The progress of the last two hundred and fifty years has been explosive. Year after year, the world and its people have grown more connected and more prosperous. It seems unimaginable. And yet, a man who lived in a world of sailing ships and horse drawn carriages, of great wealth, and great poverty, imagined our very world. Adam Smith was first and foremost a moral philosopher. His great gift was observation. And his study of human nature as it appeared in different types of society at different periods of history is absolutely awesome. He was a Scotsman named Adam Smith, a moral philosopher and the world’s first economist. He invented the idea of the “Impartial Spectator” in his surprising analysis of the evolution of morality. And I’m fascinated by Adam Smith, a man who would turn the notion of how societies and economics work…on its head, and make way for the modern age. He recorded his revolutionary ideas in two remarkable books: The Theory of Moral Sentiments and The Wealth of Nations. Smith felt that ethics and morality mattered, in life and in business. Today we’ll explore the concept of “Morality in the Marketplace”. Adam Smith was born in 1723, in the small seaside town of Kirkcaldy, Scotland, where he learned about morality and economics at the local merchants’ market. He studied at Glasgow University, became its top administrator and then a pillar of the unlikely intellectual revolution called the Scottish Enlightenment. He lived, lectured and socialized in Scotland’s capital city of Edinburgh. Before Smith, people thought that morality was somehow out there. It was objective. And then Smith came along and said “No, morality is not something that’s objective and that it’s out there… it’s inside ourselves.” To determine how morality begins inside ourselves, he begins by wondering how humans acquired the gift of language. These college students have just met and are getting to know something of each other through their conversation. The earliest human beings, he thought, lived in a dangerous world, and had to communicate to survive. And that meant using signs and sounds. From these first signs and sounds and under the pressure of life, language developed. Smith argues that society and civilization were born as people, like these students, traded information through language, and built a common understanding of the world around them through this exchange. But Smith considers other forms of “trading”. “The offering of a shilling, which to us appears to have so plain and simple a meaning, is in reality offering an argument to persuade… And in this manner everyone is practicing oratory on others through the whole of his life.” What Smith sees from a very early stage is that this business of exchange can actually lead us into investigating how we acquire values, not just information, but values, how we acquire ideas of what’s good and evil. “Good and Evil” fascinate Smith and in his lectures he asks, “How do human beings develop a sense of morality?” The sine qua non of Smith’s moral theory is what he called sympathy, what we might today call empathy. It was not feeling sorry for other people. What it is was instead was this idea that we desire to see our sentiments echoed in other people. By “echoed in other people” Smith means that we all want to be liked and will do things to gain approval. He thinks that in ordinary, everyday interactions with people, we come to learn when others like us and when they don’t. (Man speaking to group) This fellow is a bore and he’s insensitive. His friends are getting tired of him… and their expressions and body language reveal their disapproval. We ourselves, we’re approved of when we do certain things; we’re disapproved of when we do other things. We watch other people in society, we see the way in which they’re approved of and they’re disapproved of, when they say certain things, when they do certain things. Smith took a kind of evolutionary view 100 years before Darwin. He knew that there was something in us as social creatures that made us follow a moral path, because if we didn’t, if we went around robbing, and stealing, and killing each other… then we wouldn’t get very far as a species. How do we move from knowing how to act in social settings, of how to be approved of and disapproved of, to knowing the difference between right and wrong? How do we solve the moral dilemmas that we all face each and every day? This man is in danger of losing his wallet. It’s full of cash. What do you do? Keep it all? Keep the cash but return the wallet? Or do you just give the wallet back, untouched? What do we do? We all know what we do. We turn in on ourselves, and we start to have conversations with ourselves, internal, private conversations. And the funny thing about these internal conversations is that they are with a fictitious person, and he calls it an “impartial spectator.” Smith says that the “impartial spectator” is the sum total of everything that we’ve ever learned about what’s polite and rude, what’s right and wrong. Built up over time, it’s our moral compass. “We endeavour to examine our own conduct as we imagine any other fair and impartial spectator would examine it.” Putting ourselves in the position of a spectator of ourselves, imagining a third figure outside of us. What does he or she see when she’s looking at us? GIRL: “Sir, you left your wallet.” MAN: “Thank you. Thank you so much.” The impartial spectator will become one of Smith’s most important concepts and the centerpiece of his first book, The Theory of Moral Sentiments. Smith’s moral ideas were revolutionary at the time. But is it possible to practice them in the marketplaces of today’s world? This is a Whole Foods Market in Austin, Texas. There are over 400 Whole Foods Markets in the United States, Canada and the United Kingdom. They sell products from around the world. Their “Whole Trade Guarantee” promises that consumers can shop with a conscience. Most businesspeople are honest and ethical. In fact, it turns out that the more ethical they are, the better the company performance. In the cutthroat supermarket business, it’s important to stake out your own territory. The Company’s motto is “Whole Foods, Whole People, Whole Planet.” At the center of this amazing story is Co-Founder John Mackey. To understand Whole Foods Market you have to understand him. The original vision for Whole Foods was, very simply is: we wanted to sell healthy food to people, earn a living, and have fun. The higher purpose of Whole Foods has become a lot deeper and more complex than it was back 34 years ago. And that brings us to mission. Mission is something Mackey takes seriously. It’s not just platitudes for a wall plaque in a corporate lobby. It’s the statement that embodies his ethical perspective. We want to sell healthy food to people, help people to reach their highest potential through having good health. We also have a sense that the people that work for us should be flourishing and should be happy in their work, and we also feel a responsibility for the larger communities that we’re trading with. It’s been on Fortune’s “100 Best Companies to Work For” list for eighteen years in a row. What seems to make Whole Foods so successful is that the people who work here are strongly committed to all the stakeholders: to customers and team members, to stockholders and suppliers- which has resulted in highly committed employees and very faithful customers. And a lot of John Mackey’s philosophy is based solidly on Adam Smith. I mean Adam Smith was so far ahead of his time. The totality of his ideas are still very, very important and very relevant today. Smith gives us a way of thinking about markets and morality together. For Smith, these are not two things that can easily be extricated from each other, as if one can simply talk about rational, economic men on one hand and then moral men in a different sphere on another. Smith understood that you’re going to be better at business if you can understand your customers and generally sympathize with them, as well as understanding and sympathizing with your employees. …the chipotle, the lemon, the garlic and basil and the sesame ginger… I think that most of our guests when they walk in the door know that there’s something different. For a lot of people it’s the energy of the team members, right? I think a lot of our team members feel empowered and feel fulfilled, and therefore feel happy and satisfied in their work. Lindsay Mucha is store team leader of one of the Whole Foods Markets in Austin. She’s been with Whole Foods for over 10 years. My goal was to work here for six months, graduate from college and then go off and find my career path, and I very quickly fell in love with Whole Foods. I loved the values and the mission. The greatest source of creativity and innovation exists in our team member base. A big part of what we’re trying to do is allow them to- to be themselves, to be authentic, to be spontaneous, allow them to- to experiment, to create new things, to create the innovations. This helps to illustrate Adam Smith’s principle that top down command structures aren’t always the best. Things organize themselves better from the bottom up. “The natural effort of every individual to better his own condition…is so powerful, that it is, alone…capable of carrying on the society to wealth and prosperity.” Many of the institutions that we have: language, markets -you name it- these are indeed the results of human action, but they’re not the results of human design. We never planned these things; they just evolve naturally. So note that phrasing: individual human action, but not individual human design. You don’t need a central planning authority, to run your society well. And that’s a really cool thing about the Whole Foods Market culture. You know it’s not top down. It’s not a mandate on everything. If someone has a good idea that someone else likes, there’s a good chance it’s going to spread and- and work for a lot of people. Carol Medeiros is produce coordinator at Whole Foods Markets, in Austin, Texas. I would say that you know we’re always trying to find what’s new and what’s next, and a lot of the times- most of the time- our best ideas come from the team members that work in the stores every day. Because the team members genuinely care, because it’s theirs… right? Whole Foods Market’s success in promoting healthy foods has spawned increased competition in the marketplace. In response, the company is opening a new line of stores called “365 by Whole Foods Market,” which they hope will make their products more accessible to more consumers. When stakeholder philosophy is adopted in a more conscious way and businesses begin to act in a more conscious way for a higher purpose, I think most of the hostility towards business and capitalism will disappear. And I think what’s really nice about this, and companies that are able to be mission driven and purpose driven, and still be profitable, is that when you put that out there for people to choose, there are people who choose it, and there are people who will vote with their dollars… right? And do it because that’s what’s valuable to them. So I think that’s nice, it’s about choice. Smith believed that individual choice should drive markets around the world. But he also believed that we needed to follow a strict code of morality, which came out of our life experiences and should guide us in our interactions with others. He believed that there should be morality in the marketplace.