Adam & George: 1776 and 1984

Wriston, Walter B.


Being in London always brings to any visitor a sense of things past, and a renewed appreciation of how sturdy the world really is. The crises and alarms that have shaken these islands over the centuries, while profound and far reaching, have not had the lasting effects produced by your thinkers. Over the years, Great Britain has been the home of many people whose ideas have changed and shaped our world, for good or evil.

Despite the more than 100 wars, both great and small, that have plagued this planet in the last two hundred years, some things have not changed much. There are still only two basic models of human organization: the authoritarian in its many guises, and the democratic. In its simplest terms: power from the top down, or the bottom up. That thread of political evolution is inextricably linked with economic theory and practice in the nations of the world.

In political terms, we in America have drawn heavily on the ideas of British thinkers and, in a sense, have gone even further by writing down and adopting a Constitution rooted in the belief of the accuracy of Lord Acton's dictum that "Power corrupts, and absolute power corrupts absolutely." This belief is what led to the explicit division of powers among our President, our Congress and our Courts. This constitutional separation of powers gives both our allies and ourselves a few bad moments from time to time. The orderly formation of policy sometimes appears to be frustrated. Our system is untidy, it is difficult, and is further confused for observers by the fact that, from time to time, the American media anoint one arm of our government or another and proclaim its ascendancy. You all remember reading about the "Imperial President," or the primacy of the Supreme Court when President Roosevelt claimed progress was being blocked by nine old men. Now attention is focused on the Congress running, as someone said, 535 State Departments. But with it all, the main purpose is achieved--individual liberty in America has not only been preserved but enhanced. No one knows better than our British cousins just how difficult an achievement this is. There are few countries on earth that have enjoyed the experience. Despite the current problems of the world, Lord Macaulay was right when he wrote that " man who is correctly informed as to the past, will be disposed to take a morose or desponding view of the present."

One of your more recent thinkers was morose and marked 1984 as the year when freedom died and Big Brother would be in control in America and Britain. He described it this way: There will be no art, no literature, no science...always there will be the intoxication of every moment the thrill of victory, the sensation of trampling on an enemy who is helpless. If you want a picture of the future, imagine a boot stamping on a human face--forever."

At midyear 1984, the good news is that despite the pervasiveness of Big Brother in our lives and in our markets, George Orwell was wrong. Big Brother has not now, nor will he in the future, rule either of our two countries. One of the reasons that he is being held in check, and sometimes defeated, is the enduring validity of the ideas of a Scotsman who published his views in 1776. In the more than 200 years between 1776 and 1984, we have survived the flowering and near demise of mercantilism, the Industrial Revolution, atomic power, space travel and now the service and electronic revolution. Many of these major events were greeted with predictions of the end of civilization as we have known it, and indeed our civilization has greatly changed. But it has not died, and the residents of these islands deserve a large share of the credit.

When Her Majesty Queen Elizabeth paid her recent visit to the United States, she was confronted with some of the worst weather President Reagan's home state, California, is capable of providing. In her customary gracious manner, Her Majesty observed that while she was aware that Great Britain had exported many things to America, she had not previously realized that British weather was among them. Britain has indeed exported a great many things to the United States and I'd like to use one or two of them as the focus of these remarks. The things I have in mind are not goods or merchandise, but what ladies and gentlemen on Wall Street are pleased to call intangibles; that is to say, ideas.

We are obliged by our United States Constitution to conduct a census every ten years. The first census, in 1790, showed that 89% of the population was of Anglo-Scottish descent. So it is clear who were the carriers of these ideas. They were definitely not the Hessian mercenaries dispatched by George the Third to keep us in line.

As it turned out, not all ideas and laws--and a law, after all, is only an idea backed by force--were exportable to the New World. We were offered something called the Stamp Tax--which I understand still exists here in Britain--and this became the proximate cause of the American Revolution. It also led to a group of men dressed like Indians dumping massive boxes of English tea into Boston Harbor and turning Americans into a nation of coffee drinkers.

This, in turn, had far-reaching effects on the evolution of Latin America. Someone has estimated that if everybody on the island of Manhattan suddenly stopped drinking coffee on the same day, the effect on some governments in Latin America might be severe.

As is well known, much of our political philosophy, including our Declaration of Independence and our Constitution, were derived from John Locke, whose ideas profoundly influenced those men we refer to as our Founding Fathers--the ones who put it all together.

But Britain's greatest gift to her former colony was almost certainly a book published, coincidentally, in the same year as our Declaration of Independence. It was Adam Smith's .

The book originated in Scotland and was a best seller by the standards of its time. But it was taken most seriously in the United States, and it helps explain our history.

We really believed in the Invisible Hand. To refresh your memory, let me put Mr. Smith's Invisible Hand back into context. He said, speaking of the businessman, that

"He generally ... neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and in this as in many other cases, is led by an invisible hand to promote an end which was no part of his intention...(But) by pursuing his own interest he frequently promotes that of the society more effectively than when he really intends to promote it. I have never known much good to be done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."

My friend, Professor George Stigler, one of our Nobel Laureates in Economics, has remarked that, "Unfortunately, in a rare display of reticence, Adam Smith failed to tell us what those few words are."

The truth is that the Father of Capitalism did not have a high opinion of capitalists. But he understood that the diffusion of power, both political and economic, could and would create the conditions for human freedom and economic innovation. All power, no matter how derived, either from the bottom up or the top down, can be arbitrary. Only in the multiplicity of power is there safety.

Adam Smith did not have a high opinion either of businessmen or those in government. What he understood was that multitudes of human beings pursuing their own best interest will ultimately produce a sort of common denominator from which we all have a chance of getting the best available deal at the moment. This state of affairs also has a way of liberating a great deal of human energy devoted to finding better or cheaper ways of doing things.

Adam Smith was a devoutly religious Scot who had not much faith in the perfectibility of man. He believed something analogous to Churchill's comment about democracy: the only thing good to be said for it is that it's better than all the alternatives. That idea was taken seriously in America during the 19th century and accounts, more than any other single factor, for the remarkable growth of the American nation. It is undoubtedly our most valuable import from the United Kingdom.

Smith's desire to keep government's hands off business had nothing to do with protecting business from government. On the contrary, it was his knowledge that whenever business and government walk hand in hand, the inevitable result is to afford some businessmen the opportunity to keep others out of the marketplace. He did not consider this to be in the interest of the consumer--or, as Smith might have said--the common man. What it gets you is higher prices and less innovation, and we can all supply examples from our own experience.

Smith didn't think much of governments either. He said, for example, that, "There is no art which one government sooner learns of another, than that of draining money from the pockets of the people." That observation is some two hundred years old but it seems to me still to have a certain validity.

As you may have heard, we've been having a spirited debate at home about our federal deficit. Government debt is growing. During my own three-and-a-half decades as a banker, a lot of time and energy has gone into trying to persuade state and national governments that they should not try to tell us how much interest we can pay our depositors or how much interest we ought to charge borrowers for their loans. We have, in fact, made a little progress on that front lately. But here is what Smith, writing before the American Revolution, had to say on the underlying philosophy of such regulations.

"It is the highest impertinence and presumption... in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are always and without exception, the greatest spendthrifts in the society. Let them look well after their own expenses and they may safely trust private people with theirs. If their own extravagance does not ruin the state that of their subjects never will."

That lesson has occasionally been forgotten in the United States. Whether the same is true here in Britain is not for me to say.

Britain's great exports to the United States were radical and revolutionary ideas in their time. In an age when human slavery was all too common and the power of life and death rested with absolute monarchs in many lands, Adam Smith never fell into the trap of believing that man is perfect, or that government is more perfect than man. While he wrote of an economic system, he was also thinking of individual political liberty, a cause dear to the hearts of both our countries. The link between free markets and free men and women has been apparent to all who would look, because a directed economy must, in the end, be backed by governmental edict to function at all. Absent such force, markets will let individuals decide how to allocate their own time and money, and this will often be at variance with the central plan.

Any central economic plan involves choices because resources, no matter how large, are still finite. Since few of these choices can be put to a majority vote, more and more are assigned to experts who then substitute their judgment for the market.

You end up with a world in which, as Milton Friedman has said, "whatever is not compulsory is forbidden." Words like "untidy" crop up to describe thousands of us each making our individual economy choices. But it is this very economic freedom that contributes so importantly to political liberty. Contrast this with Orwell's vision: "The party...sought power because men in the mass were frail, cowardly creatures who could not endure liberty or face the truth, and must be ruled over and systematically deceived by others who were stronger than themselves. That the choice for mankind lay between freedom and happiness, and that, for the great bulk of mankind, happiness was better."

As it turned out, Orwell was wrong because the choice he predicted did not come about. Part of the reason it did not materialize, was that a free economic system and political freedom go hand in hand.

Paul Johnson put it this way: "Capitalism, strictly defined as a purely economic device, is morally neutral. But capitalism, based as it is on the legal right of individual freehold, creates a multiplicity of power centers, rival to that of the state. Hence, it is a matter of historical observation that capitalism tends to promote--and, in my contention, must promote--liberal democratic political systems; and such systems are not morally neutral, they are morally desirable, where they offer the individual the element of choice to which its free will matures."

As we move through 1984, and Big Brother is unable, in your country or mine, to connect his telescreen to monitor and control our every move, we can all thank Adam Smith for the power of a competing idea. The power of the Invisible Hand continues to promote the interest of society most effectively, although not always in a way that is congruent with conventional political wisdom.

Although Citibank is not quite as old as Smith's book, the eight merchants in New York who got together in 1812 to establish our institution based it on Smith's principles. Our longevity makes Citibank one of the oldest financial institutions in the world, even in England. A review of our history, which has just been completed, suggests that over the years we have been guided by Smith's principles and have been, by most criteria, not entirely unsuccessful. Maybe Britain's greatest export to the United States - the ideas of Adam Smith - still has a future.

  • This document was created from the speech, "Adam & George: 1776 and 1984," written by Walter B. Wriston for the Customers Dinner on 12 June 1984. The original speech is located in MS134.001.005.00024.
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