Transcript Adam Smith - Cloudfront.net

Why
1. Why do you think Dr. X is trying to
find a cure for AIDS?
2. Why do you think athletes want to
win the league MVP?
3. Why do airplane pilots want to
always land safely?
5. Is the world better off because of
this Roger’s guy?
Adam Smith
• Smith argued the world
would be an orderly,
better place, with
increased prosperity if
people followed their
own self interests.
• “It is not from the benevolence of the
butcher, or the baker, that we expect our
dinner, but from their self-love”
Smith thought social harmony
would result without any
government direction “as if by an
invisible hand.”
He defended the idea
of a free economy in
his book The Wealth
of Nations.
Another way to say a free economy is
laissez faire: The idea that
government should not interfere
with or regulate industries and
businesses.
The opposite is government intervention
Examples
• Sales tax
• Minimum wage
• Maximum work hours
• Safe Working conditions
• Sick and vacation pay
• Disability pay
• Product safety
http://www.barackobama.com/life-of-julia/
Examples of government intervention with
regards to international trade (trade barriers):
1. Tariffs - high taxes on imported goods
2. Quotas: limit the quantity of imported goods
3. Tough government regulations
Smith thought the only legitimate functions of
the state were:
• National defense
• Establish property rights
• Establish legal system
• Promote free trade
• Invest in trade-promoting infra-structure
Adam Smith is considered the father
of Capitalism
Capitalism: An economic system
based on private ownership and on
the investment of money in
business ventures in order to make
a profit. Also known as the freeenterprise system or market
economy
The aims of a market economy
are to produce the best goods
at the lowest price
Capitalist often oppose
government efforts to help poor
workers because it lowers
profits.
Capitalism’s five main features are:
1. Private property: resources and capital are
owned by people and private institutions, not
the government
2. Self-interest: each economic
unit (person or business)
attempts to do what is best for
itself
3. Competition: a large number of
independent buyers and sellers is
best
4. Reliance on price (economists call
this the market): if prices go up, the
producer makes more and if the prices
go down, the consumer buys more
(the Law of Supply and Demand)
5. Limited government (laissez faire
economics): pure capitalism is
seen as self-regulating; only broad
legal limits should be established
by the government
Free trade dvd
http://www.youtube.com/watch?v=EBifN69gcKY