Adam Smith1723 - 1790

The Father of Economics

CapitalismCapital and other resources are owned by private individuals. They decide how to use them.

This is the system we have in the United States.Also called the market system.

Adam Smith was the first to describe how capitalism works.

Wealth of Nations

Wealth of Nations is the title of the book written by Adam Smith in 1776.

In this book he described how capitalism operates.

Because of this book, he is known as the father of both capitalism and economics.

Laissez-faire A French term which means “hands-off” or “leave it alone.”

Smith argued that there should be as little government intervention into economic activity as possible. This would allow us to make the most wealth.

Gave a moral justification to factory owners growing wealth and power.

The Invisible Hand Smith believed that

allowing people to act in their own self interest would help the economy.

Capitalism creates a natural harmony that guides resources to their most productive use.

Under competition, individuals acting in their own self-interest will benefit society as a whole.

Division of Labor

Taking a large job and dividing it up into many small jobs. Each person repeats the same small job over and over. This is specialization.

Smith described how this leads to greater productivity.

This allows us to produce goods more quickly, cheaply, and more uniformly.

The Factory System

Smith wrote during the early days of the Industrial Revolution.

Factory owners (capitalists) liked his ideas. They wanted to make as much money as possible, with little or no government intervention.