Adam SmithThe Wealth of Nations
Questions: 1. How is it possible for each individual to be together if they only pursue their self-interest. 2. What guides the individuals in 3. How the society manage to get tasks necessary for central planning in… Self-interest * Guides man * It’s in your interest to pursue what is in the interest of other people * He is the only person who knows their capabilities Illustration of the human behavior: Laws of the Market: a. Controls prices—high prices = self-curing disease b. Reduces prices c. Produces demanded goods—economy itself dictates what is to be produced = competition d. Similar incomes
| Division of Labor * ↑production * Human Nature * Needs other people out of self-interest * Fellow-feeling * Limitation: no or not enough knowledgeWealth of Nation (With the division of labor…) a. Improvement in the production power of labor b. Separation of trade and industry = specialization c. Advancement of societiesFree MarketLaissez Faire: * Economic environment in which transactions between private parties are free from tariffs, government subsidies, and enforced monopolies, with only enough government regulations sufficient to protect property rights against theft and aggression.Invisible handIndustrialization ++ Human Nature Division of labor Wealth of nationsSelf-Interest Laws of the Market
| Division of Labor * proportional increase of the productive powers of laborConsequences of the division of labor: a. Separation of diff trades and employments from one another. (Only in countries with highest degree of industry and improvement b. ↑ quantity of work c. Great multiplication of the productions of all the different arts Skill Dexterity
Effects of the division of labor: a. Productive powers of labor b. Greater part of the 3 Different circumstances: a. Increase of dexterity: Increases the quantity of work he can perform. Reducing one task for one man making it the soul employment of his life. b. Saving of time from passing one sort of work to another c. Invention of machinesHow do people obtain from one another the greater part of those mutual good offices (gives occasion to the division of labor): * Every man may purchase whatever part of the produce of other men's talents he has occasioned for.
treaty * barter * purchaseThe division of labor is limited by extent of the market: * When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of power to exchange all that surplus part of the produce of his own labor, which is over and above his own consumption, for such parts of the produce of other men's labor as he has occasion for.Mediterranean sea: first civilized people David RicardoPrinciples of Political Economy and Taxation
| a. Landlords rent * Share of rent is land * Land is being rented by the people (landlord gets part of the worker’s profit) * Use of unproductive land b. Capitalists profit * Heroes of the economy * Uses profit to re-invest ↑wage = ↓ profit ↓ in economy (less growth) c. Workers wage * Addicted to domestic delights of society *
Vices/ something spent and goes to waste
Theory of Comparative Advantage *
Advantageous for country who has absolute advantage over all products *
Widens division of labor *
Each country focus on particular product = benefit
Natural Price of labor *
Needs of a family to survive
Market Price of labor *
Price of labor (actual wage) depending on the law of supply and demand
MP > NP—happy worker; wasted surplus (going to vices, etc)
MP < NP—wretched worker life
| On Profits * Whole value of commodities: a) profits of stock b) wages of labor On Wages * Labor a.
Natural Price of labor *
Price necessary to enable the laborers to subsist and to perpetuate their race, without increase or...
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