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capitalism Carol Mathias
Adam Smith - Father of
Capitalism
 Lived
1723 1790 in
Scotland.
 Economist and
philosopher
The Wealth of Nations
 Written
in
1776 as a
protest
against
mercantilism.
By the Way…...
 FACTOID:
 The
full title of Adam Smith’s
book is
–
An Inquiry into the Nature and
Causes of the Wealth of
Nations.
Mercantilism.
 System
set up
by Jean
Baptiste
Colbert during
Louis XIV time
in France.
Louis had a problem….
 Being
King
was very
expensive.
 Louis needed
money….real
bad!
Colbert had a solution!
C
+ I + G + X - M = GDP
 Decided
–C
to try
+ I + G + X = GDP
C + I + G + X = GDP
 Colbert
made King
Louis rich.
– opportunity
benefit!
C + I + G + X = GDP
 But
what
are the
opportunity
costs?
Adam Smith
predicted….
 Revolution!!
 People
would get
ticked off.
The American
Revolution...
 We
weren’t
allowed to
spend our
money the
way we
wanted.
The French Revolution
 People
really got
ticked off!
Adam Smith
proposed...
 Capitalism!
 Let
the
people
decide the 3
economic
questions!
Smith proposed...
 People
need
incentives to
work.
 Profits are
the best
incentives.
People need
incentives….
 PSYCHIC
INCOME.
Entrepreneurs
 People
who
take risks
and create
goods and
services &
enjoy profit.
Bill Gates House
Warren Buffet - Omaha’s
billionaire.




Founded Buffy’s
Buffet.
Chairman of Solomon
Brothers Investments.
Chairman of
Borsheim’s Jewelry.
Most expensive stock is
Berkshire Hathaway.
Rose Blumkin – Nebraska
Furniture Mart


1893-1998
“Always sell cheap
and tell the truth.”
Famous entrepreneurs
 Buffalo
Bill
Cody.
 Created
Wild West
Show for
world.
Ray Kroc - Founder of
McDonald’s
 Began
the fast food
revolution.
 Adam
Smith
suggested
an
economy of
entreprene
urs.
The Invisible Hand
 One
person’s
acting in
their selfinterest is
likely
others.
The Invisible Hand
 Runs
all
through the
economy.
 Problems
are solved
by it as well.
What Role for
Government in
Capitalism?
Govt. only ties up the
invisible hand.
 Even
when well-intentioned,
government just “screws
things up.”
 Government should just
keep out of the way of
business.
Laissez-faire.
 French
for
“hands off”.
 Govt.
should be
laissez faire
with
business.
Smith didn’t mean no
government.
 Government
did have
special jobs
to make
economy
work.
Government’s Job
 Provide
Infrastructure for
the system.
What Govt.
Provides.
 Fire
&
Police
protection.
 Transportat
ion system.
 Public
education.
 Communica
tions.
Smith’s Role for Govt.
 Court
system to
define
property
rights.
 Military
protection
for borders
and
products.
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