Speaker 1:
Hi, I am Elaine Engelhardt from Utah Valley State. Welcome to class Today. The class is ethics and values and we're beginning our segment on business ethics. Hopefully at the end of each class will show a brief case study that shows an ethical problem happening in a business environment, and we'll discuss it amongst each other showing the value of case study. When looking at business ethics today, I have a brilliant philosopher and professor of business, Bonner. Richie, thanks for joining us Bonner, and we'll get back and get an introduction from you. But let me introduce you to the students first. We have Rhonda and John over here and over here, Kiper and Luke. Thanks so much for being with us. And Dr. Richie, who is our Dean Emerita and Professor Emerita here at Utah Valley State College has spent a lot of time at other universities as well. Do you want to give us your background?
Speaker 2:
How much time do we have?
Speaker 1:
Yeah,
Speaker 2:
I finished my PhD at the University of California Berkeley and then went to teach at the University of Michigan where we were starting a new program in organization behavior. It was a fun time. I was in Detroit during the Detroit riots and the conflicts, the racial issues marched with Martin Luther King and just had a very interesting period from 1967 to 73. Then I came to,
Speaker 1:
You could kind of relate to this montage then, couldn't you?
Speaker 2:
Yeah, that looked familiar.
Speaker 1:
I'll bet it did. Yes, and go ahead.
Speaker 2:
Then I went to Brigham Young University and taught there until 2000 when I retired. In the meantime, spent seven years in the Middle East teaching at the University of Jordan and be state university in Palestine and American University of Beirut and in Cairo in Dubai. Had a wonderful experience in solving all the problems of the Middle East and then came here to Utah Valley State and was interim dean for a while trying to change the culture of the business school and get us started on accreditation and now I'm a scholar in residence, which means I just talk and have no responsibility for the consequences of what I say.
Speaker 1:
I think that the students here might just hold your feet to the fire on your comments here. I need that. And the thing about this being the ethics and values class, the students take it by broadcast and so we have to represent to them what a typical class might be and the students here to ask you questions about what we also might find in a typical class,
Speaker 2:
But they're supposed to be polite, right?
Speaker 1:
They're supposed to be polite. And besides that, Bonner is one of the most brilliant people, truly he is so brilliant and has accomplished so much in his life. It's almost a Walter Middy life from the riots in Detroit and other areas to all the work you've done in the Middle East and been involved in peace talks and how you've been able to take organizational behavior ethics and other specialty areas and really make differences in the world. So I can see you're blushing.
Speaker 2:
Well, thank you.
Speaker 1:
Today we're going to talk about Adam Smith and Adam Smith has to be talked about. He's going to be the founder then of our modern system of capitalism and we find Adam Smith then being born in Glasgow and even was kidnapped at age four. I hadn't realized that his uncle found him and he was able to grow up in the Wright family, but his father had died when Smith was just six. But he was a brilliant child and went on to the University of Glasgow, Oxford and other places. Tell me some remarkable things about Smith that you enjoy.
Speaker 2:
Just one funny little issue when he was kidnapped by gypsies, his uncle said he had to rescue him because Adam Smith would never make a good gypsy, so we had to get him back from the environment that he couldn't cope with. Adam Smith is general regard as the father of economics. He really wasn't an economist though it's interesting, he was a political philosopher and he was concerned about the behavior of the state and the behavior of governments and he was very critical of much that government did or didn't do. And so he was trying to find a way to make governments more consistent with economic development, with the economic wellbeing, with the utilitarian notion of the maximum good for the maximum number in a larger society. And he was really not very aware or very concerned with the details of economics. It was the larger public good that he was with
Speaker 1:
And just a brilliant man as he started moving through his works and creating a very thick library for all of us on his theories of making money of political philosophy, economic philosophy, and also what I would say is moral sentiments. And in 1959, the piece that truly established his reputation then was a theory of moral sentiments. And I'm actually more familiar with that book than I am Wealth of Nations, which was published in 1776, but we will be reading from Wealth of Nations
today. But truly, I don't think that Smith ever intended for the two books to be separated. I think that he felt like that whenever we were talking about capitalism, about making money, about distribution of labor, we would always be considering morality that we would be doing it with moral sentiments. What are your thoughts on that?
Speaker 2:
I agree completely, and one of the problems of human beings is that we pull out of somebody or some theory, a dimension that we like or that we don't like and we make that the whole picture. And that's often done with Adam Smith. He didn't even use the term capitalism and yet he's regarded as the father of capitalism and he really didn't even talk about profit the way most people impute to him. He talked about it in a way of allocating resources more than a motive of an individual. And he didn't justify a lot of the behaviors that people who use him used to justify their exploitive or their money grabbing sort of behaviors. So I agree he's misused as is Karl Marx and lots of other people, but we seldom really read about the person we take what we want from them and make it their theory.
Speaker 1:
I couldn't agree with you more, and I think that's what we find when we put the two works together, theory of Moral Sentiments and when we look at basically is looking at efficiency with wealth of nations. So you students, what comments do you have about Wealth of Nations, about Adam Smith or even questions while you've got one of the brilliant scholars in the area here with you? How about you John?
Speaker 3:
I'm probably guilty of a little bit taking a dimension of Adam Smith and kind of taking that, and I don't have a very high opinion of him, but I do like the way that he's very descriptive at times and I think he was very insightful about the division of labor and the way he describes it I think was very, very insightful, especially at the time that he was writing.
Speaker 2:
I think that's a really good point. He was an observer of the scene and most people before him had not been careful observers. They had been theoretical observers. They wrote what ought to be, they were normative. He was one of the first descriptive. He wasn't well trained for descriptive, but he still did it and opened up a whole new field by doing it. And so I think that's a really important point. He observed the world as carefully as he could with his framework and opened up a way for others who could be more disciplined in their observation and description.
Speaker 1:
And he was quite a perfectionist about this too. He was one of those who would rethink and rewrite and try to get his point across as best he could and even
Speaker 2:
Obsessively protection
Speaker 1:
Perfectionist he was, and even at the end of his life demanded that works be destroyed because he hadn't had time to get them to the place where he wanted them. And I think there are a lot of us who would like to see some of those works. How about you, Rhonda? Thoughts on Smith?
Speaker 4:
Well, Smith in Wealth of Nations is impressive to me because of his being able to think for a lot of people for his being able to distribute wealth, if you must, the wealth that a lot of people were not enjoying at that time. And that doesn't mean great wealth. That means the ability to survive, to go forward in a lot of the different things that he introduced at that time.
Speaker 1:
Okay, great. And how about you Kiper points on Smith?
Speaker 5:
Similar to what they have said, I feel that Smith was very aware of people's personalities in general and how they were and how they acted and their motives behind what they did. Alright. And
Speaker 6:
Luke, I would just agree with the descriptive comment. I think it's interesting that you see him very much involved in the practical. You don't see, I don't know, a con or somebody talking about needles and pins and
Speaker 1:
More pins,
Speaker 6:
How to make a pin the best way. That's not something that most other philosophers talk about.
Speaker 1:
I was joking with Dr. Richie before the taping started of this class period and said, boy, he just keeps talking about pins and pins and pins and I think we're going to skip past a little bit of that and pull up our first graphic. And in the first graphic he's going to be talking about division of labor, so we can't get away from it. And it's certainly the analogy that he wants to use as far as labor, but we won't spend too much time as your reading does on that. And Kiper, would you read this first reading for this first quote?
Speaker 5:
Yes. The greatest improvement in the productive powers of labor and the greatest part of the skill, dexterity and judgment with which it is anywhere directed or applied seem to have been the effects of the division of labor.
Speaker 1:
Okay, so he is making this statement the importance of the division of labor. And let's go ahead and read the next quote where he's going to back up his argument on the importance of the division of labor. And John, would you read this for us please?
Speaker 3:
Yes. Why Division of Labor increases the quantity of work first to the increase of dexterity in every particular workman, secondly to the saving of the time which is commonly lost in passing from one species of work to another. And lastly to the invention of a great number of machines which facilitate and abridge labor and enable one man to do the work of many.
Speaker 1:
Okay, and this is generally a test question because these are three of the major points that he makes. Anyone want to tell me why these are so important before we ask Dr. Richie about it a little bit?
Speaker 6:
I would.
Speaker 1:
Okay. Luke,
Speaker 6:
I just think you could ask my wife why they're so important because I'm so bad at them. For those of us who are a little disorganized and like to start over here and work on this, you know that you're not effective and it definitely is much more efficient. It's logical and it works. And some reason I'm just really bad at it
Speaker 1:
And I've never seen anyone more organized than Amanda does. That's right. So we have some good sides to it and some downsides on this. Kiper, any comments on
Speaker 5:
That? These three things I think definitely do increase the quantity of work produced by using them.
Speaker 1:
Alright, and any other thoughts? How about at Bonner? Why are these three points his starting out? He's going to kind of make this a thesis.
Speaker 2:
We need to put this in a little more perspective. I think. Thank you. Lemme go back to John's point, he said that, and Adam Smith, as Luke mentioned, is often referred to as the practical philosopher, one of the first really practical philosophers. And he was absolutely pivotal in the industrial revolution. He both observed the beginning of it and justified provided a moral justification for the
extension of it. He was right in the beginning of the industrial revolution. And what we saw was the beginning of the factory movement, the beginning of machines that we'd never heard of before. And we were moving from a world of artisan and craft, which was a cottage world, the cobbler, the Miller words, we don't even use much anymore. We don't even have a concept for the people who did those things. Now we have a huge factory that does all those things. And Adam Smith was the one that captured the moral and the practical aspect of moving from an artisan world, a crafts world to a mass production world.
And I think that's a critical thing to realize that without division of labor, as he said, one person would make one pin a day instead of 40 pins a day and the whole world benefited dramatically. The whole world suffered a lot and we need to get into that later on. But it benefited dramatically from this emphasis on efficiency, on structuring the production process on a division of labor where one person would do one thing and do it really well. It was alienating but it was efficient. And I think that he observed and gave a moral rationale or justification for that, that really sent the industrial revolution on its
Speaker 1:
Way. Oh, thank you. You paint such a beautiful picture of the condition of the time that you might have one person who's making shoes, one person who's making fabric, one person who's a weaver, and then a person who's a tailor. And he's saying there are ways that we can be much more efficient with this and we don't need to regulate and say, well I think we only need three tailors in this town. He's going to say, let's see what happens if we start looking at division of labor. So let's go ahead and pull up what he's going to say are some skills that are important. Rhonda, could you read this for us please?
Speaker 4:
The first greatest skill, greater skill increases the quantity of work. A smith who has been accustomed to make nails but whose sole or principal business has not been that of a nailer can seldom with his utmost diligence make more than 800 or a thousand nails in a day. I have seen several boys less than 20 years of age who had never exercised any other trade, but that of making nails and who, when they exerted themselves, could make each of them upward of 2,300 nails in a day.
Speaker 1:
What do you think about that, do you think? So you've got a smith and usually this is somebody who might be pounding out horseshoes and other things and Adam Smith says, why have we got him making nails when we could have these boys making a lot more
Speaker 4:
And not only the nails that they're making, they're probably not the same width, they're the same length, they might be slightly bent and mass production is generally going to pull that out.
Speaker 1:
Alright, and I can see John's jaw's a little clenched here. What's going on here, John?
Speaker 3:
Well, I mean he's right. The efficiency increased exponentially when something like this happens, one person is making double the amount of nails, but I mean at what point are we going to say that's all he's doing? It's almost like his work is reduced just doing that. And I mean at what point are we going to point that out and talk about the negative consequences of that, I guess would be why my jaws clenched and what I think about
Speaker 1:
It. We're not going to get around to it. No dream on kisser,
Speaker 5:
At least not in today's reading, not today's reading. By simplifying the work he is increasing the quantity and the amount that they're making. But I quite agree with John in that it kind of is degrading in a way in that it's no longer a skill. I mean it is a skill, but it's no longer a range of skills. It's just I can only do this and that's what I do. So
Speaker 1:
Have we created a problem here or do we have these young boys able to make a good wage, they can support themselves, help support their families? What have we got going here, Dr. Richie?
Speaker 2:
Both. We've created an efficiency system that is dehumanizing
And we have to be honest about that. There is an incredible benefit to efficiency. We would never have the automobiles and the refrigerators and the television sets and the computers in the world of craft Kiss Me talks about the transition. It was a craft world that we had. And then now we go to a reductionist skill world and as you lose the craft, you lose the pride and the identity that goes with work and the guilds with their incredible prestige for those who could make really exquisite woodwork or artistry of some sort, no longer. Now it's just one nail's as good as another, one dress is as good as another. And when you lose the craft, you lose the dignity of the individual. And to a degree, not totally. We do pay them well and we don't really pay them more, but they
Speaker 1:
Have work,
Speaker 2:
We pay them. So the reading anyway, there's not an equitable distribution in Adam Smith's world, there would be a much better distribution if we had good information, if we had perfect information, if we had access and choice and could be mobile, could travel and all those things. But we lived in a world where that wasn't feasible and so people were victimized by that. But people benefited. And that's the dilemma. All of life is a dilemma. This is another one of those great dilemmas that we have to live with.
Speaker 1:
We were making big changes at this time and some people ended up being those from whom we learned the lessons of these changes. Other people still work in these same types of situations and they'll have other hobbies or activities outside of work. Work is there and they can have benefits and bring home dinner to the family. And quality of life is outside of work. So we're really seeing these changes then these big lifestyle changes. And maybe some people feel like that they have more access now to money, that they're being allowed instead of being seen as a craftsperson of the greatest quality and they never could attain it, that at least they're part of this process.
Speaker 7:
That's right.
Speaker 1:
Well let's pull up the next graphic and Luke, would you read this one for us please?
Speaker 6:
Time is saved when the worker isn't traveling between two jobs. A country weaver who cultivates a small farm must lose a good deal of time in passing from his loom to the field and from the field to his loom when the two trades can be carried on in the same workhouse. The loss of time is no doubt, much less it is even in this case. However, very considerable.
Speaker 1:
Thank you. And I start thinking about this time saved quote that we have from Adam Smith and someone may be telling me a crafts person telling me I not only did the weaving for this piece and put it together and sewed it, but I also grew, I grew what was needed to make it and I might be willing to pay extra for that, but a lot of people aren't. What do you think about this notion here where he's saying a country weaver doesn't need to be a country farmer too, so to speak?
Speaker 6:
Luke, I lived in Italy for a couple of years and it was interesting to see that there are a lot more craftsmen still there. And I ran into a man who made shoes and he made every part of the shoe and he would even paint sort of the design on them and they were incredible and they were also incredibly expensive, but the quality of it was far beyond anything I'd ever seen. It was that way with all kinds of things. And so having that pride in what you're producing, it definitely increases the quality of it. But the time he told me it would take over 20 days for him to make a pair of shoes for somebody and that's considerable and it wouldn't cut it in America.
Speaker 1:
And why was it not cutting it at the time and certainly isn't going to cut it today. Dr. rci to
Speaker 2:
Economics is a weird phenomenon. People need to eat and we had malice and Ricardo and all these people talking about the disaster of too many people and not enough food, too many mouths to feed and not enough bread to go in them. And so we had to get efficient and by far the biggest revolution at this time was not the machine shop, it was the farm, it was agricultural. It was the fact
that we had to learn to produce more with less. We had to make our fields more productive. And Adam Smith doesn't talk a lot about that, but that was the backdrop where he was describing that we couldn't survive unless we became more efficient. You couldn't survive with the miller and the cobbler and this craft world. There were too many people. England was overcrowded and we've got to become efficient for survival. So it wasn't just the ideal of the crafts person having the pride in their craft, it was eating, it was survival. And in order to have fun and to have pride, we had to either reduce the population or increase the resource or something. It was hard to manipulate all the variables.
Speaker 1:
Something had to give.
Speaker 2:
Yeah.
Speaker 1:
And another reason why Adam Smith is credited as the father of economics but hadn't really intended it, as we mentioned before, he was a philosophy professor at Glasgow, so hadn't intended to be an economist but did end up making important contributions there. And let's read the next graphic, which tells us a little bit more about the dreaded machines. So Rhonda, would you read this for us?
Speaker 4:
Alright. This is the third greatest skill, which is machines. Machines were invented by workers wanting to ease their own labor. In the first fire engines, a boy was constantly employed to open and shut. Alternately the communication between the boiler and the cylinder, according as the piston either ascended or descended, one of those boys who loved to play with his companions observed that by tying a string from the handle of the valve, which opened this communication to another part of the machine, the valve would open and shut without his assistance and leave him at liberty to divert himself with his play fellows.
Speaker 1:
So John, we've got a pretty nifty machine going here. We absolutely, he's getting paid for his work and he is got a machine. What's the play too? And he can play. I think we still have plenty of that going on, but so we have an upside. He's telling us a fun thing about machines.
Speaker 3:
Absolutely.
Speaker 1:
What are the good things about machines?
Speaker 3:
Well machines reduce the amount of really hard and degrading labor that we have to do. So I mean, in another way, he's also describing something that is helping us in a lot of ways.
Speaker 1:
Okay, so Bonner, can you tell us a little bit more about machines and this crafty little boy who could figure out how to spend more time playing?
Speaker 2:
The observation of the little boy and the boiler and the cylinders kind of typical of Adam Smith moving away from the exotic, from the esoteric down to the really mundane, the really kind of silly little detail. He wasn't talking about the creation of the cotton gin or the steam engine or the machines that became so important to people like Watt and Whitney and he was talking about little boy in a cylinder. But anyway, the critical notion of machines, we hadn't even heard much. We had the movable type, which was a critical step in a process that wasn't a machine, but it was a step in structuring work, in communicating. And so we had the beginning point and now we just had an explosion in the mid 17 hundreds of every conceivable type of machine to do every conceivable type of thing. And it was an exciting time and a lot of it was done frankly by a serendipitous process of a uninformed non-scientist making this huge contribution.
Speaker 1:
So Bonner, do we have the industrial revolution going on now and do we have Adam Smith as a vital part of it?
Speaker 2:
Well sure. We've had in economic theory, in economic history, we talk about various industrial revolutions. This was the first one. And even that could be debated, you could push that back. But we usually talk about the mid 17 hundreds as the beginning, the first industrial revolution. Then we talk about the second and the third and what have we got now with information technology? What has Bill Gates done? What has Michael Dell done? We've got this incredible revolution and the accessibility of information, the overload of information, the burden of information, the same thing, then the benefits and the cost. But machines were critical to the world. We have lights and whoever heard of electricity at this time, steam powered everything. Critical step,
Speaker 1:
Critical step, exciting. The little boy may have lost his job, but it was a critical step. We found out we really didn't need him there. But he can go work somewhere else. We'll find something else for him to do that probably makes better use of his talents anyway, if he's so clever. And I love how you say these mundane examples of Smith because that's how we remember them. They have become classic examples and we'll have a few more as we continue on in this class period. So let's go ahead and pull up the next graphic. And John, would you read this one for us please?
Speaker 3:
Yes. Excess of goods, this increase in productivity leads to an excess of goods. Every workman has a great quantity of his own work to dispose of beyond what he himself has occasioned for and every
other workman being exactly in the same situation. He's enabled to exchange a great quantity of his own goods for a great quantity or what comes to the same thing for the price of a great quantity of theirs.
Speaker 1:
Thank you. We're moving into a very important point of his then about bartering and he's going to talk about truck bartering and exchanging and he's going to say, this is really old. I mean we've all had goods and we've had excess goods, so we'll trade them for someone else. We'll trade them with someone else for something that we desire. He says, this is really fundamental. This is a place where you've really got to focus because people are going to do this but they're not going to do it. They're good people. They're going to do it because they want your goods and they want to trade. So let's refine this point a little bit by reading the next graphic and then we'll have Dr. Richie help us with both of 'em and kisser. Could you read the next one for us please? They're actually two that I'll have you read.
Speaker 5:
Humans have a natural propensity to truck barter and exchange. This division of labor from which so many advantages are derived is not originally the fact of any human wisdom which foresees and intends that general opulence to which it gives occasion. It is the necessary though very slow and gradual consequence of a certain propensity in human nature, which has iue, no such extensive utility, the propensity to truck, barter and exchange one thing for another.
Speaker 1:
Alright, thank you. And so it's a human propensity. Then Vonner, we like to trade with each other
Speaker 2:
And we also like to have variety of things. If I make all my own clothes, it's a pretty limited variety.
Speaker 7:
If
Speaker 2:
Somebody else is good at making shirts, I can have more variety. I can have color and design and that's exciting. We like variety, we variety of foods. My single kind of bread is kind of limiting. I like the idea that somebody else can make rye and somebody else can make whole wheat. That's kind of nice and I can't do all those things. So yeah, I want to find somebody who does something that I need, that I want. And that's not evil, self-interest, that's positive. It can turn evil, but it's not evil at its root.
Speaker 1:
I think he's giving some good permission here too. He says, Hey, this is a great thing to do. This is a great way of spreading around the economy of people finding value in the thing that you do. They're going to like your bread, they're going to like your shirts, they're going to like your shoes, whatever it might be. And so he says, get out there and do what he's going to call truck barter and exchange. But
he wants you to remember that there is a very necessary point behind this as well. And let's go ahead and read this next graphic. And Luke, could you read this for us?
Speaker 6:
In almost every other race of animals, each individual when it is grown up to maturity is entirely independent and in its natural state has occasion for the assistance of no other living creature, but man has almost constant occasion for the help of his brethren and it is in vain for him to expect it from their benevolence only. It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest.
Speaker 1:
Luke, explain that to us. Why is that such a fundamental point of Smith's?
Speaker 6:
I think it's something that's so much a part of our everyday life. It almost is intuitive for us. But you go into a restaurant and you can order any number of things off of a menu and it's not because a bunch of people showed up and delivered fish and meat or whatever because they wanted to be charitable. It's because they could sell it to the owner of the restaurant and make a profit off of it. The owner prepares it because you're going to buy it. Everything functions not because people want to give these things to each other or because the government tells them to, but because it's in their own best interest.
Speaker 1:
Okay, thank you. So he's going to say, if I want variety, I can go to this restaurant. Someone's already worked with the restaurant person and we all depend on each other. And that restaurant owner is going to depend on all his suppliers so that we can have a variety to choose from when we do go to that restaurant. So he's going to say, we depend on each other, but don't expect that this is benevolence only. Tell us a little bit more about why this is so important. Bonner.
Speaker 2:
It's a funny thing, but in order to have a system work, you have to have a different calculus of values. I have to value the food more than the restaurant or the store. And they have to value the money more than the food. If they value the food more, they wouldn't sell it to me. They need the money and I need the food. And so I have to value the money less and they have to value it more. It's not an objective calculus here, it's a differential. And we all have to have a different value system in order for the system to work. And let's be honest about it and realize what our value system was. How much do you value leisure? How much do you value variety in clothes and vacation in cars, in whatever you do. And if you don't value it differently than somebody else, there's no deal. And that's a very critical part of economic theory and of life.
Speaker 1:
And so even though maybe he's using terminology from 1776 from old where we're talking the brewer and the butcher and the baker, it still transcends and moves right on into these notions that you're talking about.
Speaker 3:
Yep.
Speaker 1:
Very good. Well let's move on to the next quote. And Rhonda, would you read this for us please?
Speaker 4:
Nobody. But a beggar chooses to depend chiefly upon the benevolence of his fellow citizens. Even a beggar does not depend on it entirely. The charity of well disposed people indeed supplies him with the whole fund of his subsistence. The greater part of his occasional wants are supplied in the same manner as those of other people by treaty, by barter and by purchase with the money which one man gives him. He purchases food, the old clothes, which another bestows upon him. He exchanges for other old clothes which suit him better or for lodging or for food or for money with which he can buy either food, clothes or lodging as he has occasion.
Speaker 1:
Okay, so the system then Rhonda will take care of the beggar and tell me why also Smith needs to bring this out.
Speaker 4:
Yeah, I don't know how to put this in words, so I'm going to throw that back to you.
Speaker 1:
That's that's just fine because as we're talking about, we have people who have a profession such as the butcher, the brewer, the baker, and they also might see a beggar who is in need of goods and services. They might have extra, they might have old things, they might just feel guilty. Smith's a good philosopher. And he's going to say, sometimes we do things that we ought to be doing. And so you'll share some of the things that you have. Maybe you have extra food from your restaurant of that day. Maybe you have old clothes that you can pass on. Maybe you just have some cash and he's going to say it's okay because even the beggar is going to use the barter system. He may take the clothes you give him, trade 'em with Bonner, no, not really. Trade them with someone else. And then he is got a different outfit, he might have too much bread. He trades that with someone else who has some cheese and he, he's got a better meal. So he is going to say, even beggars use the bartering system. Okay,
Speaker 2:
Lemme push this point a little further. Elaine, I don't know if everyone's aware, but at the end of Adam Smith's life, he did want a lot of his stuff burned and destroyed because it wasn't quite polished. One of the things he wanted destroyed was the incredible volume of charity that he engaged in. He gave an enormous amount of money to charitable causes and he didn't want it known. And I think this is really interesting. Now, he knew that charity should not be the purpose of the organization, but he also said it ought to be the result of those who accumulate wealth. It ought to be a motive of, for the organization can't be charitable as a premise, but as a result, when you are
lucky and when they exchange results in you having excess resources, you ought to give them away. And let me make one more point here.
Speaker 1:
Oh, please do. The Adam Smith Society really does like to focus on that too.
Speaker 2:
This
Speaker 1:
Was one he did care about that
Speaker 2:
One of Adamson's primary purposes was to do away with mercantilism, which was the process by which a nation set itself up primarily England, great Britain in this instance. And he hated Great Britain, by the way. He was a Scott. He was not a Bri British and that's a very clear issue.
Speaker 7:
But
Speaker 2:
Anyway, he disliked Great Britain because of their mercantil policy where they accumulated surplus in order to put other nations, primarily France, maybe Germany and Italy, but primarily France at a disadvantage. And so they accumulated resources, they had incredible tariffs, they did all these things to put everybody else at a disadvantage. He said that was all wrong. You ought to have free trade. You ought to not have tariffs, you ought not have mechanisms that limit the choices of people and the allocation of resources. And you shouldn't accumulate a surplus as somebody else's disadvantage. If you do have a surplus, you ought to help other people. That's a key point for Adam Smith.
Speaker 4:
It is. So rather than being the owner of something, you become a benefactor steward. Steward of it.
Speaker 1:
A steward,
Speaker 4:
Exactly.
Speaker 1:
And a benefactor to others. It's an outstanding point. And I think that the Smith Society, the Adam Smith society, often makes reference to this very important point dog charity. Let's read what he says about the next one and how societies do benefit from these variety of activities. I'm glad you
brought up mercantilism by the way. That was important. And John, could you read this for us please?
Speaker 3:
Prospect of exchange encourages work and thus the certainty of being able to exchange all the surplus part of the produce of his own labor, which is over and above his own consumption, encourages every man to apply himself to a particular occupation and to cultivate and bring to perfection whatever talent or genius he may possess for that particular species of business.
Speaker 1:
Thanks. So Rhonda, you have this prospect of exchange. How can that be motivating?
Speaker 4:
Well, there's so much motivation in being able to produce what it is that you want. It talks about your genius or your talent being able to, I can't think straight.
Speaker 1:
That's all right. You're doing great because here we're talking about you can take a lot of pride in what it is you're doing. Luke likes it and you've got something going here. And it also increases our supply and demand. Yes.
Speaker 5:
So is he saying that it's not degrading to bring down these tasks to not levels, not at
Speaker 4:
All, not degrading.
Speaker 5:
That's what I'm saying is so that it'll cultivate and bring perfection to those talents that they have.
Speaker 1:
Very good meant by that is that we will have a lot of pride in someone say, I like your stuff. I like the butter that you make and the demand for your butter might grow Luke. Whereas the butter that John over here is making isn't quite as good and the demand might not grow. And so we'll see Luke doing a better job than John. You still might be able to talk people into it
Speaker 4:
Or as I see also that whatever valid occupation that you're using in order to create an exchange is valuable. It is whatever it is,
Speaker 2:
It's only degrading if you don't want to do it. And if it subtracts from who you are, if it's something you want to do, then it's a very efficient system. If you're forced to do it. If you can't do anything else, then it's degrading.
Speaker 1:
Thank you. Thank you. And Luke, would you read the last quote for us? And then Bonner will have you tell us a little bit about it.
Speaker 6:
Increasing one's own revenue increases society's revenue as every individual, therefore endeavors as much as he can, both to employ his capital in the support of domestic industry. And so to direct that industry that its produce may be of the greatest value. Every individual necessarily labors to render the annual revenue of the society as great as he can. He generally indeed neither intends to promote the public interest, nor knows how much he's promoting it.
Speaker 1:
Okay, so in this particular reading, we don't have the notion of the invisible hand, but where does he seem to be moving into this in regards to the invisible hand Bonner.
Speaker 2:
And of course that's the phrase that's probably identified with Adam Smith more than any other.
And that's what he's saying here is that as I pursue my own interest, as I do what I'm capable of doing, where I can make a better trade, where I can do something that you want and then you give me money, then I can buy the car I want that we're all better off and that we don't do it with the idea of social good or a social utilitarianism. We do it the idea of my own personal benefit of how I can benefit. I want that car, I want that benefit for myself. But in the process, the whole society benefits and that's the invisible hand. The notion that we all go to where we can be, we can be better off. And that makes society better off in the final analysis. And that's the invisible hand. It only works though when you have good information, fair trade, a government that protects contracts, that engages in all the behaviors that they're supposed to engage in. And a government by the way, that builds roads so you can move your goods. He knows Adam Smith knows that individual incentive is not going to lead to construction of bridges and roads. So the government's got to do it. So it is not that he doesn't want the government to do anything he to do everything that needs to be done to make the individual free to engage in optimal exchange.
Speaker 1:
Optimal exchange, which is so important because it's not like we need me as a grand POAH to say, alright, let's see how this is going. If you exchange this, then you'll be happy and then you exchange this and we don't need that. He says, this invisible hand is going to take care of it. And that basically it gets all messed up. Even if you have someone from the government come in and try to regulate and say, well, I think that maybe we've got too many people making butter, so we're going to restrict this to just six of you now. He's saying, no, no, no. The invisible hand will take care of everything. I've
even heard somebody, some people say that that might be the invisible hand of God, but my friend Pat Wareh says, no, it's not. But
Speaker 2:
Adam Smith would not have said that
He was not a religious person. But an example of that, the logic of the Pul Up Bureau deciding what everybody needs is kind of an interesting concept. The problem is the first thing that went to a market economy in this old Soviet Union was the ready to wear industry clothes where people had enough resources. They were no longer going to allow the central system to decide what shoes and pants and shirts and uniforms people were going to wear and dresses. They were going to decide for themselves. And the first thing to go underground in the Soviet Union were Levi's that people would bring in informally, illegally, and sell on the local economy when people had the resource they wanted to do what they wanted to do, rather than having Moscow tell 'em. And that's validating Adam Smith.
Speaker 4:
I love that example. How I see this is if capitalism as this has been explained as an absolute freeing, rather than buckling down people or telling people what to do, there's a freedom in this.
Speaker 1:
And he doesn't want there to also be anything seen as vile. You're free. This is up to you, and you can do these exchanges. Now we can see how there have been abuses in the system and how things have gotten much more complicated. And when I teach ethics, and particularly business ethics Bonner, I like to bring in cases. I think that so often we learn from cases. How are you with the case method?
Speaker 2:
I agree. Yeah. I tell stories all the time.
Speaker 1:
You do. And yours are incredible experiences that you've had. And I've got a case that we'll pull up and watch as a class and then we'll go ahead and discuss it and see what points Adam Smith might have learned from this or how he might've been able to teach those who are part of this case. So can you go ahead and roll that for me, please?
Speaker 8:
You got a Yeah, we had a good in college. No work, no bills, no worries. Oh, I recognize that face. What's the problem, Jim? It's nothing. Well, just that you know I'm up for promotion,
Speaker 9:
I'm well earned. Your analysis of the midyear forecast is right on the button. You deserve everything you get. Sure.
Speaker 8:
Let me explain The analysis I did for our division head. He had me looking at sales and marketing projections and relating them to manufacturing costs. Now what I came up with was that if we could substantially increase our production rate, obviously the price per unit would fall. And based on our sales projections, this increased volume would match a projected demand. So they added a third shift to
Speaker 9:
Gear up at the outboard. Exactly. And if sales meet expectations while there are plans to expand the plant, so what's the problem? Being responsible for those kinds of changes is something to be proud of. Look, Pete, we've been
Speaker 8:
Friends for a long time, you even helped me get this job. I can trust you. Sure. The recommendation I made, there was a serious flaw in my forecast. No matter how many times you run it, I understated the cost. How much enough to be concerned about why hasn't anyone else noticed? I mean, we don't operate in a vacuum. I know for whatever reason sales are running higher than our projections anticipated. We're making more money, selling more product, but we're not making the kind of money we should because the cost per unit is higher than I had predicted. And also I'm sure no one else noticed because we're only talking about one product line here.
Speaker 9:
What are you going to do?
Speaker 8:
I could tell the truth or I could come up with some other reason to explain the deviation from my forecast. That's a toughie. If I do tell the truth, it could really screw up my promotion.
Speaker 9:
Well, as I see it, you have one other choice. You could cut your losses and tell the truth. You can make something up to cover your mistake or you could keep quiet and
Speaker 8:
Wait and see what happens. When I think of them adding another shift, there's no way they can keep those workers. If sales fall off,
Speaker 9:
I may have something for you. What's that? Well, this afternoon I got the latest sales projections on my desk. Now I just glanced at it and I didn't have a chance to go over it real well. But from what I saw, sales are running better, even better than had been forecast for the outboard division. Now if that continues, that'll cover your mistake.
Speaker 8:
Not really. Even if we make, what? 250,000? If I hadn't screwed things up, we would've cleared
Speaker 9:
300,000. But nobody knows that. I mean, the increase in sales will cover any downturn. Your mistake may have caused, at least for the short term,
Speaker 7:
Right?
Speaker 9:
And by then you can pull something together to show why we shouldn't proceed with the expansion. You'll be able to ride out the storm and everything will work out. But what about those workers? They could get laid off true. But telling management isn't going to prevent that. It may even hasten it. Look buddy, this is a mistake you're going to have to live with. Whether or not you tell isn't going to change anything but how it affects you. I
Speaker 8:
Know it's not the best, but you've made me more comfortable thinking that sales are going to cover my error. But what if they don't?
Speaker 1:
Case comes to us from Arthur Anderson who put together several very strong business cases and they allow us to use it as long as we give them credit for it. Too bad that tough things happen with the Arthur Anderson accounting firm, but it's very generous that they will allow us to have these kind of cases that we look at. When I do ethical analysis, Dr. Ritchie, sometimes what I'll ask my students to do is what are the ethical issues I'd like them to look at what are the ethical issues? I'd like them to look at the individuals who are involved. And to even go more specific than that, who are the stakeholders here? Who are all the stakeholders and who's being harmed? And from that a solution as to what should be done. What are some ways that you have your students look at cases and how would you instruct them as they start looking at this case?
Speaker 2:
Well, as a premise, Adam Smith would be very troubled with this, because we don't have valid information, we don't have truth, we have concocted information. And that flies in the face of everything you talked about in terms of free enterprise, in terms of rational decision making and allocation of resources. It depends on accurate data. And this person is fudging the data for his own benefit. Some people would see that as the money grubbing sort of justification of Adam Smith. I see it as an absolute violation of Adam Smith. It's manipulating and it's putting at a disadvantage because they don't have information, those who don't know the facts. And so you've got to look, is honesty worthwhile? Is honesty a valid sort of principle here? And this individual's wrestling with that notion and Adam Smith wouldn't wrestle with it at all?
Speaker 1:
Of course. That's the straight a answer. And that starts out with what are the ethical concerns and giving Adam Smith then the credit, first of all, saying he would not agree with this at all. We we're moving towards fraud. A fellow knows he's given bad information and if he doesn't correct it now, a lot of people can be hurt then.
Speaker 7:
Yeah.
Speaker 1:
Okay. What might be some other reasons that Adam Smith wouldn't like this? John, what do you think about a whole new shift coming on? Because someone might not want to take responsibility for a mistake he's made in forecasting.
Speaker 3:
Well, these workers are, they'd be taking the job on a false premise without accurate information. They don't, or at least the case implies that they wouldn't know that they were coming in for a temporary position or something like that. And I don't think right now, I'm thinking that Adam Smith wouldn't be too keen on the idea.
Speaker 1:
Oh, absolutely. It's going to be very harmful to the company that brings in this next shift where the shift isn't needed and very harmful to all those people who think that they now have the ability to truck barter and exchange. Any thoughts on this Bonner?
Speaker 2:
One of the dilemmas is that we assume this absolute financial incentive. It's interesting that 50 years ago there was virtually a perfect correlation between earnings profits and stock price. People saw a company doing well, they bought the stock and the stock went up. And so there's a perfect correlation. Now it's a 0.5 correlation and the difference between the 0.95 and the 0.5 is that people now care a lot more about ethics, a lot more about values, a lot more about leadership, a lot more about social responsibility than we used to. So we've seen this dramatic change in the last 50 years in economics where the long-term ethical behavior of an organization witness Enron, Arthur Anderson, Tyco, the long-term ethical behavior is the most important thing, or at least half of the important thing in driving people's confidence and purchase of the stock. People do care about ethics and values and honesty,
Speaker 1:
And Adam Smith felt it was fundamental. So for him, this was what he first wrote was Theory of Moral Sentiments, that there would always be the moral grounding as you mentioned, and that came well before the making of profits. Anything that you'd like to add to the analysis of this case, Luke or Kiper?
Speaker 6:
I think it's interesting that we have a very clear situation where he has an option where he can kind of gamble like his friend suggests that maybe the fact that the company's doing well and this other area will compensate for his fudging the numbers. And obviously that would be wrong, but lots of times the numbers are not perfect and there is a certain amount of gambling in the free market, even when you were pretty sure that you've got things figured out, things can change, variables can change, and people lose their jobs all the same. So there's always a little bit of gamble in the free market.
Speaker 1:
Okay. And Kiper, how about you?
Speaker 5:
I think we've covered it.
Speaker 1:
Alright, anything you'd like to add to that?
Speaker 5:
No.
Speaker 1:
I have really loved this class period with you, Bonner. It's been so fun to have you come in and share your knowledge and let us pick your brain.
Speaker 7:
Thank
Speaker 1:
You. And any concluding remark on Adam Smith? We just have about 30 seconds.
Speaker 2:
I guess I would suggest that all of us need to do more thinking and more reading and more studying, and not take superficial explanations of what somebody believed or said or thought or what their theory was. We need to dig deeper. We do a great disservice to philosophers, to business leaders, to politicians, everybody by not studying more carefully. This has been a good introduction, I think, to digging more deeply into Adam Smith.
Speaker 1:
Thank you and see you next time with Carl Marx. Bye-Bye. And we'll.