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Sixty-second Contents Library of Congress Catalog Card Number: 16-7264 A d d it io n a l co p ie s o f th is A n n u a l R e p o r t m a y be o b ta in e d w it h o u t c h a rg e fr o m the B a n k a n d P u b lic R e la tio n s D e p a r tm e n t , F e d e r a l R e s e rv e B a n k o f R ic h m o n d , P . 0 . B o x 27622, R ic h m o n d , V ir g i n ia 23261. T h e fe a tu re a rtic le , “ T h e R e le v a n c e o f A d a m S m it h ,” w ill be r e p rin te d as a se p a ra te p u b lic a tio n w h ic h w ill be a v a ila b le w it h o u t c h a rg e a fte r F e b r u a r y 15, 1977 fr o m th e B a n k a n d P u b lic R e la tio n s D e p a r tm e n t, F e d e r a l R e s e rv e B a n k o f R ic h m o n d . January 31, 1977 To Our Member Banks: W e are pleased to present the 1976 A nnual R eport of the Federal R eserve Bank of R ichm ond. T h e R e p o rt’s feature article discusses the continuing relevance of the ideas o f A dam Smith, an appropriate subject fo r a publication pertaining to this nation’s bicentennial year. T h e R eport also includes highlights o f 1976; a summary of op era tion s; com parative financial statem ents; and current lists o f directors and officers o f our R ichm ond, Baltim ore, Charlotte, Charleston, Columbia, and Culpeper offices. O n behalf o f our directors and staff, w e wish to thank you fo r the cooperation and support you have extended to us throughout the past year. Sincerely yours, Chairm an of the Board President Foreword In o b s e r v a n ce o f o u r n a tio n ’s B ice n te n n ia l, the F ed eral R e s e r v e B a n k o f R ic h m o n d is p u b lis h in g th is a rticle 011 S m ith ’s The Wealth of Nations. A dam T h e sim ilarities b e tw e e n S m ith ’s g re a t trea tise an d o u r o w n o f In d e p e n d e n ce are in d eed strik in g . in 1776. D e cla ra tio n B o th w e r e p u b lish ed B o th w e re r e v o lu tio n a r y d o cu m e n ts, th e on e s ig n a lin g the b irth o f a n a tion , th e o th e r the b irth o f the m o d e rn scie n c e o f e c o n o m ic s . B o th w e r e re a ctio n s to the h e a v y h and o f the state, the o n e to the B ritish C r o w n ’s in te rfe re n ce w ith the rig h t o f e c o n o m ic and p o litica l selfd e te rm in a tio n , the o th e r to m e rca n tilis tic c o n tr o ls on b u s i ness en terp rise. B o th d o c u m e n ts stress the im p o rta n ce o f the in d iv id u a l in s o c ie ty , and b o th s h o w g re a t co n c e r n fo r in d iv id u a l lib e rty . B o th S m ith an d th e F o u n d in g F a th ers sh ared th e sam e v isio n o f a g o o d s o c ie ty , o n e th at w o u ld a llo w m a x im u m p e rso n a l fr e e d o m w h ile h a rn e s sin g the p o w e r fu l fo r c e o f in d iv id u a l se lf-in te r e st to the in terests o f s o c ie ty as a w h o le . B o th a d d ressed th e p r o b le m o f fin d in g th e in stitu tio n a l fr a m e w o r k that w o u ld tr a n sfo rm th e v ision in to a rea lity . A n d that fra m e w o r k , to o , is d e s c rib e d in The Wealth of Nations as w e ll as in th e w o rk s o f th e F o u n d in g F a th ers. C o m p rise d o f the fre e -m a rk e t e c o n o m ic sy stem and th e p o litica l sy s te m o f re p re se n ta tiv e d e m o c r a c y , this fr a m e w o r k esta b lish ed an e n v iro n m e n t w ith in w h ich e c o n o m ic p r o g r e s s , so cia l h a rm o n y , an d in d iv id u a l freed om and o p p o r tu n ity h a v e flo u rish e d on a sca le u n m a tch e d in h isto ry . As c o -a r c h ite c t o f this fr a m e w o rk , w h ich has p r o v id e d m u ch o f the ra tion a le o f U . S. p u b lic p o lic y o v e r the p a st 200 yea rs, A d a m S m ith d e se rv e s a p la ce in the B ice n te n n ia l ce le b ra tio n . Smith and the American Bicentennial E c o n o m is ts , b u t d iffe r in g on the s u b je c ts b e fo r e sp e cifie d . T h e sy s te m b e in g n o v e l, m u ch A re fle ctio n on th e so u r c e s o f ou r in tellectu a l a rg u m e n t and d etail seem ed then n e ce ss a ry to h erita g e is an im p o rta n t p a rt o f the B ice n te n esta b lish p r in cip le s w h ich n o w are a ssen ted to as so o n as p r o p o s e d .” 3 nial. P art o f this re fle c tio n co n sists o f re a d in g th e w ritin g s o f the F o u n d in g F a th ers. The T h e in te lle ctu a l sp irit o f The W ealth of N a F o u n d in g F a th ers, h o w e v e r , w e re p art o f a tions has m u ch in co m m o n w ith the in tellectu al la rg e r g ro u p o f m en in N o r th A m e r ic a and W e s te r n E u ro p e w h o w e r e d is cu s s in g r e v o lu sp irit e x is tin g in A m e r ic a at the tim e o f the R e v o lu tio n . S m ith sh ared the ega lita ria n spirit tio n a ry ideas in p o litic a l e c o n o m y , scie n ce , and o f the R e v o lu tio n . in d u stria l o rg a n iz a tio n . F o r e x a m p le , he s a y s : In th e area o f p o litica l e c o n o m y , th ere is a n oth er b ice n te n n ia l to c e le A le x a n d e r H a m ilto n b o r r o w e d h e a v ily fro m it The difference of natural talents in dif ferent men is, in reality, much less than we are aware o f; and the very different genius which appears to distinguish men of different professions, when grow n up to m aturity, is not upon many occasions so much the cause, as the effect of the division of labour. The difference be tween the most dissimilar characters, be tween a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education, (p . 1 5 )4 in his Report on M anufactures.1 T h e r e are n u m erou s re fe re n ce s to S m ith in the letters o f T h o m a s J e ffe rs o n . J e ffe r so n w r o te in 1790 in a tr y in g to d e v ise so cia l sy ste m s in a c c o rd w ith letter to T h o m a s M a n n R a n d o lp h : “ . . . in the spirit o f n atu ral law . T h e y b e lie v e d that the p o litica l o e c o n o m y I th in k S m ith ’s w e a lth o f p rin cip le s o f s o cia l o rg a n iz a tio n c o n d u c iv e to h a rm o n io u s re la tio n s a m o n g m en and b e tw e en b ra te in 1976. In 1776 A d a m S m ith p u b lish e d his m on u m en ta l trea tise, A n Inquiry into the Nature and Causes of the W ea lth of Nations. T h is a rticle e n d e a v o rs to s h o w that a n y a p p ra isa l o f the so u rce s o f o u r in te lle ctu a l h e ri ta g e m u st a ssign a m a jo r ro le to The W ealth of Nations. M a n y o f th e F o u n d in g F a th ers read The M a d is o n read it, and W ea lth of Nations. n a tion s the b e st b o o k ex ta n t . . . .” 2 H e c o m m en ted in 1816 in a p r o s p e c tu s fo r Treatise on Political Econom y b y D e s tu tt de T r a c y : “ A d a m S m ith , first in E n g la n d , p u b lish e d a ra tion al and sy s te m a tic w o r k on P o litica l o e c o n o m y , a d o p tin g g e n e r a lly the g r o u n d o f the B o th S m ith an d A m e r ic a n sta tesm en w ere m en and th eir g o v e r n m e n t are in h eren t in and m a y b e d e d u ce d fro m the natu ral fo r c e s that m o tiv a te m e n ’s b e h a v io r. T h e D e cla ra tio n o f In d e p e n d e n c e refers to “ the L a w s o f N a tu re.” S m ith b e lie v e d that m a n ’s “ d isp o s itio n to tru ck , b a rter, and e x c h a n g e ” w o u ld , g iv e n a p o lic y o f la issez faire, ca u se the se lf-in te r e st o f the in d iv id u a l to p r o m o te th e la rg e r in terests o f so cie ty . B o th S m ith and e a rly A m e r ic a n sta tesm en w e re re a c tin g a g a in st th e d o ctr in e s o f m e rca n tilism , w h ic h ju s tifie d d ir e c t an d e x te n siv e c o n tr o l b y th e g o v e r n m e n t o v e r th e m arket a ctiv itie s o f in d iv id u a ls. S m ith d e crie d the N a v ig a tio n A c ts , w h ic h re q u ire d th at “ all that p a rt o f th e su rp lu s p r o d u c e o f th e E n g lish co lo n ie s . . . w h ich c o n s is ts in w h a t are ca lled en u m era ted c o m m o d itie s , can b e sen t to no oth e r c o u n tr y b u t E n g la n d .” (p . 560) D e cla ra tio n con d em n s of In d ep en d en ce K in g o f G rea t B rita in “ fo r c u ttin g T ra d e w ith all p arts o f th e w o r ld .” The the o ff ou r T h is re a ctio n a g a in st the id ea s o f m e rca n tilis m re su lted in a d esire to lim it th e r o le o f the g o v ern m en t in th e e c o n o m y . D u r in g o u r C o n s ti tu tion a l C o n v e n tio n e ffo r ts w e r e m a d e to g iv e th e G o v e rn m e n t b ro a d p o w e r s to re g u la te the w o r k in g s o f the e c o n o m y . It is s ig n ifica n t that th ese e ffo r ts w e re d e fe a te d . T h e a u th o rity o f th e F ed era l G o v e rn m e n t to re g u la te th e e c o n o m y w a s lim ited to “ th e p o w e r to ta x , b o r r o w , reg u la te c o m m e r ce , p a ss u n ifo rm b a n k ru p tcy la w s, c o in m o n e y , esta b lish p o st o ffic e s and p o s t road s, an d g ra n t p a te n ts .” 5 O f p a rticu la r in terest b e ca u s e o f the B ic e n ten n ial o f th e A m e r ic a n R e v o lu tio n are S m ith ’s o b s e rv a tio n s about A m e r ica . P u b lis h e d 1776, th e y are in s ig h tfu l an d p re scie n t. in The first p a ssa g e co n ta in s S m ith ’s re co m m e n d a tio n fo r B ritish p o lic y to w a r d its co lo n ie s. The se co n d p a ssa g e n eed s n o c o m m e n t : To propose that Great B ritain should voluntarily give up all authority over her colonies, and, leave them to elect their own magistrates, to enact their own laws, and to make peace and w ar as they m ight think proper, w ould be to propose such a measure as never zvas, and never w ill be adopted, by any nation in the world. N o nation ever voluntarily gave up the do m inion of any province, how troublesome soever it m ight be to govern it, and how small soever the revenue which it afforded m ight be in proportion to the expence 6 w hich it occasioned. Such sacrifices, though they m ight frequently be agree able to the interest, arc alwaxs m ortifying to the pride of every nation, and w hat is perhaps of still greater consequence, they are always contrary to the private interest of the governing part of it, w ho w ould thereby be deprived of the disposal of m any places of trust and profit, of many opportunities of acquiring wealth and dis tinction, which the possession of the most turbulent, and, to the great body of the people, the most unprofitable province sel dom fails to afford. The most visionary enthusiast ivoidd scarce be capable of proposing such a measure, w ith any seri ous hopes at least of its ever being adopted. I f it was adopted, however, Great B rita in w ould not only be im m e diately freed from the whole annual ex pence of the peace establishment of the colonies, but m ight settle w ith them such a treaty of commerce as w ould effectually secure to her a free trade, more advan tageous to the great body of the people, though less so to the merchants, than the monopoly w hich she at present enjoys. B y thus parting good friends, the natural affection of the colonies to the mother country, which, perhaps, our late dissen sions have well nigh extinguished, w ould quickly revive. I t m ight dispose them not only to respect, for whole centuries to gether, that treaty of commerce which they had concluded w ith us at parting but to favour us in w ar as well as in trade, and, instead of turbulent and factious sub jects, to become our most faithful, affec tionate, and generous allies; (p p . 5 8 1 -2 ) They are weak who flatter themselves that, in the state to which things have come, our colonies w ill be easily con quered by force alone. The persons who now govern the resolutions of w h at they call their continental congress, feel in themselves at this moment a degree of importance which, perhaps the greatest subjects in E urope scarce feel. F ro m shopkeepers, tradesmen, and attornies, they are become statesmen and legislators, and are employed in contriving a new form of government for an extensive empire, w hich they flatter themselves, w ill become, and which, indeed, seems very likely to become, one of the greatest and most form idable that ever was in the w orld, (p p . 58 7 -8 ) Major Themes in The Wealth of Nations cen tra ! th em e o f T h e W e a lt h o f N a 1 couragement w hich it requires, some tolerable security that it shall enjoy the ivin tc ni i tc nrrom Inhn'iiv (\r\ i'- J........ "J \ J tion s is the co n s tr u c tio n o f a s o cia l o rd e r in w h ich the in d iv id u a l, in p u rs u in g his o w n se lf- T h rou g h c o u n tle s s e x a m p le s S m ith m akes in terest, n e ce ss a rily co n tr ib u te s to th e gen era l clea r that the p riv a te se lf-in te re s t o f the in d i in terests o f s o c ie ty . v id u a l S m ith q u estion p ra g m a tica lly . a p p ro a ch e s this F o r e x a m p le , in the w ill p r o m o te th e la rg er in terests of s o c ie ty o n ly if the m o st ca re fu l a tten tion is case o f th e p o sta l s e rv ice , S m ith a p p r o v e d o f g iv e n to th e d e sig n o f s o cia l in stitu tion s. g o v e r n m e n t-o p e r a te d en terp rises. th e m o st fu n d a m e n ta l im p o rta n ce is the im partial a d m in istra tio n o f ju s t ic e : In g en era l, h o w e v e r, S m ith w a n te d to lim it th e ro le o f g o v e r n m e n t-r u n en terp rises, n o t on d o ctrin a ire g ro u n d s, b u t rath er on th e p ra ctica l g ro u n d s that it is h ard to d e sig n th em so as to take a c co u n t o f th e fo llo w in g o b s e r v e d p h e n o m e n o n : P ub lic services are never better performed than when their reward comes only in consequence of their being performed, and is proportioned to the diligence employed in perform ing them. (p . 6 7 8 ) O f d e cis iv e im p o r ta n c e to S m ith in his d e sign o f th e o p tim a l s o cia l stru ctu re is his b e lie f in th e stre n g th o f in d iv id u a l se lf-in te re st. P r o p e r ly ch a n n e le d th is fo r c e w ill s te a d ily a d v a n ce th e c o m m o n s o cia l in terest. M u ch o f the sp irit o f S m ith ’s so cia l p r e s cr ip tio n s co m e s fro m his b e lie f that this p o w e r fu l fo r c e is m ost e ffe c tiv e ly taken a d v a n ta g e o f b y s o c ie t y w h en the in d iv id u a l is a llo w e d a la rg e a m o u n t o f p e rso n a l fre e d o m to p u rsu e his o w n e c o n o m ic b e tte rm e n t and is a llo w e d to reap the rew a rd s fo r su ch e f f o r t s : The natural effort of every indiv idual to better his own condition, when suffered to exert itself w ith freedom and security, is so pow erful a principle, that it is alone, and w ithout any assistance, not only cap able of carrying on the society to wealth and prosperity, but of surm ounting a hundred im pertinent obstructions w ith which the folly of hum an laws too often encumbers its operations . . . . (p . 508) A g a in , fo r E n g la n d S m ith sa ys that “ the in crea se o f its m a n u fa ctu re s and a g r ic u ltu r e ” d e rives . . . from the fall of the feudal system, and from the establishment of a government which afforded to industry the only en Of Commerce and manufactures can seldom flourish long in any state which does not enjoy a regular adm inistration of justice, in which the people do not feel themselves secure in the possession of their property, in which the faith of contracts is not sup ported by law, and in which the authority of the state is not supposed to be regularly employed in enforcing the payment of debts from all those who are able to pay. Commerce and manufactures, in short, can seldom flourish in any state in which there is not a certain degree of confidence in the justice of government, (p . 862) F u rth e rm o re , g re a t ca re m u st be e x e rcise d to en su re that se lf-in te re s t is n ot p u rsu ed in a n ti so cia l w a y s. A fa v o r ite th em e o f Sm ith is the p re v a len ce o f the d esire o f in d iv id u a ls to fo rm m o n o p o lie s : People of the same trade seldom meet together, even for m errim ent and diver sion, but the conversation ends in a con spiracy against the public, or in some con trivance to raise prices, (p . 128) Adam Smith in 1976 T h e re le v a n ce o f A d a m S m ith ’s ideas is b est illu stra ted b y d e m o n s tra tin g th eir co n tin u in g , e x te n siv e u se in c o n te m p o r a r y d eb a tes o v er p u b lic p o lic y . T h e m ain p art o f this essay s h o w s h o w S m ith ’s id ea s are u sed in c o n te m p o ra ry p u b lic p o lic y d eb a tes a b o u t m o n o p o ly and g o v e r n m e n t su b sid ie s and a b o u t ce n tra l ized e c o n o m ic p la n n in g . A final se ctio n s u g g e sts rea son s fo r th e p e rs is te n ce o f S m ith ’s ideas. T h r o u g h o u t, th e essa y m akes e x ten sive use o f q u o ta tio n s fr o m The W ea lth of Nations sin ce the m o s t e ffe c tiv e e x p o s ito r o f S m ith 's ideas rem a in s even to d a y A d a m S m ith h im self. 7 MONOPOLY AND GOVERNMENT SUB SIDIES: T h e p rin cip a l th em e set fo r th in The Wealth of Nations is that a c o u n tr y m o st e ffe c tiv e ly p r o m o te s its o w n w ea lth b y p r o v id in g a fr a m e w o r k o f la w s th at lea v es in d i v id u a ls free to p u rsu e th e in terest th e y h ave in th eir o w n e c o n o m ic b e tte rm e n t. T h is se lf- in terest m o tiv a te s in d iv id u a ls ’ “ p r o p e n s ity to tru ck , barter, an d e x c h a n g e o n e th in g fo r a n o th e r ” and th e r e b y leads th em to m e e t th e n eed s o f o th e rs th r o u g h v o lu n ta r y c o o p e ra tio n in th e m ark et p la c e : . . . m an has almost constant occasion for the help of his brethren, and it is in vain for h im to expect it from their benevo lence only. H e w ill be more likely to prevail if he can interest their self-love in his favour, and shew them that it is for their own advantage to do for h im w hat he requires of them. W hoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the m eaning of every such offer; and it is in this m anner that we obtain from one another the far greater part of those good offices w hich we stand in need of. I t 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. W e address our selves, not to their hum anity but to their self-love, and never talk to them of our own necessities but of their advantages. (p . 14) in all others immediately dispose them to alter this faulty distribution. W ith o u t any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distrib ute the stock of every society, among all the different employments carried on in it, as nearly as possible in the proportion which is most agreeable to the interest of the whole society. A ll the different regulations of the m er cantile system, necessarily derange more or less this natural and most advanta geous distribution of stock, (p p . 59 4 -5 ) Every derangement of the natural dis tribution of stock is necessarily hurtful to the society in which it takes place; whether it be by repelling from a particu lar trade the stock w hich w ould other wise go to it, or by attracting towards a particular trade that w hich w ould not otherwise come to it. (p . 597) S m ith d e s crib e s th e a ctio n s o f m o n o p o lis ts as f o l l o w s : The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, wheth er they consist in wages or profit, greatly above their natural rate. (p . 6 1 ) T h e “ natu ral p r ic e ” is “ th e lo w e s t w h ich the sellers ca n c o m m o n ly a ffo r d t o take, and at the sa m e tim e co n tin u e th eir b u s in e s s .” (p . 61) T o d a y w e w o u ld use th e w o r d “ c o m p e titiv e ” S m ith a lso a rg u es that the h a rm o n y b e tw e e n p riv a te g o a ls and la rg e r s o c ia lly d esira b le g o a ls p ro m o te d b y v o lu n ta r y c o o p e r a tio n b e tw e e n fo r “ n a tu ra l.” T h e “ e ffe c tu a l d e m a n d ” is “ the d e m a n d o f th o se w h o are w illin g to p a y the n atu ral p rice o f th e c o m m o d it y .” (p . 56) M o in d iv id u a ls in th e m a rk et p la ce is in te rfe re d n o p o ly , as w e ll as a g o v e r n m e n ta lly s u b sid ized w ith b y m o n o p o ly and g o v e r n m e n t su b sid ies. a c tiv ity , co n tra sts w ith a c o m p e titiv e m arket In co n tra st to co m p e titio n , m o n o p o ly an d g o v w h e re a “ c o m m o d ity is . . . so ld p re c is e ly fo r ern m en t su b sid ie s ca u se in d iv id u a ls to d e v o te w h a t it is w o rth , or fo r w h a t it re a lly c o s ts the eith er to o fe w o r t o o m a n y re so u rce s to p a r p e rso n w h o b rin g s it to m a rk e t.” ticu la r m a r k e t s : . . . the private interests and passions of individuals naturally dispose them to turn their stock towards the employments which in ordinary cases are most advan tageous to the society. B u t if from this natural preference they should turn too 'much of it towards those employments, the fall of profit in them and the rise of it (p . 55) The Wealth of Nations co n ta in s th ree g e n eral k in d s o f criticis m o f m o n o p o lie s . The first is that th e h ig h e r p rice s in a m o n o p o liz e d m a rk et re d u ce th e w e lfa r e o f c o n s u m e r s : I f . . . capital is divided between two different grocers, their competition w ill tend to make both of them sell cheaper, than if it were in the hands of one only; and if it were divided am ong twenty, their competition w ould be just so much the greater, and the chance of their combining together, in order to raise the price, just so much the less. Their competition might perhaps ruin some of themselves; but to take care of this is the business of the parties concerned, and it may safely be trusted to their discretion. I t can never hurt either the consumer, or the pro ducer; on the contrary, it must tend to make the retailers both sell cheaper and buy dearer, than if the whole trade zvas monopolized by one or two persons, (pp. 3 42-3) I n every country it always is and must be the interest of the great body of the people to buy whatever they w ant of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pains to prove it ; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common sense of m ankind. Their interest is, in this respect, directly opposite to that of the great body of the people. A s it is the interest of the freemen of a corporation to hinder the rest of the inhabitants from employing any w orkm en but themselves, so it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home market, (p . 4 6 1 ) M o n o p o ly o f m o n o p o ly is that it e n g en d ers in e ffic ie n t m a n a g e m e n t : M onopoly . . . is a great enemy to good management, w hich can never be univer sally established but in consequence of that free and universal competition which forces everybody to have recourse to it for the sake of self-defence, (p . 147) T h e th ird criticis m o f m o n o p o ly is that it is in eq u ita b le b e ca u se it in cre a se s a rb itra rily the in e q u a lity in in d iv id u a ls ’ in c o m e s : . . . The policy of E urope occasions a very im portant inequality in the whole of the advantages and disadvantages of the dif ferent employments of labour and stock, by restraining the competition in some employments to a smaller num ber than m ight otherwise be disposed to enter into them. (pp. 118-19) been a c o n te n tio u s b ta tes. It is in te re stin g lo e x a m in e the w a y in w h ic h th e ideas o f S m ith a p p ea r in cu rren t d eb a tes o v e r m o n o p o ly . In g e n e ra l, p ro p o n e n ts o f g o v e r n m e n t in te rv e n tio n in th e m a rk et p lace a rg u e that m o n o p o ly is e n d e m ic in ca p ita lism and that its elim in a tion req u ire s sig n ifica n t in te rv e n tio n b y the g o v e r n m e n t in the m arket p la ce. A n o p p o s in g g r o u p a rg u e s that free m a rk ets e ffe c tiv e ly restra in m o n o p o ly p o w e r and that it is in fa ct g o v e r n m e n t in terv en tion in the m a rk et p la ce that is c h ie fly resp on sib le fo r m o n o p o ly . T h e first g r o u p assu m es that la rg e size, fe w n e s s o f firm s, and o p e ra tio n o v er an e x te n siv e g e o g r a p h ic area a u to m a tica lly im p ly m o n o p o ly p o w e r and th u s su p p o rts its p o s itio n b y c itin g the e x iste n c e o f in d u stries d o m in a te d b y a fe w la rg e firm s and the e x is te n ce o f m u ltin a tio n a l c o r p o ra tio n s . The op p o s in g g ro u p su p p o rts its p o s itio n b y try in g to s h o w that w h e re m o n o p o ly p o w e r ex ists it is m ad e p o s sib le b y p a rticu la r g o v e rn m e n ta l a ctio n s, e.g., in the U n ite d S ta tes b y F ederal m ilk m a rk e tin g o rd e rs that fix the p rice o f m ilk a b o v e w h a t it w o u ld b e o th e r w ise , or F C C r e g u la tio n s re s tric tin g the g r o w t h o f ca b le T V , th e r e b y p r e v e n tin g c o m p e titio n w ith the e sta b lish ed n e tw o rk s. T h e v ie w T h e se co n d c r itic is m has a lw a y s issue in d eb a tes on p u b lic p o lic y in the U n ited o f the w o r ld s u g g e s te d in The W ea lth of Nations is th at m o n o p o ly p o w e r c a n n o t p e rsist w ith o u t th e a ssista n ce o f g o v e rn m en t. T h e s p e c ific e x a m p le s o f m o n o p o ly that A d a m S m ith a tta ck ed req u ire d the p o lice p o w e r o f th e state fo r th eir m a in ten a n ce. T h e s e m o n o p o lie s w e re o f th ree k in d s. O n e kin d o f m o n o p o ly d e p e n d e d u p on th e m e rca n tilis tic sy ste m o f la w s w h ic h E n g la n d u sed to m o n o p o liz e trad e w ith its c o l o n i e s : “ M o n o p o ly o f on e kin d or a n oth er, in d eed , se em s to be the sole e n g in e o f the m e rca n tile s y s te m .” (p . 595) A n o t h e r k in d a rose fro m th e m o n o p o ly p o w e r g ra n te d g u ild s (re fe r re d to b y S m ith as c o r p o r a tio n s ), w h ich a llo w e d th em e x clu siv e rig h ts to p ro d u c e a g iv e n c o m m o d i t y : The exclusive privilege of an incorpo rated trade necessarily restrains the com petition, in the town where it is estab lished, to those who are free of the trade. 9 To have served an apprenticeship in the tozvn, under a master properly qualified, is commonly the necessary requisite for obtaining this freedom. The by e-laws of the corporation regulate sometimes the num ber of apprentices which any master is allowed to have, and almost always the num ber of years which each apprentice is obliged to serve. The intention of both regulations is to restrain the competition to a much smaller num ber than m ight otherwise be disposed to enter into the trade. The lim itation of the num ber of apprentices restrains it directly. A long term of apprenticeship restrains it more indirectly, but as effectually, by increasing the expence of education, (p . 119) The government of toivns corporate was altogether in the hands of traders and artificers; and it was the manifest interest of every particular class of them, to pre vent the market from being overstocked, as they commonly express it, w ith their ozvn particidar species of industry; which is in reality to keep it always under stocked. (p . 124) deal above the natural price, those zvho employ their stocks in supplying that market are generally careful to conceal this change. I f it zvas commonly known, their great profit zvould tempt so many new rivals to employ their stocks in the same way, that, the effectual demand being fully supplied, the market price w ould soon be reduced to the natural price . . . . Secrets of this kind, however, it must be acknowledged, can seldom be long kept; and the extraordinary profit can last very little longer than they are kept. (p . 6 0 ) M o n o p o lis t s can p re se rv e th eir fa v o r a b le p o s i tion o n ly if th e g o v e r n m e n t p re v e n ts p o te n tia l c o m p e tito r s fr o m e n te rin g the m o n o p o liz e d a c tiv ity : The exclusive privileges of corpora tions, statutes of apprenticeship, and all those laws w hich restrain, in particular employments, the competition to a smaller num ber than m ight otherwise go into them, have the same tendency . . . . They . . . may frequently, for ages together, and in zvhole classes of employments, keep up the market price of particular com m odi ties above the natural price, and m aintain both the zvages of the labour and the profits of the stock employed about them somewhat above their natural rate. Such enhancements of the market price may last as long as the regulations of police w hich give occasion to them. (p p . 6 1 -2 ) A final k in d o f m o n o p o ly d e p e n d e d u p on ta riffs and q u o ta s that p re v e n te d fo r e ig n p ro d u c e r s from c o m p e tin g w ith d o m e s tic p r o d u c e r s : The superiority which the industry of the towns has every-where in Europe over that of the country, is not altogether owing to corporations and corporation laws. I t is supported by many other regu lations. The high duties upon foreign manufactures and upon all goods im ported by alien merchants, all tend to the same purpose. Corporation lazvs enable the inhabitants of towns to raise their prices, w ithout fearing to be under-sold by the free competition of their ozvn coun trymen. Those other regulations secure them equally against that of foreigners. (p . 127) F re e a m ark et. su ch S e lf-in te re st m akes a ch ie v e m e n t o f a d h e re n ce d iffic u lt b e ca u se has an in ce n tiv e to u n d e rcu t the M o n o p o ly p o w e r is in crea se d or m ad e th e e x e rcis e o f m o n o p o ly p o w e r a ttra ct n e w g u ild s, o r c o r p o r a tio n s , o f his d a y : in cre a se o u tp u t and W h e n by an increase in the effectual demand, the market price of some par ticular commodity happens to rise a good fo llo w in g p a ssa g e S m ith refers to th e re b y lo w e r p r i c e s : 10 seller m o n o p o ly p o s s ib le if e n fo r c e d b y th e g o v e r n m e n t. the who each p rice in o rd e r to in crea se his share o f th e m a r ca u se th e a b o v e -a v e r a g e p r o fits a sso cia te d w ith p ro d u ce rs of m o a d h e re n ce o f all a ctu a l and p o te n tia l sellers in ket. C o m p e titiv e m a rk ets restrain m o n o p o ly b e m a rk ets m ak e the fo rm a tio n n o p o ly d iffic u lt b e ca u s e m o n o p o ly req u ires the A n incorporation . . . makes the act of the m ajority binding upon the whole. In a free trade an effectual combination cannot be established but by the u nani mous consent of every single trader, and In the it cannot last longer than every single trader continues of the same m ind. The m ajority of a corporation can cnact a by e-law w ith proper penalties, which w ill lim it the competition more effectually and more durably than any voluntary combi nation whatever, (p . 129) [An] increase of competition w ould re duce the profits of the masters as well as the wages of the workm en I he trades, the crafts . . . zvould all be losers. But the public w ould be a gainer, the work of aii artificers coming in this way much cheap er to market, (p . 123) S m ith ’s id eas a p p ea r in cu rre n t p u b lic d eb a te S m ith a lso a rg u e s th at u n ion s d ecrea se the o v e r m o n o p o ly . A d v o c a t e s o f d e r e g u la tin g the n u m b e r o f w o rk e r s in th e u n io n iz e d se cto r and tra n sp o rta tio n and c o m m u n ic a tio n s in d u stries in crea se the n u m b e r in th e n o n u n io n iz e d s e c tor. T h e e ffe c t is to raise w a g e rates in the u n io n iz e d se c to r an d to lo w e r w a g e rates in b y e lim in a tin g o r r e d u c in g the p o w e r o f F e d eral r e g u la to r y a g e n cie s a rg u e that th ese a g e n cie s p r o m o te m o n o p o ly b y lim itin g th e en try o f n e w firm s an d b y fix in g p rice s fo r all p r o the n o n u n io n iz e d s e c to r , th e r e b y e ffe c tin g a tra n sfer o f in co m e fr o m n o n u n io n iz e d to u n io n d u cers. G o v e rn m e n t re g u la tio n s e n fo r c e d u p on ized w o r k e rs and p r o m o tin g a less equ al d istri all firm s in an in d u s try h a v e th e e ffe c t o f a l b u tio n o f i n c o m e : lo w in g p r o d u c e r s to elim in a te c o m p e titio n and to raise p rice s. co m p e titio n A t the sam e tim e, la ck o f re d u ce s in ce n tiv e s fo r e ffic ie n t p r o d u ctio n . M o n o p o ly ca n o c c u r in la b o r as w e ll as p r o d u ct m ark ets. T h e cra ft u n ion s o f to d a y , fo r e x a m p le, rese m b le the g u ild s o f S m ith ’s tim e. T o d a y u n ion s are u n iv e rsa lly a c c e p te d as p e r m a n en t in stitu tio n s in o u r s o c ie t y ; n e v e r th e less, th ere is co n tin u a l d eb a te o v e r th e e x te n t to w h ich g o v e r n m e n t sh o u ld use le g is la tio n as a m ean s o f in cre a s in g or lim itin g th e m o n o p o ly p o w e r o f u n ion s. Is it le g itim a te to u se m in i m u m w a g e la w s to p r o te c t u n ion s fr o m c o m p e tition o f lo w e r -w a g e n o n u n io n la b o r ? S h ou ld the g o v e r n m e n t d e n y w e lfa r e p a y m e n ts to strik in g w o r k e r s ? S h o u ld C o n g r e s s g iv e all state an d m u n icip a l e m p lo y e e s c o lle c tiv e b a r g a in in g rig h ts and th e rig h t to str ik e ? Is it d esira b le to use the D a v is -B a c o n an d W a ls h H e a ly A c t s to set u n ion rates fo r c o n tr a c to r s in v o lv e d in F e d e ra l c o n s tru c tio n w o r k , th e re b y lim itin g th e a b ility o f n o n u n io n la b o r to c o m p ete w ith u n ion la b o r b y o ffe r in g th eir la b o r at a lo w e r w a g e r a te ? S h ou ld C o n g re s s p erm it c o m m o n situ s, th at is, o n -site , p ic k e tin g b y on e u n ion w h e re sev era l u n ion s and s u b c o n tra c to r s are at w o r k ? T h o s e a r g u in g a g a in st le g isla tio n th at w o u ld in crea se th e m o n o p o ly p o w e r o f u n io n s e m p lo y the a rg u m e n ts set fo rth by S m ith . S m ith a rg u ed that a n y fo rm o f m o n o p o ly raises the p rice o f the a sso cia te d p r o d u c t : . . . the policy of E urope, by restraining the competition in some employments to a smaller num ber than w ould otherwise be disposed to enter into them, occasions a very im portant inequality in the whole of the advantages and disadvantages of the different employments of labour . . . . (p . 129) I t frequently happens that while high wages are given to the workm en in one manufacture, those in another are obliged to content themselves w ith bare subsis tence. The one is in an advancing state, and has, therefore, a continual demand for new hands: The other is in a declining state, and the super-abundance of hands is continually increasing. . . . the w ork men could easily change trades zvith one another, if . . . absurd laws did not hinder them. . . . and their wages would neither rise too high in the thriving, nor sink too low in the decaying manufacture. (p p . 134-5) S m ith a lso c r itic iz e s u n io n s on th e g ro u n d s that th e y p r e v e n t th e n o n u n io n w o rk e r from w o r k in g w h e r e v e r he d e s ir e s : The property w hich every man has in his own labour, as it is the original foun dation of all other property, so it is the most sacred and inviolable. The patri m ony of a poor m an lies in the strength and dexterity of his hands; and to hinder him from em ploying this strength and dexterity in w hat m anner he thinks prop er w ithout in ju ry to his neighbour, is a 11 plain violation of this most sacred prop erty. I t is a manifest encroachment upon the ju st liberty both of the w orkm an, and of those who m ight be disposed to employ him . A s it hinders the one from w orking at w hat he thinks proper, so it hinders the others from em ploying w hom they think proper. To judge whether he is fit to be employed, may surely be trusted to the discretion of the employers whose in terest it so m uch concerns, (p p . 121-2) A n issu e rela ted to the s u b je c t o f m o n o p o ly in la b or m a rk ets is lic e n s in g re q u ire m e n ts in certa in tra d es an d p ro fe s s io n s . T h e p u b lic ly stated reason fo r lic e n s in g in the p r o fe s s io n s is that it in su res q u a lity w o r k and p r o te c ts the co n su m e r. F r e e m a rk et p r o p o n e n ts n o te that the re q u irem e n ts th at m u st b e m et in o rd e r to re ce iv e a lice n se are g e n e ra lly set b y th e p r o fe ssio n itself. T h e y th en a rg u e that g iv e n this p riv ile g e , th e m e m b e rs o f a tra d e o r p r o fe s sio n A s d e s crib e d earlier, S m ith d is a p p r o v e d o f govern m en t su b sid ie s fo r th e sa m e g e n era l re a so n s th at he d isa p p ro v e d o f m o n o p o lie s . H e co m m e n ts as fo llo w s on su b sid ies to the fish in g in d u s t r y : Som ething like a bounty upon produc tion, however, has been granted upon some particular occasions. The tonnage bounties given to the white-herring and whale-fisheries may, perhaps, be con sidered as somewhat of this nature. They tend directly, it may be supposed, to render the goods cheaper in the home market than they otherwise w ould be. I n other respects their effects, it must be acknowledged, are the same as those of bounties upon exportation. B y means of them a part of the capital of the country is employed in bringing goods to market, of w hich the price does not repay the cost, together w ith the ordinary profits of stock, (p . 4 8 4 ) n a tu ra lly a ct in th e ir o w n se lf-in te re st b y lim it in g en try. T a x ic a b o w n e rs , b ea u ticia n s, p lu m b T h e s e sam e a rg u m e n ts are still u sed to d a y b y ers, and m em b e rs o f o th e r tra d es a lle g e d ly lim it c r itic s th ro u g h g r o u p s su ch as the m a ritim e in d u stry an d e x lic e n s in g re q u ire m e n ts w h o p ra ctice th e ir p r o fe s s io n . the n u m b er C ritics o f g o v - of govern m en t su b sid ie s to sp ecial p o rte rs. e rn m e n t-sp o n s o r e d lic e n s in g a rra n g e m e n ts use th e ideas o f S m ith w h e n th e y a rg u e th at c o n CENTRALIZED ECONOMIC PLANNING: su m ers, n ot m e m b e rs o f a g iv e n trade, sh ou ld D u r in g th e D e p r e s s io n d e cid e w h o is a b le to p r o v id e c o m p e te n t s e r b e g a n a b o u t th e n eed fo r so m e fo rm o f n a tion al v ice : e c o n o m ic p la n n in g in o rd e r to a ch ie v e c o m an im p o rta n t d eb ate m o n ly sh a red lo n g -r u n g o a ls . The pretence that corporations are necessary for the better government of the trade, is w ithout any foundation. The real and effectual discipline which is exer cised over a w orkm an, is not that of his corporation, but that of his customers. I t is the fear of losing their employment w hich restrains his frauds and corrects his negligence. A n exclusive corporation necessarily weakens the force of this dis cipline. A particular set of workmen must then be employed, let them behave well or ill. I t is upon this account, that in many large incorporated towns no toler able w orkm en are to be found, even in some of the most necessary trades. I f you w ould have your w ork tolerably executed, it must be done in the suburbs, where the workmen, having no exclusive privilege, have nothing but their character to de pend upon, and you m ust then smuggle it into the tozvn as well as you can. (p . 129) 12 T h e ideas o f S m ith h a v e a lw a y s p la y e d a p ro m in e n t ro le in th is deb a te. S m ith in The Wealth of Nations a rg u es that the a tta in m en t o f s o c ia lly d e sira b le g o a ls is b e s t a ch ie v e d n o t th ro u g h ce n tra liz e d e c o n o m ic p la n n in g , b u t rath er th r o u g h p la n n in g b y ea ch in d iv id u a l u sin g th e d eta iled k n o w le d g e o f his p a rticu la r situ a tio n , w ith th e sep arate p la n s o f all in d iv id u a ls c o o rd in a te d b y the im p e rso n a l d iscip lin e o f p rice s d e term in e d in the m a rk et p la ce. S m ith ’s p r e fe r e n c e fo r the se con d ty p e o f p la n n in g is s h o w n in the fo llo w in g passage: The uniform , constant, and uninterrupted effort of every m an to better his condition, the principle from w hich public and na tional, as well as private opulence is origi nally derived, is frequently powerful enough to m aintain the natural progress of things toward im provement, in spite both of the extravagance of government, and of the greatest errors of adm inistra tion. Like the unknow n principle of anim al life, it frequently restores health and vigour to the constitution, in spite, not only of the disease, but of the absurd prescriptions of the doctor, (p . 326) S m ith argu es th at g o v e r n m e n t a d m in istra tors ca n n o t p o s s ib ly p o ss e ss th e d eta iled in fo r m a tion n ece ssa ry in o rd e r to plan th e e c o n o m ic a ctiv itie s o f in d iv id u a ls : . . . the law ought always to trust people w ith the care of their own interest, as in their local situations they m ust generally be able to judge better of it than the legis lator can do. (p . 4 9 7 ) T h e a d v a n ta g e o f c o m p e titiv e m a rk ets is that d e cisio n s are m ad e b y th e in d iv id u a ls w ith the req u isite k n o w le d g e : Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own zvay, and to bring both his industry and capital into competition w ith those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform w hich he must always be exposed to innum erable delu sions, and for the proper performance of which no hum an wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it tozvards the employments most suitable to the interest of the society, (p . 6 5 1 ) S m ith v ie w e d th e g o v e r n m e n ts o f the m a jo r co u n trie s o f his d a y as w a s te fu l an d in e fficie n t. In con tra st, a c c o r d in g to S m ith , in d iv id u a ls b eca u se o f th eir d esire to b e tte r th eir co n d itio n are m o re lik e ly to b e fru g a l an d to o v e rse e ca re fu lly th eir e x p e n d itu re s. W it h re sp e ct to in d iv id u a ls, S m ith o b s e r v e s : W ith regard to profusion, the principle which prom pts to expence, is the passion for present enjoym ent; which, though sometimes violent and very difficult to be restrained, is in general only momentary and occasional. B u t the principle which prom pts to save, is the desire of bettering our condition, a desire which, though gen erally calm and dispassionate. comes -with v.s from the w o m b, and never leaves us til we go into the grave. . . . Though the principle of expence, therefore, prevails in almost all men upon some occasions, and in some men upon almost all occa sions, yet in the greater part of men, taking the whole course of their life at an average, the principle of frugality seems not only to predominate, but to predom i nate very greatly, (p p . 3 2 4 -5 ) T h e co n tr a s t w ith th e b e h a v io r o f g o v e rn m e n t is s tr ik in g : Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct, (p . 325) . . . though the profusion of government must, undoubtedly, have retarded the natural progress of E ng lan d towards wealth and im provement, it has not been able to stop it. . . . I n the m idst of all the exactions of government, . . . capital has been silently and gradually accumu lated by the private frugality and good conduct of individuals, by their universal, continual, and uninterrupted effort to better their own condition. I t is this effort, protected by law and allowed by liberty to exert itself in the m anner that is most advantageous, which has maintained the progress of E ng lan d towards opidence and improvement in almost all former times, and which, it is to be hoped, w ill do so in all future times. . . . I t is the highest impertinence and presumption, therefore, in kings and ministers, to pre tend to watch over the oeconomy of p ri vate people, and to restrain their expence, either by sumptuary laws, or by prohibit ing the im portation of foreign luxuries. They are themselves always, and w ithout any exception, the greatest spendthrifts in the society. Let them look w ell after their own expence, and they may safely trust private people w ith theirs. I f their ozun extravagance does not ru in the state, that of their subjects never will. (pp. 3 2 8 -9 ) A d a m S m ith is e sp e cia lly c r itica l o f the g o v ern m en t p la n n in g he o b s e r v e d in F ra n ce. F re n ch g o v e r n m e n t, fo llo w in g The m e rca n tilistic 13 p o licie s , a ssu m ed that the w e a lth o f the c o u n are led to c h o o s e th ese in v e stm e n ts in th e p u r try c o u ld o n ly b e in cre a se d th ro u g h cen tra l suit o f th eir o w n s e lf-in te r e s t: d ire ctio n o f the e c o n o m y . n in g in F ra n ce w a s G o v e r n m e n t p la n p e rs o n ifie d by “ th e fa m o u s m in ister o f L e w is X I V . C o lb e rt, . . . a m an o f p r o b it y , o f g re a t in d u stry and k n o w le d g e o f d e ta il; o f g re a t e x p e rie n c e and a cu te n e ss in the ex a m in a tio n o f p u b lic a cc o u n ts That minister had unfortunately embraced all the prejudices of the mercantile sys tem, in its nature and essence a system of restraint and regulation, and such as could scarce fail to be agreeable to a laborious and plodding m an of business, zvho had been accustomed to regulate the different departments of public offices, and to establish the necessary checks and controuls for confining each to its proper sphere. The industry and commerce of a great country he endeavoured to regulate upon the same model as the departments of a public office; and instead of allow ing every m an to pursue his own interest his own way, upon the liberal plan of equal ity, liberty and justice, he bestowed upon certain branches of industry extraordinary privileges, while he laid others under as extraordinary restraints, (p p . 6 2 7 -8 ) O p p o n e n ts o f g o v e rn m e n t p la n n in g to d a y d o little m o re than rep ea t the a rg u m e n ts o f S m ith. O ne fo r m o f g o v e r n m e n t p la n n in g o c c u r s . . . it is only for the sake of profit that any m an employs a capital in the support of in dustry ; and he w ill always, therefore, endeavour to employ it in the support of that industry of which the produce is likely to be of the greatest value . . . . B u t the annual revenue of every society is always precisely equal to the exchange able value of the whole annual produce of its industry . . . . A s every individual, therefore, endeavours . . . to direct that industry that its produce may be of the greatest value; every individual necessar ily labours to render the annual revenue of the society as great as he can. H e gen erally, indeed, neither intends to promote the public interest, nor knows hozv much he is prom oting it. . . . by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. N o r is it always the zvorse for the society that it was not part of it. B y pursuing his own interest he fre quently promotes that of the society more effectually than when he really intends to promote it. (p . 4 2 3 ) T h is e x a m p le is a sp e c ific illu stra tion of S m ith ’s g e n e ra l a rg u m e n t that g iv e n the p r o p w h en th e g o v e r n m e n t uses su b sid ie s to in flu er in stitu tio n s, s o c ie t y e n ce th e in v e stm e n t d e cisio n s o f p riv a te in d i m o te s its o w n la rg e r in terests b y le a v in g in d i vid u a ls. v id u a ls free to p u rsu e th eir o w n s e lf-in t e r e s t : sh o u ld The e x te n t to w h ic h in flu e n ce th e d ire ctio n g overn m en t F o r e x a m p le, it has been a rg u e d in the U n ite d S tates th at th e re se rv e re q u ire m e n ts o f a ban k sh ou ld b e a d ju s te d a c c o r d in g to the k in d s o f loan s th e b an k m akes. n ot s o le ly In v e stm e n ts sh o u ld be a c c o r d in g to th eir p r o fit a b ility , b u t ra th er a c c o r d in g to a set o f so cia l p rio ritie s d e fin e d b y C o n g re ss. A dam p ro o f p riv a te in v e stm e n t is th e s u b je c t o f m u ch cu rre n t deb a te. ju d g e d m o st e ffe c tiv e ly Every indiv idual is continually exert ing himself to find out the most advan tageous employment for whatever capital he can command. I t is his own advantage, indeed, and not that of the society, which he has in view. B u t the study of his own advantage naturally, or rather necessarily leads h im to prefer that employment which is most advantageous to the society. (p . 4 2 1 ) S m ith a rg u es that th e w ea lth o f a c o u n t r y is m o st e ffe c tiv e ly en h a n ce d b y a g o v A g a in , p la n n in g b y in d iv id u a ls is p re fe ra b le to e rn m en t p o lic y that m akes n o a tte m p t to in flu p la n n in g b y th e g o v e r n m e n t : e n ce h o w p riv a te in d iv id u a ls or b u sin e sse s a llo ca te th eir sa v in g s. A c o u n t r y ’s w e a lth is in cre a se d m o st if sa v in g s g o to th o se in v e stm e n ts w ith th e h ig h e st rate o f retu rn . 14 In d iv id u a ls W h a t is the species of domestic try which his capital can employ, zvliich the produce is likely to be greatest value, every individual, it indus and of of the is evi dent, can, in his local situation, judge much better than any statesman or law giver can do for him. The statesman, who should attempt to direct private people in w hat m anner they ought to employ their capitals, w ould not only load himself zvitli a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and w hich w ould nozvhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. (p . 4 2 3 ) p la ce in stead o f g o v e r n m e n t to b e the p rin cip a l a rb iter o f the d is tr ib u tio n o f in c o m e a rg u e that w e a k e n in g th e re la tio n sh ip b e tw e e n la b o r and the re ce ip t o f the re w a rd s fo r that la b o r d u lls in ce n tiv e s and th e r e b y reta rd s th e g r o w th o f the e c o n o m y . T h is a rg u m e n t is m a d e r e p e a t ed ly b y A d a m S m ith . A co n sta n t th em e in The Wealth of Nations is the im p o rta n ce o f m a in ta in in g a s tr o n g re la tion sh ip b e tw e e n w ork . says: M o d e rn o p p o n e n ts o f g o v e r n m e n ta l a ttem p ts to in flu e n ce the a llo ca tio n o f p riv a te in v e s t m en t u se th e a rg u m e n ts o f S m ith . F or ex w o r k an d th e re w a rd s fo r W it h re g a rd to w a g e ea rn in g s, S m ith The zvages of labour are the encourage ment of industry, which, like every other hum an quality, improves in proportion to the encouragement it receives, (p . 8 1 ) am p le, on th e b a sis o f th ese a rg u m e n ts, th e y c ritic iz e sp ecia l g o v e r n m e n t e ffo r ts to p r o m o te h ou sin g . In th e U n ite d S ta tes su ch e ffo rts in clu d e in co m e ta x d e d u c tio n s fo r in te re st p a y m en ts on m o rtg a g e s, h ig h e r le g a l in terest rate That security zvhich the laws in Great B ritain give to every m an that he shall enjoy the fruits of his own labour, is alone sufficient to make any country flourish . . . . (p . 5 08) ce ilin g s 011 tim e d e p o sits at s a v in g s and loan to S m ith ev en has an a m u s in g s to r y a b o u t th e fin a n ce h o u s in g as th r o u g h th e F H A , G in n ie e ffe ct o f a c h a n g e in th e a rra n g e m e n ts fo r re w a rd in g la b or on th e m o tiv a tio n o f s o ld ie r s : in stitu tion s than at b a n k s, and su b sid ie s M ae, F a n n ie M a e, and V A p r o g ra m s . T hey a lso c r itic iz e ta x la w s th at ta x in c o m e fro m ca p ita l at d iffe r in g rates, th e r e b y c a u s in g sa v in g s to flo w fro m m o re to less p r o d u c tiv e in v estm en ts. E x a m p le s o f su ch la w s are the c o rp o ra tio n in co m e ta x , w h ich ta x e s in co m e fro m ca p ita l g en e ra te d in the c o r p o r a te s e cto r b u t n ot in the n o n -c o r p o r a te s e cto r, an d capital ga in s ta x es, w h ich a c c o r d d iffe r e n tia l tre a t m en t to o rd in a r y and ca p ita l g a in s in c o m e fro m cap ital. The Wealth of Nations a lso d is cu s se s issues that arise ou t o f the v a ria n t o f n a tio n a l e c o n o m ic p la n n in g in w h ic h th e g o v e r n m e n t in stead of th e m a rk et p la ce d istrib u tio n o f in co m e . d e te rm in e s the T o d a y som e am ount o f g o v e r n m e n ta l re d istrib u tio n o f in c o m e is u n iv e rs a lly a cce p te d th ro u g h th e g ra d u a te d in c o m e tax, w elfa re , u n e m p lo y m e n t c o m p e n s a tion , and so on . T h e cu rre n t issu e in p u b lic p o lic y d e b a te is w h e th e r the r e ce n t g r o w t h o f the ro le o f the g o v e r n m e n t in d e te r m in in g the d istrib u tio n . . . natural proportion which w ould otherwise establish itself between judicious industry and profit, and which, to the general industry of the country, is of all encouragements the greatest and the most effectual, (p . 7 1 6 ) or T h e s e sen tim en ts r e cu r in a q u o te in w h ich S m ith d e scrib e s as th e m o st im p o rta n t ca u se o f E n g la n d ’s p r o s p e r it y i t s : sh ou ld b e lim ited size the im p o rta n ce o f a llo w in g th e m ark et W it h re g a rd to p r o fits , S m ith a rg u e s a g a in st socia l a rra n g e m e n ts w h ic h in te rfe re w ith the In d iv id u a ls w h o e m p h a o f in c o m e a llo w e d to con tin u e . W e do not reckon our soldiers the most industrious set of people am ong us. Yet when soldiers have been employed in some particular sorts of work, and liber ally paid by the piece, their officers have frequently been obliged to stipulate w ith the undertaker, that they should not be allowed to earn above a certain sum every day, according to the rate at which they were paid. T ill this stipulation zvas made, m utual emulation and the desire of great er gain, frequently prom pted them to over-work themselves, and to hu rt their health by excessive labour, (p . 8 2 ) 15 . . . equal and im partial administration of justice zvhich renders the rights of the w.p.a.na.st. n .trd i ~ c— u hji p--r t--rp. p ~--.rin h*lp . t.n t h e ’’' ~ ---- H • —i-h r~ greatest, and which, by securing to every m an the fruits of his own industry, gives the greatest and most effectual encourage ment to every sort of industry, (p . 576) a rb itra ry re d istrib u tio n o f in c o m e is n o t a valid ju s tifica tio n o f a p a rticu la r p ie ce o f le g isla tion o r r e g u la t io n : To hurt in any degree the interest of any one order of citizens, for no other purpose but to promote that of some other, is evidently contrary to that justice and equality of treatment which the sov ereign owes to all the different orders of his subjects, (p . 618) Why Have Smith’s Ideas Persisted? O n e rea son fo r th e p e rsiste n ce o f S m ith ’ s id eas is that th e y d e s c rib e h o w to attain a g o a l a ssu m ed to b e s o c ia lly d esira b le n o t ju st b y S m ith b u t a lso b y m a n y in d iv id u a ls tod a y . T h e first tw o se n te n ce s in The W ealth of Nations a ssu m e th e s o cia l d e sira b ility o f m a x i A n o t h e r reason fo r the p e rsiste n ce o f S m ith ’s id eas is that th e y d e scrib e th e m o tiv a tio n b e h in d th e m a rk et b e h a v io r o f in d iv id u a ls in a w a y m a n y still b e lie v e to b e apt to d a y . m o tiv a tin g m izing- p er ca p ita in c o m e : fo r c e is of co u r s e T h is se lf-in te rest. O th e r s h a v e re a cte d s tr o n g ly to ch a r a c te riz in g in d iv id u a l b e h a v io r in th ese term s. The annual labour of every nation is the fu nd w hich originally supplies it with all the necessaries and conveniencies of life w hich it annually consumes, and which consist always either in the immediate produce of that labour, or in what is pur chased w ith that produce from other na tions. A ccording therefore, as this produce, or zvhat is purchased w ith it, bears a greater or smaller proportion to the number of those zvho are to consume it, the nation w ill be better or worse supplied w ith all the necessaries and conveniencies for w hich it has occasion, (p . lvii) C o n te m p o r a r y d e fe n d e rs of S m ith ’s c h o ic e o f w o r d s, e.g., in d iv id u a ls m a y b e c h a r a cte riz e d as m o tiv a te d b y a d esire to im p ro v e th eir sta n d a rd o f liv in g or to p r o v id e b e tte r fo r th eir fa m ilies. A s k e d to d e s crib e th eir o w n m o tiv a tio n s , th ey th in k in term s like “ b e n e v o le n c e ,” n o t “ selfin te r e st.” ideas T h e la rg e r th e size o f a c o u n t r y ’s in c o m e , th e m o re th e re is to re d istrib u te th ro u g h d irect th e g ra d u a te d in c o m e ta x or th ro u g h S m ith ’s d efen d ers a lso a rg u e that th e g o a l o f le ss e n in g the in eq u a lity o f th e d istrib u tio n o f in c o m e d oes n ot in v a li date his c ritic is m s o f s p e cific kin d s o f g o v e r n m en t in te rv e n tio n in the m a rk et p lace, such as g o v e r n m e n t su b s id ie s or g o v e r n m e n ta lly en fo r c e d m o n o p o lie s . S u ch fo r m s o f in terv en tion are ch a ra cte r iz e d as c lu m s y o r cru d e w a y s to re d istrib u te in c o m e an d lia b le to abuse. C ritics o f su ch in te r v e n tio n cla im that in p ra ctice th ey are u sed to r e d is trib u te in co m e fro m the g e n eral p u b lic to th e p o litic a lly in flu en tial. 16 Y e t o th e r in d iv id u a ls m ig h t a g ree w ith th e c h a ra cte riz a tion o f S m ith b u t w o u ld g o a l w id e ly h eld to b e s o c ia lly desirable, le ss e n in g th e in e q u a lity o f the d istrib u tio n o f in p a y m e n ts to th e p o o r . S o m e o f th e a d v e rse re a ction d e riv e s fro m a n eed b y in d iv id u a ls to see th e m se lv e s in a w a y that th e y re g a rd as w o rth y . a rg u e that this g o a l is co m p a tib le w ith a n oth er com e. S om e of th e a d v e rse re a ctio n is m itig a te d b y a d iffe re n t An p r e fe r to h a v e in d iv id u a ls m o tiv a te d b y fo r c e s o th e r than self-in te re st. T h e y feel that if in sti tu tio n s co u ld b e ch a n g e d , lo ftie r and n o b le r m o tiv a tio n s w o u ld e m e rg e to o rd e r so cia l re la tion s. A fin a l ca u se o f a d v erse re a ctio n to S m ith ’ s c h a r a cte riz a tio n o f h um an b e h a v io r in te rm s o f se lf-in te r e s t is s im p ly the resu lt o f a m isu n d e r sta n d in g o f w h a t w a s o f c o n c e r n to S m ith in T he W ea lth of Nations. S m ith b e lie v e d that th e w e a lth o f a n a tion in cre a se d b e ca u s e o f a d v a n ce s in th e d iv isio n o f la b o r and the c o n c o m ita n t e x te n sio n o f m ark ets. S m ith d e s crib e s th e a lm o st in c o m p re h e n s ib le c o m p le x ity of su ch m a rk ets in a “ c iv iliz e d ” c o u n t r y in the fo llo w in g sm all e x c e r p t fr o m a m u ch la rg er p a ss a g e on the s u b je c t : Observe the accommodation of the most common artificer or day-labourer in a civilised and thriving country, and you w ill perceive that the num ber of people of whose industry a part, though but a small part, has been employed in procur ing him this accommodation, exceeds all computation. The woollen coat, for ex ample, w hich covers the day-labourer, as coarse and rough as it may appear, is the produce of the jo in t labour of a great m ultitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spin ner, the weaver, the fuller, the dresser, ivith many others, must all jo in their d if ferent arts in order to complete even this homely production. H o w many m er chants and carriers, besides, must have been employed in transporting the m a terials from some of those workm en to others who often live in a very distant part of the country! (p . 11) in terest. C o n v e rs e ly , he w a s in te re ste d in h o w in stitu tion s c o u ld p u t s e lf-in te r e s t at v a ria n ce w ith the g en era l in terest. A s the fo llo w in g p a s sa g e s sh o w , u n fo rtu n a te in stitu tion a l a rra n g e m e n ts h a v e p r o d u c e d u n fo rtu n a te resu lts in th e p ast. p ro d u c e the sam e re su lts in th e p resen t d ay. T h e first p a ssa g e re fe rs to th e p r a c tic e o f ra is in g rev en u e b y r e q u ir in g th e p a y m e n t o f a su m o f m o n e y fr o m p e rso n s s e e k in g red ress in co u rt: T h e co n tra st b e tw e e n the n u m b e r o f in d iv id uals w ith w h o m a p e rso n in tera cts in th e m a r k et p la ce and in his p e rso n a l life is s tr ik in g : to the n u m b er o f p a g e s th e y w r o t e : S m ith in The Wealth of Nations is c o n ce rn e d w ith the first k in d o f in te ra ctio n , that b e tw e e n bu t se lf-in te re s t c o u ld o rg a n iz e su ch size and c o m p le x it y ? W h a t else re la tio n s This scheme of m aking the adm inistra tion of justice subservient to the purposes of revenue, could scarce fail to be produc tive of several very gross abuses. The person, who applied for justice w ith a large present in his hand, was likely to get something more than ju stice; while he, who applied for it w ith a sm all one, was likely to get som ething less. (p . 6 7 5 ) In S m ith ’s d ay la w c le rk s w e r e p a id a c c o r d in g I n civilised society he [man] stands at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons, (p . 1 4 )6 in d iv id u a ls in th e m a rk et p la ce. T h e rea d er m a y d e cid e w h eth er th e sa m e a rra n g e m e n ts w o u ld of S e lf-in te re st in the m a rk et p la ce, h o w e v e r , is p e r fe c tly c o m p a tib le w ith the d o m in a n c e o f p r a is e w o r th y m o tiv e s in an in d iv id u a l’s re la tio n s w ith his fa m ily and frien d s. I t has been the custom in m odern E urope to regulate, upon most occasions, the pay ment of the attornies and clerks of court, according to the num ber of pages which they had occasion to w rite ; the court, however, requiring that each page should contain so many lines, and each line so many words. I n order to increase their payment, the attornies and clerks have contrived to m ultiply w ords beyond all necessity, to the corruption of the law language of, I believe, every court of justice in Europe, (p . 6 8 0 ) A m o re seriou s e x a m p le o f h o w S m ith fe lt M u ch o f The Wealth of Nations is d e v o te d to d e s c r ib in g h o w d iffe r in g in stitu tio n a l a r ra n g em en ts a ffe c t h u m an b e h a v io r. B e ca u se in stitu tion a l a rra n g e m e n ts a ffe c te d b e h a v io r is fo u n d in his d iscu ss io n o f th e E a s t In d ia C o m p an y. S m ith a rg u e d th a t as a resu lt o f the m a n y to d a y a c ce p t th e im p o r ta n c e S m ith a t m o n o p o ly g ra n te d to th e C o m p a n y , its m e m ta ch ed to s e lf-in te re st as the m o tiv a tin g fo r c e b ers in in d iv id u a ls’ re la tio n s o u tsid e th eir c ir c le o f co u n trie s frien d s and in terest. fa m ily , his o b s e r v a tio n s relev a n t to th em . rem ain d e s tro y e d th e w e a lth in th e p u rsu it of of th e th e ir govern ed ow n se lf- T h is resu lt, h o w e v e r , w a s ca u sed b y T h e r e is o f co u rse n o n eed u n fo rtu n a te in stitu tio n a l a rra n g e m e n ts, n o t b e fo r a p e rso n in te re ste d in th e d e sig n o f in s titu ca u se o f the b a d ch a r a c te r o f th o s e in ch a rg e tion s to be a b e lie v e r in la issez faire to fin d o f the C o m p a n y : th ese o b s e rv a tio n s in te re stin g or p e rce p tiv e . S m ith w a s in te re ste d in d e s ig n in g in stitu tio n s so that se lf-in te re s t w o u ld p r o m o te the g en e ra l I mean not, hoivever, by any thing which I have here said, to throw any 17 odious im putation upon the general char acter oj the servants of the Hast Ind ia company, and m uch less upon that of any par he a i ay ye? sons. I t is the system of government, the situation in which they are placed, that I mean to censure; not the character of those who have acted in it. They acted as their situation naturally directed, and they who have clamoured the loudest against them would, probably, not have acted better themselves, (pp. 6 0 5 -6 ) m ark ets, i.e., th r o u g h the s c ie n tific a p p roa ch b y S m ith . S m ith v ie w e d the m a rk et p la ce, free o f g o v ern m en t in te rfe re n ce an d g o v e r n m e n ta lly s u p p o rte d m o n o p o lie s , as a p la ce w h e re in d iv id uals v o lu n ta r ily e x c h a n g e g o o d s and se rv ice s a m o n g each o th e r as a m ean s o f p r o m o tin g th eir m u tu a l w e lfa re . C ritics o f S m ith o fte n d ism iss his p o lic y p re sc r ip tio n s fo r lim itin g the role o f the state in th e m a rk et p la ce b y a sse rt in g th at th is w o r ld o f c o m p e titiv e m a rk ets n o S m ith ’s in te lle ctu a l le g a cy c o n sists o f m o re lo n g e r e x ists. T h e m a rk et p la ce is n o w ch a r than n u m e ro u s p re scrip tio n s fo r p ro b le m s in a cte riz e d b y g re a t c o n c e n tr a tio n s o f p o w e r in p u b lic p o l i c y : it c o n sists a lso o f a w a y o f lo o k the h ands o f a sm a ll n u m b e r o f la rg e c o r p o r a in g at p ro b le m s . tion s. S m ith m ade e x p licit his v ie w E x c h a n g e is n o lo n g e r m u tu a lly a d v a n o f w h a t m o tiv a te s th e b e h a v io r o f in d iv id u a ls, i.e., th e ir “ p r o p e n s ity to tru ck , b arter, and e x e x p lo itiv e e x c h a n g e b e tw e e n g re a t c o n c e n tr a ch a n g e o n e th in g fo r a n o th e r” to sa tisfy th eir “ o w n n e c e s s itie s ,” an d he used this fra m ew o rk in te rv e n tio n o f th e g o v e r n m e n t is co n s id e re d ta g e o u s tra d e b e tw e e n tion s in d iv id u a ls ; it is an o f p o w e r an d w e a k in d iv id u a ls. The to in te rp re t all m a rk et b e h a v io r. G iv en this v ie w o f w h a t m o tiv a te s the m ark et b e h a v io r o f n e ce ss a ry to re d ress th e re la tiv e w e a k n e ss o f in d iv id u a ls, in a re ce n t a rticle a d v o c a tin g in crea sed g o v S m ith co u ld d ra w im p lica tio n s a b o u t th e e ffe c ts on b e h a v io r o f d iffe re n t kin d s the in d iv id u a l. F o r e x a m p le , o n e a u th or w rite s ern m en t p la n n in g : o f in stitu tio n s. S m ith ex a m in ed the v a lid ity o f th ese im p lica tio n s th ro u g h the m e ticu lo u s o b s e rv a tio n o f g r e a t n u m b ers o f e x a m p les of m a rk et b e h a v io r d ra w n fro m his o w n d ay and fro m h is to ry . S m ith m ore than a n y o n e else h elp ed to m a k e e c o n o m ic s in to a sp ecia l d is c i p lin e o r scie n ce . It is a p p r o p r ia te to n ote that this em p irica l a p p ro a ch to u n d e rs ta n d in g h o w the w o r ld w o rk s , an a p p r o a c h d e v e lo p e d to a sig n ifica n t e x te n t b y S m ith , is th e v e r y a p p ro a ch that w ill d e cid e th e d e g r e e to w h ich his p a rticu la r p o lic y p re s c r ip tio n s rem a in releva n t to d a y . S m ith ’s p a rticu la r p o lic y p re scrip tio n s m a y b e m o d ifie d or a b a n d o n e d , y e t h is a p p roa ch to r e s o lv in g p u b lic p o lic y p r o b le m s w ill rem ain im p orta n t. . . . we are all uncomfortably aware that the economy itself has become very differ ent from the one described in the text books. H ig h ly concentrated sectors exist in which large corporations and unions have fortified themselves against the nor m al influences of market forces. A bou t a third of the gross national product passes through the hands of the federal, state and local governments. The laws of supply and dem and do not operate uniform ly across the competitive sector, the concen trated sector and the government sector. That elegant optim ising machine de scribed by A d a m S m ith, which has been a source of deep intellectual and moral satis faction to ten generations of economists, no longer corresponds to reality? F o r e x a m p le , m o d e rn critics and d efen d ers o f S m ith ’s la isse z fa ire p o lic y p re scrip tio n s c h a r S u p p o rte rs o f S m ith ’s p o lic y p r e sc r ip tio n s a cte riz e th e o r g a n iz a tio n o f m a rk ets to d a y in c h a lle n g e this d e s c rip tio n o f th e m a rk et p lace. c o n tr a d ic t o r y te rm s. T h e fo llo w in g b rie f d e T h e y a rg u e that a c o n c e n tra te d in d u stry is n ot scr ip tio n o f th e v ie w s o f each g ro u p that f o l n e ce ss a rily n o n c o m p e t it iv e ; fe w n e s s o f firm s lo w s A m a y r e fle ct o n ly e c o n o m ie s o f sca le in p r o d u c tion . T h e steel in d u stry , fo r ex a m p le , m u st is in te n d e d to s u g g e st that th ere p la u sib le a rg u m e n ts to su p p o rt either vie w . are re s o lu tio n o f th e se c o n flic tin g v ie w s w ill n e c e s c o m p e te w ith fo r e ig n im p o rts and w ith in d u s s a rily h a v e to b e m ad e th ro u g h ca refu l, s y s tries w h o s e p r o d u c ts can be u sed in p la ce o f te m a tic steel, su ch as a lu m in u m and c o n cre te . s tu d y 18 o f th e a ctu al o rg a n iz a tio n of F u r th erm ore, w h ile g overn m en t the m ay g row th h ave of re d u ce d u n io n s o th e r fo rce s in the m e a n tim e h a v e in crea sed co m p e titio n . The c o s ts o f in fo r m a tio n and tra n sp orta tion h ave d e cre a se d sh a rp ly . T h e c o s t to the co n su m e r o f a c q u ir in g in fo r m a tion on the p rice s o f c o m p e tin g p r o d u c ts has d ecrea sed b eca u se o f in cre a se d a cce ss to a d v e r tis in g v ia T V , radio, n e w sp a p e rs, and m a g a zin es. T h e a d v en t o f th e ca r has re d u ce d the c o s t o f co m p a r a tiv e sh o p p in g . The m arket itse lf resp on d s to the d e m a n d fo r in crea sed in fo rm a tio n ca u sed by the d e v e lo p m e n t te c h n o lo g ic a lly c o m p le x p ro d u cts . Conclusion and c o m p e titio n , O n e d iffic u lt y w ith d e fe n d in g the p re se n t day r e le v a n ce o f S m ith is that his ideas h a v e b e c o m e so th o r o u g h ly a b s o rb e d in to o u r in te l lectu a l h e rita g e th a t th e y are n o lo n g e r id e n ti fia b le as h a v in g o r ig in a te d w ith A d a m S m ith . It is h o p e d that th is a rticle w ill c o n tr ib u te to a r e co g n itio n o f the r e le v a n ce o f S m ith ’s ideas by p o in tin g out th e re m a rk a b le num ber of th em still u sed in cu rre n t d e b a te s o v e r p u b lic p o licy . Robert L. Hetzel of F irm s s p e c ia liz in g in the d isse m in a tio n o f in fo rm a tio n (s u c h as b ro k e rs g iv in g tra v el a g en cies, p u b lish e rs in v e s tm e n t of a d v ice , m a g a z in e s on ca rs o r b oa ts, c o n s u m e r p r o d u c t ra tin g agen cies, and so o n ) arise. I f the d e m a n d ex ists, p ro d u ce rs sell a jo in t p r o d u c t o f a c o m m o d ity Footnotes an d a w a rra n ty . P r o b a b ly m o re im p o rta n t, s o m e p ro d u ce rs and m id d le m e n fo r a n y g iv e n 1 E d w a r d G . B o u r n e , “ A le x a n d e r H a m i lt o n a n d A d a m p r o d u c t h ave an in c e n tiv e to m ak e in v e stm e n ts S m it h ,” in th eir rep u ta tio n s b y c o n s is te n tly p r o v id in g The Quarterly Journal of E con om ics, 3 ( A p r il 1894), 328-44. I f a c o n s u m e r ig n o r a n t o f 2 M illic e n t E . S o w e rb y , Catalogue o f T h e Library o f e le ctro n ics w a n ts to b u y a p o ck e t c a lcu la to r, Thom as Jefferson ( W a s h in g t o n , D . C . : T h e L ib r a r y relia b le p ro d u cts . he has the o p p o r tu n ity to b u y a n a m e b ra n d o f C o n g re ss , 1953), V . I l l , 438. co m p u te r from a store w h ic h sells o n ly q u a lity 3 Ibid., p. 438. m erch a n d ise. F r e n c h th in k e r s o n p o litic a l e c o n o m y . T h e c o s t o f s h ip p in g g o o d s has d ecrea sed , so that in a n y m a rk et o f m o d e ra te T he E c o n o m is ts w e re a school of 4 P a g e references are in p are n th e s e s a n d re fe r to the size a p ro d u ce r o f a lm o st a n y c o m m o d it y is C a n a a n e d itio n o f T h e W ealth o f Nations in th e M o d lia b le to fin d h im se lf in c o m p e titio n w ith c o m m o d itie s fro m a n y p art o f the w o r ld . A m e ric a n ern L ib r a r y Series, R a n d o m 5 W il l i a m la b o r m ark ets are c h a ra cte riz e d b y h ig h m o Y o r k : R a n d o m H o u s e , 1965), V . I , 128. b ility ca u sed b y w o rk e rs lo o k in g fo r a d v a n 0 T h is p a r a g r a p h a n d ta g e o u s jo b o p p o rtu n itie s. w ere s u g g e ste d by R o n a ld C o ase in a le c tu re d e liv e re d T h e kin d o f ca refu l D. G ra m p p , H o u s e , N e w Y o r k , 1937. E con om ic Liberalism th e re le v a n c e o f th e q u o t a t io n a n a ly sis o f m a rk ets p e r fo rm e d b y S m ith m ig h t a t th e U n iv e r s ity o f V ir g i n ia o n A p r il 2, 1976. w e ll s h o w that m a rk ets are s ig n ific a n tly m ore 7M y ro n c o m p e titiv e to d a y than in S m ith ’s day. b a te ,” Business E conom ics, 11 ( J a n u a r y (N e w E . S h a rp e , “ P la n n in g : T h e U n p le a s a n t D e 1976), 32. 19 Highlights Earnings and Capital Accounts N et e a rn in g s b e fo r e p a y m e n ts to the U n ited States T reasu ry increased by $39,778,062.W to $465,686,746.03 in 1976. Six percent statutory dividends totaling $3,196,167.72 were paid to F ifth D is tric t m e m b e r ban k s, and the sum o f $460,343,578.31 was turned over to the United States T reasury. Capital stock increased by $2,147,000 to $53,931,900 as m e m b e r b an k s in crea sed their stockholdings in this Bank, as required by law, to reflect the rise in their own capital and surplus accounts. T h e B ank’s surplus account increased $2,147,000 to a total of $53,931,900. Discount Rate In 1976 the Federal R eserve Bank of R ichm ond low ered its discount rate twice to bring it into better alignm ent with short-term interest rates. O n January 19 the discount rate was reduced from 6 percent to 5 ^ percent. T he rate was further reduced to 5 j4 percent on N ovem ber 22. New Building Program Construction progress on the new Richm ond Bank building continued unabated during 1976. A m ilestone was reached on O ctober 29 when topping-out occurred, signaling com pletion of the erection of som e 9,000 tons of structural steel. A w h ite p a in te d steel b e a m w it h th e A m e r ic a n fla g a tta c h e d is s h o w n a p p r o a c h in g the n o r th w e s t c o rn e r o f th e n e w b u ild in g w h e re its in s ta lla tio n , k n o w n as to p p in g - o u t, w ill s y m b o liz e th e c o m p le tio n o f s tr u c t u r a l steel w o rk . A lso com pleted during the year was the instal Prelim inary planning tow ard a new B altim ore B ranch building continues. F ord and E arl Design lation of approxim ately 3,800 tons of reinforcing A ssociates of W arren, M ichigan, has com pleted steel and approxim ately 575,000 square feet of the m a jor portion of the space planning program , steel deck. which is currently being review ed with the Board C oncrete w ork for the three below - grade levels and garage, which required some 53,000 cubic yards of concrete, was completed. P ou rin g o f concrete floors in the tower, requiring approxim ately 9,700 cubic yards of material, of G overnors. Check Collection Operations and application of sprayed-on fireproofing were A utom ated Clearing H ou se ( A C H ) operations w ere expanded this year at m ost Fifth District finished. R eserve offices, in both the com m ercial and G o v In O ctober and N ovem ber, installation o f curtain wall and dry wall, respectively, was ernment payments areas. begun. M echanical equipment, generators, and coolin g tow ers w ere set in place on the 25th and roll deposit transactions processed last year for the V irgin ia A utom ated Clearing H ou se A s s o ci ation and the U. S. A ir F orce, respectively, 1976 26th floors. A t year end mechanical installation, piping, duct w ork, and electrical w ork were p ro gressing satisfactorily. B arrin g m a jor problem s, it is expected that the In addition to the pay A C H operations also involved the direct deposit of Social Security and Federal R evenue Sharing p roject will be com pleted in late 1977 as orig i payments. In O ctober, when the System began processing the R evenue payments, R ichm ond was nally scheduled. designated the national disbursing center for these 20 transactions. A s such, the R ichm ond Federal by M ay 1977. R eserve Bank distributes these payments to all O n ce the Center becom es o p e r ational, the five planned check processing facilities Federal R eserve offices for disbursement to banks will have been com pleted, and the regional clearing in their respective territories. concept will have been fully im plemented in the Fifth District. T he same month. Social Security payments were converted to the A C H operation. T his action resulted in an e x pansion of the volum e o f Governm ent payments Other Developments at District Offices processed by the A C H from about 12,000 in D e A s previously m entioned, the Charleston O ffice cem ber 1975 to approxim ately 78,000 in O ctober was opened in 1976. 1976. ber for the approxim ately 50-m em ber staff, and T his year an A C H was established at the Char lotte O ffice. the O ffice started lim ited check processing op er ations on N ovem ber 18. There, as in R ichm ond and B alti m ore, payroll deposit transactions for the Social Security Adm inistration are processed, payroll deposits for the N orth mated Clearing C H A ) banks. H ou se T h e Baltimore O ffice acquired responsibility for are servicing coin and currency requirem ents o f M a ry Carolina A u to land banks that had form erly been served by the A ssociation as T rain in g began in Septem (N O R C A - A C H operations at the Baltim ore Branch expanded in O ctober with the inaugura tion of the Social Security direct deposit program there. U . S. Treasury cash office. Plans call fo r e x panding these functions to banks in W ashington, D. C., in 1977. In F ebruary, B altim ore’s check processing operations center relocated in that city’s suburban area. A R egional Check Clearing Center was estab A t the Charlotte O ffice, new equipment fo r the lished in Charleston, W e st V irginia, to process destruction of redeem ed fo o d coupons and unfit checks in that state. currency was installed. Plans call for that O ffice to C onsisting prim arily o f a assume full check collection responsibility fo r v ir rotary cutter, the new nonpolluting equipment re tually all the Fifth D istrict’s W e st V irginia region places the old sm oke-em itting incineration process. New Member Banks T h e follow in g newly chartered banks in the Fifth District opened fo r business during 1976 as m em bers o f the Federal R eserve System. N ation al B anks United N ational Bank P atrick H enry N ational Bank Fayetteville, North C arolina Bassett, V irgin ia M arch 8 O ctober 29 L ynchburg, V irgin ia V irgin ia Beach, V irgin ia June 21 Septem ber 7 S ta te Banks M etropolitan Bank o f Central V irgin ia Bank o f V irg in ia Beach T h e follow in g Fifth District financial institutions became members o f the Federal R eserve System during the year. The Thurm ont Bank Thurm ont, M aryland F eb ru a ry 2 V irg in ia N ational B ank /R ich m on d (F orm erly V irg in ia T rust C om pany) Richmond, V irgin ia O ctober 21 Peoples Bank o f D anville (F orm erly Peoples Industrial Loan C orporation) Danville, V irgin ia N ovem ber 29 21 Fifth District Communications N aom i G. Albanese, Dean, School of H om e E c o In A u gu st, the com m unications systems at C ul peper and in each Federal Reserve District w ere expanded to facilitate the electronic transmission of com pu ter-gcn crated files or “ bulk data.” T his bulk data com m unications system is used to trans fer large quantities of data between District head offices and the B oard of G overnors. It is also used to transmit direct deposit payments from the Federal governm ent, including Revenue Sharing. Social Security, and A ir F orce payroll. F ifth D istrict m em ber banks elected one Class A and one Class B D irector to three-year terms on the R ich m on d B oard o f Directors in the early fall. B. R obards, Jr., President, R ock H ill National Bank, R o ck Hill, South Carolina, was elected a Class A Pearson, Jr., D irector to succeed Plato P. President and Chief E xecutive O fficer, Independence National Bank, Gastonia, N orth Carolina, w h ose term expired at the end of 1976. A n d rew L . Clark, President, A n d y Clark F ord , Inc., P rinceton, W est V irginia, was re elected by banks in G roup 3 as a Class B Director. T h e R ich m on d B oard reappointed W . B. A pple, Jr., President, F irst National Bank of Reidsville, R eidsville, N orth January 1, 1977, and she succeeded Charles W . D eB ell, General M anager, N orth Carolina W o rk s. W estern Electric Com pany, Inc., W in ston -S alem . ---------------\T n t*tli (— — n r n lm n f p r m ^ o v m r/ a rl o f C v* e tc U iV , o n A of 1976. Reappointed to the B altim ore Board for a three-year term was I. E. Killian, M anager. Eastern R egion, E xxon C om pany, U. S. A .. John H. Baltimore, M aryland. Federal Advisory Council Changes in Directors F rank nomics, U niversity of N orth Carolina, G reensboro. N orth Carolina. Pier appointment was effective Carolina, and T . L. Benson, The B oard of D irectors reappointed Lum pkin, Chairman o f the B oard and Chief E x e c utive O fficer, T he South Carolina National Bank, Columbia, South Carolina, to a one-year term beginning January 1, 1977, as the Fifth Federal R eserve District representative to the Federal A d v isory Council. T h e tw elve-m em ber Council, consisting of one mem ber from each o f the Federal R eserve Districts, meets at least quarterly in W ashington with the System ’s B oard of G over nors to discuss business conditions and other topics of current interest to the System. Changes in Official Staff F ou r officers at Fifth District offices retired in President, T h e C onw ay National Bank, Conw ay, the first half of 1976. South Carolina, to three-year terms on the C har lotte B oard. A . R . Reppert, President, T h e U nion M cL ean National Bank o f Clarksburg, Clarksburg, W est V irgin ia, was appointed to a three-year term on elected to take early retirement after 34, 34, and 45 years of service to the Bank. A ll were A ssis the B altim ore B oard to succeed J. Stevenson Peck, Chairman o f the B oard, U nion Trust Com pany of June, John L. N osker, Senior V ice President in (R ic h m o n d ), In M arch, W illiam E. F red C. K rueger, Jr. (C h a rlo tte ), and Kenneth A . A dam s (C u lp ep er) tant V ice Presidents at the time of retirement. In M aryland, Baltim ore, M aryland, w hose term e x pired D ecem ber 31, 1976. Lacy I. Rice, Jr., P resi charge o f the E xam ining Department, retired after dent, T h e O ld National Bank of M artinsburg, M artinsburg, W e st V irginia, was reappointed to a W elfo rd S. Farm er assumed the form er duties of M r. Nosker. three-year term on the Baltimore Board. nearly 33 years of service. Senior V ice President In D ecem ber, R oy L. Fauber was prom oted to T h e B oard of G overnors reappointed E. A ngu s P ow ell, President, Chesterfield Land & T im ber V ice President, and W illiam D . M artin, III be came V ice President and General Counsel. In Corp., R ich m on d, V irginia, to a three-year term addition, on the R ich m on d B oard and redesignated him H um phrey were named Research O fficers, and Chairman R obert D. B ouck was made Assistant Counsel at of the A gen t for 1977. B oard and Federal Reserve E. Craig W all, Sr., Chairman of T im othy O. the R ichm ond O ffice. C ook and Thom as M. T hom as E. Snider, Char the B oard, Canal Industries, Inc., Conw ay, South lotte, was prom oted to V ice President, and V ictor C arolina, was redesignated Deputy Chairman of T uryn and James G. Dennis, at the Baltim ore and the B oard for 1977. Culpeper O ffices, respectively, w ere named A ssis A pp oin ted three-year 22 by the Board of Governors to a term on the Charlotte Board was tant V ice Presidents. tive January 1, 1977. A ll prom otions were effec Summary of Operations Check Clearing & Collection 1976 1975 Dollar amount Commercial bank checks1 __________________________________________ Government checks2 _________________________________________________ Return items _______________________________________________________ 457,137,732,000 45,618,757,000 4,054,103,000 376,290,433,000 33,364,921,000 3,733,115,000 Number of items Commercial bank checks1 ___________________________________________ Government checks2 _________________________________________________ Return items _______________________________________________________ 1,117,315,000 89,931,000 14,062,000 1,010,313,000 91,981,000 13,402,000 5,556,979,800 C urren cy & C o in Currency disbursed— Dollar amount _________________________________ 6,041,841,600 Coin disbursed— Dollar amount ______________________________________ 247,475,450 250,493,039 Dollar amount of currency destroyed ________________________________ 1,545,180,000 1,543,099,000 Daily average of currency destroyed Dollar amount ______________________________________________________ Number _____________________________________________________________ 6,083,385 1,030,829 6,123,409 1,037,824 D is c o u n t & C r e d it Dollar amount Total loans made during y e a r ______________________________________ Daily average loans outstanding __________________________________ 542,580,000 1,844,000 2,374,944,000 18,935,000 Number of banks borrowing during the y e a r ________________________ 47 61 Marketable securities delivered or redeemed Dollar amount ______________________________________________________ Number _____________________________________________________________ 193,585,937,692 194,004 78,261,028,176 225,285 Coupons redeemed Dollar amount ______________________________________________________ Number _____________________________________________________________ 88,008,856 246,020 85,173,485 246,111 Savings bond and savings note issues Dollar amount ______________________________________________________ Number _____________________________________________________________ 549,761,513 11,529,843 525,390,098 11,205,945 Savings bond and savings note redemptions Dollar amount ______________________________________________________ Number _____________________________________________________________ 588,349,221 12,730,130 551,634,294 12,582,780 Depositary receipts for withheld taxes Dollar amount ______________________________________________________ Number _____________________________________________________________ 16,932,845,276 3,357,282 17,422,497,473 3,595,416 1,509,194,852,105 1,280,901 1,319,239,449,009 1,091,439 F is c a l A g e n c y A c t iv it ie s T r a n s fe r s o f F u n d s Dollar amount ________________________________________________________ Number ________________________________________________________________ 1 E xclu din g checks on this Bank. 2 Including postal m oney orders. 23 Comparative Financial Statements IsU JL lU lL lU ll Assets: Dec. 31, 1976 Gold certifica te account ________________________________ $ 991,561,000.00 Dec. 31, 1975 $ 980,758,985.89 Special D raw in g R ights certificate a c c o u n t___________ 109,000,000.00 45,000,000.00 Federal R eserve notes o f other Federal Reserve Banks 204,476,993.00 163,456,857.00 Other cash ______________________________________________ 41,469,377.16 41,702,042.72 545,289,000.00 490,667,000.00 3,095,913,000.00 3,006,609,000.00 3,850,362,000.00 539,780,000.00 3,554,581,000.00 446,186,000.00 TOTAL U. S. GOVERNM ENT SECURITIES 7,486,055,000.00 7,007,376,000.00 TOTAL LOAN S AN D SECURITIES ________ LOAN S A N D SECU RITIES: Loans to mem ber banks ___ 7,100,000.00 Federal agen cy obligations U. S. G overnm ent secu rities: Bills ______________________ C ertifica tes ______________ N otes ____________________ Bonds ____________________ 8,031,344,000.00 7,505,143,000.00 ___ 1,351,185,988.16 2,004,212,527.61 Bank prem ises ____________________________ 47,904,687.45 22,457,016.36 O peratin g equipm ent _____________________ 202,678.13 151,062.22 Other assets _______________________________ 129,397,738.15 111,288,192.13 In terd istrict settlem ent account __________ 27,328,057.32 -23 5,64 8,98 7.59 $10,933,870,519.37 $10,638,520,696.34 $7,665,924,163.00 $ 7,139,692,961.00 M em ber bank reserves ___________ 1,447,700,425.74 1,424,511,439.34 U. S. T reasu rer— general account 725,113,676.62 406,887,817.52 Cash item s in process o f collection TOTAL ASSETS ------------------------------------------------------------------- Liabilities: F ederal Reserve notes D E PO S ITS : F oreign ___________________________ 13,199,200.00 14,443,000.00 Other ______________________________ 87,217,621.78 29,224,783.11 2,273,230,924.14 1,875,067,039.97 D eferred availability cash items 813,940,742.44 1,437,571,220.35 O ther liabilities ________________ 72,910,889.79 82,619,675.02 10,826,006,719.37 10,534,950,896.34 TOTAL DEPOSITS _____________ T O T A L L IA B IL IT IE S .. Capital Accounts: Capital paid in _ 53,931,900.00 51,784,900.00 Surplus 53,931,900.00 51,784,900.00 $10,933,870,519.37 $10,638,520,696.34 ---------- T O T A L L IA B IL IT IE S A N D C A P IT A L A C C O U N T S _____ 24 Earnings and Expenses EARNINGS: 1976 Loans to m em ber banks _________________________________________________ Interest on U. S. G overnm ent securities ________________________________ F oreign currencies -----------------------------------------------------------------------------------Other earnings ------------------------------------------------------------------------------------------ 108,661.29 515,237,004.75 1,581,130.08 ---------- 38,645.07 ___________________________________________ 516,965,441.19 484,071,082.64 O perating expenses (in cluding depreciation on bank prem ises) a fter deducting reim bursem ents received f o r certain F iscal A gen cy and other expenses ---------------------------------------------------------------------------------------Assessm ent f o r expenses o f Board o f G overnors _______________________ Cost o f F ederal R eserve c u r r e n c y _______________________________________ 44,511,710.35 2,330,000.00 5,724,036.49 41,837,190.21 1,870,000.00 4,230,047.47 N ET E X P E N S E S -------------------------------------------------------------------------------------- 52,565,746.84 47,937,237.68 C U R R E N T N E T E A R N IN G S _____________________________________ 464,399,694.35 436,133,844.96 P r o fit on sales o f U. S. G overnm ent securities (n et) _______________ A ll other _______________________________________________________________ 2,676,195.49 187,601.26 2,928,888.43 162,496.54 _____________________________________________________ 2,863,796.75 3,091,384.97 1,404,149.62 172,595.45 13,298,860.69 17,685.90 TOTAL CURRENT E ARN IN G S $ 1975 $ 1,240,861.43 482,490,978.71 300,711.65 38,530.85 EXPEN SES: ADDITIONS TO CURRENT N E T E A R N IN G S : TOTAL ADDITIONS DEDUCTIONS FROM CURRENT N ET E A R N IN G S : Losses on F oreign E xch ange transactions ___________________________ A ll other _______________________________________________________________ ___________________________________________________ 1,576,745.07 13,316,546.59 N E T A D D IT IO N S OR D E D U C T IO N S ___________________________ 1,287,051.68 -1 0 ,2 25 ,1 61 .6 2 $465,686,746.03 $425,908,683.34 $ 3,196,167.72 460,343,578.31 2,147,000.00 $ 3,061,297.26 420,755,286.08 2,092,100.00 $465,686,746.03 $425,908,683.34 Balance at close o f previous year _______________________________________ A ddition account o f p ro fits fo r y e a r _____________________________________ $ 51,784,900.00 2,147,000.00 $ 49,692,800.00 2,092,100.00 B A L A N C E A T CLO SE OF C U R R E N T Y E A R ___________________ $ 53,931,900.00 $ 51,784,900.00 TOTAL DEDUCTIONS N E T E A R N IN G S B E F O R E P A Y M E N T S TO U. S. T R E A S U R Y D ividends paid ___________________________________________________________ P aym ents to U. S. T reasu ry (interest on Federal Reserve notes) ____ T ran sferred to surplus __________________________________________________ T O T A L ______________________________________________________________ S u r p lu s A c c o u n t C a p ita l S to c k A c c o u n t (R epresenting am ount paid in, which is 50% o f am ount subscribed) Balance at close o f previous year _______________________________________ Issued du rin g the year __________________________________________________ Cancelled during the year ______________________________________________ B A L A N C E A T CLO SE OF C U R R E N T Y E A R ___________________ $ 51,784,900.00 2,284,850.00 $ 49,692,800.00 2,369,850.00 54,069,750.00 52,062,650.00 ______137,850.00 277,750.00 $ 53,931,900.00 $ 51,784,900.00 25 Directors (Dcccmber 31, 1976) Richmond E. Angus Powell _______________ Chairman o f the B oard and F ed era l R eserv e A g e n t E. Craig W all, Sr. ____________ D ep u ty Chairman o f the Board Class A J. Owen Cole __________________ Chairman o f the B oard and P residen t, F ir st N ational Bank o f M aryland B altim ore, M aryland (T erm exp ires D ecem b er 31, 1978) James A . Hardison, Jr. _______ Chairman and P resid en t, The F ir st N ation al Bank o f A n son C ounty W adesboro, N orth Carolina (T erm exp ires D ecem b er 31, 1977) Plato P. Pearson, Jr. ___ ______ P residen t and C h ief E x ecu tiv e O fficer, In dependence N ational Bank Gastonia, N orth Carolina (T erm expired D ecem b er 31, 1976) S ucceeded b y : Frank B. Robards, Jr. P resid en t R ock H ill N ational Bank R ock Hill, South Carolina (T e r m exp ires D ecem ber 31, 1979) Class B Andrew L. Clark _______________ P resident, A n d y Clark F ord, Inc. Princeton, W est V irgin ia (T erm exp ires D ecem b er 31, 1979) Henry Clay Hofheimer, II _____ Chairman o f the Board, V irginia R eal E sta te In v estm en t T rust N orfolk, V irginia (T erm exp ires D ecem b er 31, 1977) Osby L. Weir ___________________R etired General M anager, M etropolitan W ashin gton -B altim ore A rea , Sears, R oebuck and Co. Bethesda, M aryland (T erm exp ires D ecem b er 31, 1978) Class C E. Angus Powell ______________ President, C h esterfield Land & T im ber Corp. Richmond, V irg in ia (T er m exp ires D ecem b er 31, 1979) Maceo A. Sloan ________________ E xecu tiv e V ice P resid en t, N orth Carolina M utual L ife Insu rance Co. Durham, N orth Carolina (T erm exp ires D ecem b er 31, 1978) E. Craig W all, Sr. ____________ Chairman o f the Board, Canal In dustries, Inc. Conw ay, South Carolina (T er m exp ires D ecem b er 31, 1977) Member of Federal Advisory Council John H. Lumpkin _______________ Chairman o f the B oard and C h ief E x e cu tiv e O ffic e r The South Carolina N ational Bank Columbia, South Carolina (T erm exp ires D ecem b er 31, 1977) 26 Baltimore David W . Barton, Jr. __________ President, The Barton-Gillet Company Baltimore, Maryland (Term expires December 31, 1978) J. Pierre Bernard ______________Chairman of the Board, The Annapolis Banking and Trust Company Annapolis, Maryland (Term expires December 31, 1977) Catherine B. Doehler __________ Senior Vice President, Chesapeake Financial Corporation Baltimore, Maryland (Term expires December 31, 1978) *James G. Harlow _______________ President, W est Virginia University Morgantown, W est Virginia (Term expires December 31, 1977) I. E. Killian ____________________ Manager, Eastern Region, Exxon Company, U.S.A. Baltimore, Maryland (Term expires December 31, 1979) J. Stevenson Peck ______________Chairman of the Board, Union Trust Company of Maryland Baltimore, Maryland (Term expired December 31, 1976) Succeeded b y : A . R. Reppert President The Union National Bank of Clarksburg Clarksburg, W est Virginia (Term expires December 31, 1979) Lacy I. Rice, Jr. _______________President, The Old National Bank of Martinsburg Martinsburg, W est Virginia (Term expires December 31, 1979) Charlotte W . B. Apple, Jr. _______________ President, First National Bank of Reidsville Reidsville, North Carolina (Term expires December 31, 1979) Charles F. Benbow ____________ Senior Vice President and Director, R. J. Reynolds Industries, Inc. Winston-Salem, North Carolina (Term expires December 31, 1977) T. L. Benson ___________________President, The Conway National Bank Conway, South Carolina (Term expires December 31, 1979) William W . Bruner _____________Chairman of the Board and President, First National Bank of South Carolina Columbia, South Carolina (Term expires December 31, 1978) *Charles W . DeBell ______________General Manager, North Carolina Works, Western Electric Company, Inc. Winston-Salem, North Carolina (Term expired December 31, 1976) Succeeded b y: Naomi G. Albanese Dean, School of Home Economics University of North Carolina Greensboro, North Carolina (Term expires December 31, 1979) Robert C. Edwards _____________President, Clemson University Clemson, South Carolina (Term expires December 31, 1978) John T. Fielder ________________ President, J. B. Ivey and Company Charlotte, North Carolina (Term expires December 31, 1977) * Branch Board Chairman. 27 Officers (January 1 , 1977) Richmond Robert P. Black, President Jack H. Wyatt, Assistant Vice President George C. Rankin, First Vice President Robert D. Bouck, Assistant Counsel W elford S. Farmer, Senior Vice President James R. Slate, Assistant Counsel James Parthemos, Senior Vice President and Director of Research David B. Ayres, Jr., General A uditor H. Lewis Garrett, Assistant General Auditor John F. Rand, Senior Vice President R aym ond E. Sanders, Jr., Senior Vice President Elizabeth W . Angle, Vice President Baltimore Lloyd W . Bostian, Jr., Vice President Jimmie R. M onhollon, Senior Vice President J. A lfred Broaddus, Jr., Vice President W illiam E. Pascoe, III, Vice President John G. Deitrick, Vice President Gerald L. W ilson, Vice President George B. Evans, Vice President Ronald B. Duncan, Assistant Vice President R oy L. Fauber, Vice President Ronald E. Gould, Assistant Vice President W illiam C. Glover, Vice President Charles P. Kahler, Assistant Vice President W illiam D. Martin, III, Vice President and General Counsel R obert A. Perry, Assistant Vice President V ictor Turyn, Assistant Vice President Robert D. M cTeer, Jr., Vice President Arthur V. Myers, Jr., Vice President Chester D. Porter, Jr., Vice President Charlotte A ubrey N. Snellings, Vice President Stuart P. Fishburne, Senior Vice President Andrew L. Tilton, Vice President Thomas E. Snider, Vice President James F. Tucker, Vice President W infred W . Keller, Assistant Vice President Joseph F. Viverette, Vice President 0 . Louis Martin, Jr., Assistant Vice President J. Lander Allin, Jr., Assistant Vice President Harry B. Smith, Assistant Vice President Fred L. Bagwell, Assistant Vice President Robert F. Stratton, Assistant Vice President Jackson L. Blanton, Assistant Vice President Jefferson A. Walker, Assistant Vice President Tim othy Q. C ook, Research Officer W illiam E. Cullison, Research Officer W yatt F. Davis, Chief Examiner Charleston W illiam C. Fitzgerald, Assistant General Counsel Richard L. Hopkins, Assistant Vice President John E. Friend, Assistant Vice President Bradley H. Gunter, Assistant Vice President and Secretary R obert B. Hollinger, Jr., Assistant Vice President John C. Horigan, Assistant Vice President Thom as M. Humphrey, Research Officer H obert D. Pierce, Assistant Vice President Joseph C. Ramage, Assistant Vice President Barthonhue W . Reese, Assistant Vice President James D. Reese, Assistant Vice President Columbia B oyd Z. Eubanks, Vice President R. W ayne Stancil, Assistant Vice President Culpeper John G. Stoides, Vice President Frank D. Stinnett, Jr., Assistant Vice President John A . Vaughan, Assistant Vice President Albert D. Tinkelenberg, Vice President W ilbur C. W ilson, Assistant Vice President James G. Dennis, Assistant Vice President 28 Dale M. Cunningham, Assistant Vice President