WEBVTT 00:14.347 --> 00:17.373 -I believe that open markets and free enterprise are the best 00:17.517 --> 00:22.114 imaginable force for improving human wealth and happiness. 00:22.255 --> 00:23.814 -(Protesters): Who protects the bankers? 00:23.957 --> 00:25.516 Police protect the bankers! 00:31.031 --> 00:34.763 -Did you ever have a moment of doubt about capitalism? 00:34.901 --> 00:37.893 -Is there some society you know that doesn't run on greed? 00:38.038 --> 00:42.407 -How would Smith see the economic world around us? 00:42.542 --> 00:44.408 -I think Keynes would have said the problem is the hole 00:44.544 --> 00:46.069 in the economy. 00:46.212 --> 00:48.044 -Hayek really wrote "The Road to Serfdom" 00:48.181 --> 00:49.580 asawarning. -You always have to be careful 00:49.716 --> 00:51.582 with Marx about the one-liners. 00:51.718 --> 00:55.279 -Polanyi, for me, was an intellectual earthquake. 00:55.422 --> 00:58.255 -I mean, if I had to stereotype Ricardo, I would say he would 00:58.391 --> 00:59.916 look like George Soros. 01:10.170 --> 01:12.867 ~(Narrator): We were told that capitalism is the product 01:13.006 --> 01:18.410 of big thinkers and big ideas, but is it true? How did ideas 01:18.545 --> 01:22.539 shape our lives? What is their relation to reality? 01:22.682 --> 01:25.879 Can they help us understand today's economic crisis, 01:26.019 --> 01:28.886 let alone the future of capitalism? 01:46.606 --> 01:52.045 -Smith moved to this house in 1778, that's two years 01:52.178 --> 01:56.240 after the publication of "The Wealth of Nations". 02:00.053 --> 02:05.389 It's quite likely that this was the fireplace of the room 02:05.525 --> 02:08.859 in which Smith staged the most disastrous moment in his 02:08.995 --> 02:10.690 intellectual career. 02:17.337 --> 02:22.366 He did not want any of his unpolished, unfinished 02:22.509 --> 02:25.877 manuscripts to survive him and he laid down in his will 02:26.012 --> 02:32.543 that his two executors were to burn these papers after 02:32.685 --> 02:35.245 his death. 02:35.388 --> 02:39.882 But that wasn't enough, and really almost days before 02:40.026 --> 02:43.553 his death, he summoned his executors and said: 02:43.696 --> 02:47.894 "I want you to do it now!" And they sat there in front 02:48.034 --> 02:52.733 of the fire and systematically burned all of his unpublished 02:52.872 --> 02:54.397 manuscripts. 02:58.211 --> 03:02.978 What had survived was simply two highly polished works: 03:03.116 --> 03:04.845 his great "Theory of Moral Sentiments" 03:04.984 --> 03:08.181 and his even greater "The Wealth of Nations". 03:12.325 --> 03:15.022 -"The Wealth of Nations", which survived the fire has been 03:15.161 --> 03:17.858 presented over the centuries as the founding book of the free 03:17.997 --> 03:19.522 market system. 03:25.505 --> 03:29.032 Many of Adam Smith's notes were destroyed in the fire, 03:29.175 --> 03:31.371 leaving us with only this book and the interpretations of those 03:31.511 --> 03:34.208 who have used it to promote the very narrow view 03:34.347 --> 03:36.543 of the market as a science. 03:44.390 --> 03:48.054 “The history of "The Wealth of Nations" as a book 03:48.194 --> 03:50.060 is actually quite interesting. 03:57.203 --> 04:01.333 If you look at the first edition, it's an expensive 04:01.474 --> 04:06.503 production and looks to me as though this was a book 04:06.646 --> 04:09.672 destined for a specialist market, a market 04:09.816 --> 04:13.013 of philosophers, a market of politicians. 04:16.990 --> 04:19.516 But what's interesting is by the time you get to the later 04:19.659 --> 04:23.687 part of Smith's life to the edition of 1784, it's now become 04:23.830 --> 04:29.360 a cheap edition. It's now become a mass produced edition. 04:29.502 --> 04:32.870 In other words, once intended for a specialist market is now 04:33.006 --> 04:35.407 becoming something like a best-seller. 04:35.541 --> 04:38.374 And it's going to stay like that. The book has never been 04:38.511 --> 04:41.879 out of print. It's always been a best-seller. 04:45.685 --> 04:50.213 It does raise questions about what turns a specialist 04:50.356 --> 04:53.417 book like that into a best-seller. 04:53.559 --> 04:59.054 Ithink part of it is that it looked as though Smith had 04:59.198 --> 05:05.661 actually done what Newton did for the natural sciences. 05:18.584 --> 05:22.851 That he'd actually discovered a principal, a law of movement, 05:22.989 --> 05:24.514 alaw of motion. 06:11.304 --> 06:13.329 -It's hard to imagine how this primitive smelter 06:13.473 --> 06:16.499 in Kolkata, India, has anything to do with "The Wealth 06:16.642 --> 06:20.340 of Nations." But work here is following the first principal 06:20.480 --> 06:25.179 of Adam Smith's book; division of labour, a principal which 06:25.318 --> 06:29.186 after Smith's death has been elevated to a scientific law. 06:31.324 --> 06:34.021 -One of the characteristics of the society you know 06:34.160 --> 06:38.859 that I know is the intense degree of specialization, 06:38.998 --> 06:44.198 which takes place in employments raging from the most skilled 06:44.337 --> 06:47.204 and complicated employments to the most simple. 06:57.850 --> 07:00.615 (Quote): To take an example, the trade of a pin maker, 07:00.753 --> 07:05.156 could perhaps with his utmost industry make one pin a day. 07:05.291 --> 07:09.990 But in the way this business is now being carried on: one draws 07:10.129 --> 07:14.498 out the wire, another straightens it, another cuts it, 07:14.634 --> 07:19.663 aforth points it. I have seen a small manufactory of this kind 07:19.806 --> 07:24.505 where 10 men make among themselves 12 pounds of pins 07:24.644 --> 07:29.514 a day. Adam Smith: The Wealth of Nations. 07:29.649 --> 07:35.019 -So he comes to the conclusion that progress, economic 07:35.154 --> 07:38.351 progress, has got everything to do with the division of labour. 07:43.329 --> 07:45.024 -No wonder the division of labour has been treated 07:45.164 --> 07:47.531 as the equivalent of a Newtonian law. 07:50.603 --> 07:53.538 After all, it has been the engine of wealth creation 07:53.673 --> 07:58.304 used in the manufacture of almost every product we know, 07:58.444 --> 08:01.971 from a sophisticated iPad to a single pencil. 08:04.784 --> 08:06.809 For Smith's followers, the division of labour has 08:06.953 --> 08:09.820 become a pillar of the free market economy. 08:13.292 --> 08:15.420 “To enable millions of people to cooperate peacefully 08:15.561 --> 08:19.498 together, we need to understand how it is that a free market 08:19.632 --> 08:23.500 works. I know no better way to bring this out than by 08:23.636 --> 08:28.506 avery simple example, called I the pencil. 08:28.641 --> 08:32.839 This is the only prop I have for this TV show. As you can see 08:32.979 --> 08:37.507 it's a plain yellow pencil. There's nobody in the world 08:37.650 --> 08:41.518 who knows how to make a pencil. Now that seems like a silly 08:41.654 --> 08:44.351 thing to say, isn't it? This is just the most obvious 08:44.490 --> 08:47.187 thing, it's only a piece of wood with something black 08:47.326 --> 08:49.351 in the middle and a little red tip at the end. What do 08:49.495 --> 08:51.862 you mean, nobody knows how to make a pencil? 08:51.998 --> 08:54.365 Well suppose, you were to start to set out to make a pencil. 08:59.405 --> 09:02.466 First of all, you have to get some wood. Where do you get 09:02.608 --> 09:06.306 the wood? You have to go to the Pacific North West probably 09:06.445 --> 09:08.140 and cut down some trees. 09:10.616 --> 09:13.483 How do you cut down some trees? You have to have some saws 09:13.619 --> 09:16.987 to cut them with. Where do you get the saws? You have to have 09:17.123 --> 09:19.319 some steel. Where do you get the steel? You have to have 09:19.458 --> 09:23.156 a steel mill. In order to have the steel mill, you have to get 09:23.296 --> 09:25.663 the iron ore and you can add all the rest. But that's only 09:25.798 --> 09:29.325 the beginning. This black stuff in the middle that we call lead 09:29.468 --> 09:33.166 isn't lead, it's graphite, I think, I'm not absolutely 09:33.306 --> 09:36.503 sure. And I am told it comes from some mines in South 09:36.642 --> 09:40.340 America. 09:40.479 --> 09:43.847 Now this little red tip atthe top, that's rubber. 09:43.983 --> 09:47.180 Where does it come from? Well, the major source of natural 09:47.320 --> 09:51.348 rubber is Malaya. But the miracle of this pencil 09:51.490 --> 09:54.187 isn't that nobody knows how to make it, the miracle 09:54.327 --> 09:57.854 of the pencil is how did it get made? What is it that has 09:57.997 --> 10:01.695 enabled this little elementary transaction to take place? 10:01.834 --> 10:06.032 Now how is that brought about? Is there some commissar sitting 10:06.172 --> 10:09.039 in some central office who is sending out orders to these 10:09.175 --> 10:12.201 people in Malaya, to these people in South America, 10:12.345 --> 10:15.542 to the people in Washington? How is it that they are led to 10:15.681 --> 10:18.742 cooperate with one another? These thousands of people who 10:18.884 --> 10:21.216 have been led to engage in this simple transaction 10:21.354 --> 10:24.551 not one of them has been forced to do it, nobody has had a gun 10:24.690 --> 10:28.058 to his head, they've all done it, why? Because each one 10:28.194 --> 10:30.720 of them thinks he's better off in this transaction. 11:13.105 --> 11:17.872 -An iPad factory in Shenzhen, China. A global assembly line 11:18.010 --> 11:21.708 for parts that come from all over the world. 11:21.847 --> 11:25.875 The 21st century global version of Adam Smith's pin factory. 11:31.691 --> 11:35.389 There are 250 000 workers in this factory producing close 11:35.528 --> 11:39.726 to 10 000 iPads a day. But can we call the workers 11:39.865 --> 11:42.732 who manufacture them free? 12:37.523 --> 12:40.049 -So this is the moral dilemma at the heart of "The Wealth 12:40.192 --> 12:44.060 of Nations": the economic logic of division of labour 12:44.196 --> 12:48.394 versus the human cost to achieve it. But was Adam Smith blind 12:48.534 --> 12:50.400 to this dilemma? 12:54.373 --> 12:58.367 -Adam Smith is very rarely read. He is worshiped, but not read. 12:58.511 --> 13:02.345 I mean everyone who went to college learned the fist 13:02.481 --> 13:04.677 paragraph of "Wealth of Nations". 13:08.821 --> 13:10.687 -(Quote): The greatest improvements in the productive 13:10.823 --> 13:14.191 power of labour and the greater part of the skill, dexterity 13:14.326 --> 13:17.853 and judgement seem to have been the effects for the division 13:17.997 --> 13:23.697 of labour. Adam Smith: The Wealth of Nations. 13:25.504 --> 13:27.700 -Not very many people got to page, whatever itis, 13:27.840 --> 13:32.869 page 400 in which he points out that division of labour is 13:33.012 --> 13:34.878 monstrous. 13:39.185 --> 13:42.553 -(Quote): In the progress of the division of labour, a great body 13:42.688 --> 13:48.889 of people comes to be confined to a few very simple operations. 13:49.028 --> 13:53.226 The worker has no occasion to exert his understanding. 13:53.365 --> 13:55.390 Adam Smith: The Wealth of Nations. 14:03.809 --> 14:08.178 -Itturns people into creatures as stupid and ignorant as 14:08.314 --> 14:12.182 a person can possibly be. The person just becomes a machine. 14:18.157 --> 14:21.183 That's a terrible attack on fundamental human rights. 14:21.327 --> 14:23.694 And therefore he says that inany civilized society, 14:23.829 --> 14:26.855 the government is going to have to intervene to prevent 14:26.999 --> 14:30.196 the division of labour. How many people get that far? 14:35.007 --> 14:38.534 The Industrial Revolution was founded upon the creation 14:38.677 --> 14:43.547 of the factory system with large scale machinery and, of course, 14:43.682 --> 14:45.377 a labour process. 14:48.120 --> 14:51.385 It was very different from that which artisans making 14:51.523 --> 14:58.054 their cabinets or so on, engaged in. It was completely different 14:58.197 --> 15:01.895 machine technology, which then was dominating. 15:05.804 --> 15:07.670 The machine controls the labourer rather 15:07.806 --> 15:09.672 than the labourer controlling the tool, which is true 15:09.808 --> 15:13.005 of artisan production and of course social relations do 15:13.145 --> 15:16.012 indeed change. The labourer in the factory has a very 15:16.148 --> 15:18.173 different set of social relations with the other 15:18.317 --> 15:21.343 labourers and a very different set of relations with the tools, 15:21.487 --> 15:24.513 a very different relation to nature than the artisan 15:24.657 --> 15:27.854 in a workshop making a cabinet or whatever. 15:31.463 --> 15:34.524 -For centuries, economists and politicians ignored Adam Smith's 15:34.667 --> 15:37.534 own recognition of the moral dilemma at the heart of division 15:37.670 --> 15:42.540 of labour. Self-interest, his second most quoted 15:42.675 --> 15:45.201 principle suffered a similar fate. 15:51.517 --> 15:53.713 -Please welcome the Nobel Laureate in Economics, 15:53.852 --> 15:58.551 Milton Friedman. (applause) 16:08.467 --> 16:11.164 Let's share with the people at home just one of the statements 16:11.303 --> 16:14.170 of Adam Smith that you refer to in your book, which 16:14.306 --> 16:16.331 of course when I want it, I'm not going to be able to... 16:16.475 --> 16:19.172 Oh, it's on page 2, alright, thank you! "By pursuing 16:19.311 --> 16:23.179 his own interest', that is to say, his, meaning the person 16:23.315 --> 16:26.512 engaged in free enterprise, Adam Smith says, "he frequently 16:26.652 --> 16:31.021 promotes that of the society more effectively than when 16:31.156 --> 16:34.524 he really intends to promote it". 16:45.504 --> 16:47.871 -Adam Smith considered self-interest as the driving 16:48.007 --> 16:51.375 force of the economy. But do we know what he actually meant 16:51.510 --> 16:55.879 by it? To find out, we must first explore the times 16:56.015 --> 16:57.881 in which he lived. 19:10.015 --> 19:12.143 -Adam Smith had this famous passage in his 19:12.284 --> 19:13.809 "Wealth of nations". 19:16.989 --> 19:22.155 Itis because the, well I'm paraphrasing him, but it is 19:22.294 --> 19:24.991 because the bakers and the butchers want to make 19:25.130 --> 19:26.825 money that we can have our dinner. 19:35.307 --> 19:39.335 He started all this myth about the selfish individual, 19:39.478 --> 19:42.675 self-seeking being the predominant and almost 19:42.814 --> 19:46.512 exclusive human motivation. Now, one has to grant that 19:46.652 --> 19:50.179 Adam Smith was actually a bit more sophisticated than 19:50.322 --> 19:52.188 his followers. 19:56.662 --> 19:59.188 He actually understood that humans are more complex, 19:59.331 --> 20:02.699 but his position was that you could actually separate 20:02.834 --> 20:08.204 these things and in the realm of the economy, selfishness is 20:08.340 --> 20:10.832 basically the exclusive motivation. 20:10.976 --> 20:15.038 -So you know Adam Smith wrote "The Wealth of Nations". 20:15.180 --> 20:17.376 You know self-interest, greed is good, the invisible hand 20:17.516 --> 20:20.042 and free enterprise, free markets, etc, and all that. 20:20.185 --> 20:23.883 He's the father of capitalism. But it turns out there's another 20:24.022 --> 20:26.548 Adam Smith. How many people here have read the "Theory 20:26.692 --> 20:30.390 of Moral Sentiments"? And according to Adam Smith, 20:30.529 --> 20:33.226 it was his important book, his magnum opus, in some ways, 20:33.365 --> 20:35.390 that was his magnum opus and "The Wealth of Nations" paid 20:35.534 --> 20:40.404 the bills. He never imagined capitalism, that he wrote about 20:40.539 --> 20:43.236 in "The Wealth of Nations" could actually succeed without 20:43.375 --> 20:45.571 the moral underpinnings, what he calls sentiments, 20:45.711 --> 20:51.411 we would call them virtues, without the virtues of a society 20:51.550 --> 20:54.918 and virtues of individuals, that would actually create 20:55.053 --> 20:57.420 the base of a healthy capitalism. All we could do is 20:57.556 --> 20:59.752 look here and see that "The Wealth of Nations" 20:59.891 --> 21:03.350 and the "Theory of Moral Sentiments', Adam Smith 1, 21:03.495 --> 21:06.521 Adam Smith 2, had been disconnected. 21:10.102 --> 21:13.197 “When you see around the globe that maldistribution of wealth, 21:13.338 --> 21:16.865 the desperate plight of millions of people in underdeveloped 21:17.009 --> 21:21.378 countries, when you see so few haves and so many have nots, 21:21.513 --> 21:25.040 when you see the greed and the concentration of power, 21:25.183 --> 21:28.983 did you ever have a moment of doubt about capitalism? 21:29.121 --> 21:31.886 Tell me, is there some society you know that doesn't run 21:32.024 --> 21:35.221 on greed? You think Russia doesn't run on greed? 21:35.360 --> 21:38.557 You think China doesn't run on greed? What is greed? 21:38.697 --> 21:41.894 Of course none of us are greedy, it's only the other fellow 21:42.034 --> 21:47.404 who's greedy. The world runs on individuals pursuing their 21:47.539 --> 21:50.065 separate interests. We'll be back in just a moment. 21:55.047 --> 21:59.075 -Of course we are all to an extent selfish, some 21:59.217 --> 22:02.346 people more, some people less. But we also have many other 22:02.487 --> 22:06.685 motivations. I mean, we have solidarity, we have loyalty, 22:06.825 --> 22:10.352 we have sympathy. I mean all these motivations are real. 22:12.664 --> 22:16.862 And we really need to design a system that exploits all 22:17.002 --> 22:21.030 these complex human motivations because if you begin to assume 22:21.173 --> 22:28.375 that everyone is selfish or only out to promote his or her own 22:28.513 --> 22:31.539 self-interest, and than you have to suspect everyone, you have 22:31.683 --> 22:33.708 to monitor everyone all the time and the system will actually 22:33.852 --> 22:35.445 grind to a halt. 22:35.587 --> 22:39.046 ~The great achievements of civilization have not come 22:39.191 --> 22:41.888 from government bureaus. Einstein did not construct 22:42.027 --> 22:47.056 his theory under order from a bureaucrat. 22:47.199 --> 22:49.725 Henry Ford didn't revolutionize the automobile industry 22:49.868 --> 22:51.393 that way. 22:56.708 --> 22:59.405 -But Henry Ford is a perfect example that self-interest 22:59.544 --> 23:03.003 is far more complex than greed or individualism. 23:05.384 --> 23:09.014 In 1914, he single-handedly almost doubled the salaries 23:09.154 --> 23:12.681 of his workers and reduced their working hours from 9to 8 hours 23:12.824 --> 23:14.519 aday. 23:16.495 --> 23:18.520 Increasing their salaries, he claimed, will turn workers 23:18.663 --> 23:23.863 into consumers. It will help to expand the economy 23:24.002 --> 23:25.527 and his car sales. 23:28.006 --> 23:31.203 He dreamed that every worker could one day own a Ford car. 23:36.681 --> 23:40.549 “Though selfish motivations are important and good managers 23:40.685 --> 23:44.883 know it, they'll talk about persuading people, connecting 23:45.023 --> 23:50.052 to people, providing a vision, creating an "esprit de corps". 23:56.134 --> 23:59.729 Tonight, we focus on an apple. Apple, the computer, not 23:59.871 --> 24:01.339 the fruit. -Itis Jobs that provides 24:01.540 --> 24:03.668 the main inspiration and philosophical direction 24:03.809 --> 24:05.334 for Apple. 24:05.477 --> 24:07.844 “What Apple is, it's an environment where we can 24:07.979 --> 24:10.175 attract the bestand the brightest people to come 24:10.315 --> 24:14.513 together and sort of have a common vision about how 24:14.653 --> 24:15.848 we can change the world. 24:15.987 --> 24:19.013 “This is how real managers manage the economy. But 24:19.157 --> 24:21.592 of course, economists do not understand this and they keep 24:21.726 --> 24:24.525 saying that everyone is selfish and we have to design 24:24.663 --> 24:29.533 a system accordingly, which means you give maximum freedom 24:29.668 --> 24:35.698 to everyone and basically believe that this will somehow 24:35.841 --> 24:38.208 amount to optimal social outcome. 24:41.346 --> 24:45.044 -So how did Adam Smith's nuanced concept of self-interest become 24:45.183 --> 24:48.710 transformed over more than 200 years into a global economic 24:48.854 --> 24:55.226 system driven by greed? It begins with a separation 24:55.360 --> 25:00.059 of Adam Smith 1 from Adam Smith 2 25:00.198 --> 25:02.394 and the transformation of "The Wealth of Nations" 25:02.534 --> 25:04.161 into a science. 25:14.646 --> 25:19.846 ~The doctrine of self-interest was the economic equivalent 25:19.985 --> 25:23.853 to the law of gravity. Itinsured equilibrium. 25:29.661 --> 25:33.529 If everyone was free to pursue their self-interest in markets, 25:33.665 --> 25:38.364 you would get an equilibrium, optimal equilibrium, which was 25:38.503 --> 25:42.872 equivalent to the equilibrium of natural bodies when they were 25:43.008 --> 25:48.538 free to move as well. So I think the analogy with physics was 25:48.680 --> 25:52.378 very, very strong. What they ignored completely was 25:52.517 --> 25:54.383 how human beings actually behave. 26:17.075 --> 26:21.171 Sociology and psychology have been very well aware that a lot 26:21.313 --> 26:25.511 of behaviour is what economists would call irrational. 26:25.650 --> 26:28.676 But infact, I don't think that is the right way 26:28.820 --> 26:31.687 of describing it. I think it's human. 26:35.493 --> 26:38.019 -University of Michigan Television presents an interview 26:38.163 --> 26:41.360 with Ayn Rand, noted American novelist, author 26:41.499 --> 26:44.196 of "The Fountainhead" and "Atlas Shrugged, 26:44.336 --> 26:47.362 and philosopher-spokesman for America's New Intellectual. 26:51.009 --> 26:53.706 -Self-interest had been enshrined as a law of physics 26:53.845 --> 26:58.043 in the 19th century. In the first part of the 20th century, 26:58.183 --> 27:02.381 it evolved in the US into a moral philosophy. 27:05.290 --> 27:08.487 -I'm challenging the moral code of altruism, the precept 27:08.627 --> 27:13.155 that man's moral duty is to live for others, that, 27:13.298 --> 27:17.826 in fact, makes man a sacrificial animal. I say that man is 27:17.969 --> 27:21.837 entitled to his own happiness and that he must achieve it 27:21.973 --> 27:27.002 himself. Now what can be more important than happiness? 27:27.145 --> 27:30.843 But happiness doesn't not mean simply momentary pleasures 27:30.982 --> 27:34.008 or any kind of mindless self-indulgence. Happiness 27:34.152 --> 27:40.182 means a profound guiltless, rational feeling of self-esteem 27:40.325 --> 27:42.521 and a pride in one's own achievements. 27:42.661 --> 27:46.188 -Join me in welcoming Paul Ryan! 27:50.835 --> 27:54.203 -In the 21st century, Ayn Rand's philosophy of self-interest 27:54.339 --> 27:56.865 became part of a political campaign. 28:00.145 --> 28:02.807 -l grew up reading Ayn Rand and it thought me quite a bit 28:02.947 --> 28:05.973 about who I am and what my value systems are and what my beliefs 28:06.117 --> 28:12.489 are. The issues that are under assault, the attack 28:12.624 --> 28:15.150 on democratic capitalism, on individualism and freedom 28:15.293 --> 28:19.491 in America is an attack on the moral foundation of America. 28:19.631 --> 28:22.999 And Ayn Rand more than anyone else did a fantastic job 28:23.134 --> 28:26.661 of explaining the morality of capitalism, the morality 28:26.805 --> 28:30.173 of individualism. Our rights come from nature 28:30.308 --> 28:32.834 and God, not from governments. 28:34.979 --> 28:38.506 This kind of approaches have been so destructive especially 28:38.650 --> 28:43.178 in the last 20-30 years. We have come to almost glorify 28:43.321 --> 28:49.021 self-interest. We have come to believe that all the other 28:49.160 --> 28:52.357 motivations, all the other emotions, all the other 28:52.497 --> 28:55.865 moral values, they are somehow secondary, they are somehow 28:56.000 --> 29:01.302 for stupid people. They are somehow for lower beings. 29:17.789 --> 29:21.817 That has created this system where people are actually 29:21.960 --> 29:27.660 expected to be ignorant of the broader social frame. 29:27.799 --> 29:32.498 They are encouraged actually just to look after their own 29:32.637 --> 29:36.164 interests and we are living the consequences today. 29:38.476 --> 29:40.843 There are two words which over the centuries immortalized 29:40.979 --> 29:45.678 Adam Smith and "The Wealth of Nations". They've become 29:45.817 --> 29:48.843 a shorthand for global economic activities, transforming 29:48.987 --> 29:53.686 self-interest into a magical mechanism, an engine 29:53.825 --> 29:56.192 for a global economic system. 30:18.950 --> 30:21.214 The invisible hand is a phrase that was introduced 30:21.352 --> 30:24.720 by Adam Smith in his great book "The Wealth of Nations". 30:24.856 --> 30:29.054 In which he talked about the way in which individuals who 30:29.194 --> 30:31.891 intended only to pursue their own interests were led 30:32.030 --> 30:35.398 by an invisible hand to promote the public welfare, which was 30:35.533 --> 30:37.160 no part of their intention. 30:37.302 --> 30:40.237 -60 Second Adventures in Economics. Number 1, 30:40.371 --> 30:42.362 The Invisible Hand. 30:42.507 --> 30:45.238 An economy is a tricky thing to control and governments are 30:45.376 --> 30:48.903 always trying to figure out how to do it. Back in 1776, 30:49.047 --> 30:51.914 economist Adam Smith shocked everyone by saying that what 30:52.050 --> 30:54.747 governments should actually do is just leave people alone 30:54.886 --> 30:57.912 to buy and sell freely among themselves. He suggested 30:58.056 --> 31:00.081 that if they just leave self-interested traders 31:00.225 --> 31:03.354 to compete with one another, markets are guided for positive 31:03.494 --> 31:07.192 outcomes as if by an invisible hand. 31:07.332 --> 31:10.529 The invisible hand has long been a staple of any economics 31:10.668 --> 31:12.193 course. 31:27.685 --> 31:33.215 -Yet Adam Smith never wrote it in this context. 31:33.358 --> 31:37.056 -Adam Smith was concerned that if there was free movement 31:37.195 --> 31:42.065 of capital and free import of goods, he said England will 31:42.200 --> 31:46.398 suffer because British capitalists will invest abroad 31:46.537 --> 31:51.065 and they'll import from abroad and that will harm the English 31:51.209 --> 31:54.907 economy. And then Adam Smith gave an argument, not a very 31:55.046 --> 31:59.244 good argument, but his argument was that English investors will 31:59.384 --> 32:04.686 prefer to invest in England because of what some called 32:04.822 --> 32:07.519 the "home bias". They'll have a preference for investing 32:07.659 --> 32:11.186 close by and therefore as if by an invisible hand, 32:11.329 --> 32:15.027 England will be saved from the menace of free capital 32:15.166 --> 32:20.366 movement and free imports. That's invisible hand. 32:20.505 --> 32:25.204 What's that got to do with the institute or the modern 32:25.343 --> 32:32.716 enthusiasm about free capital flow and having US corporations 32:32.850 --> 32:36.548 invest in China so they can send stuff back here to sell cheap, 32:36.688 --> 32:39.385 exploiting Chinese workers? That's not Adam Smith. 33:21.666 --> 33:23.191 The committee will please come to order. 33:26.904 --> 33:33.037 Today is our fourth hearing into the ongoing financial 33:33.177 --> 33:34.702 crisis... 33:34.846 --> 33:37.372 -In 2009, in the wake of the financial collapse, 33:37.515 --> 33:41.042 Alan Greenspan, the former head of America's central bank, 33:41.185 --> 33:45.053 the Federal Reserve Board, was invited back to Washington 33:45.189 --> 33:47.886 as the man who more than others promoted deregulation 33:48.026 --> 33:50.393 in the name of the invisible hand. 33:53.031 --> 33:56.558 -Dr. Greenspan, I want to start with you. You have been 33:56.701 --> 33:59.898 a staunch advocate for letting markets regulate themselves. 34:00.038 --> 34:05.033 And my question for you is simple: were you wrong? 34:05.176 --> 34:08.510 -Ifound a flaw... -You found a flaw? 34:08.646 --> 34:11.513 -In the model that defines how the world works so to speak. 34:11.649 --> 34:15.017 -In other words, you found that your view of the world, 34:15.153 --> 34:18.680 your ideology was not right, it was not working? 34:18.823 --> 34:22.521 -Precisely. That's precisely the reason I was shocked 34:22.660 --> 34:26.688 because I've been going for 40 years or more with very 34:26.831 --> 34:29.857 considerable evidence that it was working exceptionally well. 34:30.001 --> 34:34.063 “Which model was he referring to? Alan Greenspan's 34:34.205 --> 34:37.197 intellectual career began with Ayn Rand, he was among 34:37.341 --> 34:40.709 her disciples. An enthusiastic believer in her theory 34:40.845 --> 34:42.870 of the supremacy of rationality. 34:46.017 --> 34:49.214 -Itis only since the Industrial Revolution, a burst of a free 34:49.353 --> 34:54.052 society, a society of capitalism, that there was a new 34:54.192 --> 34:56.718 class of men, which is the free producers of material goods, 34:56.861 --> 34:59.489 the businessmen, the industrialists. 34:59.630 --> 35:01.826 That is the man that lives by means of reason. 35:01.966 --> 35:06.164 That is the man who in his psycho-epistemology is not 35:06.304 --> 35:09.330 guided by his immediate perception nor by his emotions 35:09.474 --> 35:14.674 but by logic, by his concept, by reason. That is the man whom 35:14.812 --> 35:16.337 I call the producer. 35:20.318 --> 35:22.685 “When Alan Greenspan was nominated years later by then 35:22.820 --> 35:25.881 president Gerald Ford, to head his Council of economic 35:26.023 --> 35:29.857 advisors, Greenspan paid tribute to his old master and invited 35:29.994 --> 35:31.519 her to meet the President. 35:39.670 --> 35:43.197 Three years before the financial meltdown, Alan Greenspan visited 35:43.341 --> 35:46.538 Kirkcaldy, Adam Smith's birth place in commemoration 35:46.677 --> 35:48.543 of the great thinker. 35:52.850 --> 35:55.717 "One could hardly imagine', Greenspan said, "that today's 35:55.853 --> 35:59.380 awesome array of international transactions would produce 35:59.524 --> 36:02.721 the relative economic stability that we experience daily, 36:02.860 --> 36:05.659 if they were not led by some international version of Smith's 36:05.796 --> 36:07.821 invisible hand. 36:12.970 --> 36:16.497 -In recent decades, a vast risk-management and pricing 36:16.641 --> 36:19.838 system has evolved combining the best insights 36:19.977 --> 36:24.505 of mathematicians and finance experts. The whole intellectual 36:24.649 --> 36:29.519 edifice however collapsed in the summer of last year. 36:34.158 --> 36:36.525 -And so with magical and mystical words 36:36.661 --> 36:40.689 like invisible hand", words which were taken out of context, 36:40.831 --> 36:44.199 the intellectual structure of free market was created. 36:50.341 --> 36:56.371 -People of course have different views on whether a free market 36:56.514 --> 37:00.041 is desirable, so some people believe that we should leave 37:00.184 --> 37:02.551 the markets free... 37:08.759 --> 37:12.161 ..other people say the free markets are not very good. 37:12.296 --> 37:16.995 We have to intervene in it to insure social justice 37:17.134 --> 37:21.662 and equity, and so on, but most people would actually accept 37:21.806 --> 37:26.505 that that there is such a thing as a free market. You may or may 37:26.644 --> 37:31.343 not like the free market, but you will know it when you see 37:31.482 --> 37:41.517 it. But that's the biggest myth about capitalism. Because 37:41.659 --> 37:45.527 my question is: "What do you actually mean by the free 37:45.663 --> 37:48.689 market?" And then to illustrate this point, I bring in 37:48.833 --> 37:51.530 the example of child labour. 38:04.949 --> 38:08.146 Today, in all the rich countries, there's restrictions 38:08.286 --> 38:13.315 on child labour. But there was atime when child labour was 38:13.457 --> 38:14.982 avery widespread thing. 38:25.469 --> 38:30.999 The famous author Daniel Defoe in the 1720's famously praised 38:31.142 --> 38:35.670 certain regions of England that were producing textile 38:35.813 --> 38:41.183 for being able to offer employment to children 38:41.319 --> 38:45.187 from the age of 4 or 5 and allowing them to make a living. 38:52.496 --> 38:55.522 In the early 19th century, in the British Parliament, 38:55.666 --> 39:00.536 a group of social reformers made the very first attempt 39:00.671 --> 39:05.131 to actually officially regulate child labour. Now, even then 39:05.276 --> 39:09.645 alot of people were against this regulation because 39:09.780 --> 39:13.478 they said this regulation is trying to undermine the very 39:13.617 --> 39:19.488 foundation of a free market, namely the freedom of contract. 39:19.623 --> 39:23.321 So they said, you know, these children want to work, 39:23.461 --> 39:27.489 these people want to employ them, what is your problem? 39:31.302 --> 39:34.328 Now, today a lot a people will find this argument absurd, 39:34.472 --> 39:37.840 because people accept that there are certain contracts 39:37.975 --> 39:42.173 that society should override inthe interest of general 39:42.313 --> 39:47.342 welfare. So the example of child labour beautifully illustrates 39:47.485 --> 39:51.353 how markets are essentially a political construct. 40:06.337 --> 40:12.936 All markets are propped up by a huge range of regulations. 40:13.077 --> 40:17.207 I mean I liken it to piano wires that these Kung Fu masters 40:17.348 --> 40:21.216 use in Hong Kong martial arts movies. 40:25.356 --> 40:27.723 Markets are like that. I mean, once you accept the underlying 40:27.858 --> 40:32.056 political values of certain regulations. These regulations 40:32.196 --> 40:35.564 become invisible like those piano wires. 40:40.371 --> 40:43.898 -Do we remember slavery? A true free market without those 40:44.041 --> 40:47.238 piano wires, where the only consideration were profit 40:47.378 --> 40:51.076 and losses. A market which was once widely accepted 40:51.215 --> 40:53.240 as the norm. 41:13.671 --> 41:16.197 One of the first to identify the intellectual foundations 41:16.340 --> 41:19.708 on which slavery was built, the ability to separate 41:19.844 --> 41:23.712 economic logic from social and human reality was a contemporary 41:23.848 --> 41:28.217 of Adam Smith. A former slave, and a philosopher too. 41:34.024 --> 41:36.891 He's buried here in Shama, Ghana, in the shadow 41:37.027 --> 41:38.722 of a former slave castle. 41:40.865 --> 41:45.564 -We have gathered around his tomb to give glory 41:45.703 --> 41:52.905 to God who gave us this wonderful philosopher. 41:57.214 --> 42:00.582 -Anton Wilhelm Amo set out to criticize the very 42:00.718 --> 42:03.085 contradiction of creating a science as separate from 42:03.220 --> 42:05.518 the human reality of capitalism. 42:09.960 --> 42:13.521 Amo's journey began as do those of so many before him, 42:13.664 --> 42:16.361 on a slave ship out of Africa. 42:19.436 --> 42:22.371 -Among the enslaved who came in, among the people who were being 42:22.506 --> 42:25.532 made into commodities, were people who were from some 42:25.676 --> 42:27.201 of the courts. 42:36.020 --> 42:39.547 Some of them when they were brought in immediately showed 42:39.690 --> 42:45.561 their precocity. Amo was brought as a blackamoor to Holland. 42:45.696 --> 42:49.394 He was manumitted and educated and adopted within 42:49.533 --> 42:54.232 the aristocracy. He was educated to the point where he achieved 42:54.371 --> 42:57.739 two doctorates, a doctorate in law and a doctorate 42:57.875 --> 43:02.176 in philosophy. And he thaught in the German University system. 43:46.357 --> 43:48.724 -Amo was brought to Europe as a child by the Dutch East India 43:48.859 --> 43:53.057 Company and was given as a present to a German duke. 43:53.197 --> 43:55.894 The liberal duke freed him and provided him with a free 43:56.033 --> 43:58.900 education. 43:59.036 --> 44:03.064 The thing that begins to emerge when these commodities began 44:03.207 --> 44:07.667 to speak is they began to articulate the double 44:07.811 --> 44:11.509 standards and some of the problems in the processes 44:11.649 --> 44:16.849 of rationalization that were going on in modern capitalism. 44:20.991 --> 44:23.016 -(Quote): lam apt to suspect the negroes to be naturally 44:23.160 --> 44:26.528 inferior to the whites. Such a uniform and constant difference 44:26.664 --> 44:30.032 could not happen if nature had not made an original distinction 44:30.167 --> 44:32.659 between these breeds of men. 44:32.803 --> 44:36.706 David Hume, philosopher. Adam Smith's intellectual 44:36.840 --> 44:39.207 partner. 44:39.343 --> 44:43.712 With Amo, you have first the question of 44:43.847 --> 44:47.215 the anthropological rationalization. 44:47.351 --> 44:50.377 Amo wrote on the equalities of the Moors in Europe 44:50.521 --> 44:53.718 and the very act of writing it, the very act of articulating 44:53.857 --> 44:57.885 was to unsettle the view that something about him racially 44:58.028 --> 45:02.329 necessitated his being a tool. 45:08.305 --> 45:11.002 As we know, René Descartes, the famous French philosopher, 45:11.141 --> 45:16.671 articulated reality as being dual, having mind and body. 45:16.814 --> 45:19.681 Well, Amo basically said that if mind were really separated 45:19.817 --> 45:22.184 from body, mind couldn't feel anything. 45:29.493 --> 45:33.691 Amo began to deal with this problem of how rationality 45:33.831 --> 45:38.530 and reason was being used by ironically against reality 45:38.669 --> 45:41.866 and reason. 45:42.005 --> 45:47.205 If we look at the way Adam Smith would argue, he was articulating 45:47.344 --> 45:51.372 a system that sets up as an ideal world, paradoxically 45:51.515 --> 45:53.540 a world without people. 46:02.860 --> 46:05.659 People tend to want to be free, people tend to have values, 46:05.796 --> 46:10.165 people tend to be not as neatly predictable. 46:17.141 --> 46:20.008 -In 18th century Europe, a warning from an African 46:20.144 --> 46:23.842 philosopher was doomed to be ignored. Amo had to flee 46:23.981 --> 46:26.348 and died here in Shama. 46:29.820 --> 46:32.187 While "The Wealth of Nations" pioneered modern economics, 46:32.322 --> 46:36.691 Amo's books were burned and his work is all but forgotten. 47:51.335 --> 47:53.861 The footage you're about to see was recorded with a hidden 47:54.004 --> 47:57.372 camera at Hy-Line hatchery in lowa, the world's largest 47:57.507 --> 47:59.874 hatchery for egg-laying breed chicks. 48:00.010 --> 48:01.978 -Nothing in "The Wealth of Nations" condones slavery. 48:02.112 --> 48:04.979 And of course it has nothing to do with the meat industry 48:05.115 --> 48:09.643 of today. Yet this is how Adam Smith's vision 48:09.786 --> 48:12.483 of the market evolved once his followers regarded 48:12.623 --> 48:15.649 it as a science and divorced it from all social ties. 48:18.462 --> 48:20.829 These male chicks are killed by being dropped into 48:20.964 --> 48:23.490 agrinding machine while still alive. 48:46.924 --> 48:50.019 -Here a worker uses a hot cautery device to painfully 48:50.160 --> 48:52.356 burn off the calf's horns. 48:54.164 --> 48:56.861 A common dairy industry practice known as disbudding. 48:59.002 --> 49:01.630 No anaesthesia was used to reduce the calf's pain 49:01.772 --> 49:04.639 during this harsh and invasive mutilation. 50:12.009 --> 50:16.207 -Smith was very sceptical about whether in fact a science 50:16.346 --> 50:20.044 of society or a science of economics was actually 50:20.183 --> 50:21.708 possible. 50:26.023 --> 50:31.553 Smith was always deeply cautious about how free markets should be 50:31.695 --> 50:33.390 implemented. 50:40.871 --> 50:43.397 The questions which Smith thought were exceedingly 50:43.540 --> 50:46.908 difficult to address about social justice, 50:47.044 --> 50:49.445 about faimess and about maintaining the fabric 50:49.579 --> 50:54.915 of society itself might actually be impossible to address. 50:58.388 --> 51:00.584 In the course of history, we have lost all that thinking 51:00.724 --> 51:04.524 about the political dimensions, the ethical dimensions 51:04.661 --> 51:09.690 of progress towards a full market economy. 51:58.548 --> 52:01.677 -So how and why, in the process of trying to convert 52:01.818 --> 52:04.515 "The Wealth of Nations" into reality where Adam Smith's 52:04.654 --> 52:08.352 ethical and political concerns lost? 52:08.492 --> 52:11.689 Greed won and societies were restructured along the logic 52:11.828 --> 52:13.193 of the market.