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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