Capitalism, History Timeline, and Adam Smith

Dinner Topics for Wednesday

key“Under capitalism everybody provides for their own needs by serving the needs of others.” ~Ludwig von Mises

Adam Smith Wealth of Nations

Free Market: Essence of Prosperity

 by C. A. Davidson

handshake“Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. But man has almost constant occasion for the help of his brethren, and it is vain for him to expect it from their benevolence only.”

“Give me that which I want, and you shall have this which you want.”

“It 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 interest. We … never talk to them of our own necessities but of their advantages.” ~Adam Smith

Government bureaucrats often rage about the “selfishness” of businesses, but the most successful businesses please the most consumers. This is clearly unselfish.

When some businesses do not meet the needs of consumers, they fail. If they break the law against robbery and fraud, they are punished.

But what happens when government takes over business and fails to meet consumer needs? Who punishes government for breaking laws, for engaging in robbery and fraud?

Too many politicians have taken to enforcing Political Correctness instead of the law. Rather than encouraging free trade and spreading prosperity, the result is stifling honest, wholesome, and necessary businesses.

To the extent that governments restrict businesses in their free exchange of goods and services by eliminating competition, it is government which creates monopolies, reduces the selection and quality of goods, reduces gainful employment, and spreads poverty.

History Timeline and Analysis

Adam Smith and the Wealth of Nations

*From Wikipedia

capitalismAdam Smith (baptised 16 June 1723 – 17 July 1790 [OS: 5 June 1723 – 17 July 1790]) was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment,[1] Smith is the author of The Principles Which Lead and Direct Philosophical Enquiries, Illustrated by the History of Astronomy, prior to 1758, The Theory of Moral Sentiments, 1759, and An Inquiry into the Nature and Causes of the Wealth of Nations, 1776. The latter, usually abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. It earned him an enormous reputation and would become one of the most influential works ever published. Smith is widely cited as the father of modern economics and capitalism and is still among the most influential thinkers in the field of economics today.[2] In 2009, Smith was named among the ‘Greatest Scots’ of all time, in a vote run by Scottish television channel STV.[3]

Smith studied social philosophy at the University of Glasgow and at Balliol College in the University of Oxford, where he was one of the first students to benefit from scholarships set up by his fellow Glaswegian John Snell. After graduating, he delivered a successful series of public lectures at Edinburgh, leading him to collaborate with David Hume during the Scottish Enlightenment. Smith obtained a professorship at Glasgow teaching moral philosophy, and during this time he wrote and published The Theory of Moral Sentiments. In his later life, he took a tutoring position that allowed him to travel throughout Europe, where he met other intellectual leaders of his day. Smith then returned home and spent the next ten years writing The Wealth of Nations, publishing it in 1776. He died in 1790 at the age of 67.

The Wealth of Nations

Main article: The Wealth of Nations

AdamSmith1790bSmith used the term “the invisible hand” in “History of Astronomy”[76] referring to “the invisible hand of Jupiter” and twice – each time with a different meaning – the term “an invisible hand“: in The Theory of Moral Sentiments[77] (1759) and in The Wealth of Nations[78] (1776). This last statement about “an invisible hand” has been interpreted as “the invisible hand” in numerous ways. It is therefore important to read the original:

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other eases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. [emphasis added].

Those who regard that statement as Smith’s central message also quote frequently Smith’s dictum:[79]

It 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 interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

Smith’s statement about the benefits of “an invisible hand” is certainly meant to answer Mandeville’s contention that “Private Vices … may be turned into Public Benefits”.[80] It shows Smith’s belief that when an individual pursues his self-interest, he indirectly promotes the good of society. Self-interested competition in the free market, he argued, would tend to benefit society as a whole by keeping prices low, while still building in an incentive for a wide variety of goods and services. Nevertheless, he was wary of businessmen and warned of their “conspiracy against the public or in some other contrivance to raise prices.”[81] Again and again, Smith warned of the collusive nature of business interests, which may form cabals or monopolies, fixing the highest price “which can be squeezed out of the buyers”.[82] Smith also warned that a true laissez-faire economy would quickly become a conspiracy of businesses and industry against consumers, with the former scheming to influence politics and legislation. Smith states that the interest of manufacturers and merchants “…in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public…

 Dinner Talk

Analysis: how to discern and evaluate economic principles

1. Read the capitalist viewpoint in the General post link above.

2.Today, the Left considers capitalism a  “conspiracy” to rip off the consumer. This is an exhibit of human nature. Examples of this would be the Enron scandal, and Fannie and Freddie Mac. You may not remember Enron, perhaps because despite the impact on many employees, our economy managed to survive.

 

3. History timeline: Revisiting History

 

1776— “The Wealth of Nations was also an argument against government control. England at the time had chartered monopolies back in 1776. The king decided what companies would do what.” ~Rush Limbaugh

1930s and 1940s—-Another word for “crony capitalism” is fascism. This was the brand of socialism practiced by Hitler and Mussolini. They invested government money (from taxpayers) into their chosen industries.

2012

4. Enron was a large private sector corporation that went under because of fraud. The Fannie Mae and Freddie Mac housing scandal contributed to the present recession because of abuse of funds. The difference in the two cases is that government bailed out the housing case. This is an example of the government acting in the so-called “public interest”, instead of individual businesses acting in self-interest. Compare the effect on the national economy of the two policies.

5. What do you think is the difference between selfishness and self-interest? Why do you think the Constitution shows that the Founders understood human nature?

(That’s why there’s a difference in “selfishness” and “self-interest,” but everybody looking out for themselves — not in a selfish way, but in a self-interest way — benefits everybody else. The guy behind the counter selling a television set, he’s gotta make sure there’s a lot of them there to handle the demand. He’s gotta make an investment in having a stockroom full of the things that people might want. He’s gotta take a risk in how many to buy and what kind, based on the best evidence he has of what people are gonna want and what they’re willing to pay. ~Rush Limbaugh)

4 comments on “Capitalism, History Timeline, and Adam Smith

  1. Hello There. I found your weblog using msn. This is a really well written article. I will be sure to bookmark it and return to read more of your useful information. Thank you for the post. I will certainly return.

  2. I would argue that in many ways you are right that capitalism creates wealth; but that a balance of capitalism and socialism is necessary for the system to be sustainable.

    What happens, for example when businesses commit criminal practices but are not punished because government lack the will or ability to do so? What do we say to those who pollute one village’s river in order to please their customers in a richer village? What do we say to those who please their customers in one country by selling bad assets to other countries overseas? We have seen rampant instances of both in recent years, which have gone largely unpunished.

    Capitalism is a good way of generating wealth and innovation. But it also gives rise to unsustainable equalities very quickly. In capitalism without regulation, you get maybe 10 years of actual capitalism before a small group of “winners from the first round” acquire the resources and motivation to squelch and possible competition. At that point, such an advantage has been gained from time and from getting in on the “ground floor” that society as a whole is actually losing innovation and productivity by measures taken to prevent competition.

    A good example of a country that recognizes the healthy balance between capitalism and socialism is South Korea. This intensely capitalist country has a socialized healthcare system – because its capitalists recognize that its workers will be more productive if they don’t have to worry about their health, and that socializing the system is the best way to make it optimally cost-effective for everyone.

    So yes, capitalism is needed. But so is a bit of socialism if we want our societies to last more than a couple of centuries (see my blog for more details about the unsustainable behavior created by wealth inequality). And the sooner we stop denying that, the sooner we’ll break the cycle of constant creation followed by destruction.

  3. hi and thanks regarding the particular post ive really been searching regarding this kind of info online for sum time these days hence thanks a lot

  4. The fifth book treats of public finance. His chapter upon the expenses of the sovereign is the first philosophical investigation of this important subject. The second chapter presents a noteworthy treatment of the subject of taxation, and lays down the celebrated maxims which, perhaps, have been quoted oftener than any other paragraphs in economic literature. Smith was especially successful in correlating his theory of taxation with his theory of the production and distribution of wealth, while on the practical side he proposed reforms many of which were later adopted. The chapter on public debts, while unduly pessimistic, criticizes forcibly the unwise financial policies pursued by Great Britain and other countries during the eighteenth century. In his theory of the essential nature of a public debt Smith was undoubtedly correct.

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