Adam Smith The Father of Economics

Capitalism  Capital and other resources are owned by private individuals. They decide how to use them.  This is the system we have in the United States. Also called the market system.  Adam Smith was the first to describe how capitalism works.

Wealth of Nations  Wealth of Nations is the title of the book written by Adam Smith in  In this book he described how capitalism operates.  Because of this book, he is known as the father of both capitalism and economics.

Laissez-faire  A French term which means “hands-off” or “leave it alone.”  Smith argued that there should be as little government intervention into economic activity as possible. This would allow us to make the most wealth.  Gave a moral justification to factory owners growing wealth and power.

The Invisible Hand  Smith believed that allowing people to act in their own self interest would help the economy.  Capitalism creates a natural harmony that guides resources to their most productive use.  Under competition, individuals acting in their own self-interest will benefit society as a whole.

Division of Labor  Taking a large job and dividing it up into many small jobs. Each person repeats the same small job over and over. This is specialization.  Smith described how this leads to greater productivity.  This allows us to produce goods more quickly, cheaply, and more uniformly.

The Factory System  Smith wrote during the early days of the Industrial Revolution.  Factory owners (capitalists) liked his ideas. They wanted to make as much money as possible, with little or no government intervention.