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New York University
Business and Political Economy Program
Joseph Foudy

Chapter 2 Outline The second coming of Adam Smith BackgroundAdam Smith 1723 grew up with his mother in Kircaldy a port near Edinburgh Scotland His father was a comptroller of customs and died before his birthHe looked weird I am a beau in nothing but my booksUniversity of Glasgow at age 14 and later Balliol College in Oxfordoriginally intending on studying theology and entering the clergyHis professors banned him from reading David Humes Treatise on Human Nature he greatly admired Humes skepticism on humanityso he returned to Glasgow to teach logic rhetoric and law Influenced by campus radical and former teacher Francis Hutcheson His false and dangerous doctrines according to the Presbytery 1 The standard of moral good is promotion of happiness to others 2 It is possible to know good and evil without knowing God Smith never took a course in Economics but included his theories into lectures Division of labor is the great cause of the increase of public opulence which is always proportioned to the industry of the people and not to the quantity of gold and silver as is foolishly imagined notes from studentSmith the Philosopherbefore Wealth of Nations Adam Smith gained popularity with The Theory of Moral Sentiments searching for the origin of moral approval or disapprovalWhen people confront moral choices he said they imagine an impartial spectator who carefully considers and advises theminstead of following selfinterest they take the imaginary observers advice People decide based on sympathy and not selfishnessTo France and PhysiocratsAdam Smith became the tutor of the son of Duke of Buccleuch which involved touring Europe Ended when the Dukes younger brother diedGained much popularity some calling him the Confucius of Europe and The Modern Socrates met people like Voltaire on his tour in FranceTableau Economiquefounded by Francois Quesnay court physician for Louis XV Hard to understandhe divided the political body into three naturally independent classes1 Farmers2 Artisans 3 Proprietors Landlords and other sovereigns Physiocrats argued two points 1 Wealth arose from production not from acquisition of gold and silver 2 Only agricultural enterprise produced wealth not merchants manufacturers and other workers They proposed taxes on landlords not to punish them but because only they could afford to pay those taxes They embraced the concept of private property and private gainAdam Smith on Physiocracy with all its imperfections perhaps the nearest approximation to the truth that has yet been published upon a subject of political economyIt is a system which never has done and probably never will do any harm in any part of the world The Wealth of NationsMarch 1776Economic Actorany person who at any point participates in economic activityA certain propensity in human nature to truck barter and exchange one thing for another it is common to all menAdam SmithIt 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 interestInvisible Handeven if each planet moved in its own orbit there is a natural harmony among the planetsSame goes for free marketsHe neither intends to promote the public interest nor knows how much he is promoting is he intends only his own gain and he is in this as in many other cases led by an invisible hand to promote an end which was no part of his intention The Free Market at WorkJohn and the vulturesinstead of producing what his neighbors wanted he produced what he wanted and subsequently the Invisible Hand drove him out of businessWhen he switches to Tables instead of Vultures he succeeds Division of Laboreach individual action can be assigned to a different laborer increasing productivity Pin anecdoteCredits division of labor for technological advanceshe believed that workers rather than engineers often propel invention Why does one group get paid more than another1 Jobs may entail disagreeable conditions thus few accept employment unless wages compensate them2 Jobs require special training3 Irregular or insecure jobs may pay more
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