae of managing the University's

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Roman artifacts, currently on display here
at the Hunterian Museum.

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00:19:50,356 --> 00:19:54,894
He takes charge of the university library
and creates space on campus for the workshop

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of a young inventor, James Watt, who will
refine the steam engine for practical use.

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It is a hectic schedule dominated by teaching.
Every weekday, from October tenth to June

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00:20:06,772 --> 00:20:11,277
tenth, with just a single day's break for
Christmas he teaches moral philosophy and

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continues to refine his ideas.
And this, of course, is a perfect opportunity

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00:20:15,915 --> 00:20:22,288
for him to develop his thinking about exchange
on an enormous scale.

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00:20:22,288 --> 00:20:27,726
In fact, we know exactly how his thinking
developed during these years, thanks to a

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fascinating discovery.
So what have you got here?

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00:20:30,396 --> 00:20:36,480
Well, these are two volumes of student notes
from Adam Smith's time here at Glasgow University

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00:20:37,236 --> 00:20:41,674
as a professor.
Robert MacLean is an assistant librarian of

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00:20:41,674 --> 00:20:46,112
Special Collections.
On the left, we've got a volume of notes that

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describe his lectures on jurisprudence, and
on the right from his lectures on rhetoric.

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00:20:51,045 --> 00:20:54,072
And why are these relevant... what do they
tell us?

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00:20:54,072 --> 00:20:58,276
Well, they can tell us all sorts of different
things about the subjects that were taught.

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00:20:58,924 --> 00:21:04,730
Very little is known, other than from lecture
notes, about what he taught in his classes.

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00:21:04,073 --> 00:21:09,946
He taught about ethics and morality, economic
concepts like the mechanism of the price system,

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00:21:10,603 --> 00:21:17,176
the shortcomings of protectionism, and the
development of governmental and economic institutions.

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What it shows is that his thinking about economics
is embedded in his thinking about justice,

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and about the duties of government.
Years later, these ideas will become the cornerstones

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00:21:31,223 --> 00:21:36,829
of his works on morality and economics.
His teaching has transformed him into something

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of a cult figure, an academic rock star whose
portrait bust can be bought by the students

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00:21:41,433 --> 00:21:45,538
in the local bookshop. If he were teaching
today, they'd probably buy a T-shirt with

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his face on it.
No one can have worked harder than Smith as

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00:21:49,441 --> 00:21:56,182
a professor. It's- by any standards- ancient
or modern, it's an absolute killer regime

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00:21:56,182 --> 00:22:00,189
that he goes through.
After years of research, and writing, his

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first great book is ready. At its core are
the ideas that trust and empathy are the root,

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00:22:06,492 --> 00:22:12,431
the essence of any successful society.
Today, first editions of Smith's breakthrough

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book are very rare and can sell for hundreds
of thousands of dollars. By special arrangement,

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00:22:18,037 --> 00:22:21,114
Nick Phillipson and I are going to be able
to see one, close up.

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00:22:21,807 --> 00:22:28,814
Johan, what we have here is a first edition
of Adam Smith's Theory of Moral Sentiments.

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00:22:28,814 --> 00:22:32,251
Bill Zachs is a distinguished Scottish Enlightenment
scholar.

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00:22:32,251 --> 00:22:39,925
It was published in London in April of 1759;
one thousand copies were printed for distribution

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00:22:39,925 --> 00:22:46,866
there, in Edinburgh and in other places across
Britain, at a cost of six shillings per copy.

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00:22:46,866 --> 00:22:52,271
And who got this first edition?
Lucky people got presentation copies. And

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the lucky people tended to be powerful people
in London, members of the literary elite.

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00:22:57,576 --> 00:23:03,415
But the books sold like hotcakes and two thirds
of the first edition were sold out in a couple

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00:23:03,415 --> 00:23:06,462
of months.
One of the most profound things about Adam

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Smith is his view of social evolution. That
many of the institutions that we have, language,

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00:23:13,492 --> 00:23:19,531
markets, you name it, these are indeed the
results of human action, but they're not the

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results of human design. We never planned
these things.

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00:23:22,334 --> 00:23:27,806
So, note that phrasing, individual human action-
but not individual human design.

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Smith thought that those people who believed
they knew what was best for others were represented

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by a figure he called: the "man of system."
The man of system is the man who is entranced,

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enthralled by his own idea of the ideal, tries
to make that ideal a reality.

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00:23:46,592 --> 00:23:51,297
And decides that he's going to impose it from
the top down, whether people want it or not.

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And as Smith said, the man of system makes
the mistake of thinking that he can move people

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around the way a hand moves chess pieces around
on a chess board.

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And Smith thinks that this is dangerous for
two reasons.

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First, he thinks he knows more than he can
actually know. He thinks he knows what's good

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for all individuals and then tries to force
them into his particular boxes.

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00:24:12,851 --> 00:24:17,489
But of course the mistake, Smith says, is
that human beings are not like chess pieces.

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They have principles of motion all their own.
They have their own ideas about what they'd

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00:24:21,006 --> 00:24:25,677
like to do in life. They have free will.
Far better for the well-being of the economy

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as a whole, far better for actual individuals
to be free to pursue their own self-interest

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as they see fit.
Smith had clearly made his mark with The Theory

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of Moral Sentiments, but the pressure of writing,
teaching and management had been extraordinary.

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He was exhausted, nearing a breakdown.
The Theory of Moral Sentiments saved him.

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It was well read in influential quarters in
London, and in fact, by the guardian of the

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young Duke of Buccleuch.
...who then promptly hired him at a salary

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00:25:03,502 --> 00:25:10,175
of 300 pounds a year for life, which was a
fabulous amount of money, to become the tutor

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00:25:10,175 --> 00:25:13,222
to the young Duke of Buccleuch...
...who was an 18-year-old, just about to become

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00:25:13,645 --> 00:25:17,783
into his legal majority, to take him on a
grand tour of Europe.

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00:25:17,783 --> 00:25:23,355
And so, Smith found himself, going through
France and Switzerland with the young Duke

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of Buccleuch.
It was an offer you don't refuse... and Smith

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00:25:28,066 --> 00:25:36,008
had always wanted to go to Paris.
It is the first time and will be the only

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00:25:36,602 --> 00:25:42,074
time he leaves Great Britain. It will be a
life-changing experience.

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00:25:42,074 --> 00:25:46,278
Still a destination for writers and thinkers
from all over the world, Paris today is even

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more glorious than when Smith arrived in 1764.
Its wide and airy boulevards showcase a stunning

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00:25:53,852 --> 00:25:59,866
ceremonial architecture, yet Paris remains
an accessible city, as it was when Smith came

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00:25:59,992 --> 00:26:05,497
here to walk in the parks with the great French
thinkers of the day.

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00:26:05,497 --> 00:26:10,803
Smith, along with Henry Scott, the young Duke
of Buccleuch, and his entourage, settled into

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00:26:10,803 --> 00:26:16,975
this neighborhood... St. Germain-des-Pres.
As now, it was a cosmopolitan mixture of shops

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00:26:16,975 --> 00:26:23,348
and restaurants.
You have to imagine Smith going to Paris with

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00:26:23,348 --> 00:26:33,325
one of the richest, grandest young men in Britain
whose estates were gigantic in Scotland and

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00:26:33,325 --> 00:26:36,728
in England.
You also have to remember that Smith went

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00:26:36,728 --> 00:26:43,302
to Paris as a man who had written The Theory
of Moral Sentiments, and was enjoying an enormous

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00:26:43,302 --> 00:26:48,073
success in the salons, and in the clubs of
Paris.

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00:26:48,073 --> 00:26:52,077
Paris was ready for Smith- and Smith was ready
for Paris.

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00:26:52,077 --> 00:26:56,448
The Theory of Moral Sentiments was a smash
hit here. It was twice translated into French

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00:26:56,448 --> 00:27:01,320
during Smith's lifetime.
He was taken up by the ladies in Paris; his

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00:27:01,032 --> 00:27:06,304
bad French became a talking point. He started
to dress rather well.

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00:27:06,592 --> 00:27:12,130
His social life is suddenly full. There are
frequent gatherings in grand salons like this,

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00:27:12,013 --> 00:27:18,086
where intelligent men and women meet to discuss
literature, ethics... and Smith's own works.

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00:27:18,203 --> 00:27:24,267
One of the things that's funny about Smith
is that, awkward eccentric though he is, very

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00:27:24,843 --> 00:27:32,818
few people have a bad word to say about him.
And, rather improbably, Paris loved him.

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00:27:32,818 --> 00:27:37,456
Adam Smith probably dined here, with some
of his new friends. This is Le Procope, founded

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00:27:37,456 --> 00:27:43,595
in 1686. It's one of the oldest restaurants
in Paris.

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00:27:43,595 --> 00:27:48,567
This establishment was a gathering place for
many of the great thinkers of the age. Voltaire

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00:27:48,567 --> 00:27:53,572
was here so often that he actually had his
own desk here. And he was often joined by

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00:27:53,572 --> 00:27:59,811
likes of Thomas Jefferson, Benjamin Franklin,
Diderot, Rousseau, and many, many others.

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00:27:59,811 --> 00:28:07,452
Smith now changes his focus from the perfection
of private nature to the improvement of public

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00:28:07,452 --> 00:28:12,558
systems. These are the ideas that will take
final form in his second book, The Wealth

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00:28:12,558 --> 00:28:17,429
of Nations.
In France, Smith met many of the very early

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00:28:17,429 --> 00:28:24,536
economists of his time, so-called Physiocrats...
... who were theorizing interestingly on what

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00:28:24,536 --> 00:28:32,711
he took to be the central problem of economics.
How do you extend the wealth and power of

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00:28:32,711 --> 00:28:37,015
a nation?
In Paris, Smith meets the leader of the Physiocrats,

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00:28:37,015 --> 00:28:43,088
Francois Quesnay. They take long walks and
discuss novel ideas with other French intellectuals

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00:28:43,088 --> 00:28:48,293
and economists.
They thought, like Smith, that the key to doing

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00:28:48,293 --> 00:28:52,564
this in a modern world was liberalizing the
market.

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00:28:52,564 --> 00:28:57,536
Both Smith and Quesnay are radical critics
of the old mercantilist system of tariffs

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00:28:57,536 --> 00:29:01,940
and monopolies. They both believe in free
trade and they both think that wealth is created

316
00:29:01,094 --> 00:29:06,032
by individuals and businesses... not by the
government.

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00:29:06,878 --> 00:29:12,084
Like Smith, the Physiocrats apply the scientific
method to the study of economics.

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00:29:12,084 --> 00:29:20,325
They coupled liberalizing the market with
absolutely massive state intervention.

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00:29:20,325 --> 00:29:25,864
Quesnay believes that the French economy can
only be rebuilt after radical changes in land

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00:29:25,864 --> 00:29:31,536
ownership and inheritance law are imposed
in a revolutionary manner, from the top down.

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00:29:31,536 --> 00:29:35,807
And this is where they part ways, because
Smith thinks that revolutionary changes like

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00:29:35,807 --> 00:29:43,081
that are politically disastrous. He is convinced
that economic growth is dependent on progressive

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00:29:43,081 --> 00:29:47,586
improvements and freeing up change at the
bottom.

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00:29:47,586 --> 00:29:51,990
Smith thinks that markets, governed by civil
society are much better than a revolution

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00:29:51,099 --> 00:29:56,037
to improve the lot of the common man. Years
later, the terror of the French Revolution

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00:29:56,928 --> 00:30:03,635
will bear him out. For now, he finds a perfect
example of progressive improvement in a method

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00:30:03,635 --> 00:30:07,773
of industrial production that has fascinated
many French Enlightenment thinkers.

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00:30:07,773 --> 00:30:12,110
Ah... there it is... Diderot's famous print
of a pin factory.

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00:30:12,011 --> 00:30:18,685
"One man draws out the wire, another straightens
it, a third cuts it..."

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00:30:18,784 --> 00:30:24,848
There are dozens of stages involved in making
pins from straightening out the iron, to flattening

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00:30:25,424 --> 00:30:27,993
it, to sharpening it, and so forth and so
on, and so on...

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00:30:27,993 --> 00:30:32,864
The pin factory becomes Smith's most famous
example of how division of labor can create

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00:30:32,864 --> 00:30:37,469
large-scale voluntary cooperation between
people specializing in different tasks.

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00:30:37,469 --> 00:30:41,540
What Adam Smith suggested was when you divide
the labor of a particular task among many

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00:30:41,054 --> 00:30:46,426
people; the overall productivity goes up.
If you want to know the state of a nation's

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00:30:46,912 --> 00:30:50,348
economy, look at the stage of its division
of labor.

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00:30:50,348 --> 00:30:54,553
The more division of labor, the more productivity
and the more prosperity. That means that the

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00:30:54,553 --> 00:31:00,258
larger the market, the more prosperity.
Smith doesn't conceive of division of labor.

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00:31:00,258 --> 00:31:04,863
His great contribution is to show how necessary
it is for widespread prosperity, and that

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00:31:04,863 --> 00:31:09,968
the roles we play in that division must constantly
change according to our skills, the demand

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00:31:09,968 --> 00:31:22,647
for them and the competition we face.
From the hustle and bustle and glamor of Paris,

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00:31:22,647 --> 00:31:27,652
Smith returns home to the quiet of Kirkcaldy
to settle down and develop ideas for his next

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00:31:27,652 --> 00:31:31,623
book.
The deal with the Duke of Buccleuch means

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00:31:31,623 --> 00:31:38,697
that he doesn't need to worry about paid labor
anymore. He is his own man financially.

345
00:31:38,697 --> 00:31:42,934
This gives him the opportunity to finish The
Wealth of Nations and to define many of the

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00:31:42,934 --> 00:31:47,472
economic principles that will stand the test
of time and usher in the modern world.

347
00:31:47,472 --> 00:31:55,547
He is reading voraciously. It's intense writing,
rewriting over a three, four-year period.

348
00:31:55,547 --> 00:32:00,752
We know that after a hard day's work, Smith
occasionally visited The Path Tavern to exchange

349
00:32:00,752 --> 00:32:07,058
stories and raise a glass or two. Established
in 1750, it was just a few blocks from his

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00:32:07,058 --> 00:32:08,727
home.
Hi, how are you doing?

351
00:32:08,727 --> 00:32:10,262
Not bad, how are you today?
Great... thanks.

352
00:32:10,262 --> 00:32:12,597
Good, that's lovely.
Can I have a glass of claret, please?

353
00:32:12,597 --> 00:32:17,068
Yes, of course you can.
His drink of choice is claret and even in

354
00:32:17,068 --> 00:32:20,105
a simple glass of wine he sees an economic
principle.

355
00:32:20,438 --> 00:32:27,445
"It is the maxim of every prudent master of
a family, never to attempt to make at home

356
00:32:27,445 --> 00:32:31,216
what it will cost him more to make than to
buy..."

357
00:32:31,216 --> 00:32:35,120
Never to make at home what is cheaper to buy
elsewhere - and that was certainly true of

358
00:32:35,012 --> 00:32:40,651
wine in Smith's day.
In Scotland, the land lacks the chalky limestone

359
00:32:40,759 --> 00:32:46,331
and gravelly soils that lend so many flavors
to the wines of France. Even more, it's too

360
00:32:46,331 --> 00:32:53,038
cold and wet to grow good wine grapes here.
In Smith's day, like today, most good wine

361
00:32:53,038 --> 00:32:58,677
drunk in Scotland is imported from France.
It's reasonably priced, readily available,

362
00:32:58,677 --> 00:33:02,113
and tasty.
So when it comes to wine, France has a competitive

363
00:33:02,113 --> 00:33:06,885
advantage. It's nearly impossible to produce
fine wines in Scotland. But the Scottish soil

364
00:33:06,885 --> 00:33:10,922
is perfect for something else.
Could I have a Balvenie please?

365
00:33:10,922 --> 00:33:14,793
Certainly.
Although the Scottish soil or "terroir" is

366
00:33:14,793 --> 00:33:20,065
inhospitable for the growing of grapes for
wine, it's perfect for growing barley - and

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00:33:20,065 --> 00:33:25,670
malted barley is the major ingredient in single
malt scotch whiskey.

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00:33:25,067 --> 00:33:30,673
The moral of the story? Do what you do best-
and trade for the rest. Sure, the best wines

369
00:33:31,276 --> 00:33:34,363
from France cost a fortune. But so do the
best single malts.

370
00:33:35,146 --> 00:33:40,151
The essential thing about the free market
is that it is voluntary trade between different

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00:33:40,151 --> 00:33:43,255
people, voluntary exchange.
What we're doing is looking at each other

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00:33:43,255 --> 00:33:50,362
as potential partners, as peers, not as enemies.
You are my opportunity, not my enemy. So Smith

373
00:33:50,362 --> 00:33:55,533
saw the market economy as extending the frontiers
of opportunity for everyone, including and

374
00:33:55,533 --> 00:34:00,372
especially the least among us.
Smith knew that moving products to supply

375
00:34:00,372 --> 00:34:05,343
people with what they needed and wanted from
around the world is a complicated process,

376
00:34:05,343 --> 00:34:10,982
too complicated even for the most powerful
government to manage. But he saw it as a natural

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00:34:10,982 --> 00:34:15,487
function of a free market.
If you make that into a system, whereby it's

378
00:34:15,487 --> 00:34:20,025
not just you and me, but it's millions and
millions of people all trading with each other

379
00:34:20,025 --> 00:34:25,764
and exchanging things that they produce, then
that is an extremely efficient system.

380
00:34:25,764 --> 00:34:32,037
It's all highly organized, not from the top,
but from below. It's the result of millions

381
00:34:32,037 --> 00:34:37,742
of people acting in their individual interests.
Have you ever noticed that, when it's raining,

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00:34:37,742 --> 00:34:42,180
there's someone there selling umbrellas and
when you're at the beach, it's easy to find

383
00:34:42,018 --> 00:34:46,556
sunglasses and suntan lotion? Adam Smith told
us why.

384
00:34:46,718 --> 00:34:52,762
"It is not from the benevolence of the butcher,
the brewer, or the baker that we expect our

385
00:34:53,158 --> 00:34:58,863
dinner, but from their regard to their own
interest. We address ourselves, not to their

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00:34:58,863 --> 00:35:05,236
humanity but to their self-love."
By self-love, Smith means that sellers want

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00:35:05,236 --> 00:35:10,909
to earn a living in order to support their
families. To do that, they make the products

388
00:35:10,909 --> 00:35:15,447
that they think you and I will want to buy.
Not because anyone tells them to, but because

389
00:35:15,447 --> 00:35:20,285
it's in their best interests.
So, for Smith, what he saw was not mutual

390
00:35:20,285 --> 00:35:26,124
selfishness. What he saw was mutual respect,
which is an entirely different moral paradigm.

391
00:35:26,124 --> 00:35:32,030
Here's how it works: the prices we're willing
to pay send key signals and Smith used a baker

392
00:35:32,003 --> 00:35:35,640
as an example.
Hi, this all looks delicious... Could I have

393
00:35:35,667 --> 00:35:37,902
a cup of coffee?
Yeah, of course.

394
00:35:37,902 --> 00:35:42,273
And a scone, please?
But let's say we all want scones, and the

395
00:35:42,273 --> 00:35:47,112
baker keeps running out, well then, she can
charge a bit more.

396
00:35:47,112 --> 00:35:52,684
Seeing the demand and money to be made, other
bakers will start offering scones. All throughout

397
00:35:52,684 --> 00:35:58,289
the supply line, people spring into action.
Farmers see that bakers are buying wheat so

398
00:35:58,289 --> 00:36:03,595
they plant their fields, and up production.
Truckers see money to be made in delivering

399
00:36:03,595 --> 00:36:06,672
wheat to bakers, so they buy trucks and hire
drivers.

400
00:36:07,365 --> 00:36:13,439
Thank you.
So...we vote with our wallets, and all around

401
00:36:14,105 --> 00:36:19,978
the world, people spring into action, to satisfy
our demands. No one orders them to do this,

402
00:36:19,978 --> 00:36:25,683
but every purchase sends a message.
As the supply increases, competition forces

403
00:36:25,683 --> 00:36:32,791
prices down. Fewer bakers bake scones and
things stabilize as supply meets demand dynamically

404
00:36:32,791 --> 00:36:37,462
and automatically.
This all happens without government intervention,

405
00:36:37,462 --> 00:36:43,546
without any trade commissar, "man of systems"
dictating quotas. This is Smith's "invisible

406
00:36:44,302 --> 00:36:50,316
hand" at work; it guides large businesses
and even a small baker.

407
00:36:50,442 --> 00:36:55,647
Just as "the impartial spectator" summarizes
much of The Theory of Moral Sentiments, the

408
00:36:55,647 --> 00:36:58,883
"invisible hand" summarizes much of The Wealth
of Nations.

409
00:36:58,883 --> 00:37:06,958
"He is in this, as in many other cases, led
by an invisible hand to promote an end, which

410
00:37:06,958 --> 00:37:12,664
was no part of his intention."
When the baker sees that we want to buy bread,

411
00:37:12,664 --> 00:37:16,935
she makes the bread so she can make a living;
and the other side of the coin is that we

412
00:37:16,935 --> 00:37:22,273
get bread.
And it's a beautiful place, welcoming, friendly.

413
00:37:22,273 --> 00:37:27,946
There's more to competition than price alone.
One of Smith's great contributions to humanity

414
00:37:27,946 --> 00:37:34,452
is his realization that things didn't have
to be planned in order to be orderly.

415
00:37:34,452 --> 00:37:39,124
He believed that many complex systems can
be generated by local behavior. They don't

416
00:37:39,124 --> 00:37:43,461
have to be, and actually can't be created from
the top down.

417
00:37:43,461 --> 00:37:48,366
If you just left people to their own devices
in what he called the "system of natural liberty,"

418
00:37:48,366 --> 00:37:53,705
that people will find ways of working with
each other, and cooperating with each other,

419
00:37:53,705 --> 00:37:56,782
and collaborating with each other.
Smith thought that entrepreneurs and businesses

420
00:37:57,475 --> 00:38:02,981
create wealth, but don't get the idea that
he was an apologist for all business. On the

421
00:38:02,981 --> 00:38:07,085
contrary, he saw how many businessmen were
drawn to create monopolies and deceive the

422
00:38:07,085 --> 00:38:12,924
public interest for their own benefit and
that is precisely why he argued for free competition

423
00:38:12,924 --> 00:38:16,728
and free trade.
Greedy businessmen who try to rob consumers

424
00:38:16,728 --> 00:38:22,467
by raising prices or lowering quality would
be ruined if the consumers were allowed to

425
00:38:22,467 --> 00:38:27,205
turn to another competitor. And that is why
Smith thought that the government shouldn't

426
00:38:27,205 --> 00:38:31,976
be pro-business; it should be "pro-market."
I think probably the biggest misperception

427
00:38:31,976 --> 00:38:36,481
people have about Smith is that he advocated
some kind of extreme selfishness or greed.

428
00:38:36,481 --> 00:38:41,619
Smith recognized selfishness for what it is;
something that's unattractive when we see

429
00:38:41,619 --> 00:38:47,792
it, and something that's unhealthy when we
experience it.

430
00:38:47,792 --> 00:38:53,565
Smith sees the "invisible hand" working in
small market places, but in the wider countryside,

431
00:38:53,565 --> 00:39:00,171
kings and queens had long sold monopolies
and lavished gifts of land upon their favorites.

432
00:39:00,171 --> 00:39:06,205
In Adam Smith's day, castles like this dotted
the Scottish landscape. Their owners were

433
00:39:06,511 --> 00:39:12,450
nobles devoted to a life of ease and pleasure,
and the legal system was structured and enforced

434
00:39:12,045 --> 00:39:17,384
to keep it that way.
Of course, those people had enormous power,

435
00:39:17,789 --> 00:39:21,926
not just economic power, but also political
power as well.

436
00:39:21,926 --> 00:39:26,297
Inheritance laws forced family estates into
the hands of eldest surviving male, and that

437
00:39:26,297 --> 00:39:30,235
kept them intact, instead of being divided
among the siblings.

438
00:39:30,235 --> 00:39:36,107
Among tradesmen you had the guilds, who were
deliberately trying to get regulations in

439
00:39:36,107 --> 00:39:42,814
their favor to- to keep out competition. So,
the ordinary working person really was very

440
00:39:42,814 --> 00:39:47,452
much left out by this system.
"Laws and government may be considered in

441
00:39:47,452 --> 00:39:54,325
this and indeed in every case as a combination
of the rich to oppress the poor and to preserve

442
00:39:54,325 --> 00:40:00,932
to themselves the inequality of the goods."
People used to think that wealth is the treasure

443
00:40:00,932 --> 00:40:06,137
you keep safely locked up behind thick walls.
In the 18th century, many people thought that

444
00:40:06,137 --> 00:40:10,975
what wealth was- was gold.
...That what we needed to do is to export

445
00:40:10,975 --> 00:40:16,281
a lot and then we would get money from other
people, and import as little as we could.

446
00:40:16,281 --> 00:40:21,919
It was a zero-sum worldview: where one country's
gain had to be another's loss. So they created

447
00:40:21,919 --> 00:40:27,191
a legal framework that was a lot like their
castles: high walls all around, and a drawbridge

448
00:40:27,191 --> 00:40:32,730
to keep competition and imports out.
Of course, Smith said that was all wrong,

449
00:40:32,073 --> 00:40:37,212
that both sides benefit from a transaction,
both the buyer and the seller, and that if

450
00:40:37,869 --> 00:40:42,140
you really want to increase prosperity, what
you should do is to increase trade as much

451
00:40:42,014 --> 00:40:47,319
as possible, rather than try to prevent one
side of it coming into you.

452
00:40:47,445 --> 00:40:53,251
Smith's detailed study of markets leads him
to realize that it's the labor of a nation's

453
00:40:53,251 --> 00:40:59,023
inhabitants that is the major source of wealth.
If you read The Wealth of Nations, the very

454
00:40:59,023 --> 00:41:06,030
first sentence he says, "The wealth of a nation
is fundamentally the productive labor of its

455
00:41:06,003 --> 00:41:11,409
people." In other words, it's gross national
product, as we would call it these days, absolutely

456
00:41:11,436 --> 00:41:13,538
breathtaking.
And in the second sentence he talks about

457
00:41:13,538 --> 00:41:18,543
gross national product per capita. In the
third sentence he talks about productivity.

458
00:41:18,543 --> 00:41:23,648
These are completely new concepts.
That is how you grow; that is how you acquire

459
00:41:23,648 --> 00:41:29,454
wealth. It isn't the amount of silver that
you can get into the- into your vaults. It

460
00:41:29,454 --> 00:41:36,327
is the productive capacity of your citizens.
Before Smith, almost every school of thought

461
00:41:36,327 --> 00:41:41,799
taught people that one's own interest is always
contrary to someone else's.

462
00:41:41,799 --> 00:41:48,005
But Smith changes everything. If trade increases
our wealth, then other people, other groups

463
00:41:48,005 --> 00:41:54,059
and other nations are not by nature our enemies.
Tying the progress of modern society to productive

464
00:41:54,545 --> 00:42:00,651
people and open markets is a revolutionary
idea, but he also speaks to the role of government

465
00:42:00,651 --> 00:42:06,090
in a free society.
"Little else is requisite to carry a state

466
00:42:06,009 --> 00:42:12,516
to the highest degree of opulence... but peace,
easy taxes, and a tolerable administration

467
00:42:12,597 --> 00:42:18,703
of justice; all the rest being brought about
by the natural course of things."

468
00:42:18,703 --> 00:42:24,342
This displays a striking faith in the average
human being. If we just give you some space

469
00:42:24,342 --> 00:42:29,680
and protect your basic rights, you can figure
out how to improve your own life. We don't

470
00:42:29,068 --> 00:42:34,541
have to do things for you; we just have to
stop doing bad things to you.

471
00:42:35,153 --> 00:42:42,160
In 1773, Smith is here in Kirkcaldy working
on The Wealth of Nations but the material

472
00:42:42,016 --> 00:42:48,889
he needs is miles away in London. So, he sets
out to visit Parliament, to investigate taxes,

473
00:42:49,033 --> 00:42:53,604
a potential war with the American Colonies
and the government's support of monopolistic

474
00:42:53,604 --> 00:42:57,475
companies.
Because "peace, easy taxes and a tolerable

475
00:42:57,475 --> 00:43:10,788
administration of justice," does not describe
what goes on in the British Parliament.

476
00:43:10,788 --> 00:43:24,902
18th century London didn't have cars or buses,
but it was a huge, vibrant metropolis; and

477
00:43:24,902 --> 00:43:29,807
the center of the most important political
debates. Smith followed them closely and he

478
00:43:29,807 --> 00:43:33,544
wrote about them in detail.
As you read Smith it becomes very clear that

479
00:43:33,544 --> 00:43:39,568
the problems of his day are very much similar
to ours: poverty and unemployment, failure

480
00:43:39,784 --> 00:43:45,490
in the educational system, political pork,
foreign conflict, runaway spending, and a

481
00:43:45,049 --> 00:43:51,455
burgeoning national debt.
Some of that debt can be blamed on what was

482
00:43:51,896 --> 00:43:57,950
perhaps, the greatest state supported monopolistic
company in history. Here along the Thames,

483
00:43:58,436 --> 00:44:02,907
in the southeast corner of London, lay the
docklands, home to those mighty fleets of

484
00:44:02,907 --> 00:44:08,513
sailing ships in the days when Britannia truly
"ruled the waves."

485
00:44:08,513 --> 00:44:14,085
This place doesn't look like much today, but
in the early 19th century; this was a bustling,

486
00:44:14,085 --> 00:44:19,524
wide expanse of docks and port facilities
owned by the East India Company.

487
00:44:19,524 --> 00:44:24,195
This used to be the homeport of one of the
most powerful organizations on earth. Now

488
00:44:24,195 --> 00:44:29,667
it's just filled with mud.
Smith saw the East India Company as the epitome

489
00:44:29,667 --> 00:44:36,874
of monopolistic evil. Britain's National Maritime
Museum in Greenwich has the story.

490
00:44:36,874 --> 00:44:42,213
Here within the galleries of this World Heritage
Site is an amazing repository of the seafaring

491
00:44:42,213 --> 00:44:47,752
heritage of the British Empire... filled with
treasures large and small, including a superb

492
00:44:47,752 --> 00:44:52,957
exhibit of the East India Company.
I think what surprises people when they come

493
00:44:52,957 --> 00:45:00,965
into this gallery is just A, how large the
Company was, and B, how long it lasted. I

494
00:45:00,965 --> 00:45:07,019
mean this is something that's dominating Asian
trade for more -- almost 250 years essentially.

495
00:45:07,505 --> 00:45:12,109
Robert Blyth is the senior curator of world
history here at the museum.

496
00:45:12,109 --> 00:45:17,448
The East India Company actually becomes an
Asian power. It has its own army, its own

497
00:45:17,448 --> 00:45:22,219
navy, and of course, its own merchant ships
are armed as well.

498
00:45:22,219 --> 00:45:28,263
In fact, it was one of the most powerful organizations
on earth. In Smith's day, the company accounted

499
00:45:28,659 --> 00:45:34,865
for much of the world's trade and had its
own army of almost 70,000 soldiers. It ruled

500
00:45:34,865 --> 00:45:38,970
all of India.
So, the company is actually minting its own

501
00:45:38,097 --> 00:45:43,368
coinage in India in order to strike some of
its deals.

502
00:45:44,241 --> 00:45:51,048
So an official coat of arms and minting your
own coins, it seems like they're almost spontaneously,

503
00:45:51,048 --> 00:45:55,987
without intention, moving from being a company
to becoming a government.

504
00:45:55,987 --> 00:46:03,694
Absolutely, this is monopoly. The company
has real power. So, this is company as government.

505
00:46:03,694 --> 00:46:09,166
The story of the East India Company highlights
how easy it is to divert public resources

506
00:46:09,166 --> 00:46:14,505
for private gain.
If you think of Adam Smith's ideas of a free

507
00:46:14,505 --> 00:46:20,811
market, of free trade- the company is the
absolute antithesis of that.

508
00:46:20,811 --> 00:46:27,284
Smith denounced the company as a bloodstained
monopoly: "burdensome," "useless" and responsible

509
00:46:27,284 --> 00:46:33,491
for "grotesque massacres" in Bengal.
Its managers and officers became incredibly

510
00:46:33,491 --> 00:46:36,427
wealthy, but the company itself was never
very profitable.

511
00:46:36,427 --> 00:46:41,999
When it's not making a profit, when military
conquests in India really is a drain on its

512
00:46:41,999 --> 00:46:46,937
finances, the British government has to step
in to prop up the East India Company.

513
00:46:46,937 --> 00:46:50,374
Essentially, the company becomes too big to
fail.

514
00:46:50,374 --> 00:46:56,380
In order to bail out the company, Parliament
passed the Tea Act of 1773, allowing the company

515
00:46:56,038 --> 00:47:01,077
to sell its tea to the American colonies,
on privileged terms, at a tax rate lower than

516
00:47:01,419 --> 00:47:06,624
the local tea merchants. This, of course,
led to the Boston Tea Party.

517
00:47:06,624 --> 00:47:14,198
So, it is East India Company tea that is thrown
into the harbor at Boston. Now, it might be

518
00:47:14,198 --> 00:47:19,870
too much of an exaggeration to say that the
East India Company's monopoly caused the American

519
00:47:19,087 --> 00:47:26,161
Revolution, but definitely a factor in it.
Smith finds himself having to think about,

520
00:47:26,944 --> 00:47:34,985
how do you manage empire in the modern age?
But even worse, there is the problem of America.

521
00:47:34,985 --> 00:47:40,691
What to do about those discontented, troublesome,
American colonies who have begun to demand

522
00:47:40,691 --> 00:47:46,097
more influence or even independence?
Smith thought that the Americans were victims

523
00:47:46,097 --> 00:47:51,368
of the mercantilist system. That Britain was
trying to extract wealth from America and

524
00:47:51,368 --> 00:47:54,672
make sure that no wealth went from Britain
to America.

525
00:47:54,672 --> 00:47:57,759
Smith gets caught up in this debate, and becomes
closely involved.

526
00:47:58,542 --> 00:48:04,515
"The Parliament of Great Britain insists upon
taxing the colonies; and they refuse to be

527
00:48:04,515 --> 00:48:09,053
taxed by a Parliament in which they are not
represented."

528
00:48:09,053 --> 00:48:13,991
Smith is widely respected, very well connected,
and feels that the way Britain deals with

529
00:48:13,991 --> 00:48:17,795
the American colonies is very important not
just for the colonies, but for Britain as

530
00:48:17,795 --> 00:48:20,862
well.
Is a commonwealth, a free trade zone with

531
00:48:21,465 --> 00:48:25,236
America, is that possible?
Because he believed that the best for both

532
00:48:25,236 --> 00:48:30,040
sides would be open and free trade.
This is one of the most hotly debated and

533
00:48:30,004 --> 00:48:34,042
difficult problems that any British government
has ever had to face.

534
00:48:34,078 --> 00:48:38,682
Smith listens to debates on the American issue
in the British Parliament. He even lobbies

535
00:48:38,682 --> 00:48:43,354
politicians, urging them to let go of their
mercantilist thinking and keep Americans on

536
00:48:43,354 --> 00:48:48,426
friendly terms with open trade and migration.
In fact, he speculates that America could

537
00:48:48,426 --> 00:48:53,964
one day be the seat of the capitol of Great
Britain.

538
00:48:53,964 --> 00:48:58,702
Yet war is clearly on the horizon - in which
thousands of British troops will be sent to

539
00:48:58,702 --> 00:49:05,409
die on a faraway shore. It will be a very
unpopular and costly war.

540
00:49:05,409 --> 00:49:10,548
In Smith's day, the military is the government's
single largest expense. And this is one reason

541
00:49:10,548 --> 00:49:16,620
why. This is the HMS Victory, on which Admiral
Lord Nelson defeated the French Navy, and

542
00:49:16,062 --> 00:49:21,835
lost his own life, at the Battle of Trafalgar
in 1805. It's been beautifully restored and

543
00:49:22,393 --> 00:49:27,765
rests here in Portsmouth, England.
Built at a cost in excess of what would be

544
00:49:27,765 --> 00:49:34,872
75 million U.S. dollars today, the Victory
was a deadly floating gun platform with 100

545
00:49:34,872 --> 00:49:40,477
bronze cannons on three decks. She carried
four acres of canvas and made battle speeds

546
00:49:40,477 --> 00:49:45,683
of eight knots.
Launched in 1765, this ship had a crew of

547
00:49:45,683 --> 00:49:52,356
821 men. The Royal Navy in those days had
more than 500 active ships, and 140,000

548
00:49:52,356 --> 00:49:59,360
seamen, plus huge homeport facilities in England
to maintain and repair all those ships.

549
00:49:59,396 --> 00:50:03,267
Smith has run the numbers in detail-as he
always did-and he really couldn't see any

550
00:50:03,267 --> 00:50:08,505
way in which the colonies would ever be profitable
to Britain. Controlling colonies, just to

551
00:50:08,505 --> 00:50:12,810
monopolize trade, would never pay.
As we all know, the British government didn't

552
00:50:12,081 --> 00:50:16,585
adopt Adam Smith's views on the colonies.
But he felt so passionately about it that

553
00:50:17,314 --> 00:50:22,086
he concludes The Wealth of Nations with them
as an example.

554
00:50:22,086 --> 00:50:29,360
In 1776, just months before America's seething
discontent bursts into outright rebellion,

555
00:50:29,036 --> 00:50:35,409
the Wealth of Nations is published.
It's a beautiful book. It's expensive.

556
00:50:35,733 --> 00:50:42,139
If you walk through the great libraries of
the world, you will find the Bible. You will

557
00:50:42,139 --> 00:50:49,580
find Newton. You will find Darwin's Origin
of the Species. That collection is not complete

558
00:50:49,058 --> 00:50:55,264
without The Wealth of Nations. It is one of
the path-breaking books of all time.

559
00:50:55,786 --> 00:51:02,793
And it's written to be understood and taken
seriously by governments, as well as by philosophers.

560
00:51:02,793 --> 00:51:07,965
And governments do take it seriously. Almost
immediately, Smith's ideas catch fire around

561
00:51:07,965 --> 00:51:13,470
the globe. The founders of the American Republic,
the kings, queens and parliaments across Europe

562
00:51:13,047 --> 00:51:18,520
from Great Britain to Russia, become convinced
that Smith has conceived of a revolutionary

563
00:51:18,943 --> 00:51:24,248
blueprint for prosperity. And they start reforming
their countries, with the result of unleashing

564
00:51:24,248 --> 00:51:35,225
growth and speeding up the Industrial Revolution.
Smith is now wealthy, famous, and influential.

565
00:51:35,225 --> 00:51:41,198
He and his aging mother move to Edinburgh.
Here in this building on High Street, he will

566
00:51:41,198 --> 00:51:46,470
follow in his father's footsteps as a commissioner
of customs. He will live out the last 12

567
00:51:46,047 --> 00:51:49,851
years of his life, in his new home just a
few blocks away.

568
00:51:50,274 --> 00:51:56,213
He chooses the Canongate neighborhood, known
for its large and fashionable homes and gardens.

569
00:51:56,213 --> 00:52:01,385
And he settles into this home, the Panmure
House, named after its original owner, the

570
00:52:01,385 --> 00:52:06,857
Earl of Panmure.
Big ugly house next, however, to a church.

571
00:52:06,857 --> 00:52:12,881
And his mother is a deeply religious woman.
But it's near the center of things, and in

572
00:52:13,097 --> 00:52:17,434
a sort of way it's a friendly house.
Here in this large and friendly house, he

573
00:52:17,434 --> 00:52:22,106
convenes weekly dinner parties that soon become
major intellectual and social events.

574
00:52:22,106 --> 00:52:26,744
All of the minds that were there in Edinburgh
at the time, the great minds could come around

575
00:52:26,744 --> 00:52:32,483
to his house and talk about life, and politics,
and art, and literature and economics.

576
00:52:32,483 --> 00:52:38,622
And so, the end of his life, it's a sociable
life. The only snag is that it doesn't give

577
00:52:38,622 --> 00:52:43,827
him much time for writing.
And yet something he does write shines a critical

578
00:52:43,827 --> 00:52:48,665
light on the real "Adam Smith."
He returns back to The Theory of Moral Sentiments,

579
00:52:48,665 --> 00:52:53,871
and he revises it very comprehensively. He
adds a very significant section... and it's

580
00:52:53,871 --> 00:53:00,210
a study of the virtue and indeed, the virtues
that he believes to be necessary for modern

581
00:53:00,021 --> 00:53:06,494
commercial society.
"To feel much for others and little for ourselves;

582
00:53:06,683 --> 00:53:12,737
to restrain our selfishness and exercise our
benevolent affections, constitute the perfection

583
00:53:13,223 --> 00:53:21,532
of human nature."
Smith mattered to his contemporaries, and

584
00:53:21,532 --> 00:53:24,935
the fascinating thing is he's gone on mattering
to posterity.

585
00:53:24,935 --> 00:53:30,874
He was deeply concerned for the plight of
the working poor that he felt were really

586
00:53:30,874 --> 00:53:37,147
kept out of opportunities by the kind of cartel
and the crony capitalism of his day.

587
00:53:37,147 --> 00:53:43,161
So, laws and institutions shouldn't only be
set up to favor the already entrenched interests;

588
00:53:43,287 --> 00:53:45,756
people at the bottom of the economic spectrum
matter, too.

589
00:53:45,756 --> 00:53:52,463
Every generation has to cope with the problem
of how far should governments intervene in

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the business of trying to maximize the wealth
of their own country. These are eternal questions,

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which every single government, in every single
generation, in every single country has to

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address.
Perhaps the greatest gift that Adam Smith

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has given to us is a set of institutions,
political economic institutions that have

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enabled the greatest increase in productivity
and prosperity that the world has ever known.

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To an impressive degree, the world now runs
according to Smith's vision. In fact, his

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ideas are so universal that it's difficult
to tell where they begin or end.

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He died in 1790, six years after his mother.
He's buried here, in a cemetery just a few

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houses from his beloved Panmure House and
next to the church where his mother used to

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worship. Together with Newton, Voltaire, Jefferson,
Darwin and other great thinkers, his was one

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of the greatest minds of his era.
Through persistent observation and astonishing

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insight, he showed how society and human interaction
really worked...and how much happier and more

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prosperous the citizens could all be.
Who was the real Adam Smith? Surely he was

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both free market advocate and moral philosopher.
I was intrigued to learn that in the twilight

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years of his life and in secret, he gave the
bulk of his wealth to charity.

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In the end, and true to his principles, he
left his considerable estate to the poor and

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his ideas...to us.
Funding for this program has been provided

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00:56:15,405 --> 00:56:37,594
by John Templeton Foundation, and Templeton
Religion Trust.
https://www.youtube.com/watch?v=V6S6pMsKzlI