4. I Pencil by Leonard Read “I am a lead pencil – the ordinary wooden pencil familiar to all boys and girls and adults who can read and write.... Simple? Yet, not a single person on the face of this earth knows how to make me.”

5. I Pencil “The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society's legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed.”

6. Some basics of econ

7. WHAT IS CAPITALISM? first, what is capital?

9. capital Cash or goods used to generate income either by investing in a business or income property

10. capital Cash or goods used to generate income either by investing in a business or income property The net worth of a business; that is, the amount by which its assets exceed its liabilities

11. capital Cash or goods used to generate income either by investing in a business or income property The net worth of a business; that is, the amount by which its assets exceed its liabilities The money, property, and other valuables which collectively represent the wealth of an individual or business

12. capital Cash or goods used to generate income either by investing in a business or income property The net worth of a business; that is, the amount by which its assets exceed its liabilities The money, property, and other valuables which collectively represent the wealth of an individual or business Human resources considered in terms of their contributions to an economy

13. capitalism

14. A broad economic system where competition in a free market determines the price, production and consumption of goods and services through the “invisible hand” of supply and demand

16. Invisible hand The idea that people acting in their own self interest in a free-market, price-controlled economy, can benefit society even without intending to. Describes the self-regulating nature of the free market. “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

17. capitalism A broad economic system where competition in a free market determines the price, production and consumption of goods and services through the “invisible hand” of supply and demand Capital, property and enterprises are privately owned and managed for a profit

18. capitalism A broad economic system where competition in a free market determines the price, production and consumption of goods and services through the “invisible hand” of supply and demand Capital, property and enterprises are privately owned and managed for a profit New enterprises may freely gain market entry without state restriction

19. capitalism Employment and wages are determined by the market and there will be some unemployment

20. capitalism Employment and wages are determined by the market and there will be some unemployment Some government intervention is necessary to guard against price fixing and collusion by producers

21. capitalism Employment and wages are determined by the market and there will be some unemployment Some government intervention is necessary to guard against price fixing and collusion by producers The capitalist economy will likely follow a cycle of growth and recession

22. capitalism Several basic forms:

23. capitalism Several basic forms: -- Mixed (state intervenes in market activity and provides some services)

24. capitalism Several basic forms: -- Mixed (state intervenes in market activity and provides some services) -- Laissez-faire (state plays minimal role)

25. capitalism Several basic forms: -- Mixed (state intervenes in market activity and provides some services) -- Laissez-faire (state plays minimal role) -- Anarcho (markets completely free from state)

26. What are the world’s freest economies?

27. Hong Kong, 20 th consecutive year

28. What are the world’s freest economies? Hong Kong, 20 th consecutive year Singapore, Australia, Switzerland, New Zealand

29. What are the world’s freest economies? Hong Kong, 20 th consecutive year Singapore, Australia, Switzerland, New Zealand Canada, Chile, Mauritius, Ireland, Denmark

31. What about the U.S.?

32. U.S. is 12 th, down from 10 th in 2013 “The U.S. is the only country to have recorded a loss of economic freedom each of the past seven years… Substantial expansion in the size and scope of government, including through new and costly regulations in areas like finance and health care, has contributed significantly to the erosion of U.S. economic freedom. The growth of government has been accompanied by increasing cronyism that has undermined the rule of law and perceptions of fairness.”

33. what are world’s most restricted economies?

34. North Korea, Cuba, Zimbabwe

35. what are world’s most restricted economies? North Korea, Cuba, Zimbabwe Guess which are three of the poorest nations in the world?

36. WHAT IS SOCIALISM?

38. socialism Broad economic system in which the major enterprises are either owned or controlled by the state

39. socialism Broad economic system in which the major enterprises are either owned or controlled by the state Some socialist societies direct the economy through a national plan, but most favor a mixed economy of public and private ownership

40. socialism Broad economic system in which the major enterprises are either owned or controlled by the state Some socialist societies direct the economy through a national plan, but most favor a mixed economy of public and private ownership Others (Social Democrats) advocate social welfare programs in a mainly market-based economy

41. socialism Private property and private ownership of capital typically is restricted

42. socialism Private property and private ownership of capital typically is restricted The state usually decides what is produced, prices, incomes and levels of production

43. socialism Private property and private ownership of capital typically is restricted The state usually decides what is produced, prices, incomes and levels of production Often, unemployment is abolished and employment is guaranteed for life

44. socialist countries? Would include Venezuela, Bolivia, Laos, Syria, Belarus, Turkmenistan, Zambia

45. socialist countries? Would include Venezuela, Bolivia, Laos, Syria, Belarus, Turkmenistan, Zambia Lots of social democratic nations including Sweden, Netherlands, Norway, Finland, U.K.

46. socialist countries? Would include Venezuela, Bolivia, Laos, Syria, Belarus, Turkmenistan, Zambia Lots of social democratic nations including Sweden, Netherlands, Norway, Finland, U.K. Do we now include U.S. among social democracies?

47. U.S. owned/controlled companies Fannie Mae, Freddie Mac, Amtrak, General Motors, Corporation for Public Broadcasting Current administration financing hundreds of “green energy” companies… many of which are operated by cronies. Solyndra, A123, Amonix, Bright Source, Solar Trust of America, LSP Energy… all at room temperature

48. WHAT IS COMMUNISM?

50. communism The evolution of socialism

51. communism The evolution of socialism The role of the state has withered away and is no longer necessary for the functioning of the planned economy

52. communism The evolution of socialism The role of the state has withered away and is no longer necessary for the functioning of the planned economy All property and capital are collectively owned and managed in a communal, classless and egalitarian society

53. communism The evolution of socialism The role of the state has withered away and is no longer necessary for the functioning of the planned economy All property and capital are collectively owned and managed in a communal, classless and egalitarian society “…from each according to his ability, to each according to his need…”

54. communism What are some communist countries?

55. communism What are some communist countries? Cuba, North Korea, China, Vietnam

56. communism What are some communist countries? Cuba, North Korea, China, Vietnam China and Vietnam are run by the communist party but have mixed economies; even Cuba has reduced its state employment by 500,000 people and its permitting green shoots of capitalism

57. The rise and fall of businesses

60. “...it is not what money the business owner hopes to make or whether he succeeds, but how all this affects the use of scarce resources which have alternate uses – and therefore how it affects the economic well-being of millions of other people in society at large.”

61. “More important than the fate of (any business) was the fact that millions of people were able to afford a higher standard of living than if they had to be supplied with goods through costlier channels…”

62. Profits and Losses

63. Why are losses as important as profits?

64. Profits and Losses Why are losses as important as profits? Each is equally important to force companies and industries to use SRTHAU efficiently

65. Profits and Losses Why are losses as important as profits? Each is equally important to force companies and industries to use SRTHAU efficiently P&Ls tell companies when they have to make changes

66. Profits and Losses Companies set up to make money in a particular set of circumstances can get left behind: A&P, Blockbuster, FAO Schwarz, U.S. Steel, Old Navy, Barnes & Noble, Sarasota Herald-Tribune

67. The three major changes companies need to make

68. Social changes

69. Refers to changes in society that demand a response from businesses

70. Social changes Refers to changes in society that demand a response from businesses A&P missed social changes: urban to suburban trend, proliferation of autos, needs for parking, larger ‘rings,’ didn’t follow customers when they left inner cities

71. Social changes Refers to changes in society that demand a response from businesses A&P missed social changes: urban to suburban trend, proliferation of autos, needs for parking, larger ‘rings,’ didn’t follow customers when they left inner cities What social changes did Blockbuster miss?

72. Social changes Not important whether A&P made changes, what’s important is that consumers got cheaper groceries

73. Social changes Not important whether A&P made changes, what’s important is that consumers got cheaper groceries Consumers are principal beneficiaries of lower prices made possible by the more efficient allocation of SRTHAU

74. General principle Knowledge is one of the scarcest of all resources in any economy… insights based on that knowledge are scarcer still

75. General principle Knowledge is one of the scarcest of all resources in any economy… insights based on that knowledge are scarcer still Market research departments

77. General principle Knowledge is one of the scarcest of all resources in any economy… insights based on that knowledge are scarcer still Market research departments Politicians and central planners cannot have the knowledge and insights of millions of people acting in their own self-interest

78. Sowellian insight “One of the big advantages of a free market is you don’t have to convince anybody of anything. You simply compete with them in the marketplace and let that be the test of what works best…”

79. The three major changes companies need to make Economic changes

80. Economic Changes Not only changes in the economy, but also changes within the firm’s management, especially in their response to economic changes

81. Economic Changes Not only changes in the economy, but also changes within the firm’s management, especially in their response to economic changes Lotza stuff we take for granted was fought: credit cards, computerization, answering machines, ATMs, on-line shopping, etc.

82. Economic Changes Not only changes in the economy, but also changes within the firm’s management, especially in their response to economic changes Lotza stuff we take for granted was fought: credit cards, computerization, answering machines, ATMs, on-line shopping, etc. Some people are successful in certain economic conditions, not in others

84. Econ Changes, round 2 No economic system can depend on the continuing wisdom of current leaders

85. Econ Changes, round 2 No economic system can depend on the continuing wisdom of current leaders Price-coordinated economy with competition does not have to because leaders will be forced to change or be replaced

86. Econ Changes, round 2 No economic system can depend on the continuing wisdom of current leaders Price-coordinated economy with competition does not have to because leaders will be forced to change or be replaced Society that can tap all kinds of talents throughout population has obvious advantages over controlled economies

87. The three major changes companies need to make Technological Changes

88. Techno changes Manual typewriters, film cameras, faxes, newspapers, land lines, VHS, cassettes, cash, checks, etc.

89. Techno changes Manual typewriters, film cameras, faxes, newspapers, land lines, VHS, cassettes, cash, checks, etc. Up to business leaders to make the changes… or hire people who will Business leadership not only impacts individual companies, also economy as a whole

90. Coordination of Knowledge

91. No matter whether socialist or laissez-faire, knowledge is scarce, the totality of which is not known to any one person

92. Coordination of Knowledge No matter whether socialist or laissez-faire, knowledge is scarce, the totality of which is not known to any one person Free-market biz exec: receives instructions from marketplace about prices, what’s popular, trends

93. Coordination of Knowledge No matter whether socialist or laissez-faire, knowledge is scarce, the totality of which is not known to any one person Free-market biz exec: receives instructions from marketplace about prices, what’s popular, trends Gov official: gives instructions about same

96. Assignment 2/11 Chapter 6 “The Role of Profits – and Losses”

97. Assignment 2/11 Pick out a successful publicly listed company you admire such as Facebook, Wal*Mart, Apple. Research the company via its website, investor commentaries, annual reports, etc. Write a 400-word essay entitled “Why _____ is well positioned for future growth.” Cite how it is adapting to changes, use of economies of scale, profit margins, marketing, its leadership, etc. The idea is to demonstrate your Sowellian knowledge. Dazzle me…

98. Brand vs company Sprite is a brand of the Coca-Cola Co. Apple Inc. is a company, which markets the iPhone, iPad, Mac and other brands Tropicana is a brand of PepsiCo Amazon is a company Companies that are public have their stock listed and you can track them by symbols: AAPL, KO, AMZN, PEP Ergo, your company will have a stock symbol!