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Adam Smith

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Adam Smith Adam Smith made his contribution in the field of economics. He was greatly influenced by the Physiocratic School of philosophical thought popular in Europe ... – PowerPoint PPT presentation

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Title: Adam Smith


1
Adam Smith
  • Adam Smith made his contribution in the field of
    economics. He was greatly influenced by the
    Physiocratic School of philosophical thought
    popular in Europe during that period. The
    Physiocratic School built its economic doctrine
    on a belief in the supremacy of natural law, of
    order, and of wealth.

2
  • Smith discovered a natural law that he believed
    governed the economic realm-the law of supply and
    demand. An explanation of his discovery and the
    effect this law had on economies was published in
    his 1776 book entitled, An Inquiry Into the
    Nature and Causes of the Wealth of Nations .

3
  • Smith said that the best way to generate the
    greatest economic good for the greatest number
    was to encourage each individual to pursue his
    own self-interest whole-heartedly.

4
  • Smith said that if society keeps its hands off,
    the economy will regulate itself more efficiently
    than the government could ever hope to. When
    asked about the possibility of exploitation due
    to the absence of regulation, Smith said the
    invisible hand would ensure that the individual
    pursuit of wealth ends up benefiting the whole.

5
  • But Smith also said that for the supply and
    demand approach to work, everybody must be
    willing to play by the ruled. Companies cannot,
    for example, decrease prices artificially in
    order to force smaller competitors who are unable
    to follow suit out of business.

6
  • Companies cannot, for example, build monopolies.
    They cannot gain control of critical resources
    and deny other producers access to resources.
    They cannot spread false rumors about the quality
    of other companies products. Manufacturers have
    to do their best to win and to add to their
    wealth simply by raising or lowering their price
    according to the law of supply and demand. No
    cheating allowed.

7
  • The temptation to not play by the rules, however,
    was too great. Despite the lessons taught by the
    American Revolutionary War (1776) and the French
    Revolution (1787), both of which resulted in
    large part from the unwillingness or inability of
    monarchs to follow Smiths council, very few if
    any of the new, hungry industrial entrepreneurs
    listed to this second part of Smiths message,
    i.e., the part about playing fair.

8
  • Instead, they began doing everything possible to
    pervert the law of supply and demand in ways that
    would give them an advantage and would make them
    the new ruling class. Their exploitations turned
    the early Industrial Revolution in Europe
    (1800-1850) and the United States (1860-1910)
    into one of the bleakest periods in the history
    of human exploitation

9
  • Egoism quickly becomes the dominant thinking.
    The common good is all but forgotten. This
    arrangement, unrestrained, ends up benefiting
    only the strongest, or, perhaps, the most
    ruthless.

10
  • egoism generates a short-term perspective.
    Egoists need to win every little battle,
    progressing from moment to moment ignoring the
    more long-term perspective.
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