Background
Equals national
- Industrial Revolution: from hand to
machines
- Corrupt guilds that regulate prices; only
served the interests of its members
- New World
- Ability to emigrate; more open
societies; ruling classes have
more incentive to form societies
individuals like
- National state
- Inquisitiveness and questioning;
with regards to economics (why
are prices like this or that?)
- Mercantilism: import no, export yes;
tariffs and bounties
- Slavery was illegal; forced technological
development
Adam Smith
- Apostle of capitalism
- Scotland
- @14 - Univ of Glasgow: Frances
Hutcheson
- 3 yrs later - Balliol College in Oxford, 6
yrs later, went back to Glasgow
- 1752 - professor at Univ of Glasgow in
moral Philosophy
- Tutor to young duke
- Met physiocrats and began The Wealth
of Nations
- Humans are at root, individualistic
- Human life has predetermined purpose
- Govt over regulation, Pol Liberty and
Laissez Faire are related
- Self-interest with sympathy, will not
pillage at will, that sympathy is more
useful in restraining than compelling
- People, if left alone, will produce not
only their own greatest good, but the
good of all, is the “invisible hand”
- If people pursue their own interest, he
promotes that of society more than when
he intends to do it.
improvement - The Wealth of Nations
- Individualistic
- Free domestic and foreign markets ->
specialize -> increase wealth of nations
- More complex = more output, division
of labor
- Restriction to transactions is hindrance
to production
- Target of opposition is Mercantilism
- However, no “big companies”; solution
is freer exchange through diminished
government cause you never know who
will benefit from this
- Not opposing, but limited role
- Functions of Government
- National defense
- Justice
- Facilitate public works for
commerce
- Bridges roads and etc
- Support for education
- On taxation
- Proportionate to income
- Amount is certain
- Pay when convenient
- Uncostly to administrate
The Wealth of Nations
The Division of Labor
- Divide labor to multiply production
- Provide example
- Power of exchanging that gives occasion
to the division of labor
- Provide example
Economic Value
- VALUE - the 2 definitions cancel each
other out
- Value in use
- Value in exchange
- Market price should ideally coincide
with natural price
- VALUE of a commodity to a seller is
equal to the quantity of labor which it
enables him to purchase or command;
this is after the div of labor happens.
LABOR is the measure of exchangeable
value of commodities.
- Labor was the first price, can be
comparable to capital
- HOWEVER, labor is not the sole
measure, ingenuity and degree of
hardship endured must also be taken
into account but there are no accurate
measures for this.
- Adjusted by higgling and bargaining of
the market, not exact but good enough
- Value that workmen add
- Wage of labor
- Profits of stock
- Rent
- These are also original sources
of all revenue as well as of all
exchangeable value
- Actual price = market price = Natural
price
- Market price
- Quantity brought to market
- Demand from demanders
- Natural Price
- Rent + Labor + Profit
- Balance demand and supply
Monopoly
- Control stock, control price
- Price of monopoly is highest, price of
free competition is lowest
- Market price may continue long above
and seldom long below, why?
- If paid below the natural rate,
loss would be felt and producers
would limit production to only
tend the demand which would
then raise its market price to
natural price in the case of
perfect liberty.
Capital
- To increase production prowess either
by increasing machines or better
division of labor
Government
- National Security
- Justice
- Public institutions and public work that
would profit no one
- (Secondary) Facilitating commerce thru
TAX
- Proportion to abilities (revenue)
- Amount is certain
- Pay at most convenient time
- Contrived to cost as little as
possible
- Many officers required
to levy
- May obstruct industry
and discourage
- Penalties should be
greater than price of
temptation
- Constant visits of
taxpayers
To understand the concept of political economy
To explain human nature and its relationship
with soceity’s economic structure
To analyze Smith’s theory on the creation of
wealth and its relation to the welfare of the
nation
To describe his concepts of self- interest, the
“invisible hand”, and laissez faire
To understand his views on value, production,
and economic growth
To analyze the relevance of his ideas to current
issues and events
To examine the limitations of his ideas

* What is political economy?

* How does the nature of human beings shape
society’s economic structure?
* What are Smith’s views on value, production,
distribution, and economic growth
* What are the “laws of the market” and how
does it affect prices of goods?
* What is the division of labor theory and the
labor theory of value?
* What is the impact of the so-called fourth
industrial revolution on his theory?
* What is the relevance of his theory today?

Economic Morals

Adam Smith- founded market economics

 Smith did not think that society cant
survive without state.
 State is indispensible for market to
function properly
 Did not extoll self interest; egoism; he
used the term prudence
 Beneficence/ charity >> self interest
 Not concerned on how to allocate
resources rather, curious on how
countries can be raised out of poverty
 Born in 1723 in scotland
 Died in edinburgh 1790 unmarried but
international renowned
