The people who own capital should be left alone to decide how to employ it.

It is industry, through the production of goods and services, that is the engine that drives the economy.

The individual is supreme, and should be free to make decisions as to how he or she will live.

Each person is responsible for his or her own well-being.

Profit, whether corporate or individual, is the best incentive for getting maximum effort.

Business will create enough excess wealth to ensure higher living standards for all.

Competitive forces will ensure that products and services are produced at the highest quality for the best prices.

Those who take the greatest risk (through investment) or produce the most (through effort) should receive the highest rewards. The opposite also holds true: contribute the least, receive the least.

Physiocrats & Adam Smith Economics: Physiocrats & Adam Smith

Economics: Physiocrats & Adam Smith If the universe and politics had natural laws, why not economics? Physiocrats attacked mercantilism Led by Francois Quesnay, personal physician to Louis XV Basic law is supply & demand Laissez-faire – minimal government interference in private economics

Adam Smith Scottish philosophy professor Wealth of Nations – laissez-faire economics; individuals who are allowed to “rationally” pursue their own economic self-interest will benefit themselves and society Commerce, Manufacturing & Labour > Agriculture

Laissez-faire Each person has his or her own self interest at heart If self-interest is allowed freedom, competition will drive the economy People would try harder and reap more rewards (for themselves AND the nation) Governments should not interfere in any way

The Early Years of Laissez-faire Smith’s theory works for a few – those who own capital Does not work for the majority Competition leads to mechanization → lower demand for labourers Causes low wages Terrible working conditions Poverty Rise in socialism

Socialism Social ownership and democratic control of the means of production Capitalism only generates sufficient demand for products to be sold at a profit; thereby creating rather than satisfying economic demand

Capitalism vs Socialism Privatization of capital (means of production) Benefit the individual Distribution of wealth + public- owned capital (means of production) For the benefit of the people

Increase in Liberalism: Government policies to protect people’s rights The negative side of capitalism and industrialization lead to change