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Ms. Susan M. Pojer Horace Greeley HS Chappaqua, NY

Adam Smith: The Evolution of the Modern Capitalist System. Ms. Susan M. Pojer Horace Greeley HS Chappaqua, NY modified by Ms. Karen Auwers Comstock Park High School Comstock Park , Michigan. Who is Adam Smith?.

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Ms. Susan M. Pojer Horace Greeley HS Chappaqua, NY

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  1. Adam Smith:The Evolutionof theModern Capitalist System Ms. Susan M. PojerHorace Greeley HS Chappaqua, NY modified by Ms. Karen Auwers Comstock Park High School Comstock Park, Michigan

  2. Who is Adam Smith? “Adam Smith is often touted as the world's first free-market capitalist. While that designation is probably a bit overstated, Smith's place in history as the father of modern economics and a major proponent of laissez-faire economic policies is quite secure.”  http://www.investopedia.com/articles/economics/08/adam-smith-economics.asp

  3. Mercantilism

  4. Characteristics of Mercantilism • “Bullionism” the economic health of a nation could be measured by the amount of precious metal [gold or silver] which it possessed. Original reasons for exploration. • ‘Hard’ money was the source of prosperity, prestige, and strength for a nation. • Bullionism dictated a “favorable balance of trade.” • Export more than you import [a trade surplus]. • High tariffs on imported manufactured good. • Low tariffs on imported raw materials. • Each nation must try to achieve economic self-sufficiency. • Those founding new industries should be rewarded by the state.

  5. Characteristics of Mercantilism • Thriving agriculture should be carefully encouraged. • Less of need to import foods. • Prosperous farmers could provide a base for taxation. • Sea power was necessary to control foreign markets. • Less need to use the ships of other nations to carry your trade goods. • Your own fleet adds to the power and prestige of the nation. • Impose internal taxes of all kinds.

  6. Characteristics of Mercantilism • Colonies would provide captive markets for manufactured goods & sources of raw materials. • Trade is a “zero-sum” game. • A nation can gain in international trade only at the expense of other nations. Manufactured goods MotherCountry Colony Raw materials Cheap labor

  7. Who Benefited Most From Mercantilism? • Monarchs. • Merchant capitalists. • Joint-stock companies. • Government officials.

  8. Capitalism

  9. Adam Smith (1723-1790) • Appointed to the chair of logic in 1751 at the University of Glasgow, Scotland. • In 1752 he transferred to the chair of philosophy. • On his travels to France, he was influenced by the writings of the physiocrats. • 1776  The Theory of Moral Sentiments and an Inquiry Into the Nature of Causes of the Wealth of Nations was published. • A vehement attack of the mercantilist system.

  10. The Wealth of Nations (1776)Notice the date of publication…

  11. Adam Smith’s Attack on Mercantilism • He was making a political argument, NOT an economic one. • Part of the argument was for new economic policy, but.. • An essential part of the argument was for new social and political arrangements. • He argued that the basic unit for social analysis should be the nation, not the state. • He was against the belief that trade was a zero-sum game • It was a positive-sum game. • Both nations gained.

  12. Basic Capitalist Principles • Goods and services are produced for profitable exchange. • Human labor power is a commodity for sale  LABOR IS THE SOURCE OF VALUE. Goods & Service Businesses Households Consumer Spending Wages Labor & Investments

  13. Basic Capitalist Principles • The “Invisible Hand” of the market • Problem How do we survive in a world where we must depend on many others, but where humans are by nature self-interested individuals?? • Solution  the free market, while appearing chaotic and unrestrained, is actually guided to produce the right amount and variety of goods by a so-called “invisible hand.” • Therefore, the basicmarket mechanism is self-regulating!

  14. Basic Capitalist Principles • Individuals seeking success are driven by self-interest  Profit Motive • The Law of Supply and Demand • Individuals who are free to pursue their self-interest will produce goods and services that others want, at prices others will be willing to pay.

  15. Basic Capitalist Principles • Law of Competition • The competitive market system compels producers to be increasingly efficient, and to respond to the desires of consumers. • A social division of labor will maximize the satisfaction of individual wants and needs, given scarce resources. • Government should interfere minimally with the free and efficient workings of the market • Laissez faire [“Leave things alone.”]

  16. There, there it is again—the invisible hand of the marketplace giving us an unfriendly gesture.

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