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Adam Smith's Theory
Transcript of Adam Smith's Theory
The invisible hand Theory
& Theory of Moral Sentiments Biography The Invisible Hand Theory 1723: born in Kirkcaldy, Scotland
1737: entered Glascow University
1740: entered Oxford University
1751: Professor of logic at Glasgow
1752: Professor of moral philosophy
1764: moved to France to become tutor. During his work as a tutor
1790: dies in Edinburgh Written in 1759
Concentrates on the ethics and charity of man “How selfish soever man may be supposed, there are evidently some principles in his nature which interest him in the fortune of others and render their happiness necessary to him though he derives nothing from it except the pleasure of seeing it.” 1759: publishes "The Theory of Moral Sentiments": Idea of self-interest
1776: publishes "The Wealth of Nations": Factors related to the prosperity of a nation
Other: Lectures on Justice, Police, Revenue, and Arms (1763) (first published in 1896); A Treatise on Public Opulence (1764); and Essays on Philosophical Subjects (1795). Written in 1776 The Wealth of Nations sought to reveal the nature and cause of a nation's prosperity. Theory of Moral Sentiments Self-Interest Englightened Self-Interest Persons who act to further the interests of others
Ultimately they serve own self-interest
"Do well by doing good" Self-Interest ≠ GREED Moral Sentiments as a guide: Sympathy "Fellow feeling"
"By the imagination, we place ourselves in his situation."
Through imagination we can partly identify the feelings of others If everybody pursues self-interest, would it not lead to 'dog fights' or 'pandemonium'?
How can people maintain good relations with their fellow man? Individuals always strive to better his or her own condition Is not restricted to wealth It is theorized that self-interest drives factors of beneficial behavior.
Competitors fuel lower costs
Prices are adjusted according to demand Utility Not from Benevolance of man Smith emphasized on the Natural Laws which regulated the Free Market system.
He became known over time as the "Patron
Saint of laissez-faire capitalism Charity, although admirable, will not support man
Unknowingly man benefits society when he pursues his own self-interest, self-love and advantage. The Wealth of Nations "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 self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages." Self-Regulating Market Limited Government's Role The Government has 3 duties:
Construct public works
However it should not be involved or control the country's economics Division of Labour Law of Accumulation Law of Population Specialization of workers
Increases level of production
Greater economic efficiency Theory that businessspeople who invest a percentage of their profits in new capital equipment increase the economy's stock of capital goods, thus ensuring economic growth and future prosperity Theory that the accumulation of capital by business people requires more workers to operate the equipment, leading to higher wages, which in turn lead to better living conditions, lower mortality rates, and an increase in population Idea that a person acts to further the interests of others
Ultimately, serve own self-interest
"Do well by doing good" Laws of the Market Publications Laissez-faire
Did not believe Government is unnecessary
Believed in free trade Beliefs Smith theorized that a country will function best if individuals are completely free to use their skills and capital in their own self-interest and at their own discretion. Smith is considered the founder of Capitalism
and his theories helped build the foundations
of our economies today Thank you for listening If each consumer is allowed to choose freely what to buy and each producer is allowed to choose what to sell and how to produce it, the market will settle on a product distribution and price by itself