MACROECONOMICS EC105

INTRODUCTION TO ECONOMICS Every individual endeavors to employ his capital so that its product may be of greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it. – Adam Smith, Wealth of Nations (1776)

OBJECTIVES Differences between feudalism, capitalism, & socialism. Know the four main categories of resources. Understand the role of the entrepreneur. Understand the following terms: EWOT TANSTAAFL Entrepreneurship Free Goods Capital Goods

TANSTAAFL There Ain’t No Such Thing As A Free Lunch!

TYPES OF ECONOMIC SYSTEMS Feudalism Capitalism Socialism

FEUDALISM Part of our original economy. Followed Tradition. Generation to generation. Involved very simple materials, intensive labor, and little, if any, capital equipment.

CAPITALISM Evolved from Feudalism. It is considered a relatively new type of economic system. Based upon Adam Smith’s “Wealth of Nations” published in 1776.

ADAM SMITH The First Capitalist Economist. Believed in Division of Labor. Believed in Economic Liberty. ( Individuals know what is best for them.) Called for Free Trade. (internationally)

SOCIALISM Theory or system of social organization based on government or community ownership of the means of production and distribution of goods Distribution of wealth! Government becomes monopolistic. Government owns or controls the means of production: – Factories – Farms – Service Sectors

SOCIALISM (continued) The first socialist economic system was THE SOVIET UNION (RUSSIA) 1918

TIME LINE IN HISTORY KARL MARX: the father of socialism. Major works in The Communist Manifesto & Das Kapital. Co-Authored by Friedrich Engels. Total government involvement.

SOCIALISM vs. CAPITALISM Socialism is the social system which institutionalizes envy and self-sacrifice: It is the social system which uses compulsion and the organized violence of the State to expropriate wealth from the producer class for its redistribution to the parasitical class.

WHY CAPITALISM? Despite the intellectuals’ psychotic hatred of capitalism, it is the only moral and just social system. Capitalism is the only moral system because it requires human beings to deal with one another as traders--that is, as free moral agents trading and selling goods and services on the basis of mutual consent.

CAPITALISM vs. SOCIALISM SOCIALISM – The government decides how the economic problem will be solved. CAPITALISM – The individual interacting in the market decides how the economic problem will be solved.

RESOURCES LAND LABOR CAPITAL ENTREPRENEURSHIP

Land All natural resources – Raw land – Rivers – Lakes – Forests – Minerals – Climate

LABOR (human resources) People. Our country’s most valuable asset.

CAPITAL NOT JU$T MONEY! – Buildings. – Tools. – Things used in the production process.

CAPITAL (continued) Capital can also mean financial capital (money), the dollars to pay for land, labor or tools and buildings. THIS TOO IS CAPITAL!

ENTREPRENEUR What does it mean? Risk taker. Decision maker. Someone who starts or founds an innovative business.

ENTREPRENEUR (continued) The people who have the creative genius to develop a new product, the managerial talent to combine raw material, labor, and capital to efficiently manufacturer a product profitability. Without the entrepreneur, capitalism could not exist.

ECONOMIC WAY OF THINKING EWOT – An acronym used as an economic term. – Know it!

Goals “Whether you think you can or whether you think you can’t – You’re right.” Henry Ford

GOALS (continued) Henry Ford was an entrepreneur. WHY? – Founded and innovative business. – Took risks. – Used capital. – Efficient manufacturer.

GOAL SETTING 4 STEPS – 1. Choose your goal. – 2. Plan. – 3. Action. – 4. Evaluate.

KEY TERMS Capital Socialism Entrepreneurship EWOT Free good Resources TANSTAAFL

KEY POINT A guide to successful living comes through the “Economic Way Of Thinking”!

LECTURE 1 IS OVER ALREADY?