“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.” Adam Smith 1776

Capitalism

I. Founder A. Adam Smith 1. An Inquiry into the Nature and Causes of the Wealth of Nations (The Wealth of Nations)1776 * Advocates the virtues of economic freedom

Adam Smith and The Wealth of Nations

Who else wrote a document in 1776 espousing the virtues of freedom, specifically political freedom, and what was the name of that document?

II. Philosophy A. Economic freedom 1. Private ownership of the factors of production * Land, labor and capital

Today economists include entrepreneurship as a factor of production. Who are these famous entrepreneurs?

2. Laissez-faire (let things alone) * No government interference in economic affairs Milton Friedman, the 1976 Nobel Prize-winning economist, advocated laissez- faire capitalism

3. The market – the free exchange between buyers and sellers The “invisible hand” (self-interest and competition) regulates the market; which results in consumers getting the products they want at lower prices

Quick Review – Philosophy of Capitalism A.Economic freedom 1. Private ownership of the factors of production – land, labor & capital 2. Laissez-faire – no government interference in economic affairs 3. The market – the free exchange between buyers and sellers * The “invisible hand” (self-interest & competition) regulates the market

III. The need for govt. intervention? A. Beginning in the late 19 th and early 20 th century, government began to violate laissez-faire 1. Anti-trust legislation * Break up monopolies and promote competition

Teddy Roosevelt famous trust buster

2. Product health & safety regulation Pure Food and Drug Act

3. Child labor laws

4. Laws regulating working conditions

5. Labor unions The right to organize unions,collective bargaining and the right to strike

6. Banking and securities regulation

7. Minimum wage

8. Unemployment insurance

9. Pollution regulations Environmental Protection Agency

10. Public infrastructure Roads, schools, libraries, dams etc.

11. Government economic stabilization Monetary policy (the Federal Reserve controlling the money supply) Fiscal policy (spending and taxing policies)

Ben Bernanke – Chairman of the Federal Reserve Bank

12. Health care Medicare and Medicaid

13. Income security programs Social Security

Income security programs (continued) Welfare and Food Stamps

Income security programs (continued) Farm subsidies

Income security programs (continued) Government pensions

Quick Review – Government Intervention? 1. Anti- trust legislation 2. Product health and safety regulation 3. Child labor laws 4. Laws regulating working conditions 5. Labor unions –right to organize and strike 6. Banking and securities regulation 7. Minimum wage 8. Unemployment insurance

Quick Review – Govt. Intervention? (cont.) 9. Pollution regulations 10. Public infrastructure 11.Government economic stabilization – monetary & fiscal policy 12. Health care 13. Income security programs