1. Adam Smith, a British economist, wanted to know why the Industrial Revolution started in England, and why the English people had so many more products than people in other countries.
So he compared and contrasted England with all of the countries around him and wrote a book called The Wealth of Nations in 1776.

2. He found out what we already know:
1) The Agricultural Revolution gave people more food.
2) More food meant more people.
3) More and more people started moving to big cities, where they started trading information and creating new inventions.

3. But how did all these new products get built?

4. Adam Smith Says:
“The greatest improvement in the productive powers of labor, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labor.”
-The Wealth of Nations, 1776

5. Translation:
“Labor is much more productive when you take a long job and break it up into little parts, like an assembly line in a factory.”
“One person can make one sandwich in 5 minutes.”
“5 people, working alone, can make 5 sandwiches in 5 minutes.”
But at Burger King, 5 people working together can make 20 sandwiches in 5 minutes.”
-Mr. Weiss, 2007

6. BUT LET’S PLAY A GAME…
JUST SO YOU KNOW, THERE ARE NO FABULOUS PRIZES…

7. WHO WANTS TO BE A FACTORY WORKER?
But then why do people do it???

8. Adam Smith Says:
“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.”
“We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.”
- The Wealth of Nations, 1776

9. Translation:
“The butcher and the baker aren’t making your dinner just because they like you. They’re trying to make a living, just like everyone else.”
“But in the end, it’s a good thing for you too, because otherwise you wouldn’t have anything to eat.”
-Mr. Weiss, 2007

10. “Every individual... indeed, neither intends to promote the public interest, nor knows how much he is promoting it.”
“…He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”
Adam Smith, 1776
The Wealth of Nations

11. Translation:
“People do things that are good for themselves, but in the end, it turns out being good for everybody.”
“This is what Adam Smith calls the Invisible Hand.”
-Mr. Weiss, 2007

13. But why is everything so EXPENSIVE???

14. Prices are determined by supply and demand…
Supply is how much of something there is to sell.
Demand is how many people with money want to buy it.
Who wants to buy an “A” in this class?
Does anyone want to buy an “F”?

15. POP QUIZ!
Q: If a diamond is just a shiny rock, then why are diamonds expensive and regular rocks are “dirt cheap”?

16. POP QUIZ!
A: Because diamonds are rare and lots of people with money want to buy them, but rocks are everywhere and no one with money wants to buy them!
Diamonds have a small supply and a high demand.
Rocks have a large supply and a low demand.

17. When supply equals demand, that’s the price, plain and simple.
What would happen if the price was $4?
What would happen if the price was $2?

18. What does it mean for me? Q: Why does a bottle of water cost $1.50?
A: Because people are willing to pay it.
Q: Why do concert tickets cost $80?
Q: Why do movie tickets cost $9?
A: What do you think?

19. Adam Smith Says:
“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”
- Lecture, 1755

20. Translation:
“If it ain’t broke, don’t fix it.”
If the government makes the price too high, no one will want to buy anything.
If the government makes the price too low, no one will want to make anything to sell.
The Invisible Hand of the market makes sure prices are “just right.”
The government should just “leave it alone.”
-Mr. Weiss, 2007

21. Adam Smith – Laissez Faire (Leave it Alone) Economics

22. Summary:
According to Adam Smith:
England is a rich country because people it produces more than other countries. (Industrial Revolution)
It produces more than other countries by having many different jobs in factories. (Division of Labor)
People do these jobs not because they want to, but because they have to make a living. (Invisible Hand)
Prices come from what people are willing to pay. (Supply and Demand)
The government should stay out of the free market economy because it can only mess things up. (Laissez Faire)
Words that mean the same thing:
Capitalism, Free Market, Laissez Faire

23. HOMEWORK QUESTION: Do you think Adam Smith is being fair?
What about the poor factory workers?
Would you be willing to give up some of the things you said you couldn’t live without, if it meant no one would ever have to work in a factory again? Why or why not?