Adam Smith Flashcards
What is wealth in a commercial society? (Adam Smith)
- The annual flow of national products g/s.
- Commodities are produced for the purpose of exchange and are central to the nations wealth
-Differs from other socio-economic structures (Feudalism, land =wealth, mercantilism, precious metals= wealth)
What does Adam Smith identify as the source of wealth:
- Since goods & services (therefore commodities) are wealth, the source of wealth is labour. Labour is needed to take raw materials and turn them into commodities.
What does Adam Smith view as the division of labour:
-Specialization/breaking down production into distinct tasks performed by different people
-Works become highly skilled, increasing innovation
-The pin factory example demonstrates how efficient having specialized workers is, because they can make a lot more pins.
Why is the division of labour significant for economic growth?
- Worker doing a specialized task every day, increases dexterity, decrease time lot in task transition, and supports innovation} all of which increase productivity, enabling a more efficient use of resource.
…if you can make more, you can sell more.
What is The Invisible Hand
+How might it differ from other modes of exchange?
A metaphor for how commodity exchange operates and how it benefits everyone.
A metaphor for how, even though everyone is just trying to look out for themselves, the economy can still work out in a way that benefits society as a whole.
When people act in their own self-intyerest, they unitentional end up helping others too.
Ex: company makes a good product so people will buy it and they make money, this makes jobs, and meets what customers want
+ Different than feudalism because people can exchange freely. Fuedal society either out of generosity, and redistrubution.
What does Adam Smith mean by self-interest?
People are motivated for their own personal gains.
Business owners, want to make profit, and consumers want good value/satisfaction.
Both act in whats best for themselves.
Adam Smith: Self Regulating Markets
Markets can regulate themselves through the force of supply and demand.
If high demand, but low supply, more business will produce and the price will come down.
If low demand, high supply, prices drop and people stop making it.
This balance happens automatically without the need for gov/boss telling everyone what to do.
What does smith see as the role of the state in a commerical society?
The state should ensure the conditions necessary for an intervention-free market.
