Adam Smith
Jacob Budin, Natalie Herrild, Nick
Housewright and Heather Keyworth
Early Life
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Exact DOB unknown; baptism recorded on
5 June 1723 in Kirkcaldy, Scotland
Son of a lawyer/civil servant father and
intellectual mother
Ambitious childhood - attended one of the
top secondary schools in nation
Education
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Enrolled at University of Glasgow at the
age of 14 to study moral philosophy under
Frances Hutcheson
Transferred to Oxford, where he became
unimpressed with professors' intellectual
capabilties
Later earned professorships at universities
in Edinburgh and Glasgow
Adult Life
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1759 - publishes The Theory of Moral
Sentiments
Spends time as tutor to children of
politicians/noblemen
1766 - returns to Scotland to begin work
on his magnus opus The Wealth of
Nations -- published in 1776
World Ventures
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Geneva: philosophies of Voltaire
Paris: intellects of Ben Franklin, Turgot,
Jean D'Alembert
University of Edinburgh: starts
relationships of the enlightenment
Glasgow University: head of Moral
Philosophy
Influences
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- Rejected the Christian faith, supposedly
dabbled in Deism
"great phenomena of nature"
- Henry Home and David Hume, Scottish
philosophers and lawyers
- Combated the French Philosophers
(the enslavement of man v. the good in
man)
BIG ideas: killed Mercantilism
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(1) The Benefits of Exchange
(a) The Division of Labor
(b) Exchange as Mutual Benefit
(c) The Importance of Money.
(2) The Labor Theory of Value
Nominal Price/Value (measured in money) vs. Real Price/Value
(measured in human labor).
(3) "Invisible Hand" Explanations
(a) of economic growth (wealth)
(b) biological evolution; moral progress, the development of rights
respecting republics, and of an international legal system that
establishes perpetual peace
THE WEALTH OF NATIONS
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Main Idea: THE FREE MARKET
(if you remember nothing remember this)
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Five Books: (get ready for grotesque
speed analysis)
Book I: On the Causes of Improvement in the Productive
Powers. On Labour, and on the Order According to Which its'
Produce is Naturally Distributed Among the Different Ranks of
the People.
Division of Labor (Labour)/specialization is essential.
Free Market is the best!/: Supply increase with demand/price
increase with demand, etc.
Monopolies are bad.
Should be competition of labor, not just among producers/owners.
Factionalists (Lobbyists/Special Interests) bad for economy (like
monopolies they cause ‘unfair’ distortions in free market.
Goods valued based on how much labor to make, and how much
labor they can sell for…. so; total gain in opportunity cost
essentially.
Buuuuuut, we’ll probably talk about this in a bit…
Book II: On the Nature, Accumulation,
and Employment of Stock
“Stock” (Capital)
Necessary stock vs. Disposable (actual capital)
Make money from:
1) Sell Goods
2) Rent Land
3) Accumulate Interest (plus anything not included in 1 & 2)
Productive (add value to goods) vs. Unproductive (I guess you‘re
just wasting time = money )
Interest:
Used to for capital (start-up): Good (add value to economy)
Used for Needs (buy food): Bad (probably won’t add value to economy
ever…
Book III: On the different Progress of
Opulence in different Nations
Trade off between the State (Federal
Government), and cities and towns.
SHOULD benefit both parties, okay?
I mean… be a little loyal to the state guys,
guys?
Fall of Rome
On Agriculture: was bad, turned out okay.
On the rise of nations: Meh
Book IV: On Systems of political
Economy
•Mercantilism is for Fools!!!
(implied)
Free-market > then state regulation
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The Invisible Hand of the Market!
World domination of
America
Africa
Asia...
...has worked out pretty well for Europe so far.
Only French fools would believe an all-agriculture state could work, so
lets not even waste time on those dandies! (insults mine)
Book V: On the Revenue of the
Sovereign or Commonwealth
TAAAAAAAAAXXXXXXEEEEESSSS!!!!!!!!!
TAXES
•Proportionality
•Transparency
•Convenience
•Efficiency
Actually,
we didn’t
talkpay
about
a progressive
…
Progressive
Tax…
what
society has
tax… you to earn
allowed
Government shouldn’t be allowed to borrow
indefinitely.
(America)
Legacy
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Seen by many as the founder of a moral
philosophy and the science of economics
Wrote of "homo economicus" or economic
man
o Assumed all economic men were rational.
Contributions to Economics
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Division of Labor
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Divided tasks
Made production more efficient
Firms became more productive
Accumulation of Stock
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Person was able to hire someone else to help
complete a task
Contributions to Economics
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Self-Interest
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We are all motivated by nothing other than our
own self-interest
Contributions to Economics
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Supply and Demand
Built a coherent and logical theory of how the
economy works by stating law of supply and
demand
o Most vital contribution to econ
o As the price of a good rises, the supply will
increase
o Producers will manufacture more of the product
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Testimonials
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Margaret Thatcher
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Carried a copy of "The Wealth of Nations" in her
handbag at all times
George Stigler
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"The most important substantive proposition in all
of economic."
Under competition, owners of resources will use
themmost profitably, resulting in an equal rate of
return in equilibrium for all users.
Conclusion
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One of the Fathers of Mondern Economic
Thought
"Wealth of Nations"
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Key Work in Economics
Concepts
o Free market
o Division of Labor
Questions?
Sources
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http://en.wikipedia.org/wiki/Adam_smith
http://www.lucidcafe.com/library/96jun/smith.html
http://en.wikipedia.org/wiki/Voltaire
http://en.wikipedia.org/wiki/Scottish_Enlightenment
http://www.economist.com/node/16740415
http://www.victorianweb.org/economics/smith.html
http://www.bartleby.com/60/193.html
And of course “Wealth of Nations” by Adam Smith