DR. PETROS KOSMAS

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HISTORY OF ECONOMIC THOUGHT

• DR. PETROS KOSMAS
• LECTURER, CASA COLLEGE
• ACADEMIC YEAR 2010 - 2011
• LECTURE 4

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An Inquiry into the Nature and Causes of The
Wealth of NationsBy Adam Smith 1723-1790

• The annual labour of every nation is the fund
  which originally supplies it with all the
  necessaries and conveniences of life which it
  annually consumes

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According to The Wealth of Nations

• Wealth is not a fixed quantity - wealth is a
  function of productivity and therefore of people,
  and of the incentives which encourage them.

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The Wealth of Nations Division of Labor

• Nations have become wealthy, because labour has
  become more productive.
• Labour is more productive because it is more
  specialized tasks have been divided and
  subdivided until anyone can easily learn to do
  any job and do it well.

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The Wealth of Nations Division of Labor

• The division of labor saves time that is lost in
  passing from one species of work to another.
• The division of labour leads to invention, and it
  makes it easier for a worker to learn and become
  skilled at the job.

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The Wealth of Nations Market and Capital
Stock

• The extent of the division of labour is limited
  by the extent of the market.
• The more people there are involved in mutual
  exchange, the more specialized each can be.

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The Wealth of Nations Market and Capital
Stock

• The accumulation of capital (stock) is also
  relevant - Labour can be more and more
  subdivided in proportion only as stock is
  previously more and more accumulated.

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The Wealth of Nations L i b
e r a l i s m

• Laissez Faire
• Term is French in origin let people do as they
  please.
• Economic policy stemmed from the French economic
  philosophers of the Enlightenment.

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The Wealth of Nations L i b
e r a l i s m

• Some Enlightened Philosophers argued
• against government intervention in the economy
  and the use of placing heavy tariffs on foreign
  goods.
• that government regulations only interfered with
  production and wealth.
• if government allowed free trade, the economy
  would prosper.

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The Wealth of Nations L i b
e r a l i s m

• Laissez Faire
• A system of natural liberty a nations wealth is
  increased by whatever industry is most
  profitable, i.e. whatever industry produces the
  greatest surplus, available to support further
  division of labour.
• Every man, as long as he does not violate the
  laws of justice, is left perfectly free to pursue
  his own interest his own way

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The Wealth of Nations L i b
e r a l i s m

• Laissez Faire
• Therefore, the government should not try to
  direct industry into export industry, or into
  agriculture, or in any particular direction.

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The Wealth of Nations L i b
e r a l i s m

• Laissez Faire
• The idea that the government should not
  interfere with or regulate industries and
  business.
• An economic policy of letting owners and business
  set working condition without interference.
• This policy favors a free market unregulated by
  the government.

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The Wealth of Nations L i b
e r a l i s m

• Laissez Faire
• What are the advantages / disadvantages
• of a laissez-faire economy?

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Adam Smithsarguments

• His arguments rested on what he called the
• Three Natural Laws of Economics
• 1. Law of self interest gt People work for their
  own good.
• 2. Law of competition gt Competition forces
  people to make a better product.

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Adam Smithsarguments

• Three Natural Laws of Economics
• 3. Law of supply demand gt Enough goods would
  be produced at the lowest possible price to meet
  the demand in a market economy

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Adam Smithsarguments

• Three Natural Laws of Economics
• 3. Law of supply demand gt Enough goods would
  be produced at the lowest possible price to meet
  the demand in a market economy

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According to Adam Smith

• Self-interest is an unchangeable part of human
  nature, so it is wise to let personal incentives
  build a richer economy.
• Strong government was a great necessity,
  particularly to create and enforce laws and to
  ensure justice.

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According to Adam Smith

• Self-interest is an unchangeable part of human
  nature, so it is wise to let personal incentives
  build a richer economy.
• Strong government was a great necessity,
  particularly to create and enforce laws and to
  ensure justice.

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According to Adam Smith

• Government and the people should do what it does
  best
• businessmen should not control the justice
  system
• government should not try to run businesses.

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According to Adam Smith

• The sovereign has only three duties
• first protecting the society from violence and
  invasion.
• secondly protecting every member of the society
  from the injustice or oppression of every other
  member.

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According to Adam Smith

• The sovereign has only three duties
• thirdly 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

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According to Adam Smith

• No society can surely be flourishing and happy,
  of which the far greater part of the members are
  poor and miserable.

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According to Adam Smith

• According to Adam Smith (1723-1790) in
• an Inquiry into the Nature and Causes of The
  Wealth of Nations, wealth is a function of
  productivity and therefore of people, and of the
  incentives which encourage them.

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According to Adam Smith

• No society can surely be flourishing and happy,
  of which the far greater part of the members are
  poor and miserable.

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Adam Smith (1723-1790)

• Professor at the University of Glasgow, Scotland
• Defended the idea of a free economy and free
  markets in his book, The Wealth of Nations
  (1776)
• Economic liberty economic progress
• Believed the government should not interfere with
  the economy

Adam Smith (1723-1790)
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