Economic Thinkers

Adam Smith (1723-1790)

the patron saint of economics

The Wealth of Nations (1776) was his masterpiece

the actors of the market are driven to “better their condition”, or to make money

but how does a market society prevent self-interested, profit-hungry individuals from holding their fellow citizens ransom?

Summary of Ideas

Competitioncompetition is the central mechanism of the market system

each person out for self-betterment, with no thoughts for others, is faced with a lot of similar persons

consequently, each person, in buying and selling, is forced to meet the prices offered by his competitors

so a manufacturer who tries to charge too much will not be able to find buyers (because they will be undersold)

a job seeker who asks too much as a wage will not be able to find work, and an employer who pays too little will not be able to find employees

the market through competition disciplines and regulates itself

the market will arrange for the production of the goods that society wants, in the quantities that society wants-- without anyone ever issuing an order of any kind

suppose that society wants more pots than are being produced but less pans

the public will buy pots and the price of pots will rise

Controlled Production

at the same time the sales of pans will be flat and the prices will drop

as pot prices rise, so will the profits in the pot business; as pan prices drop, so will the profits

the drive for self-betterment will go to work causing employers in the pot business to expand, hiring more workers, needing more space and resources; the opposite will happen in the pan business

the pressures of the marketplace direct the selfish activities of individuals as if by an Invisible Hand

this “hand” directs the market into socially responsible paths

keeping society on track, producing the goods and services it needs

society still needs government for things that the market cannot supply, like law and order, national defense, etc.

because the market was self-regulating, Smith opposed government intervention that would interfere with the workings of self-interest and competition

this is still the mindset of conservative-minded economists today

Smith was conscious of the possible abuses of the manufacturing class towards the working class and wanted to limit these

Laissez-Faire

however, it was his belief that economic freedom would ultimately benefit the general public

In groups, research one of the two following economic thinkers

Assignment

Karl Marx

John Maynard Keynes

Bibliography

Economics Explained: Everything You Need to Know About How the Economy Works and Where its Going (Heilbroner & Thurow)