“It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner,...

“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 interest.”

Adam Smith 1776

Capitalism

I. Founder

A. Adam Smith1. An Inquiry into the Nature and Causes of the Wealth of Nations (The Wealth of Nations) 1776

* Advocates the virtues of economic freedom

Adam Smith and The Wealth of Nations

Who else wrote a document in 1776 espousing the virtues of freedom, specifically political freedom, and what was the name of that document?

II. Philosophy

A. Economic freedom1. Private ownership of the

factors of production* Land, labor and capital

Today economists include entrepreneurship as a factor of production. Who are these famous entrepreneurs?

2. Laissez-faire (let things alone)* No government interference in economic affairs

Milton Friedman, the 1976 Nobel Prize-winning economist, advocated laissez-faire capitalism

3. The market – the free exchange between buyers and sellers

• The “invisible hand” (self-interest and competition) regulates the market; which results in consumers getting the products they want at lower prices

Quick Review – Philosophy of Capitalism

A. Economic freedom1. Private ownership of the factors of

production – land, labor & capital2. Laissez-faire – no government interference in economic affairs3. The market – the free exchange between buyers and sellers

* The “invisible hand” (self-interest & competition) regulates the market

III. The need for govt. intervention?

A. Beginning in the late 19th and early 20th century, government began to violate laissez-faire

1. Anti-trust legislation* Break up monopolies and promote competition

Teddy Roosevelt famous trust buster

2. Product health & safety regulation

• Pure Food and Drug Act

3. Child labor laws

4. Laws regulating working conditions

5. Labor unions

• The right to organize unions,collective bargaining and the right to strike

6. Banking and securities regulation

7. Minimum wage

8. Unemployment insurance

9. Pollution regulations

• Environmental Protection Agency

10. Public infrastructure

• Roads, schools, libraries, dams etc.

11. Government economic stabilization

• Monetary policy (the Federal Reserve controlling the money supply)

• Fiscal policy (spending and taxing policies)

Ben Bernanke – Chairman of the Federal Reserve Bank

12. Health care

• Medicare and Medicaid

13. Income security programs

• Social Security

Income security programs (continued)

• Welfare and Food Stamps

Income security programs (continued)

• Farm subsidies

Income security programs (continued)

• Government pensions

Quick Review – Government Intervention?

1. Anti- trust legislation2. Product health and safety regulation3. Child labor laws4. Laws regulating working conditions5. Labor unions –right to organize and strike6. Banking and securities regulation7. Minimum wage8. Unemployment insurance

Quick Review – Govt. Intervention? (cont.)

9. Pollution regulations10. Public infrastructure11.Government economic stabilization –

monetary & fiscal policy12. Health care 13. Income security programs