CREATING WEALTH

TOM VEBLEN

What works in America may also work as a model for global wealth

In 1776, Adam Smith theorized in The Wealth of Nations that the most effective way for an industrial nation to increase its wealth was to encourage commerce. Nowhere in the world has Smith’s theory proven more on target than in the United States of America, a nation just in its infancy when Smith’s theory was published. Two centuries later, as a new global economy emerges and economists debate how best to create wealth in the modern world, the forces that shaped commerce in America warrant a closer look.

THE IDEA OF AMERICA

Starting as a clutch of adventurers and colonists, the American people have transformed their nation, bit by bit, into a vibrant, aggressive, urban-centered business civilization. It is, without question, the world’s most affluent society. Wealth, after all, means money and material possessions. More abstractly, though, it can be “individual well being” or, as Adam Smith chose,“national well being.” By any of these definitions, America is a success story.

The creation of an American culture, a work-in-process called the American Way, is an exceptional enterprise. Its centerpiece, an invention of remarkable resilience, is a societal governance scheme combining free enterprise and association, a free and open public dialogue, and a democratic (representative) government. The idea of America, as expressed in such founding documents as the Federalist Papers, the federal Constitution and its Bill of Rights, and the Declaration of Independence, extended, reformed, and now embodied in the political system, enables a society in which superior persons and institutions seek to perfect their arts, on all planes striving for greater wisdom, harmony, and achievement.

Americans are an inventive and irreverent bunch, guided by pragmatism, idealism, and competition. Generally outgoing and optimistic, we celebrate the individual and competence and hard work, while dreaming of community and equality and leisure. The keys to social acceptance and a good life in America have been (and remain) education, engagement, and real (income-producing) property—probably in that order. The pace of daily life is frenetic. Those who disengage, or can’t keep up, get left behind.

America’s complexity both amazes and flummoxes us. There are more and more vigorous and striving people, beguiling material things, compelling technologies, and challenging ideas. Contending subcultures clash, a blend of the pure and profane. Alienation is a recurring theme in America. The dark sides of Americans—greed, envy, dishonesty, exploitativeness, violence, racism—are endlessly debated in all sorts of public forums. In fact, self-assessment is something of a national obsession.

From the beginning, Americans held a unique view that change can be managed to effect improvement in our lives. As a consequence, social progress, given the right aims, is beneficial. Alexis de Toqueville observed this phenomenon in 1836 when he wrote,

They [the Americans] all consider society as a body in a state of improvement, in which nothing is, or ought to be, permanent; they admit that what appears to them today to be good, may be superseded by something better tomorrow.

Experimentally bent, fixated on competence and achievement, and evangelical about its democratic origins and traditions, our civilization and its adherents exhibit a remarkable drive for technological mastery and a somewhat mystical faith in the utility of economic growth. Increasingly we look to the affiliative endeavors of government, business, science, and education in the search for national well being. There is less and less reliance on family, tribe, and church for solutions.

This complex interpenetration of people, technologies, and nature—the American Way—is grounded in a few simple, but profound, ideas:
Social change is inevitable and desirable, for it can improve human well being. In the long run, reason will prevail, for it is the most critical human faculty.
Moral conduct means: first, fair play and harmony between individuals; second, harmonizing the things inside each individual; third, the general purpose of human life as a whole—what man was made for; what course the whole fleet ought to be on; what tune the conductor of the band wants it to play (—C. S. Lewis).
Private property is the cornerstone of a free and productive society.
Politically, the individual is sovereign rather than the state. Government will be democratic and representative, its powers specified by the Constitution. The rule of law will prevail.
Material and intellectual progress is paramount and will be advanced through the promotion of free and open endeavors in politics, commerce, and science.

Considering how these ideas have played out over time, it is not inappropriate to say that the genius of American thought is its recognition that society is best served by a free play of talents—politically, commercially, and scientifically.

THE FOUNDATIONS OF THE AMERICAN WAY

The American Way was not cut from whole cloth. It is, in large part, a product of the European and Scotch Enlightenments. America’s development into a commercial powerhouse was particularly influenced by the ideas brought to the United States by Scotch colonists and, later, by Scotch immigrants. These ideas focused on the goodness of man, the desirability of happiness as a life goal, and politeness (civility) as the root origin of all higher civilized qualities. The Scotch believed further that society and government existed to release and make conscious the individual’s moral sense. To be civilized was to live in harmony with man and with nature.

But the Scotch also brought energetic action to America along with their ideas. Scottish emigrants critically influenced the nature and direction of American education. Jonathan Witherspoon, an active participant in the Scotch Enlightenment dialogues, emigrated to America and transformed a little-known New Jersey college into Princeton University, which became the model for American higher education over the next two centuries.

The Scotch also rallied around the idea of American independence, becoming deeply immersed in the public dialogue framed by the Federalist Papers. Witherspoon went on to sign the Declaration of Independence, as did six of his students, including James Madison. James Wilson, credited with the idea of the Supreme Court and an independent judiciary, was Scotch, as were 21 others of the 56 signers of the Constitution. It is arguable that Scottish Enlightenment thinking buttressed the natural predilections of the business practitioners Samuel Adams, George Mason, Benjamin Franklin, and George Washington, and that the end result was a Constitution and government particularly conducive to the growth and development of the new nation’s commercial sector.

Scotland’s emigrés put their business acumen and worldview to work inventing the modern form of American business. Particularly involved in this exercise were such “captains of industry” as Andrew Carnegie (“America would have been a very poor show had it not been for the Scots”); William Cargill (founder of the country’s currently largest privately held business corporation); James J. Hill (builder of the Great Northern Railway who came to be called “the Empire Builder”); and Cyrus McCormick (whose invention of the reaper opened up the western prairies to grain farming).

Perhaps the most energizing single idea brought by the Scotch to America was the belief that a “good society” requires a prominent and vigorous commercial component. Whether by cultural inheritance or design or happenstance, or perhaps all of the above, it is clear from the American experience that private enterprise, grounded as it is in self-interest, is a remarkable way for a society to create wealth.

The early American business practitioners were, if anything, enterprising. Removed from the class politics and business aristocracy of England, they prospered by following their own self-interest; with prosperity, they came to value their individual and commercial freedoms. In retrospect, it is perhaps inevitable that the American colonists would begin to have revolutionary thoughts about self-governance. Out of sorts with Britian’s efforts to direct their trade, regulate their businesses, and circumscribe their private lives, they revolted.

The outcome was, to say the least, exceptional. The nation’s founders, intent on securing domestic tranquility and national security, established a representative, nascently democratic government. They agreed that a free and productive society was their collective goal and that private property and enterprise would be its cornerstone. A system of common law was instituted. Public education was mandated. Science engaged. Technology advanced. Commerce and trade flourished. Investors were rewarded (and reinvested). The nation industrialized and urbanized and grew wealthy.

In the course of this development one social endeavor in particular, the publicly owned business corporation, proved especially powerful as a social innovator and transformer. Through the late 1880s and into the early 1900s, America’s corporate business firms capitalized on the country’s vast store of natural resources, such as coal, iron ore, timber, copper, agricultural land, and water. Collaborating with government, these firms orchestrated the remarkable flow of people, goods, and ideas attracted to the American Way.

The process was not glitch free. A particularly rocky patch came in the late 1800s. The instinct of business to monopolize culminated with a monumental confrontation between “big business” and the central government. The downside of business stood revealed, thanks to Teddy Roosevelt and the US Congress and the rule of law. The worst of the monopolies were defanged. A reasonable regulatory regime was established. Reasonable enough that, in 1926, President Calvin Coolidge’s observations on the benign nature of business were generally applauded by the public. He said:

After all, the chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing and prospering in the world....[T]he accumulation of wealth means the increase of knowledge, the dissemination of intelligence, the encouragement of science, the broadening of outlook, the expansion of liberties, the widening of culture.... So long as wealth is made the means and not the end, we need not greatly fear it.

THE IDEA OF PRIVATE ENTERPRISE

Then, as now, the genius of the American social system lies with its exceptional use of private enterprise to unleash human creativity and effect material progress. The system’s governance is largely responsible for this phenomenon. The law and a government “of, by, and for the people” enable the free play of talents throughout by assuring individual sovereignty and self-expression at all levels of social interaction. The State’s role thus limited, the individuals of society and their affiliative endeavors are free to advance their own interests as they see fit (within the bounds of law and custom, of course). In politics, science, and commerce, private citizens, affiliating in the form of parties (political), laboratories (scientific), and businesses (commercial), are society’s most compelling instruments of progress.

Business, pursuing the creation of material wealth is, arguably, America’s most powerful expression of private enterprise. In simple terms, business helps direct the forces of change along predetermined paths toward concrete goals and objectives, providing the means for the other specialized endeavors of society to accomplish their ends: education to disseminate knowledge; government to sustain social order; science to investigate the natural order; journalism to promulgate news; and the police and military to manage violence.

No wonder that, in our open society, there is universal regard for, and encouragement of, wealth creation. But is our culture’s obsession with specialization and self-interest and wealth creation too much of a good thing? We wonder. Regardless, we do know that the American business civilization’s example is hard at work on the human psyche. And that, as a result, the entire world is undergoing a profound change in social consciousness. Right or wrong, the result is certainly disrupting the diverse local and regional cultures that presently define human existence.

Embedded in this process of globalization, American business reflects the distinct character of its grand culture. It, too, is experimental, striving to perfect itself in the light of its idealized ends, modifying its governance, and reconstituting its operations in the light of new knowledge and the need to achieve greater productivity. It, too, celebrates competence, achievement, and self-determination. It, too, possesses an enormous zest for growth and change and adventure.

American business exhibits a remarkable drive for technological mastery, along with a willingness to experiment and take risks (see page 83). Wealth-creating ideas are advanced through industry, enterprise, and speculation within a regulatory regime that includes free-market forces, industry association, the rule of law, and government regulation. Yesterday, those wealth-creating ideas included mining, lumbering, insurance, railroading, manufacturing, and consumer marketing. Today, they include such proven concepts as fast food, health management, consulting, personal computers, and financial services, as well as the more speculative visions of molecular biology, e-commerce, genetic engineering, and even space travel.

A MODEL FOR GLOBAL WEALTH?

The widespread application of the Enlightenment ideas articulated by Adam Smith is now creating a world of national economies increasingly dependent on the free exchange of goods, services, and people. Driven by the demands of individual consumers, business already may be the cornerstone of an “enlightened world order.” In this new world, commerce, science, and representative governments are preeminent, and the state of the world can be defined by reason, dialogue, and peace, rather than prejudice, ideology, and war.

Much is needed to materialize such a vision on a global scale. The idea that business, from a social perspective, is a benign force for social change, arguably, now drives the modernization of societies throughout the world. Countries that provide encouragement for business firms capable of innovating and competing in the global marketplace will improve their national well being as this modernization proceeds. Those that resist this trend will, sadly enough, fall behind.

At a minimum, the vision of a global business civilization requires a growing cadre of business firms that can create and execute not only winning business strategies, but at the same time can work collaboratively with other affiliative endeavors in crafting the broader social strategies needed to advance human well being. In the emerging global marketplace, American business is fully engaged in the creation of a “super” or “world” business culture of great power. Who would have ever thought that America’s own Mickey Mouse and Daffy Duck would so captivate children in France and Japan? Or that McDonald’s would dominate the fast food business in Moscow, Beijing, and a hundred other exotic places throughout the world? Or that American business consultants would find ready employment in nations as diverse as Israel, Brazil, South Africa, and Malaysia? Or that American computers and computer-driven communication would reorganize the way the world’s people communicate?

In such a world, it is clear that American business firms that weave themselves into the very fabric of their society and markets—creating their own future by staying in step with the purposes of the world, defining and redefining their own bounds, and perfecting their inner workings—significantly advance human well being. Exhibiting staying power, and lasting for generations and lifetimes, rather than for just a few years, superior American firms are valued cultural assets.

Evangelical about its methods and about its culture, American business, with 250 years of wealth-creating experience behind it, is “on a roll” as more and more of the world’s nations open themselves to the benefits of corporate enterprise. Needless to say, the American way of wealth creation is revolutionary, a wide-ranging experiment to determine the effectiveness of alternative wealth creation methods. In this context, industries and firms that fail to meet their customers’ needs or expectations quickly pass from the scene. Those that improve the productivity, functionality, and/or acceptance of the goods and services provided go on to invest in further experiments. Those that violate the American Way find their existence problematic.

Regardless of how one interprets the story of American wealth creation and business, it is clear that the compelling myths of American business (fortune and fame) and its omnipresence are profoundly influencing the world’s cultures, as well as our own. And a global field of companies taking risks, pushing the boundaries, and creating entire new fields of business may be what distinguishes the next 100 years as a century of unprecedented peace and prosperity.

Additional Resources:

Fossedal, Gregory A. Our Finest Hour: Will Clayton, the Marshall Plan, and the Triumph of Democracy. Stanford: Hoover Institution Press, Stanford University, 1993.
Muller, Jerry Z. Adam Smith: In His Time and Ours. Princeton: Princeton University Press, 1993.
Popper, Karl R. The Open Society and Its Enemies. Princeton: Princeton University Press, 1992.
Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. Edited by Edwin Cannan with a new preface by George J. Stigler. Chicago: The University of Chicago Press, 1976.
Wills, Gary. Inventing America: Jefferson’s Declaration of Independence. New York: Vintage Books by Random House, 1979.

Tom Veblen (CC ‘95) is a general management consultant with a special interest in the food and agriculture industries. His participation in the Superior Business Forum Roundtable led to a recently published work titled “The Way of Business: An Inquiry into Meaning and Superiority.”

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