ADAM SMITH

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ADAM SMITH
ENLIGHTENMENT ECONOMIST
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• Born in Scotland in 1723
• Became Professor of Philosophy at the University
  of Glasgow in 1750
• Wrote The Wealth of Nations in 1776

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What is the true nature of human beings?
What economic system is best suited for human
nature?
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MERCANTILISM
THE GOVERNMENT RUNS THE economic SHOW
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MERCANTILISM
GET THE MOST GOLD FOR YOUR NATION
EXPORT MORE THAN YOU IMPORT
STATE IMPOSES HIGH TARIFFS ON IMPORTED GOODS
STATE MONOPOLIES CONTROL PRICES PRODUCTION
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SMITH THOUGHT THAT MERCANTILISM WAS CONTRARY TO
TRUE HUMAN NATURE AND NATURAL RIGHTS
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It is not from the benevolence of the butcher,
the brewer, or the baker, that we expect our
dinner, but from their regard for their own
interest. We address ourselves, not to their
humanity, but to their self-love, and never talk
to them of our own necessities, but of their own
advantages.
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In other words
Greed is Good!
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CAPITALISM

• The wave of the future in an Enlightened world!
• Use that natural self-interest!
• Create the most prosperity for the most people!

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THE OBJECT IS
profit!
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CAPITAL
Things necessary for production
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CAPITALIST
A person who owns capital and decides how to use
it
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LAISSEZ-FAIRE CAPITALISM
Absolutely no government interference in the
business of capitalists
Laissez-Faire
French for leave it alone
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FREE TRADE

• No tariffs
• No monopolies
• No government regulation of prices
• No import or export regulations
• Capitalists can keep their profits

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The Invisible Hand
THE AMAZING POWER THAT KEEPS SOCIETY IN ECONOMIC
HARMONY A PERFECT BALANCE OF PROFITS, PRODUCTS
AND LABOR
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COMPETITION
KEEP QUALITY HIGH
KEEP PRICES LOW
KEEP WORKERS HAPPY
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• BAD PRODUCT or HIGH PRICE
• CONSUMERS WONT BUY IT
• PROFITS FALL
• WAGES FALL or WORKERS GET FIRED

• GOOD PRODUCT or FAIR PRICE
• CONSUMERS WILL BUY IT
• PROFITS RISE
• WAGES RISE

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• POOR WAGES or WORKING CONDITIONS
• BAD PRODUCT
• CONSUMERS WONT BUY IT
• PROFITS FALL
• WAGES FALL or WORKERS GET FIRED

• FAIR WAGES and WORKING CONDITIONS
• GOOD PRODUCT
• CONSUMERS WILL BUY IT
• PROFITS RISE
• WAGES RISE

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DIVISION OF LABOR TECNOLOGICAL IMPROVEMENTS
Greater skill
INCREASED PRODUCTION LOWER PRICES MORE PROFIT
Saves time
One worker does the work of many
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CONSUMERS
Power is ultimately with the individual
WHY ARE SMART CONSUMERS ESSENTIAL TO THE SUCCESS
OF CAPITALISM?
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ADVERTISING
WORD-OF-MOUTH OTHER CONSUMERS ARE THE ONLY PEOPLE
YOU CAN TRUST TO BE HONEST ABOUT PRODUCTS
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CAPITALISM MARKET ECONOMY
1. WHAT GETS PRODUCED?
2. HOW ARE THINGS PRODUCED?(Technology)
3. WHO GETS THE PRODUCTS?(Acquisition
Distribution)
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So if everybody is free to pursue their own
self-interest...
Well all have a happy, prosperous society!
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Most importantly... GOVERNMENT HAS TO STAY OUT OF
IT OR THEY'LL RUIN THE NATURAL ECONOMIC
BALANCE!!!
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SOME PROBLEMS...

• Conflicts between capitalists and workers
• Capitalists who try to form monopolies

ANY SOLUTIONS?
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Your Homework
? Find an example of Capitalism in action in a
newspaper, magazine or on-line. ?Write 1-2
paragraphs about how your example relates to
Smiths ideas. BE SPECIFIC!