Revolution in Economic Behavior

Land as real estate

European attitudes shifted and no longer viewed land as a source of status but as real estate such as rent. This idea would eventually erode the association of aristocracy and land ownership.

Benefits to industry

The division of labor benefits the industry by vastly increasing the rate of production.

Law of Accumulation

The third law according to Adam Smith is the law of accumulation which refers to the accumulation of profits or what is aptly called retained earnings meant for business projects such as acquisition of more machinery and raw materials. This in turn is deemed to earn more profits.

Advantages of industrial production

1) Overall increase in wealth 2) Greater productivity (more value produced by one person in a given period of time) 3) On the handicraft plan, labour more or less skilled was usually the most expensive element of production, but on the automatic plan, people become the one who manage machinery in terms of doing dangerous works. (= Production cost goes down because of less hiring labors and productivity goes up because machine does even faster than what people used to do )

Labor as commodity

: Labor is the means of substance. It is one's obligation to a duty. Before the invention of money, people used to part and trade on an open market. With the introduction of currency, laborers are paid in money instead of being offered a good.

Adam Smith

: Smith was the chair of Moral Philosophy at the University of Glasgow. He wrote the Wealth of Nations in 1776 which has been extremely influential in modern day economics. He created the term "invisible hand" to illustrate how the market can regulate itself without the need of a central planner. He championed the need of the consumer, not the supplier. Smith is viewed as a modern Renaissance Man.

Law of Supply and Demand

: is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic equilibrium of price and quantity -According to Adam Smith, demand and supply plays a major role in the market especially for a self-regulated economy evident in laissez-faire. As the demand rises, supply tends to rise in proportion to the demand. This is the theory behind competition.

Law of Population

Adam Smith's fourth law is the law of population. As more machinery are purchased, the demand for workers grows. As more workers compete for jobs, wages come down because there is more supply than demand of labor which results in more profits for the capitalist.

Obsolescence of skilled labor:

Due to skill-biased technological change, trade, financial liberalization, and the growth of the knowledge economy, the potential for the education system to address the heightened risk of skill obsolescence has increased

Potential hazards

Are cartels and monopolies along with "secrets in trade".

Andrew Ure

He was a Scottish commentator on popular science and industry. His works, most notably On the Philosophy of Manufactures (1835) He claimed that the philosophy of manufactures is therefore an exposition of the general principles, on which productive industry should be conducted by self-acting machines.

Opening doors for other innovations

In the mid-to-late 18th century, the ideas of those from the enlightentment period (Adam Smith, Locke etc) began to infiltrate the economic system. In france, for example, the ambivelence of the "third estate" (who was more interested in social equality) on the first and second led to the storming of the bastille and a phase of revolution that swept Europe.

Capital as investment

People would use capital to pass down "tradition." For example a person could be a blacksmith by trade and passes that down to his son so they can use that capital to make their own. It can also be viewed as using wealth (what you already own) to gain more wealth

Law of Natural Pricing

Perpetual self-regulating mechanism towards the natural price (a) Condition of free competition or "perfect liberty" (b) Benefits for society - "The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this centre of repose and continuance, they are constantly tending towards it." Wealth of Nations -This is explaining that no matter what the economy goes through whether prices fluctuate or go down for a certain reason, some way it will find itself back to its natural pricing

Division of labor

Smith believed the Division of labor to be the greatest improvement to production in the manufacturing industry. The reason being, firstly, the dexterity of each workman increases due the particular task being their only one for the duration of their life. Secondly, the time saved from the work being passed from one area to another and/or changing of tools. The last reason being, the use of machinery that performs a specific task, which in turn promotes innovation.

Positive role of self-interest: (The fingers of the invisible hand)

The features of the invisible hand, includes the first law (#1) what he calls the positive role of self-interest. In his view is of how self-interest keeps in tact, heading towards the ultimate goal of wealth of nation. This is an idea that he first came across in earlier book called "The theory of Moral Sentiments," and the essential question that he raised in this book was: why would a creature driven by instinctively by self-interest and self-love can simultaneously be bound by moral constraints? The answer to this was that the reason why we restrain ourselves is because we are able to objectify ourselves in 3rd person. This conclusion would have profound implications for wealth of nations and this is why he does not see self-interest as society being ripped apart. Because its self-interest that we consider is important for our self-preservation and if want to preserve ourselves as businessmen or merchant or someone trying to make a profit then we do not go overboard because of the second law.

Government as source of cultural enrichment

The laissez-faire role of Government became popular in the mid-to-late 18th century and translates into one in which private parties are free from state intervention (regulations, taxes, tariffs etc.). This idea of laissez-faire role of Government is believed to have been a source of cultural enrichment among nations, allowing for the exchange of public goods with limited regulations and restrictions and increasing trade among cultures.

Invisible hand of the self-regulating market:

The ultimate goal of the wealth of nation is not about increasing treasury of nation, but every individual will have access to all the things he or she needs (this is the ultimate goal). What will drive the market place to such is what Smith calls: "the invisible hand" of the market system. This is something that will hold society in tact all on its own. For Smith, the secret isn't the government-taking role in bringing this positive outcome, but simply letting the market operate on its own. For him there is an "invisible hand" that guides every motion within the system.

Wealth of Nations 1776

The wealth nations was written by Adam Smith, it's composed of 900 pgs in length. It is said that this book is the seminal blueprint for modern economic times. The central concern for the wealth of nations was to search for universal law that explains the order, design, and purpose of the market system.

Impediments to free competition

This idea derives from Adam Smith when he defined a perfectly competitive market as "one in which there is no impediment to free contracting and free entry and exit of productive resources" (Smith, 126). Thus, firms are not excluded from entering the market at any point. Companies can enter and leave the market as they wish because no single firm holds power over the market -- as one leaves, another will either enter or a different firm will pick up the slack.

Francois Quesnay's "Physiocracy"

This is an economic theory that believed the wealth of nations came from the land. It first originated in France and became popular in the 18th century. This is arguably one of the first thoroughly developed economic theories. Francois Quesnay is one of the founders of this theory.

The law of competition

This second law keeps the first law (which is positive impact of self-interest that is the impotence for progress and industry) in check and that is competition. For example if one pursues their own self-interest in unrestrained way. Example he gave in class: If person A is selling donuts at a high price then by the law of competition, it means that person B comes and makes donuts and sells at lower price, then this would eventually sell out one person A's business.

Theory of Moral Sentiments

This was a book written by Adam Smith in 1759, which would later, influence is Wealth of Nations. It states that self-interest is the basis of all commerce, and that the market will operate on its own.

Social conditions in smith's time:

What made Smith unique in his time, was that in the advent of the industrial revolution, was with chaos, filth, and degradation . Everywhere you looked you would see people who were poor, landless, people displaced in their lands and homes. It was a time of that difficult transition from feudal to modern. Smith was able to delve beneath the surface that someone would see some "silver lining" to the system. He was trying to discern some silver lining to the system; some explanation that all of this is leading to a desirable end. He believed that in spite of all these social ills, there was some higher purpose to there pursuits and that higher purpose was to lead England into state of wealth, not for one class, because for him the wealth of nation meant the wealth of everyone in that nation.

"Secrets in trade"

advantages for creating a patent for something that you invent.

Markets vs. Market system

markets are a concrete notion of a place of transaction such as a store. a market system is an abstract notion of nature of trade such as real estate, labor or capital trade. the market system in the 17th Century was redefined and allowed Europe to grow beyond its feudal past and become and industrial power. This transition is responsible for both the rise of the west and the emergence of the modern world.

Cartels and monopolies

monopolies represent vertical organization, meaning one company controls every stage of production. A cartel is horizontal because it includes different companies colluding with one another to set prices and standard regulations.