4.2.2 The Invisible Hand
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4.2.2 The Invisible Hand
How do people earn money? Who decides what is bought and sold and where they can buy and sell products and services? Is this decided by individual people? By the government? By huge corporations?
Historically, people bartered their goods and services with each other. A man might trade a fish for eggs and butter. A woman might sew a dress in exchange for the services of a carpenter. This developed into using money or currency. Then, when nations formed their own governments, they set rules about how their people could trade with people in other countries.
Mercantilism: In Great Britain, the economic system was called mercantilism. Because Great Britain had colonies in various parts of the world, it could obtain various raw materials. Cotton was brought from India, made into fabric and clothing in Great Britain, and taken to Africa where it was traded or sold to buy people who were shipped to the United States where they would grow tobacco that was shipped to Great Britain for sale!
To keep the British economy strong and to keep British people working, the government set up a system of protectionism that was designed to keep the British economy strong.
Mercantilism made a few people very rich, but it included many rules that prevented the average person from accumulating wealth. Mercantilism
Historically, people bartered their goods and services with each other. A man might trade a fish for eggs and butter. A woman might sew a dress in exchange for the services of a carpenter. This developed into using money or currency. Then, when nations formed their own governments, they set rules about how their people could trade with people in other countries.
Mercantilism: In Great Britain, the economic system was called mercantilism. Because Great Britain had colonies in various parts of the world, it could obtain various raw materials. Cotton was brought from India, made into fabric and clothing in Great Britain, and taken to Africa where it was traded or sold to buy people who were shipped to the United States where they would grow tobacco that was shipped to Great Britain for sale!
To keep the British economy strong and to keep British people working, the government set up a system of protectionism that was designed to keep the British economy strong.
Mercantilism made a few people very rich, but it included many rules that prevented the average person from accumulating wealth. Mercantilism
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Adam Smith (1723-1790) was one of many great thinkers who challenged the way people thought. He thought mercantilism was not the best way to run the economy.
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His book, The Theory of Moral Sentiments, included the idea that everyone has an inborn knowledge of right and wrong. People do not need to be told what is right and what is wrong because they have their own sense of what is good.
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His book, The Wealth of Nations, proposed the idea of the
invisible hand, which was the idea that people should be allowed to make their own decisions about how to make money.
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They should be able to choose what they want to buy and what they want to sell.
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There should be no government interference.
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Competition between buyers and sellers would lead to better products at lower costs.
- By acting selfishly to make money, all members of society would benefit.
If a person wanted to sell an item to anyone anywhere in the world, Adam Smith thought that should be allowed to do so.
The invisible hand is invisible because we cannot see it at work. It brings together people who want something and people who can give it to them — all for a price, of course. Successful sellers make more money that they re-invest. They pay good wages so they can hire the best people to produce and sell their products. In theory, by being selfish, people actually help all members of society.
The invisible hand explains how our economy works today - in Alberta, in Canada, in most of the world. Today, most people in the developed world value the freedom of the individual when buying and selling goods, services, and information. This system is capitalism, and it is the dominant economic system in the world today.
Economic globalization works because of the capitalist system. Adam Smith's invisible hand means the market place looks after itself.
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Products that people wanted to buy would be purchased.
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Products that people did not like would go unsold.
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Producers would have an incentive to produce good quality products that people wanted to buy.
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Money from successful businesses would trickle down and make everyone wealthy.
The invisible hand is invisible because we cannot see it at work. It brings together people who want something and people who can give it to them — all for a price, of course. Successful sellers make more money that they re-invest. They pay good wages so they can hire the best people to produce and sell their products. In theory, by being selfish, people actually help all members of society.
The invisible hand explains how our economy works today - in Alberta, in Canada, in most of the world. Today, most people in the developed world value the freedom of the individual when buying and selling goods, services, and information. This system is capitalism, and it is the dominant economic system in the world today.
Economic globalization works because of the capitalist system. Adam Smith's invisible hand means the market place looks after itself.