Case Project

Chapter 1 – The Corporation and Its Stakeholders

For this course, we are using the text 'Business and Society: Stakeholders, Ethics, and Public Policy' by Lawrence and Weber, 15th edition to form the basis for discussing business and its role in society. We will be covering Chapters 1-11, 13, 14, 18, and 19 in this course. The text and the chapters that we will be covering are divided into the following sections:

Business, the corporation and society - Chapters 1, 2, 3 & 4

Business and the ethical environment - Chapters 5 & 6

Business and Public Policy - Chapters 7 & 8

Business and other environmental forces - Chapters 9, 10, & 11

Building relationships with stakeholders - Chapters 13, 14, 18, & 19

OBJECTIVES OF CHAPTER 1 In Chapter 1 lecture notes, we cover the following topics:

The relationship between business and society

Motivations of people (society)

A look at our economic system

The corporation is one form of business

The relationship between businesses and their stakeholders

Forces change continuously and reshape the relationship between business and society

Value creation and the value chain

BUSINESS A PART OF SOCIETY The authors of this course’s textbook are almost apologetic in their position that business is part of society. I do not take this position nor do I apologize for my position. Society is people, and business is made up of people. (I do not know of one business entity that does not have at least one person involved in its inception or operations.) Therefore, business is part of society. Whether we or our business leaders want to acknowledge this or not, it is a fact of life and must be understood and dealt with to be competitive in a global environment.

Okay, we now acknowledge that business is part of society. But what part does business play and what part should business play in society? These two questions basically form the focus of this course. As discussed in the introduction, in this course students will be introduced to many concepts and material of modern thinking that will help students form opinions about these two questions. This course will hopefully prepare our students, our future business leaders, to successfully navigate the many troubled waters of today's business ventures and come out on top in a global, competitive environment.

WHO IS SOCIETY Society, as we have learned, is people. And, people are organized into different societal groups. Take me for example. I own stock in several companies (a very small number of stocks). I work for the University of Houston - Victoria. I purchase goods and services. And, I live in Houston. I am part of society, and I am also a member of several groups that make up society. I have multiple roles in society including the roles of stockholder, employee, customer and the public. You, too, are part of society and have multiple roles in society.

In these societal roles, I interact on a daily basis with businesses. As a stockholder, I vote on the nominees for board of directors of companies that I own stock in. As an employee (professor and director of program assessment), I work with businesses to improve the academic programs in the School of Business Administration. As a customer, I shop at businesses on a regular basis. And, as a member of the public, I work with businesses to improve the subdivision I live in. In each case, I am part of society and interact with businesses regularly. I am sure you, too, in your many societal roles, interact with businesses on a regular basis.

WHAT MOTIVATES PEOPLE (SOCIETY)? Think about what the average person wants. The typical person is motivated by the self-interest to survive. This interest to survive, first and foremost, translates into the need for security for both the individual and the individual's family. The typical person, in trying to survive, wants to provide him/herself and his/her family the basics of survival such as food, clothing and shelter. (In the modern world, the typical person wants to go beyond purely survival needs and improve the conditions of him/herself and his/her family by providing educational opportunities, an increased standard of living, and so on.)

People band together to enhance the probability of their family's security and to successfully provide for their family. As people formed groups to provide these needs, they adopted economic systems to improve the chances of obtaining their needs. People also realized that the structure of businesses impacted their ability to meet these needs.

In the modern world, it is the current belief of many nations (and certainly the United States) that a capitalistic economic system with businesses made up of corporations and privately held companies form the best combination to deliver what people need and want.

A SHORT HISTORY OF OUR ECONOMIC SYSTEM – CAPITALISM Since the dawn of mankind, some type of economic exchange has taken place to assist people in survival. The cave dweller trades the catch-of-the-day for a sharper stone. The harvester trades wheat for meat. The nomad trades a shiny stone for flint. This has all taken place in the history of people and society.

We skip all of this history, including the Greeks, Romans, Renaissance Europe, etc. and start our course economic history with the beginning of Capitalism. One of the earliest summaries of the concept of a capitalistic economic system (and arguably the most famous) is Adam Smith’s (1776) book, Wealth of Nations (http://en.wikipedia.org/wiki/Adam_Smith). Adam Smith was a Scottish moral philosopher (not an economist) who wanted to explain how whole societies (nations) could get wealthier by capitalizing on the self-interest of individuals to survive.

Adam Smith proposed that individuals, in pursuit of their own individual self-interest, actually can develop, promote, and maintain an entire national economic system whose total wealth surpasses the sum of each individual's efforts. Coupling this concept with the theories of the invisible hand, labor specialization, accumulation of capital, and ownership (see Addendum at the end of these Chapter 1 notes), Adam Smith basically

established (or at least summarized) the theoretical groundwork for our capitalistic economic system.

Capitalism is an economic system where investment and subsequent ownership of production, distribution and exchange is made and maintained mainly by private individuals or corporations (Webster's College Dictionary). It is the belief of many in the United States that capitalism is the economic system that best delivers what individuals need. At the same time, capitalism can produce, through individual self-interest, an increased level of wealth to an entire nation and its people.

Since Adam Smith, there have been many economists (e.g. John Keynes, John Galbraith, and Milton Friedman to name a few) who have further defined and attempted to perfect our economic system. Some issues that continue to be of interest in determining exactly what type of economic system we have include:

Is our economic system the best way to provide the needs of the American people? If not, what is the best economic system?

What role does the government play in our economic system? What role should our government play?

How is wealth distributed in our economic system? How should it be distributed?

What role do business entities play in our economic system? What role should businesses play?

If our current economic system falls short in providing people (society) with what they need, people (society) will create another economic system that will provide these needs.

Can you recite the Preamble to the U.S. Constitution? I learned it when I was a kid and remembered about 90% of it by memory. What does it say? The Preamble provides, in a few words, the major reasons why the United States was formed.

“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America”.

People join forces to improve on defense, general welfare, justice and liberty. The belief is that the group (people of the United States in this case), working together, can give the individual more than what the individual, alone, could supply to him or herself. This is the basis of civilization and the basis of social activities, that the group can supply more of some things to the individual than the individual acting alone can supply.

BUSINESS ENTITIES To meet the needs of the new capitalistic system, forms of business evolved and changed. As people accumulated wealth stemming from their labors, they were encouraged to take risks by venturing into new areas of commerce such as finding additional natural resources, manufacturing new products, and distributing goods and services. The idea was that if these risks could be held to a reasonable amount, more people would venture into newer and newer enterprises. From this, the corporation was born, an entity where the corporation is usually held to liability claims but the owners of these corporations are not usually personally held liable (see below and material throughout this course for more information about corporations). This allowed owners (in the form of stockholders) to risk more and more of their capital on newer and newer ventures.

To summarize, the history and evolution of our current economic system and business structure are captured in the three steps of human self-interest leading to an economic system of capitalism which leads to the current form of businesses (corporations).

Self-interest -----> Economic System -----> Business Form

THE CORPORATION IS ONE FORM OF BUSINESS Though it is true that, currently, several legal forms of business organizations do exist, the corporate form of organization is the main structure of most large United States companies. Corporations have some legal advantages over other forms of business partnerships and proprietorships. At a glance, four legal forms of business organizations include (from Foundations of Finance, 4th edition, Keown, Martin, Petty and Scott, Prentice Hall: Upper Saddle River, New Jersey, 2003):

Sole Proprietorship - a business owned by one individual. The owner maintains title to the business, its assets and any profits (or losses). No legal requirement must be met for this type of business, though local laws may require

business permits. The individual is liable for all liens, losses and liability against the business.

General Partnership - an association of two or more persons co-owning a business. Each partner is fully responsible for any liens, losses and liabilities incurred by the business. Any partner's faulty conduct renders the remaining partners liable also. The relationship among the partners is usually by written agreement.

Limited Partnership - Each U.S. state may have different laws governing limited partnerships. But in general, one or more partners may have limited liability in the partnership, with the limitation being the amount of capital invested in the firm. But, at least one general partner must take full responsibility for all liabilities, liens and losses against the business. And, limited partners must not be managers of the firm.

Corporation - This is a much different form of business than either the sole proprietorship or partnerships described above. Chief Justice John Marshall (1819) described a corporation as 'an artificial being, invisible, intangible, and existing only in the contemplation of law.' A corporation 'legally functions separate and apart from its owners.' Ownership is reflected in common stock designation. Owners elect boards of directors. Boards of directors appoint management. Owner (stockholder) liability is limited to the amount of the stock. This prevents creditors from taking the personal assets of stockholders. (This is a very important advantage of owning stock in a corporation.) The corporation can sue and be sued. The corporation can buy, sell and own property. And, a corporation's personnel can be subject to criminal punishment, though this is rare in the United States.

STAKEHOLDER THEORY AND THE FIRM

A stockholder is a person who owns shares of a corporation. A stockholder is also known as a shareholder. Since the stockholder or shareholder of a corporation is the owner, a main goal of corporations usually is to maximize shareholder wealth. Many corporations translate this goal into maximizing profits of the corporation.

Many great minds contend that just considering shareholders is a very limited view for setting goals for any business. Corporations and other forms of businesses have many stakeholders. A stakeholder is a person or group that affects or is affected by an organization's decisions, policies or operations. (Please read any test question carefully to make sure you understand whether the question is asking about stockholders, shareholders or stakeholders.) In this course we want to cover the point that it may be very important for businesses to consider the affect decisions have on all company

stakeholders and perhaps include some (beyond just shareholders) or all stakeholders in the goals of the firm.

Stakeholders include:

Owners (e.g. Stockholders, shareholders, partners, etc.) Employees Customers (B2B customers and consumers) Suppliers Distributors (retailers and wholesalers) Creditors Communities Media Government Public

The text does a good job delineating the many types of stakeholders including market and non-market stakeholders. Market stakeholders are those people or groups that have to do with the company's manufacturing, distributing or selling of goods and/or services. Market stakeholders include suppliers, customers, distributors, employees, creditors, stockholders and competitors. The nonmarket stakeholders are people or groups that do not have a direct exchange relationship with the company. They include the general public (not in the role as customer), special groups, the media, and federal, state and local governments (not in the role as purchaser of business products but in the role as representative of the public).

In real life, the questions each business needs to answer are how the business impacts each stakeholder group and how stakeholder groups affect the business. It may be that, at times, stakeholder groups make little difference on the decisions of the firm. But, at other times, stakeholders (other than stockholders) may have a very great impact on the firm's goals and decision making. For example, insurance companies in Texas are somewhat regulated by the state and must look to the state government of Texas before making many of their decisions. Car manufacturers need to consider

agencies that test automobile safety since a bad test result can influence future sales. Pharmaceutical companies need to understand the latest findings of the American Medical Association and other medical groups to determine what ethical drugs will be researched and sold. Utility companies should consider public sentiment about air pollution when determining what type of fuel is used in generating electricity.

Therefore, a firm's goals may be modified to take into consideration other stakeholders beyond stockholders and other owners of the firm. For example, a utility plant may have several goals, one being increasing company profits 10% and, at the same time, reducing air pollution by 15% over the next 2 years. Or, a car manufacturer may have goals to increase profits 5% this year and also double the research effort into car safety.

THE TIMES THEY ARE A CHANGIN' As the old saying goes 'Time and tide wait for no one.' And, Bob Dylan (Nobel Prize winner) is right about change -- 'then you better start swimmin' or you'll sink like a stone.' For businesses that means that they will sink into bankruptcy if they do not keep up with the changing times and tide.

Businesses need to constantly be aware of what is changing in their internal and external environment. (We will be covering this topic in more depth in Chapter 2 under environmental scanning.) Competitive advantage is born out of change. We believe that change is so important to successful leadership that we have included the course Mgmt6354 (Leadership and Organizational Change) in the Strategic MBA core curriculum to more thoroughly cover this topic.

Business is always going through a process of change. As an example, many businesses are trying to determine how best to incorporate the latest electronic technology into the business model. The process of changing business as electronic technology changes is not new. Business has gone through several renaissance periods such as the invention of the telephone, the adoption of new media such as radio and television, the computer, and now the Internet. All of these eras and inventions mark new ways for companies to conduct business and communicate with their stakeholders (customers, stockholders, suppliers, employees, the public, etc.).

VALUE CREATION The concept of value is one of the most important concepts in our economic system. Humans, because of self-interest, exchange with others to create some type of value for themselves. Therefore, companies, in order to participate in the exchange, must create

a good or service that has value to the self-interested human. That is how our economic system, our market-driven economy, works. Market here means customer, and the ultimate customer is the self-interested human being, the consumer. For the most part, firms need to focus on those activities that create value to their customers. Businesses will not sell many items if their customers do not value the company’s products. Thus, value is ultimately set by the firm’s customers. Prosperous firms deliver the value that their customers need, want and/or expect. Customer value is the worth or importance the customer places on the exchange. In economic models, the term used is Utility versus the term value that we will be using in this course. THE VALUE CHAIN The Value chain includes all the organizations that help to make, deliver and market a good or service to the ultimate consumer (the self-interest human). Who is the ultimate consumer? The Consumer is the household buyer, a person buying for personal or family consumption. According to current estimates based on the U.S. census, there are approximately 325 million (325,000,000) persons in the U.S. and about 115 million households. In today’s terms, consumers make up the B2C market, or business-to- consumer market. A Customer is any buyer, be it a consumer (household), a business, non-profit organization and/or government agency. Buyer is also a general term that can include the consumer, business, non-profit and/or government agencies. Thus, using the terms customers and buyers for the B2C market or the B2B market (businesses selling directly to businesses) is appropriate. However, the term consumer is more specific than the term customer. The term consumer only applies to an individual purchasing for his or her own use or own household use. What does a typical value chain look like? Rarely does one business develop all the pieces necessary to supply a good or service to the consumer. Most businesses are part of a joint effort with other companies to deliver these products to consumers. To show this, let us discuss the Value chain for a typical product. For definitions:

Products include both goods and services. Goods are tangible objects (e.g. TVs, cars, T-bone steak, etc.) Services are intangible actions (e.g. airline flight, haircut, lawyer’s advice, medical exam, etc.)

To illustrate how most companies are involved in a group effort to deliver products to consumers, let us start with a value chain for a typical good (also called supply chain and supply chain management).

RM >> CS >> M >> D >> R >> C

RM are the Raw material producers (ExxonMobil is a producer of oil (where I put in 16 years of my life) and farmers are producers of vegetables).

CS are the Component suppliers that make and supply component parts to the manufacturers for the final car or computer sold to the ultimate consumer. For example, Goodyear is a component supplier that supplies tires to General Motors. Or, Intel supplies processing computer chips and Microsoft supplies the operating systems to Dell, who assembles the total computer sold to consumers.

M are the Manufacturers (Sony TVs), final assemblers (Dell computers), or processors (Kraft foods). This is the stage of the value chain where the physical good first looks like the final, whole item the consumer will ultimately buy. Out the back door of the manufacturer or assembler is the first time the car looks like a car and is fully functional. This is the first time the computer actually works. Prior to this stage in the value chain, there are only pieces and components of cars and computers.

D are the Distributors (including wholesalers) that receive (buy) the goods from the manufacturer and store them regionally until retailers buy these goods from the distributors to fill retail shelves.

R are the Retailers. By definition, retailers are those companies that sell directly to the consumer (Macy’s, Kroger’s, Amazon, Wal-Mart, Barnes and Noble, Burger King, Tommy Vaughn Ford Dealer, etc.). C are Consumers, self-interested individuals who purchase goods and services for themselves and their households.

Most goods in the U.S. economy go through a value chain similar to the one shown to deliver goods to the ultimate consumer. There are times when the chain is longer, and there are times when the chain is shorter. For example, exporting goods overseas usually includes several D’s, multiple sets of distributors that represent the exporting country and the importing country. All the value chain functions (raw material production, component supply, final manufacture and assembly of the product, distribution, retailing, etc.) must be undertaken before the consumer buys and receives the final good. However, a

company can take on several functions. For instance, Wal-Mart, the retailer, can also be the distributor by taking on the function of shipping and storing the manufacturer’s goods prior to Wal-Mart’s retail sales to the consumer. When a company adds value chain functions to its inhouse operations, this is called vertical integration. At every link or function in the value chain (unless a company vertically integrates several functions), there are buyer-seller exchanges or transactions between businesses (except the retailer/consumer link which is considered the consumer market or B2C and is an exchange between business and consumers). That is, there are buyer-seller transactions between the:

Raw material producers/component suppliers Component suppliers/manufacturers Manufacturers/distributors Distributors/retailers

In each of these transactions, the buyer (buying firm) takes possession of the goods. The transactions are final, the seller (selling firm) relinquishes title and control, and the seller gets paid by the buyer within a designated time period. This often takes place possibly months before the consumer actually buys the final product. Notice, that the goods ultimately get to the consumer via the functions of the value chain. The companies involved are working together to deliver value to the consumer via goods and services. Therefore, and this is very important, in our economic system, THE SELF-INTERESTED HUMAN (CONSUMER) SETS THE VALUE in the value chain. We have a MARKET-DRIVEN ECONOMY, which means that the ultimate consumer (the market) steers the entire economy and sets what has value and how much that value is. To say it another way, the consumer (people) determines the value of most goods and services in the U.S. economy. If a company makes a high quality item but the consumer does not ultimately buy it, the product has no (zero) value. If a manufacturer makes a low quality item but the consumer buys it, then the product has the value that the consumer pays for the product. Of course, in the context of Busi6351, the consumer is the self-interested human who has created an economic system and business entities to be able to obtain those items needed for survival.

For the consumer, value is the ratio of:

VALUE = what consumer gets from product / what it takes to acquire it

VALUE CHAIN SHOWING OTHER IMPORTANT CONCEPTS The value chain is a very good vehicle to show several other business and economic concepts. First, it identifies B2B and B2C businesses and marketing. RM >> CS >> M >> D >> R >> C |__________B2B_________| |_B2C_| The value chain also shows how the Gross Domestic Product of the U.S. is and is not calculated. GDP is the market value of all goods and services that have been bought for final use during a period of time (usually a year). U.S. GDP is about 18 trillion dollars ($18,000,000,000,000). If we look at the value chain, for example, we see that a U.S. Gross Domestic Product of about $18 trillion is calculated by adding the following (using method similar to Business Week, March 2001 and also shown in the CIA World Factbook) – note the numbers in the calculation are for illustration purposes only:

Consumer spending (about $12.3 trillion) (C) + exports – imports (adding exports and subtracting imports nets

approximately a minus (-) $0.5 trillion) + government consumption spending ($3.2 trillion) (government spends for the

public/people) + new capital investment and inventories ($3.0 trillion) (business invests in new

products for ultimate end-user consumers) https://www.cia.gov/library/publications/the-world-factbook/geos/us.html Notice, that the GDP never adds any buying and selling between the businesses (business-to-business) in the value chain (except for that attributed to new capital spending). It only attempts to tally the spending of the end users (consumer and government) in the U.S. plus an adjustment for exports and imports (an adjustment for consumers in the U.S. buying foreign products and consumers in foreign lands buying U.S. products). Adding the transactions between businesses (B2B) would double and triple count the same products (goods and services).

Think about the aluminum that goes into the aluminum framing of a car. If we added the many times the aluminum actually is bought and sold in the value chain between businesses, we would count the same aluminum at least 4 times before the car was bought by the consumer. Remember, the transactions between firms in the value chain are purchases with invoices and money exchanged.

1. RM to CS 2. CS to M 3. M to D 4. D to R

The total monetary amount of B2B buying and selling in the U.S. is over $30 trillion, much more than the GDP of $18 trillion. RM >> CS >> M >> D >> R >> C |__________B2B_________| |_B2C_| B2B marketing is well over $30 trillion but is just buying and selling of the same products (goods and services) or pieces of goods and services that the GDP ends up summing up as shown above. FULL CIRCLE We have come full circle in these Chapter 1 lecture notes. We began with human self- interest (society) leading to our capitalistic economic system and the forms of business we use today. We then discuss value creation with the conclusion that businesses must create value to the same self-interested humans (who created the economic system and business entities) or the self-interested humans (society) will create other economic systems and forms of businesses that will generate value for them.

Self-interest economic system business form value creation  Back to self-interest change in economic system change in business form value creation  Back to self-interest  etc. …

Copyright © 2017 by Linda A. Hayes, Ph.D. All rights reserved. Portions of these notes are based on ‘Business and Society,’ 15th edition, by Lawrence and Weber, McGraw-Hill: New York, 2017.

Addendum to Chapter 1 Lecture Notes

THE WISDOM OF ADAM SMITH (not on the exam but part of the modern MBA educational experience)

Adam Smith's Wealth of Nations was published in 1776 (over 240 years ago), the same year as our United States Declaration of Independence was signed. Smith was documenting and explaining another revolution that was taking place throughout the world, an economic revolution. This revolution dealt with the concept that human self- interest could fuel whole national economies with little interference from external sources. Excerpts from Wealth of Nations, below, show the great understanding Smith had about human nature and its ability to develop a new economic system.

https://www.adamsmith.org/adam-smith-quotes/

Human nature and economic growth: Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.

The Wealth of Nations, Book IV Chapter VIII

Man was made for action, and to promote by the exertion of his faculties such changes in the external circumstances both of himself and others, as may seem most favourable to the happiness of all.

The Theory of Moral Sentiments, Part II Section III Chapter 3

Such is the delicacy of man alone, that no object is produced to his liking. He finds that in everything there is need for improvement.... The whole industry of human life is

employed not in procuring the supply of our three humble necessities, food, clothes and lodging, but in procuring the conveniences of it according to the nicety and delicacy of our tastes.

Lectures on Justice, Policy, Revenue and Arms

The invisible hand: Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and 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.

The Wealth of Nations, Book IV Chapter II

The rich ... divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made, had the earth been divided into equal proportions among all its inhabitants.

The Theory of Moral Sentiments, Part IV Chapter 1

Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only.

The Wealth of Nations, Book I Chapter 1

It 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. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.

The Wealth of Nations, Book I Chapter II

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.

The Theory of Moral Sentiments, Part I Section I Chapter I

The division of labour or labor specialization: The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour.

The Wealth of Nations, Book I, Chapter I

The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education.

The Wealth of Nations, Book I, Chapter II

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market.

The Wealth of Nations, Book I, Chapter III

A gardener who cultivates his own garden with his own hands, united in his own person the three different characters, of landlord, farmer, and labourer. His produce, therefore, should pay him the rent of the first, the profit of the second, and the wages of the third.

The Wealth of Nations, Book I, Chapter VI

The whole annual produce of the land and labour of every country...naturally divides itself into three parts; the rent of the land, the wages of labour, and the profits of stock.

The Wealth of Nations, Book I, Chapter XI

The role of government: In the midst of all the exactions of government, capital has been silently and gradually accumulated by the private frugality and good conduct of individuals, by their universal, continual, and uninterrupted effort to better their own condition. It is this effort, protected

by law and allowed by liberty to exert itself in the manner that is most advantageous, which has maintained the progress of England towards opulence and improvement in almost all former times...

The Wealth of Nations, Book II, Chapter III

According to the system of natural liberty, the sovereign has only three duties to attend to ... first, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting, so far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice, and thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain...

The Wealth of Nations, Book IV, Chapter IX

The real and effectual discipline which is exercised over a workman is ... that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence.

The Wealth of Nations, Book I Chapter X

Monopoly and competition: Monopoly...is a great enemy to good management.

The Wealth of Nations, Book I Chapter XI Part I

The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price.

The Wealth of Nations, Book I, Chapter VII

The price of monopoly is upon every occasion the highest which can be got.

The Wealth of Nations, Book I, Chapter VII

People of the same trade seldom meet together, even for merriment and diversion, but

the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

The Wealth of Nations, Book I, Chapter X

The natural price, or the price of free competition ... is the lowest which can be taken, not upon every occasion indeed, but for any considerable time together...[It] is the lowest which the sellers can commonly afford to take, and at the same time continue their business.

The Wealth of Nations, Book I, Chapter VII

Demand and value: The desire of food is limited in every man by the narrow capacity of the human stomach; but the desire of the conveniences and ornaments of building, dress, equipage and household furniture, seems to have no limit or certain boundary.

The Wealth of Nations, Book I, Chapter XI, Part II

By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without.

The Wealth of Nations, Book V, Chapter II, Part II

The distribution of wealth: What improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.

The Wealth of Nations, Book I Chapter VIII

Capital accumulation: Parsimony, and not industry, is the immediate cause of the increase of capital. Industry, indeed, provides the subject which parsimony accumulates. But whatever industry might

acquire, if parsimony did not save and store up, the capital would never be the greater.

The Wealth of Nations, Book II, Chapter III

Free trade and specialization: It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy...What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.

The Wealth of Nations, Book IV Chapter II

The property which every man has in his own labour; as it is the original foundation of all other property, so it is the most sacred and inviolable… To hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour is a plain violation of this most sacred property.

The Wealth of Nations, Book I, Chapter X, Part II