Book Cover

Capitalism,  The Way to a World of Peace and Plenty


2004 Dialogue with Adam Smith

A Free Market Dialogue

The following is a dialogue between Adam Smith the author of the 1776 Wealth of Nations, and Ray Carey the author of Democratic Capitalism comparing Smith’s version of free markets to the one being practiced in the United States in 2004.

Carey: From many years of experience managing companies I learned that performance improves when the leader successfully harmonizes human instincts for individual ambition and social cooperation. In my subsequent study, I became familiar with the comprehensive examination of the best organization of human affairs by the 18th century Enlightenment One of the stars of that Enlightenment, Adam Smith defined the economic system that could eliminate material scarcity, a watershed event in human history. Mr Smith told us the circumstances that this system needed for success and the impediments that must be avoided. Mr. Smith has been called a major Western philosopher, the greatest political economist, the father of the Industrial Revolution, the founder of social science, and the author of a coherent system called classical economics. I am very pleased to have him with us today to, in effect, audit how well we are utilizing the free market system. (Adam Smith and his Legacy for Modern Capitalism; Patricia H. Werhane, p 3 New York: Oxford Univ Press 1991) 

Adam Smith: It is a special opportunity for me also. But first, the accolades are nice but truth searching is a team effort and I was only one of the extraordinary group of men known as the Enlightenment. The flow of knowledge and the quality of the truth searching going on in my time between the Continent, Great Britain, and North America was extraordinary and must be replicated. But let me give you a quick summary of the time since I wrote Wealth of Nations and earlier The Theory of Moral Sentiments, both, incidentally, translated within a few years into both French and German. I find your comments on the necessity to harmonize the individual and the social interesting because my first book was all about the social and the sympathy that binds us together. My second book built on this moral base with the release of the latent energy of the individual in the free market system. Please, Let me be blunt in my audit as you call it, the urgent circumstances demand it. First, the proposal that the free market system could eliminate material scarcity worldwide has been validated during the 19th and 20th centuries by the improvement in the lives of hundreds of millions of people around the world; secondly, the free market system has functioned at a fraction of potential because my conditions of peace, neutral money, and control of the speculators has not been met; and finally, early in the 21st century, instead of a world uniting in economic purpose, you have trapped yourselves in a world of reciprocal atrocities.. On a personal note, I can’t tell you how offended I have been that many have distorted my work by translating me as an apologist for greed. I hope that this interview will help because your society is now headed, not for readily available peace and plenty through economic freedom and economic common purpose, but toward extinction through continued folly and violence. But before we get too far into this tragic failure of society tell me about the Carey Center for Democratic Capitalism.

Carey:  The Carey Center for Democratic Capitalism was opened in 1995 and my book Democratic Capitalism, The Way to a World of Peace and Plenty was published in 2004. It describes the democratic capitalism culture in detail, examines the rise of ultra-capitalism that corrupted both democracy and capitalism, and proposes how to get from the bad to the good capitalism. It believes, as I think you do, that democracy and capitalism represent the commercial opportunity to harmonize these dual instincts of the individual and the collective. Too much of the former and we get the greedy and short-term capitalism, too much of the latter, and we get a mistake prone, suffocating government that limits both the creation and distribution of wealth. I am dedicated to breaking the political and intellectual gridlock that allows these perversions of your beautiful vision to prevail.

Smith: Is democratic capitalism as a term understood by most?

Carey: Not really and therein lies the problem. Many academicians give me a bit of a smile, if not a smirk, and ask if the expression is not an oxymoron. Such remarks just exhibit how institutionalized is the ignorance of the economic system that you initiated. The Carey Center explains why democracy and capitalism are inherently synergistic not in tension as they have been since your time. But many intellectuals have a contempt for commerce that traces back to Plato, and they accept the view of generic capitalism as exploitive. But let’s get back to how you challenged the vested interests, holding on tenaciously, at the end of the break-up of feudal Europe, and the beginning of the modern world. Could I suggest that your ideas have been validated in practice, but the vested interests are still limiting free markets to a fraction of potential? 

Smith: Good luck in your efforts. There are many good people now with democratic power only needing knowledge. I would ask you why the universities are not getting that job done but I think that I already know the answer to that. A bit of background, as you requested, I was born in Kirkcaldy, Scotland in 1723 and went to the University of Glasgow at age 14 for three years and then to Oxford for six more. I joined the faculty of the University of Glasgow in 1752 and published The Theory of Moral Sentiments in 1759. I traveled in France for three years as the tutor and companion of the Duke of Buccleugh and then spent ten years writing An Inquiry Into the Nature and Causes of the Wealth of Nations. I was later the commissioner of customs.

Carey: Would you suggest a proper approach for our examination of free markets as you defined them and as we are not employing them? 

Smith: I think that it is important to begin with the irrepressible human urge for freedom. It is this urge that powers progress and belief in an ideal, after that we can review the means to the ideal and the process to specify the means and validate the ideal. Remember that the mind was in the process of being freed. In 1726, Voltaire chose banishment to England instead of another trip to the Bastille because he kept writing what he thought. He was a genius who inspired the Enlightenment on both sides of the Channel and when he returned to France he brought back Newton’s discovery of order in the universe; Locke’s government by the consent of the governed, Bacon’s advice on the truth seeking process necessary to meet the challenge of the Enlightenment, and admiration for the British Constitutional freedoms. Voltaire, to me, epitomizes the freeing of the mind to use reason to arrive at the ideal of peace and plenty. Kant in Germany presented the structure and the philosophy and structure for nations to settle their differences by law and not by violence, 

Carey: Voltaire had a high opinion of you also. I have read that the described you as an excellent man and that the French have nothing to compare with you.

Smith: I had the opportunity to visit him at his home in near Geneva. Besides his well- known advocacy of tolerance he knew that civilization could advance only as all members of society gained both necessities and increasing comforts.

Carey: How did you interpret the challenge for the Enlightenment?

Smith: Simply to use the truth seeking methods developed in science to find the best organization for human affairs. It was this freeing of the mind during the 18th century on the Continent, and a century earlier in England, that had produced the technology of the Industrial Revolution. It was this technology combined with involved workers and free trade that gave society the first opportunity to eliminate material scarcity and the violence associated with the struggle over scarce resources that began with the cave men and got bigger and more violent with the warrior state. 

Carey: It seems to me that the Enlightenment left an extraordinary legacy for following generations: the ideal of a world of peace and plenty, the specific means to attain the ideal and the process to specify the means and validate the ideal. 

Smith: Yes it all seemed clear to the Enlightenment whether on the Continent, Great Britain, or in America. Thomas Paine called it a “new chapter in the history of man” in his book published the same year in 1776. Paine was good at what you now call the sound bites. Through my friendship with David Hume, secretary to the British ambassador and increasing attention to my first book that was translated into both French and Greman I met and benefited from many of the French Enlightenment: Helvetius. d’Alembert, d’Holbach translated with the Marquis wife Moral Sentiments for example was one of the editors of their massive effort of capture knowledge in their Enclopidie and Turgot wrote on the physiocratic school for the Encyclopedie and coined the expression laissez-faire. The title of his book Reflections of the Formation and Distribution of Riches sounds familiar doesn’t it? It was published in 1766 just after I returned to England. If Louis XVI had followed through with Turgot’s reforms when he was prime minister he would have kept his throne and his head. Besides the French Salons benefited from the contributions of Franklin, Jefferson, and Paine. Professor Kant who made such an important contribution in his work on the structure needed for what he called “perpetual peace” as far as I know never left Konisberg. That is not to say that he was provincial because he honored the work of my best friend David Hume who integrated experience, tradition, and even intuition into the reasoning process. Kant called his discovery of Hume’s work his “Coperican Revolution” in his analysis of how we sought truth. 

Carey: It must have been an exciting time as philosophers joined together in their new freedom from theological domination. It was a recent experience, however. Wasn’t Kant precluded from publishing by King Fredrick at that time?

Smith: Yes he was, as was Voltaire and Montesquieu earlier in the 18th century by the churh-state structure in France. But tell me more about democratic capitalism, don’t you get a lot of questions about what it means? 
I could see that the combination of the new technology of the industrial revolution, involved and well-paid workers, with companies free to produce, price, sell and compete anywhere could eliminate material scarcity and spread wealth around the world.
Note the complete title An Inquiry Into the Nature and Causes of the Wealth of Nations. My work was an inquiry, an examination, a part of an ongoing process that with the circumstances properly defined, understood, and most importantly applied in practice and with the impediments removed, then, I believed strongly that everyone in the world could be well fed, sheltered, clothed, educated, in good health and full of hope for the future. 

Carey: But as I understand free markets the system runs itself on what others have called spontaneous order? 

Smith: Listen more carefully, I said that little else was required to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice, all the rest being brought about by the natural course of things but note that I qualified the success on peace. The function of government was simply to provide civic order and certain services like assistance to education and health but in all cases combine private and public payment. It is fundamental that any service that does not involve consumer choice and some cost to the user, no matter how small, will become terribly inefficient and not even meet its mission. It was also my assumption that the government would, as you a few years latter said in your Constitution, “control currency and credit for the general welfare.” As I am sure that we will examined it is the violation of that axiom that is causing most of the damage to your system. 

Carey: You qualify the success of economic freedom on peace but many would call that a cop-out because there have always been wars many believe it to be part of human nature.

Smith: The idea that killing and maiming in battle while destroying economic and social momentum at home is part of “human nature” is the biggest, sustained lie in history promoted by those with a power adoring ego or a vested interest in war. My contribution was to point out that wars that were caused by a struggle over scarce resources were no longer logical because there was enough for everybody. 

Carey: A circular proposition perhaps, peace is a prerequisite for economic freedom to eliminate material scarcity around the world but world leaders must accept this and stop making war as an inevitable part of human existence. Am I on the right track?

Smith: You’re getting to the hard part. But the pressure must come from growing democracy, the people, because, as obvious as it may be, leaders conditioned to war are not likely to have a mid-life epiphany and recognize economic freedom as the alternative. The answer can be found in a world of economic common purpose in which everybody is improving their lives. First, everybody must have the necessities of adequate food, clothing, and shelter, to free the body. They can then take advantage of education to free the mind. The resulting acceleration in the improvement in everyone’s standard of living frees the spirit with the belief that they can pass on a better life to their children.

Carey: Is this what you meant by the invisible hand? That it was not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest as you expressed it. (p. 14)

Smith: Yes, but this observation has been translated as a defense of greed by those who have little understanding of commerce but an instinctive love of state. Is it possible that my proposal that the natural course of commerce can make a better world without help from the government has offended the champions of government so much that they have tortured my worlds to fit their agenda? 

Carey: That is a conditioning of the intellectual community that goes all the way back to Plato. Why don’t you explain in your words exactly what you meant?

Smith: I used the expression invisible hand only once in my large book. I was writing about the small businessman whose pursuit of excellence in the quality of his meat, beer or bread gave him the opportunity to sell and the quality of his relationship with his customers gave him the opportunity to grow. Some of these may have been motivated by greed only but the most successful were motivated by the pursuit of excellence and the satisfactions of friendly relations with their customers. These entrepreneurs generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this led by an invisible hand to promote an end which was no part of his intention. (p. 423) 

Carey: I use your free markets economic freedom and refer to your invisible hand as economic common purpose in my book. It is the economic freedom that improves lives and it is this improvement that lowers the violence. Is that not the way to a world of peace and plenty? 

Smith: By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never know much good done by those who affected to trade for the public good. (p. 423)

Carey: This is what you mean by the natural course of things with only peace, easy taxes. a tolarable administration of justice, money that is merely a medium of exchange and control of the prodigals and projectors. You aren’t very optimistic about the efforts of the state to manage the details of society, are you? 

Smith: Absolutely, the statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would assume an authority which could be safely trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had the folly and presumption enough to fancy himself fit to exercise it. ( p. 423) 

Carey: You may have noticed that Hobbes is now a philosophical reference to those in power. He makes no appearance in your work,

Smith: The world of ideas is divided between those moving towards freedom and those moving away from it. Mr. Hobbes is such a devotee of the totalitarian state that he even makes religion serve the interests of state. I find it incredible that the country whose founders studied the state based on the Locke’s consent of the governed would at this late date give any space to considering Hobbes. Your bloody victory over the totalitarian forces in WW II should have put Hobbes into history as a curiosity not worthy of examination. Do you not think it threatening that people in your democratic republic even refer to Hobbes as a serious contributor to contemporary discourse?

Carey: With due respect to the democratic will of the people there must be the right structure in place to make it work. Jefferson and Madison in America helped put in place a balanced political structure that filters the will and wisdom of the people at the same time it improves it through universal fee education. You emphasized the involvement of people but you also emphasized the division of labor and labor value within the free market.

Smith: Mr. Jefferson was concerned with the wage-slave of the industrial revolution. There is no question that the man whose whole life is spent in performing a few simple operations, has no occasion to exert his understanding, or exercise his invention. He naturally loses, therefore the habit of such exertion and generally becomes as stupid and ignorant as it is possible for a human creature to become. (p.734) Jefferson’s profile of the perfect citizen consequently was the independent farmer not the manufacturing employee. No society can surely be flourishing and happy however if the far greater part of the members are poor and miserable. ( p. 79) In America your steady growth was, however, a direct cause of rising wages despite the attitude of the vested class. It is not the actual greatness of national wealth but its continual increase, which occasions a rise in the wages of labour. England in my time was certainly a much richer country than any part of North America but the wages are much higher in North America than in any part of England. It is the scarcity of hands that occasions a competition among masters that breaks through the natural combination of masters not to raise wages. (p.68)

Whenever the law has attempted to regulate the wages of workers, it has always been rather to lower them than to raise the, for whenever the legislature attempts to regulate the difference between masters and their workmen , its counselors are always the masters. At that time English law allowed employers to organize to protect their economic interests but forbade employees. (Durant 771)

Carey: The technology of the Industrial Revolution was combined with the division of labor to provide the productivity level that could eliminate material scarcity but with a price. You were quite clear in what monotonous jobs could do the individual.

Smith: Yes, I knew that a man whose whole life is spent in performing a few simple tasks generally becomes as stupid and ignorant as it si possible for a human creature to become. This seemed to be a negative part of progress. This man made a poor citizen in a free society also because his education and habits did not give him the knowledge and made him unfit to participate in the affairs of state. Worse, on some occasions his clamor is animated and supported by his employers, not for his, but for their own particular purposes. (249) 

Carey: These are the people who have been hurt the most by the business cycle and had little understanding of what happened to them. The wealthy gain the most in the up cycle but the poor are hurt the most in the down.

Smith: When the economy is stagnant this group has barely enough for subsistence when the wealth of the nation goes down there is no order that suffers so cruelly from its decline
By dividing the circulation of money into a greater number of parts, the failure of any one company becomes of less consequesnce to the public. This free competition too obliges all bankers to be more liberal in their dealings with their customers, lest their rivals should carry them away. The more general the competition the more advantageous it will always be to the public. (313)
The experience of all ages demonstrates that the work done by slaves is in the end the dearest of any. A person who can acquire no property, can have no other interest but to eat as much, and labor as little as possible. Whatever work he does can be squeezed out of him by violence only, and not by any interest of his own.

Carey: One of the benefits of the Information Age now is that the independent thinking, educated, involved person is similar to Jefferson’s profile of the farmer as the ideal citizen. The Information Age besides must harmonize democracy and capitalism in their work culture as they depend on releasing the cognitive power of their people. Democratic capitalism is a competitive necessity and I find that very exciting and promising for the future after we peel off the bad capitalism. But tell me more about labor value. This was the concept that Marx adopted and spent so much time analyzing. 

Smith: Labour is the only universal, as well as the only accurate measure of value, or the only standard by which we can compare the values of different commodities at all times and in all places. (p. 36) 

Carey: But it is not labor value that determines the price in a free market, and what about brain power as well as the time used?

Smith: There are different degrees of hardship of the work, and of the ingenuity exercised but you are correct that the price of the product is set not by any accurate measure but by the higgling and bargaining of the market. (p. 31)

Carey: The price may be set by the market but perhaps it is the difference between cost and price that depends on labor value. In democratic capitalism this is made up of time to produce, skills required, equipment provided but most importantly on the attitude of the people. This is hard to value but people who are motivated both to individual excellence and to the greatest cooperation will produce the largest surplus and necessarily to sustain motivation will have ways to share in that improvement. 

Smith: This is the maximum creation and distribution of wealth that makes the company and the workers prosper and it is the system that can make countries grow strongly and steadily. I use the word steadily and carefully as it implies that we have ended the business cycle.

Carey: That makes sense but still leaves most of the world at the mercy of crazy people who still think that violence is a faster way to get what they want. But we are understandably getting into how to get rid of the violence before we have a full understanding of how to give all the people of the world enough food, clothing, shelter, education, good health, and hope. Could you go through what you feel are the basics needed for free markets to spread wealth?

Smith: Yes, of course. We begin with the technology of the Industrial Revolution that was part of the recent freeing of the mind. It was this advance that gave the economic system for the first time the capacity to supply what everybody needed to be comfortable. This technology to be effective however needed involved workers. It is the workers who can find out easier and readier methods of performing their own particular work A great part of the machines made use of in manufacturers were originally the invention of common workmen in order to facilitate and quicken their own particular part of the works. (p.9)

Carey: That sounds like democratic capitalism but the mercantilists during your life and since had the attitude that wage and benefits suppression was the way to more profits. How does that worker you described share in the improvement and keep the motivation to improve the operation?

Smith: I assumed, incorrectly as it turned out, that the mercantilists would recognize that there was enough for everybody in the free market system and would involve the workers and get rid of the traditional management by fear and intimidation. Your modern consultants call it top-down, command-and-control. I was quite clear that the workers were a vital part of the process and should be rewarded accordingly. I knew that the liberal reward of labor increases the industry of the common people. The wages of labor are the encouragement of industry, which like every other human quality, improves in proportion to the encouragement it receives A plentiful subsistence increases the bodily strength of the laborer, the comfortable hope of bettering his condition, and of ending his days perhaps in ease and plenty, animates him to exert that strength to the utmost. Where wages are high, accordingly, we shall always find the workman more active, diligent, and expeditious, than when they are low. (p.81)

Carey: So now we have the technology of the Industrial Revolution, and involved well paid workers. But remind us how this system spreads wealth? I have referred to it as an economic perpetual motion machine, do you agree?

Smith: With the benefits of the technology and involved, well paid workers the cost to produce goes down. In a free market competition forces the price to go down with the cost. Now there are more people who can afford to buy the product. Their purchases add to the volume and because of the added volume the cost and prices go down. At the same time those who could afford to buy at the higher price now have money to buy other things. Of course as the volume goes up there is a need for more workers whose wages then provide more opportunities for more volume, more jobs, and even lower prices and so forth. As long as trade is not artificially restricted by subsidies and tariffs the system will in fact spread wealth around the world.

Carey: Sounds logical to me but what do you think of all of the noise and bad feelings about what is now called “globalization”? 

Smith: By now I know that you know the answer to that question but need my answer for the record. The answer is that your world economy is still in the hands of the mercantilists who are still trying to maximize their profits by suppressing wages and benefits. Your “globalization” has become a dirty word because the workers in emerging economies are being exploited by the global companies who still refuse to recognize that the best way to maximize profits is to involve the workers and pay them more. 

Carey: That is the way to increase the total wealth and improve the distribution of wealth. If the workers in these emerging economies do not have any money over and above the necessities of life, however, then they cannot buy anything from other countries and free trade comes to a stop. 

Smith: Now you are joining into the examination, good! Yes the key is what your economists now call the multiplier effect. There has to be demand not in theory but backed up with the spendable income to buy. The theory of classical economics that the system would seek equilibrium is true but only if there is money to support real demand to balance supply. The problem has always been that the system can supply everything that people need but they have not had the money to take demand out of the theoretical into the practical. Effectual demand is different from absolute demand. A poor man my like to have a coach and six but this demand is not effectual as he cannot afford it. Your Henry Ford understood that when he raised the pay of his workers to $5 a day so that they would have an effectual demand.

Carey: In order for your economic perpetual motion machine to work you have, however, distinguished among different types of purchases. You categorize fine wines and large yachts as not helping the multiplier effect as much as stoves and clothes bought by people with low incomes.

Smith: Yes, I even include those services that disappear in the act of performance. To keep my economic dynamic functioning we need purchases that add more volume to the items of popular use. This is one of the most vital subjects as concentrated wealth and war are the two interrelated impediments that has kept my system from doing its good work all around the world. This was, however, not just my opinion. Voltaire was excited to discover Confucius and the advanced Chinese culture in materials then available after he returned from England. Confucius understood wealth distribution when he commented that the centralization of wealth is the way to scatter the people, and letting it be scattered among them is the way to collect them. ( cited in Durant, vol 1 p 673)Your Benjamin Franklin was even more emphatic describing the enormous proportion of property vested in a few individuals as dangerous to the rights, and destructive of the common happiness of mankind. ( Edmunc S. Morgan, Benjamin Franklin New Haven conn Yale univ press 2003 pp 307-8) He recommended that laws should be directed to preventing this situation. While I have expressed myself in favor of minimum government this is the area that government must provide the rules for free markets to work.

Carey: Might I express it differently, it is not the need for new laws as much as it is the need to eliminate special government privileges for the speculators. We’re back to control of currency and credit for the general welfare, How well did you know Voltaire? 

Smith: Voltaire was the father of the Enlightenment who was well regarder for his promotion of tolerance but inspired many and authored the concept that people would want a steadily improving standard of living. Freedom from want, fear and oppression. .

Carey: Could you elaborate on neutral money?

Smith: For economic freedom to do the job money must not influence the commercial process. It must be patient, non-volatile, enough but not too much. Or putting it another way the prodigals and projectors, the speculators, will make it impatient, volatile, and take it away from the job growth economy, so the most important part of making money neutral is control of these prodigals and projectors. 

Carey: Sounds like an important piece of the puzzle, why did you not mention it with your qualifications like peace?

Smith: Because we had free banking in Scotland at the time and banks with too many bad loans were punished quickly, visibly, locally, and if there were enough stupid loans the punishment was terminal. Now the government has taken over that responsibility and as far as I can see has privatized the profits and nationalized the losses for the benefit of the prodigals and projectors. They are the people who will pay high interest for their risky adventures. Sober people who will give for the use of money no more than a part of what they are likely to make by the use of it, will not venture into the competition. A great part of the capital of the country is thus kept out of the hands which are most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it. (p. 339)

Carey: But your free market philosophy has been confirmed by years of improving the lives of people. Now with the failure of communism you don’t have any competition anymore, is that not true?

Smith: There never has been a real competition for those willing to engage in a thorough examination. The problem is that your citizens and leaders have never learned what is needed for economic freedom to do its job for the world.

Carey: I guess like anything else it gets more complicated when one gets into it. By the way why were you agreeable to this interview after so many years?

Smith: I usually do things for a purpose. I see things going on in your world today that force me to speak out. We were just talking about one of them. Now you have got me started, your governments killed 160 million people during the 20th century, over 2 billion people, 1/3 of the world, try to live on less that $2 a day, and we’re going backwards, over 100 million more people are living in poverty than a decade ago. Besides that the prodigals and 
projectors that I warned about are not only not controlled they now dominate your economy and very bad things are going to happen unless your people do their homework and use their democratic power to fix the system. 

Carey: Your vision sounded good but could not really run itself as you promised, is that the sad conclusion?

Smith: My vision has been confirmed many times over by the improvement in the lives of hundreds of millions of people all over the world. The problem is that the expected universal education has not properly educated leaders and citizens in how to properly couple democracy and capitalism and as a result the prodigals and projectors have filled the vacuum and written the rules for their personal benefit. 

Carey: Although you have been incorrectly translated as an apologist for greed you were in fact a supporter of the worker and had some pretty tough comments on those who made their money on money describing how their mission was not consistent with that of society in general. 

Smith: These people that I see you call the ultra-capitalists have a mission of maximizing profits but they think erroneously that they do this by suppressing the wages of the workers and seeking laws from government that allow them greater profits. They are always trying to narrow competition to raise their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it. (p.250)

Carey: You remind me of the arrogance of Citigroup the monster financial services company that was assembled in anticipation of the repeal of Glass Steagall a law put in place during the Great Depression that nearly destroyed this wonderful country. One of the conflicts was commercial bankers providing the easy credit to companies so that their investment bankers could get the lucrative deals. Within a year of the repeal Citigroup gave the east credit for bad loans in order to participate in the bad deals in a company called Enron. Despite this glaring example of conflict and damage to people repeal of the repeal was not seriously suggested.

Smith: Why?

Carey: I guess that the dominance of ultra-capitalism with the politicians of both parties in their pocket is so total that these perversions of your free market are not challenged

Smith: In my time we expected free trade to help unify the world. Imperialism was the international system worked off the same philosophical basis as mercantilism and should have been superceded by superior system. We thought that the world would arrive at some sort of respect for the rights of one another through communication of knowledge and all sorts of improvements which an extensive commerce from all countries to all countries naturally, or necessarily, carries along with it (891) 

Carey: The dominance by finance capitalism can now be measured. The percentage of total market capitalization of financial services companies of the S&P was 8% in 1980 up to 23% in 2004. You actually excluded financial services from the wealth of nations, did you not Mr. Smith?

Smith: Yes, neutral money was merely the medium of exchange that had a cost first to collect it and afterwards to support it. Expenses that may be part of the gross revenue of society but are deductions from the neat revenue of the society,

Carey: You certainly emphasized the importance of universal education in your work but had a bit of a problem reconciling that with your minimum government.

Smith: Not really. The public can educate the young in every district for a cost so moderate that even a common laborer may afford it, the master being partly paid by the public, because if he were wholly paid he would soon learn to neglect his business. ( 737)

Carey: You were consistent in your insistence that education should have an accountability similar to market forces as you felt that the dons of Oxford should be paid by the students based on performance. It is an intriguing theory but not one that has any current utility. You also emphasized that the student needed training in how to reason properly.

Smith: Of course, the correct reasoning process must precede the examination of subjects of great importance. (725) The subject of greatest importance was in my time not being addressed, namely, the happiness and perfection of man, considered not only as an individual, but as the member of a family, of a state, and of the great society of mankind. This was the subject that ancient moral philosophy proposed to investigate. In the ancient philosophy the perfection of virtue was represented as necessarily productive to the person who possessed it, of the most perfect happiness in life. In my day philosophy was frequently represented as inconsistent with any degree of happiness in this life, and heaven was to be attained only by penance and mortification, not by the liberal, generous, and spirited conduct of a man. By far the most important of the different branches of philosophy became in this manner the most corrupted.(p. 726)

Carey: This is a view that I believe that you shared with your friends David Hume and Edward Gibbon, is that no true.

Smith: Exactly, we all knew that the tutors in the best-endowed universities contented themselves with teaching a few shreds and parcels of this corrupted course; and even these they commonly teach very negligently and superficially. 

Carey: You noted that in my hypotheses in chapter 10 of my book the first agent of change is the university on the simple principle that it is only better trained leaders and better educated citizens that can avoid the mistakes that have kept us from the world of peace and plenty. 

Smith: That should be true but the universities to day from what I can observe are if anything worse in this area of moral philosophy than they were in my time, as bad as they were. It is still true that the improvements that have been made in universities, these learned societies. have chosen to remain the sanctuaries in which exploded systems and obsolete prejudices found shelter and protection. The richer the university the worse the problem. In some of the poorer schools the teachers were more dependant on their teaching reputation for their subsistence were more obliged to pay more attention to the opinions of the world. (727) At Oxford, for example, most of the professors have for many years given up altogether even the pretence of teaching. (718)

Carey: You and your friend Hume were consistent in your promotion of free trade but not altogether successful because the Corn Law was not taken off the books until 1840, and only after repetitive food riots.

Smith: One of many areas of our good advice that was ignored. It seemed obvious to us that what is prudent in the conduct of every family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it from them with some part of the produce from our country in which we have some advantage. (p.424)

Carey: That seems straightforward to me but one of the scandals of our time is the agricultural subsidies in the rich nations that take away the best opportunity for emerging economies to join in the world economy. 

Smith: That is very disappointing. Certainly not the United States the leader in free trade?

Carey: Unfortunately the United States subsidizes cotton, Europe sugar, and Japan rice totaling several hundred billions of dollars. It is an obvious contradiction of free trade principles and also contributes to a reputation as a hypocrite.

Smith A bit more on motivation, perhaps. A small proprietor who views it all with affection and takes pleasure in it is generally the most industrious, the most intelligent and the most successful. ( 392)The statesman who should attempt to direct private people in what manner they ought to employ their capitals would assume an authority which cannot be safely entrusted to council or senate whatever, and which would be nowhere so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it, ( 423)
Thee ultimate objective of the mercantilistic system, however it pretends, is always the same, to enrich the country by an advantageous balance of trade. ( 607)
The good temper and moderation of contending factions seems to be the most essential circumstance in the public morals of a free people. ( 729) By thus parting good friends, the natural affection of the American colonists to the mother country would quickly revive. It might dispose them to favor us in war as well as in trade , and, instead of turbulent and factious subjects, to become our most faithful land generous allies. (Durant # 10 779)

Carey: One of the casualties of the Great Depression was the wide spread belief that it destroyed classical economics and the free market theory that it would seek and find equilibrium on its own energy. Even the introduction to the 1937 edition of your Wealth of Nations in which Max Lerner said that you gave a new dignity to greed and a new sanctification to the predatory impulses. (p. ix) He admitted that your work had been twisted to the point that your economic individualism was being used to oppress where once it was used to liberate, and that it now entrenches the old when once it blasted a path for the new. He regretted to see your doctrine result in the glorification of economic irresponsibility. (p.x) What is a memorable quote from the reaction to your book?

Smith: I suppose it was Pitt II who said “We will stand until you are seated, for we are all your scholars” Unfortunately the universities did not have the same interest. D 772).

Ray CareyRay Carey

Ray Carey learned through managing companies for 33 years how to change the work culture to provide employees with their best opportunities to develop and contribute. This experience began as a 28 year old plant manager and later president of an electric motor company, and concluded with eighteen years as president , chairman, and CEO of ADT, Inc.

See Carey's autobiography of his work career in chapter two of his first book,

Democratic Capitalism, The Way to a World of Peace and Plenty.

For more information about Ray Carey and his advocacy of democratic capitalism, visit the pages of this website.