Capitalism Notes - Mr. Manos
Capitalism Notes - Mr. Manos
Capitalism Notes - Mr. Manos
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Adam Smith (1723 – 1790)<br />
The Wealth of Nations 1776<br />
How does a market society prevent self-interested, profit hungry individuals<br />
from holding up their fellow citizens for ransom? How can a socially<br />
workable arrangement arise from such a dangerously unsocial motivation as<br />
self-betterment?<br />
Competition – Central mechanism of a market system<br />
Smith:<br />
1. Natural Liberty founded on economic freedom would ultimately<br />
benefit the general public<br />
2. Each actor, buyer or seller, is forced to meet the prices offered by<br />
competitors<br />
3. The market will arrange for production of goods that society wants.<br />
4. Market forces will come into play – more pots than pans<br />
A. pot prices rice, pot profits rise<br />
B. pan prices fall, pan profits fall<br />
C. redistribution of resources<br />
D. output of pots increases, pans decreases<br />
E. this is what the public wants<br />
F. Invisible Hand<br />
What areas of economic life does the Invisible Hand not exert its influence at<br />
all?<br />
1. Traditions: non-market remuneration of tipping<br />
2. Command:<br />
A. biz: hiring & firing<br />
B. gov’t: taxation<br />
C. mkt: cannot provide certain public goods<br />
a. national defense<br />
b. public law & order<br />
3. Ethics & Esthetics: profitable but harmful goods<br />
Market is Self Regulating<br />
• Force of competition drives prices, wages & profits<br />
• Economic Freedom is the strictest economic regulator<br />
• If gov’t or King runs economy, one can appeal to them for dispensation<br />
• Can’t appeal to the market<br />
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Laissez-faire<br />
Opposed to Gov’t Intervention IF it interferes with competition & selfinterest<br />
Smith: Growth of the market system causes nation’s wealth to increase<br />
How could the system grow?<br />
How do you enlarge sales before advertising as we know it?<br />
Smith:<br />
1. Improve productivity: increase the output of the work force<br />
2. Improve the division of labor<br />
How do we enhance the division of labor?<br />
1. Organization is key<br />
2. Machinery<br />
3. The market system becomes an immense force for the accumulation<br />
of capital, mainly in the form of machinery and equipment<br />
4. But additional workers cause wages to rise<br />
5. Wouldn’t profits be squeezed<br />
6. Cost of labor would dry up funds for machinery<br />
7. Increase in demand for labor = increase in supply<br />
8. Wages only rise moderately<br />
Attributes of the Economic System:<br />
1. Society of competitive, profit seeking individuals can assure its<br />
orderly material provisioning through the self-regulating market<br />
mechanism<br />
2. Such a society tends to accumulate capital and in doing so, enhances<br />
its productivity and wealth<br />
Market System assures both short term viability of self-regulating (pots &<br />
pans) as well as long term viability of self-regulating its steady growth.<br />
Market System not without problems, as we will see.<br />
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