B) Capitalist Economy

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.

Adam Smith, The Wealth of Nations, 1776.

Adam Smith was the 'forefather' of capitalist thinking. His assumption was that humans were self serving by nature but that as long as every individual were to seek the fulfillment of her/his own self interest, the material needs of the whole society would be met. Therefore, there was no need for the government or any outside force to interfere or try to regulate the market. Privately held property and making profit would be the norm and help provide incentive.

Society would only benefit, Smith believed , if there were no monopolies so that competition could operate unrestricted. So, for instance, if one baker in your neighborhood decided to charge ten dollars for a loaf of bread, he would not get away with it as long as there were another baker willing to sell his bread for a more reasonable price. You, acting in your own self interest would go to the cheaper baker (competition). If however, one person owned all of the bakeries in your neighborhood (monopoly) and he raised the price, you would have no choice and would have to pay or go without bread.

This tendency for competition to keep the prices of products in line with the needs of consumers Adam Smith called the "invisible hand." The invisible hand of the market, said Adam Smith, will allow the self interest, of each individual to provide for the overall interest of society.

Adam Smith also described the idea of division of labor. Efficiency is important in a capitalist economy and Adam Smith observed one day in a pin factory that pins could be produced more efficiently if "one man draws out the wire, another straights it, a third cuts it, a fourth points it . . ." and so on. More pins could be produced this way than if one person made the whole pin each time. This was the birth of the modern day industry.


Discussion Questions:

According to Adam Smith, what is the main thing that individuals should be concerned about in order to make society run smoothly?

Do you agree that people act mainly in their own interest? Do you think this is human nature?

What are the main characteristics of a capitalist economy?

How do you think Adam Smith would view the large corporations of the modern world?