Adam Smith Development of Laissez-Faire Capitalism.

Slides:



Advertisements
Similar presentations
Adam SmithAdam Smith  In 1776 Adam Smith publishes his book Inquiry into the Nature and Causes of the Wealth of Nations, usually referred to simply as.
Advertisements

Capitalism and Free Enterprise
“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” 1.Do.
Adam Smith. Background Physiocrat: – One who searches for natural laws that govern the economy; part of the Enlightenment.
Adam Smith Chapter 4 January 29-February 4, 2007.
Chapter 4: The Market System. Three fundamental questions: What? How? For whom?
Chapter 2 Economic Systems.
“Invisible hand principle”
And How They Affect Governments
The American Economic System
The Market System and the Circular Flow Model. Economic System Functions  Set of institutional arrangements  Coordinating mechanism  Differ based on:
12/3 Warm-Up Put your name on p and pass up. 1. What are the 3 basic economic questions? 2. What is the manufacturing process where interchangeable.
The Free Market In this lesson, students will identify characteristics of the Free Market. Students will be able to define the following terms: Adam Smith.
The Circular Flow of Economic Activity A lesson in Market Economic Systems.
Economic Theories And How They Affect Governments.
Capitalism and Free Enterprise
Characteristics of Free Enterprise. How does Free Enterprise answer the 3 Economic Questions? 1.What goods will be produced? sellers decide: what are.
The Free Market What key economic questions must every society answer?
The Free Market System & The United States of America.
Mini Lesson 1  Resources  All the things people can use to make goods (products) ▪ Goods include: food, clothing, houses, furniture, cars, computers,
Economics of the Industrial Revolution How to make a living in the 1800s.
Characteristics of Market Economy
Characteristics of Free Enterprise. How does Free Enterprise answer the 3 Economic Questions? 1.What goods will be produced? sellers decide: what are.
What determines the price of a t-shirt? How might the government affect the price?
History of Economic Thought (Modern Schools of Economic Theory)
From Mercantilism to Capitalism: Adam Smith and the
Chapter 9-4.  Main Idea The Industrial Revolution led to economic, social & political reforms Why It Matters Now Many modern social welfare programs.
Mercantilism.
The Industrial Revolution
Chapter 19 Objectives: 7.01, 7.04, 7.05, 7.06, 8.02, 8.03, 8.06, 9.01.
World Economies Social Studies/Economics Robert Louis Martinez.
Capitalism and Free Enterprise. What is capitalism? The United States’economic system in which private citizens own & use the factors of production to.
Adam Smith Industrial Revolution Do you Know?. Adam Smith Industrial Revolution Do you Know? 1. Idea.
Adam Smith The Father of Economics. Capitalism  Capital and other resources are owned by private individuals. They decide how to use them.
Ch.19 Section 3. The economic system of the United States is known as capitalism, in which private citizens own and use the factors of productions to.
A Tale of Two Economists
Capitalism. Free Enterprise is the freedom of individuals and businesses to operate and compete with a minimum of government interference or regulation.
Basic Characteristics of a Market Economy. A.Private Property  Private individuals and groups are the owners of the means of production – most land and.
THE MARKET ECONOMY The Industrial Revolution.  The answer to our question seems to lie in the political and legal institutions of each nation  Rule.
How and why did economics start?. The word economic comes from the Greek oikos, meaning “house,” and nomos, meaning “to manage.” An early use in English,
Capitalism The history of Money. Page 2 Capitalism reflects the view that people desire to operate relatively free from economic restrictions and control.
 No economic system is completely command or completely market.  There’s a mixture of government in a market economy.  There’s also a mixture of markets.
19th Century Economics edit from same title by WBPhillips.
Economic Questions, Freedoms, & Social Goals.  Lived in Scotland from  Wrote The Wealth of Nations  Believed in Laissez Faire Economics 
Ch 2. Economics may appear to be the study of complicated tables and charts, statistics and numbers, but, more specifically, it is the study of what constitutes.
Invisible Hand *Self-interest can promote the common good!!
Adam Smith. Big Idea? The Government should stay OUT of the economy! Free Enterprise Capitalist System.
An Age of Reforms Chapter 9 Section 4. The Philosophers of Industrialization Laissez faire- refers to the economic policy of letting owners of industry.
Aim: Identify thinkers and ideas that supported industrialization
Nunc Agenda: Complete the remaining questions on your “Growing and Changing Industrial World” reading and prepare to discuss it.
The Industrial Revolution Economics.  Describes how people meet their needs.
Adam Smith “The Wealth of Nations”. His Times Born in 1723, in Scotland Born in 1723, in Scotland The Industrial Revolution was just beginning The Industrial.
Capitalism. Adam Smith ( ) £ Appointed to the chair of logic in 1751 at the University of Glasgow, Scotland. £ 1776  The Theory of Moral Sentiments.
What is Economics? How Economic Systems Work Economic Resources Capitalism and Free Enterprise.
Warmup 4/12/12  What are the 4 factors of production?
Free Enterprise. How does Free Enterprise answer the 3 Economic Questions? 1.What goods will be produced? sellers decide: what are consumers willing and.
Economic Systems Chapter 2 Section 4 Modern Economies.
Economic Systems U.S. GOVERNMENT CLASS – UNIT 1. The Role of Economic Systems  Governments around the world must make economic decisions that include:
From Mercantilism to Adam Smith: The Evolution of the Modern Capitalist System.
CHAPTER TWO REVIEW. 1.An _________ is the method used by a society to produce & distribute goods and services. 2.In order for a society to decide the.
Adam Smith Scottish economist, who used reason to analyze economic systems.
Adam Smith & Capitalism
Ms. Susan M. Pojer Horace Greeley HS Chappaqua, NY
Supply and Demand.
Adam Smith, a British economist, wanted to know why the Industrial Revolution started in England, and why the English people had so many more products.
Why 1. Why do you think Dr. X is trying to find a cure for AIDS. 2
Fundamental of Economics Continued
Supply & Demand.
The dominant economic system in the world
Basic Econ: Day Six Adam Smith.
Presentation transcript:

Adam Smith Development of Laissez-Faire Capitalism

Adam Smith---Scottish Economist The Wealth of Nations Five book series Sought to reveal the nature and cause of a nation’s prosperity Inquiry into the science of economics and a policy guide for nations Covered specialization of labor, statistics on herring catch, stamp duties, and coined money by Romans

Laissez-Faire Capitalism It is a French phrase that literally means hands-off. It states that the government should not be involved in the economy. It should let the natural laws of capitalism work. This is the way the economy works best. Dominant form of capitalism through the end of the Industrial Revolution.

Role of Government Government should enforce contracts and grant patents and copyrights to encourage inventions and new ideas. Government should provide public works like roads and bridges that would not be worthwhile for individuals to provide. But the users should pay to use the public works like road tolls. Did support retaliatory tariffs.

Smith’s Definition of Wealth Consists of the goods which all people of society consume Rejected the traditional views of wealth as gold, treasures, kingly hoards Rejected the restrictions of merchants, farmers, and guilds “We are in the modern world where the flow of goods and services consumed by everyone constitute the ultimate aim and end of economic life.”

Law of Self-Interest People are motivated by greed. Because they want money and power, they will work hard to earn it. This is what motivates people to start new businesses and why people work at their jobs. It stimulates a strong work ethic, an entrepreneurial spirit, and competition.

Smith’s Definition of Wealth Consists of the goods which all people of society consume Rejected the traditional views of wealth as gold, treasures, kingly hoards Rejected the restrictions of merchants, farmers, and guilds “We are in the modern world where the flow of goods and services consumed by everyone constitute the ultimate aim and end of economic life.”

Law of Self-Interest and Charity Charity cannot alone provide the essentials for living. Self-Interest is the remedy for Charity’s shortcomings. “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.” Someone earning money by his own labor benefits himself. He also benefits society, because to earn income on his labor in a competitive market, he must produce something others value. “By directing that industry in such a manner as its produce may be of 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 has no part of his intention.”

Law of Supply and Demand When there is a limited supply of a product, and there is a growing demand, the price of the product will increase. When there is a large supply of a product, and there is a decreasing or little demand, the price of the product will go down. This results in a fair pricing system.

Law of Competition This applies the idea of survival of the fittest to the business world. A number of businesses will compete in the same field to offer the best product for the best price. It is known that not all will succeed. Those that succeed should. The consumer benefits because the consumer gets a quality product for a fair price.

Division of Labor Main cause of prosperity was increasing the division of labor Smith gave the example of pins. 10 workers could produce 48,000 pins per day if each of 18 specialized tasks were assigned to particular workers. Average productivity is 4, 800 pins per worker per day If no division of labor, a worker would be lucky to produce even ONE pin per day. Individuals should invest in land or labor to earn the highest possible return

Wage Rates Wage rates would be higher for trades that were more difficult to learn, because people would not be willing to learn them if they were not compensated by a higher wage. Gave rise to the modern concept of Human Capital. Wage rates would also be higher for those engaged in dirty or unsafe occupations like coal mining, butchering, and hangmen, Work is compensated by differences in pay.

Views on American Colonies Great Britain does not benefit from the American colonies due to the cost of keeping them. Opposed mercantilism, because it prevented new markets from opening.

View on Education Vouchers and school choice programs are actually based on Smith’s views. “Were the students upon such charitable foundations left free to choose what college they liked best, such liberty might contribute to excite some emulation among different colleges. A regulation, on the contrary, which prohibited even the independent members of every particular college from leaving it, and going to any other, without leave first asked and obtained of that which they meant to abandon, would tend very much to extinguish that emulation. This came from Smith’s Oxford days where he complained that his professors had “given up altogether even the pretense of teaching.”