The Way to Wealth in the Opinion of Benjamin Franklin

In 1757, the American businessman Benjamin Franklin wrote a small pamphlet which he called The Way to Wealth. It was widely read and its maxims were assiduously followed.

Franklin thought of wealth as an asset, not as making a profit today but maybe tomorrow. Today, the Caux Round Table for Moral Capitalism seeks to draw attention to assets as the engines of market capitalism, including intangible assets such as personal character and social capital.

Wealth was capital for Franklin, that which made income possible. Thus, to enjoy lots of income in the future required first building up assets and sustaining their value. The most important assets for him were personal, readily at hand for every right-minded person.

His advice was:

1) Avoid bad habits: idleness; sloth; pride; folly; for God helps those who help themselves; want of care does us more damage than want of knowledge; a little neglect may breed great mischief

2) Be industrious day in and day out: many words won’t fill a bushel; do not squander time for that’s the stuff life is made of; the sleeping fox catches no poultry; there will be sleeping enough in the grave; lost time is never found again; one day is worth two tomorrows; early to bed and early to rise makes a man healthy, wealthy and wise; he that lives upon hope will die fasting; there are no gains without pains; diligence is the mother of good luck; little strokes fell great oaks; keep your nose to the grindstone

3) Our wealth is ourselves: trusting too much to others’ care is the ruin of many; he that by the plough would thrive, himself must either hold or drive; if you would have a faithful servant and one that you like, serve yourself

4) Keep what we have: get what you can and what you get, hold; be frugal; for age and want, save while you may for no morning sun lasts a whole day; a penny saved is a penny earned; think of saving as well as getting; a small leak will sink a great ship; fools make feasts, wise men eat them; silks and satins, scarlet and velvets, put out the kitchen fire; when the well’s dry, they know the worth of water; a ploughman on his legs is higher than a gentleman on his knees

For Franklin then, the way to wealth must run through character, an intangible capital of great value.

Financialism Round Table – May 24th

The 2020 presidential campaign is now underway.  The big issue shaping up for the American people seems to be “capitalism.”

Do we want to keep “it” or should we go for “socialism?”

What is our capitalism anyway?  Certainly not what it once was in the age of steam power now that we are in the age of the internet with Hydra-headed AI heading our way to revolutionize our lives yet again.

Heraclitus had a point: “Things always change.  You can’t step into the same stream twice.”

Yet, some things about capitalism seem to be the same: the rich have it better than the poor and those with assets get more assets.  Those with capital do better than those who only bring labor to the economy.  A few companies still dominate market segments.  The middle class does not have enough savings for retirement.  Those dissatisfied call on the state to make things right.

The share of our economy which is finance has grown as never before in history.  Returns to liquidity outpace wage increases.  It was unbalanced financialism which brought on the collapse of credit markets in 2008.  Companies set their courses to influence stock markets which have attention deficit disorder.  Is this wise?

Please join us and John Taft, Vice Chairman of Baird, for a round table discussion on financialism at 9:00 am on Friday, May 24th at the Minneapolis Club.

John has been Chairman of the Securities Industry and Financial Markets Association.  He’s also the author of two well-received books on finance, Stewardship: Lessons Learned from the Lost Culture of Wall Street and A Force for Good: How Enlightened Finance Can Restore Faith in Capitalism.  He is the great grandson of U.S. President William Howard Taft.

Registration and a light breakfast will begin at 8:30 am and the event at 9:00 am.

Cost to attend is $15 for Business and Public Policy Round Table members and $35 for non-members.  Payment will be accepted at the door.

Space is limited.

To register, please email Jed at or call (651) 223-2863.

The Minneapolis Club is located at 729 2nd Ave South in downtown Minneapolis.

Parking will be available in the Club’s parking ramp.  The entrance to the ramp is on 8th Street.

The event will conclude at 11:00 am.

Merit Goods

One of the most pervasive critiques of capitalism is its stubborn persistence in producing goods and services having little or no merit in the eyes of its critics.

Those determined to reverse global warming blame capitalism, its markets, its consumers and its governance, for creating and thriving on a hydro-carbon energy system.

Other critics bemoan “affluenza” and “consumerism” as almost an intentional capitalist conspiracy to undermine humanity’s moral nobility with cheapness of things and vulgar materialism.  Capitalism is said to be a system made by and for a “nouveau riche” sensibility, a deplorable middle class, middlebrow indulgence in trivial pursuits and enjoyments lacking any redemptive meaning in our cosmos.

Welfare economists have come up with a notion of “merit” goods which speaks to the value of what is either produced and sold through markets or provided by the state to the deserving as welfare goods and services.

I very much agree that the categories of merit goods and services and un-meritorious goods and services are sound and important for us to keep in mind.  Un-meritorious goods are not really needed in a good society or a wholesome culture.

But my problem with these two categories is my problem with any ethic or morality or with the legitimacy of any authority: “Who says?”

Should we listen to a pope or a tzar to learn what has merit and what must be shunned and excluded from our purchases?  What about following the opinions of bad people?  Or of stupid people who can’t see the consequences for the immediacy of their pleasurable satisfaction in consuming whatever it is they salivate for?

Or just look to good people and ape their consumption patterns?

Who is a good person anyway?  They don’t come from the womb having that label branded on their foreheads for all of us to see.

The free markets of capitalism can’t solve this justification conundrum.  Markets are value-neutral; they facilitate production of what people want.  If there are customers with ready money who know what they want, the history of our species suggests that someone will step forward to meet that demand, be it for guns, sex, drugs, pornography, stolen goods, ad infinitum.

Providing only merit goods is a great challenge to free societies.  We need to do a better job but there seems to be no way to easily and correctly cut the Gordian Knot of convoluted, intertwining, human desiring and free us from sin in demanding that which has no merit.

I recently saw an article for parents on what watching video games does to a child’s brain.  The article makes clear that video games, as intentionally designed by sellers, are not merit goods.

Video games cause the mind to release dopamine which is pleasurable.  The level of dopamine released – the pleasure experienced – rose with a progression of success at the game.  The more difficult the challenges, the better the scores, the better the players got vis-à-vis themselves and others, the more dopamine was released and the less homework got done.  Game designers excel intentionally in arranging for the release of lots of dopamine to keep the gamers at their consoles.

Requests, escalating into demands from parents to stop playing and eat dinner or do homework triggered anger in the child, confrontation with the parents, rejection of authority and a deterioration in the child’s emotional well-being and sociability.

Children give up playing with Legos when asked much more easily.

Then, I saw an article in our local paper here in St. Paul that Creative Kidstuff is going out of business.  There, we bought toys – old fashion toys – which require imagination and creative play – for our grandchildren.  The owner gave as a principal reason for giving up the business that now “children are more likely to play games on electronic devices.”  Can’t buy Legos there anymore but they can still be ordered on Amazon.

A 2017 study found that children and young adults who played video games four or more hours a day for six or seven days a week showed more symptoms of depression than those who put in less time in such self-entertainment.  Now, to me, becoming depressed as the result of using a consumer purchase is not a merit good for anyone.

So, should we outlaw video games?

Secondly, the American drug store chain Walgreens is testing tobacco-free stores under pressure from government health regulators but has no plans to give up selling cigarettes.  But the chain is trying to sell more smoking cessation products and has reduced the visibility of tobacco products to customers.

In a report on Juul, the maker of an alternative to cigarettes, it was said that: “Just two months after agreeing to no longer sell its flavored pods in stores, e-cigarette company Juul is planning to launch its first television ad campaign.  The ads, which are expected to air this summer, will feature testimonials from adults who have used Juul to help them stop smoking cigarettes,” Business Insider reports.  Juul removed its flavored pods from stores amid criticism that the pods specifically target teens.  It also deleted its Facebook and Instagram accounts promoting the flavored pods and has asked Twitter to “police” its posts so they’re not shown to underage users.  The television ads will reportedly cost Juul $10 million and will air on national cable channels after 10:00 pm.  According to executives, the ads are targeted at adults 35 and older and include testimonials from smokers between the ages of 37 and 54.

Thirdly, Big Data, soon to be put on steroids by artificial intelligence, brings to us many benefits, including social media, lower costs, more knowledge of what’s going on, quicker response times, etc.  But in the wrong hands, is it still a merit service?

Micro-targeting of customers by analysis of Big Data memory banks enables companies to enhance their return on advertising, politicians to adroitly stoke the emotions of their followers and autocrats to summon forth willing obedience from citizens.

Today, Facebook is trying to minimize the ability of its WhatsApp communications system in India to contaminate the forthcoming election with falsehoods and demagogic, divisive emotionalism.

Facebook founder and CEO Mark Zuckerberg has now called for government regulation of social media, dependent on Big Data for its ability to sell ads to companies.  He wants government to set rules for the restriction of free speech, the freedom of his suppliers to say whatever they want on his internet platforms, to prevent un-meritorious communications with harmful content, endangering election integrity, abusing privacy and misusing data portability.

The Wall Street Journal, in an editorial, wryly suggested: “Before he invites the protection of the political class, Mr. Zuckerberg should have Facebook fix Facebook.”

In other words, providing merit goods is part of corporate social responsibility.

Another commentator pointed out that once complex regulation is in force, only the big companies like Facebook will have the money to hire the lawyers and technicians to work in and around the rules and regulations and appeal process.  Small, innovative upstart companies will encounter barriers to entry as competitors of Facebook, to the great profit advantage of Mark Zuckerberg.

I note in this connection with a call for Facebook to be more socially responsible that Facebook paid App developers to secretly include Facebook software in their Apps so that users of the Apps unknowingly were sending very personal data to Facebook for the company to sell.  One App, Flo Period and Ovulation tracker with 25 million users, obtained the most intimate information on women’s menstruation cycles on behalf of Facebook.

With respect to free and fair elections, the problem is not the ads which partisans pay to display on Facebook but the very essence of Facebook – exacerbating “poisonous politics by creating filter bubbles of like-minded partisans, spreading hoaxes and inaccuracies, inducing anxiety and paranoia and rewarding clickbait and outrage.”  In other words, it is the Facebook service itself which lacks merit, in many respects.

When we start to think about what to do to promote merit goods and discourage un-meritorious goods, we are on the edge of important innovation.

Low Prices and…

I recently sent you some thoughts on low prices and the irreversible dynamics of capitalism and then came across some “case studies” of this fact-of-life in the news.

First, Amazon, an engorging presence in American life, recently bought a retail grocery chain of brick and mortar stores – Whole Foods. But there is great competition in selling groceries to American consumers, whose tastes are changing by the day. Whole Foods has a brand image of high cost. Amazon is working hard to change that image by lowering costs to attract more customers. To compete with the high-tech Amazon/low-tech Whole Foods amalgam, Walmart, for example, has been lowering its already low prices.

At Whole Foods internal meetings, it was reported that store managers predicted that lower prices could boost traffic to their stores but others voiced concern that lower prices will hurt their operating margins, pressuring them to find more ways to cut costs.

Another story reported that to save money, large American banks are cutting back on their local branch offices. But they are closing branches more in poor neighborhoods. These closings will make it harder for small businesses in poor neighborhoods to access credit to sustain and grow their operations. From 2014 to 2018, banks shut 1,915 more branches in lower-income neighborhoods than they opened.

Third, caviar prices are sinking thanks to an increase in production. China has become one of the largest producers of caviar through fish farming and is driving prices down. Farms have been able to produce large volumes of fish eggs for very low cost.

Prices for caviar have been cut in half since 2012. Sales rose. The U.S. imported $17.8 million of caviar in 2018, up from $7.6 million in 2014.

American farmers of such fish eggs can’t compete. Their labor costs are higher and American regulation limits the use of preservatives which extend the shelf life of caviar. American caviar farmers are trying to maintain sales and so their income, through differentiation of their products in price and taste, appealing more to high end consumers.

Fourth, the increasing selling of generic drugs is lowering profits for Walgreens Boots Alliance, Inc. and CVS Health Corporation. Walgreens has come off its worst quarter for earnings since 2014. Consumers – and health care providers – like lower prices. They are a boon for these stakeholders provided by volume purchasing on the part of insurers and government and by the lack of intellectual property protection for the drugs. But it will change the future for the stores and the makers of drugs.

It seems that prices really do matter to customers but low prices bring about winners and losers.

What is the Problem?

In the news today, Gordon Caplan, former Co-Chairman of the prestigious U.S. law firm Willkie Farr & Gallagher, pleaded guilty in federal court to cheating to get his daughter accepted for admission to a “prestigious” college. He paid $75,000 to have his daughter’s test score corrected and raised.

Then, it was reported that Boeing will cut production of its 737 Max aircraft by one fifth and constitute a special committee of the board to examine its development of new planes. This as a result of past design decisions which may have contributed to recent crashes of 737 MAX aircraft.

In both cases, remediation was necessary to offset harm that could have been prevented had better judgment been used by the decision-makers.

Systems did not cause these two shortfalls in judgment; lack of individual reflection did. The one who broke the law was a lawyer. Senior Boeing officers were well-trained and highly paid not to subject their company to long-term risk.

The failures in both cases ultimately were personal.

As Walt Kelley’s cartoon character Pogo said so many years ago now: “We have met the enemy and he is us.”

U.S. War on Poverty – Stalemate on Capital Inputs

Since 1980, the U.S. government has spent, in 2017 dollars, almost $500 billion on compensatory education to lift the achievement of disadvantaged children and another $250 billion on early childhood education for children from low income families. Individual states have spent more on these programs.

Despite all the public money invested in these programs, the achievement gap in educational outcomes has not narrowed. For all students, there has been no gain in overall performance at age 17. Students from the bottom 10% of socioeconomic distribution and the bottom quartile have the same relative lack of educational achievement compared to those in the top 10% and top quartile as before.

A World Bank report of December 2015 argued that “mind” and “society” influenced individual behavior and individual behavior influenced economic outcomes in life.

If special public educational programs in the U.S. have not resulted in constructive changes in mind, socialization and behavior, then what is to be done?

One is driven to conclude that culture in general – culture determined by free individuals living as they want to live – has its shortcomings. And those shortcomings may be values communicated to and character socialization for children.

Just transferring wealth to those who have less does not seem to bring about systemic change.

A new, deeper look at the foundations of social and human capital may be needed. As some business leaders in our network once told me, capitalism takes in and makes the most of whatever society puts out. If you want good values to prevail, don’t look first to markets but to families and religions.

Low Prices and the Damnation of Capitalism

I read recently of three instances where low prices attracted consumers. Interest rates on bonds in Europe are 3% lower than in the U.S., so American companies are borrowing money in Europe. BlackRock lowered the fees it charges big clients to close the gap with cheaper rivals and attract investors to its products. Residents of New York are moving to Florida where taxes are lower.

Thus, do low prices give capitalism a bad name? Companies relentlessly work to lower costs. They pay as little as possible for labor and supplies. They may gain customers by doing this or keep themselves in business but they divert income away from workers and suppliers. They don’t like to pay taxes which in turn buy public goods. Other companies connive and lower the quality of their goods in order to move further along the price/demand curve to lower prices but more demand.

Even with high-priced status and luxury goods, those at lower, more competitive prices may find more ready buyers. Look at the trade for knock-off, counterfeit purses and Rolex watches.

It is certainly true that some people will willingly, even eagerly, pay more for goods which have emotional significance – free trade coffee, support of socially responsible enterprises or for something having an intangible but beneficial impact on culture or communities.

Yet, one could easily predict that they would choose to pay a lower over a higher price if both alternatives would provide the same satisfaction.

For every micro-economic utility function there is more demand at lower cost. That’s just the way people are and rationally so, for spending less gains them access to more of life’s flow.

Even very rich people with low marginal utility of every additional dollar earned still are prone to buying the same good from another seller if the price is less.

As Benjamin Franklin pointed out “A penny saved is a penny earned.” And the more pennies we have in hand, the more we can get out of life.

The force field of competition keeps companies at the grindstone of lowering their costs and their prices unceasingly. Prices drop to commodity levels.

Not every capitalist likes working to make a profit under competitive pressure to lower prices. Many seek relief by obtaining market power – trademarks, patents, monopolies, cartels, etc. – which permit them to sell at a premium over cost.

So, who benefits from a system where lower prices for the same quality/utility are rewarded with more customer demand?

Customers for sure, particularly those with less wealth and lower incomes.

Society, maybe not so much. And therein lies the appeal of socialism.

The environment too, not so much. Environmentally sustainable products often cost more. Ending the hydro-carbon energy civilization would cost quite a lot just now. There is little mass enthusiasm to paying those costs out of our pockets but a great wailing and gnashing of teeth that we humans are so selfish and short-sighted.

The demand for lower prices gives rise to a fundamental critique of capitalism in that the system rests on individual greed. People, day-in-and-day-out, like to have more money and spend less. Why? Why can’t they care more for others and sacrifice their self-interest to let others benefit more? If customers would pay more, workers could earn more. If customers would pay more, quality would improve and risks to society and the environment would decrease and suppliers would willingly add more value to final goods.

If we look at money as power, then a law of thermodynamics might apply. Power is flow; it gets things done; it can even move mountains. Life is more giving, more fulfilled, more complete, more enjoyable, more accomplished, more diverse, the more there is flow.

It is natural for nature to want more flow. Higher prices restrict flow; lower prices augment flow.

More flow is distributive justice.

A system with the lowest costs for the same level of purchasing power has maximum flow. This is efficiency which is good for the social order.

There is rationality in running any system to lower its costs commensurate with quality.

Minnesota’s Contributions to Moral Capitalism Round Table – Tuesday, April 9th

Minnesota can take great credit for proposing the practice of moral capitalism for our global economy. The proposal is gaining traction not only in the U.S., which in the forthcoming presidential election campaign will debate capitalism vs. socialism, but seems to provide a political/economic/social formula of balance for well-being in societies around the world.

Please join us and Charles M. Denny and Bob MacGregor at 9:00 am on Tuesday, April 9th at the University Club of St. Paul as they recall the creation of the Caux Round Table for Moral Capitalism’s Principles for Business in the early 1990s.

They will discuss an important moment in Minnesota business history, one which reflects the Minnesota ethic of community and optimism about how we can always do better than we did yesterday.

Chuck was at that time CEO of ADC Telecommunications and Bob was Vice President of Dayton Hudson (now Target) and Executive Director of the Dayton Hudson Foundation.

Both are now retired, but still thoughtful and passionate about how business can best promote the well-being of societies around the world.

Registration and a light breakfast will begin at 8:30 am and the event at 9:00 am.

Cost to attend is $15 for Business and Public Policy Round Table members and $35 for non-members. Payment will be accepted at the door.

Space is limited.

To register, please contact Jed at or (651) 223-2863.

The University Club is located at 420 Summit Ave in St. Paul.

Parking will be available along Summit Ave.

The event will conclude at 11:00 am.