adam smith cums Flashcards
influences of smith
- Hume’s Treatise of Human Nature
- philosophy teacher Francis Hutcheson
key analysis of labor
“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.”
physiocrats
believed that people could thrive if they understood the laws of nature (nature rules)
physiocrat laws
- wealth came from production, not from acquisition of gold and silver
- only agriculture produced wealth
tableau économique
economic model of physiocrats –> the body politic as three naturally interdependent classes: farmers, artisans, and proprietors
what were physiocrats right about
wealth comes from production, not hoarding precious metals
what were physiocrats wrong about
they argued that manufacturing, commerce, and the service industry are unproductive (sterile shifters of wealth)
how did physiocrats want to make agriculture more productive
lift trade restriction –> artificially keep agricultural production low
smith on self-interest
humans have natural drives to better their conditions –> society should exploit these natural drive
why did smith’s self interest shi not lead to anarchy
people’s differing self interests still lead to paths in social harmony that help them out
invisible hand
prices/profits signal to owners –> encourages production according to the tastes of consumers/society
3 ways division of labor increases output
- each worker develops more skill in their particular task
- workers waste less time changing from one task to another
- specialized workers are more likely invent machinery to help with the particular task they focus on daily
5 reasons why one group of workers paid more than others
- disagreeable conditions
- required special training
- irregular or insecure job (weather conditions for construction)
- high degrees of trust (diamond sellers)
- when probability of success is low (lawyers)
absolute advantage
the producer that can produce the most output (nations should import only those products in which another country has an absolute advantage)
why did smith not fw with central planning
no central planner gonna get all the information to be able to decide production
what did hayek say on self interest
individuals know their wants best → people look after their own interests
profitsmaxxing w/ trade restrictions include what
- geographical indicators (french champagne, italian parmesean, etc.)
- high barriers to entry
- when merchants band together –> help from governments to control market entry
self criticism
feared an assembly line could rob workers of their intelligence/spirit –> suggests public education as remedy
why did smith and friedman defend markets as it relates to hierarchical discrimination
smith –> only under a market system can the poor and politically weak prosper
friedman –> argues market system reduces racial/ethnic discrimination since signals are prices
labor creates economic growth, especially when
- labor supply increases
- labor is subdivided
- labor quality rose through new machines
role of government according to smith
- providing national defense
- administering justice through court
- maintaining public institutions and resources
- dignity of the sovereign
what was smith’s warning against legislators and why
special interests –> they destroy measures that increase the wealth of nations
smith’s take on international trade restrictions
hated tariffs and quotas –> governments forcing people to subsidize domestic producers –> pay higher prices (like sugar)
infant industry
asks for “temporary” tariffs just for the early years of development
