1. Economic philosophy

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

4. 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

5. 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

6. 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”

7. 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

8. 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

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

10. 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

12. 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)

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

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

15. 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

16. 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

17. 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

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