Economic philosophy

Adam Smith How did the times in which he lived help develop his philosophy? Review---industrial revolution!!!

INDUSTRIAL REVOLUTION Poor Living Conditions No sanitation Lack of good housing High rate of disease Highly polluted cities Bad Working Conditions Child Labor Long Work Hours Poor Conditions in Factories

Response of Adam Smith Ind. Revolution Problems In “Wealth of Nations”, Adam Smith argued Everyone benefits from a free market, where Government does not play an active role Example: Government should not set prices on products Economy does best when everyone pursues their own self-interest

Response of Adam Smith Ind. Revolution Problems Famous Quotations 1) “He intends only his own gains and he is led by an invisible hand to promote an end which was no part of his intention” 2) “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest”

Response of Adam Smith Ind. Revolution Problems Invisible Hand An invisible force in our economy that guides the most efficient use of resources and benefits everyone the most

How Invisible Hand Works When demand for product down--- prices down Kobe gets injured, scalped ticket prices down When demand for product up----prices up Kobe returns to Lakers, scalped ticket prices up When supply for product up--- prices down Florida has a huge orange crop When supply for product down---prices up Florida has a frost that kills orange crop

Decision to Produce Greater demand/Higher Profit----More Production Lower Demand/Lower Profit--- Less Production

Invisible Hand Invisible Hand Benefits Everyone People are selfish They will manufacture to get money More manufacturing, more goods More goods, more competition More competition, lower prices More production, lower prices---- more people have jobs and can buy things

Role of Government Government should do as little as possible “Laissez-Faire”=Let be (do not disturb) Government should NOT Determine prices Control supply Limit Competition Put duties on products (a tax on goods bought from another country)

Role of Government Government should Protect its citizens (police) Build roads, canals, ports BUT, GOVERNMENT SHOULD KEEP HANDS OFF THE ECONOMY!!

Your Turn Would Adam Smith like today’s U.S. Government? Why/Why not?

Philosophy of Thomas Malthus Grim view of future of mankind Population growth> food supply growth Starvation would always result Supply of workers>Demand Unemployment, poverty always Government should not aid poor Birth rate should be controlled

View of David Ricardo Also grim view of workers’ conditions Said that workers would never earn more than the minimum necessary to survive Population growth will always keep wages low

Utopianism Utopia: An ideal community owned by people who lived and worked there. Robert Owen/Charles Fourier (foo-ree-ay): Utopian thinkers Owen began Utopian community in Scotland and Indiana. Community of 1,600 people with good living conditions and freer working conditions

Your Turn Why would people during this time be drawn to the idea of a Utopia?