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    Adam Smith: Is Capitalism The Best Economic System?

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    Beatriz Aquino Petri
    According to Adam Smith, the government should not interfere in the economy and businessmen should be free to manage it in a way that maximizes their profits. Smith believes in an "invisible hand" that guides the free market to reach equilibrium between supply and demand without government intervention. He thinks competition is important and that the sole purpose of production is to provide quality goods at low prices for consumers. Smith argues that the economy works best under a system of laissez-faire where the government keeps its hands off and allows private individuals and businesses to pursue their self-interest without restriction.

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    Adam Smith: Is Capitalism The Best Economic System?

    Uploaded by

    Beatriz Aquino Petri
    42 views2 pages
    According to Adam Smith, the government should not interfere in the economy and businessmen should be free to manage it in a way that maximizes their profits. Smith believes in an "invisible hand" that guides the free market to reach equilibrium between supply and demand without government intervention. He thinks competition is important and that the sole purpose of production is to provide quality goods at low prices for consumers. Smith argues that the economy works best under a system of laissez-faire where the government keeps its hands off and allows private individuals and businesses to pursue their self-interest without restriction.

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    adamsmithletter (1)

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    According to Adam Smith, the government should not interfere in the economy and businessmen should be free to manage it in a way that maximizes their profits. Smith believes in an "invisible hand" that guides the free market to reach equilibrium between supply and demand without government intervention. He thinks competition is important and that the sole purpose of production is to provide quality goods at low prices for consumers. Smith argues that the economy works best under a system of laissez-faire where the government keeps its hands off and allows private individuals and businesses to pursue their self-interest without restriction.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    42 views2 pages

    Adam Smith: Is Capitalism The Best Economic System?

    Uploaded by

    Beatriz Aquino Petri
    According to Adam Smith, the government should not interfere in the economy and businessmen should be free to manage it in a way that maximizes their profits. Smith believes in an "invisible hand" that guides the free market to reach equilibrium between supply and demand without government intervention. He thinks competition is important and that the sole purpose of production is to provide quality goods at low prices for consumers. Smith argues that the economy works best under a system of laissez-faire where the government keeps its hands off and allows private individuals and businesses to pursue their self-interest without restriction.

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    of 2

    IS CAPITALISM THE BEST ECONOMIC SYSTEM?

    What is Capitalism? Lesson 2

    Adam Smith and Laissez-Faire


    August 24, 1776
    Dear William,
    I am glad to renew my correspondence with you after so many months. As you know I couldn’t write be-
    cause I’ve been working on my new book, The Wealth of Nations. Now that it is finished I have some time on my
    hands and can once again take up my pen.
    In your last letter you described your views on the role of government in promoting the economic well being
    of our nation. I find myself in strong disagreement. Permit me to restate my position.
    Our economic system works best when government keeps its hands off. The French call this laissez-faire,”.
    Businessmen should be free to run their businesses in a way that brings them the greatest profit. This leads to a
    healthy economy because what is good for business is good for the nation. More goods are produced and more
    jobs are created. Our economic system controls itself. It does not need interference by outside forces – there is an
    “invisible hand” at work guiding what happens.
    My dear William, as I’ve said before, competition is the most important ingredient in a well functioning
    economy. It forces each man to produce the highest quality goods at the lowest possible price. Under such a sys-
    tem each person must produce a superior product if he is to survive. Competition also benefits the nation’s con-
    sumers by keeping prices down. Under this system, businessmen end up producing what the people want at the
    prices they are willing to pay.
    As I said in my new book, “Every man, as long as he does not violate the laws of justice, should be perfectly
    free to pursue his own interest in his own way, and to bring his industry and capital into competition with those of
    another man, or order of men.”
    I hope these sentiments will persuade you to give up your notion that government should interfere with the
    workings of the economy. (Of course, I will send you a copy of Wealth of Nations as soon as it is available from the
    printer.) I look forward to your next letter, and pray that you and your lovely family remain in the best of health.
    Until then, I remain

    Your devoted friend and obedient servant,

    Adam Smith
    Adam Smith
    Edinburgh, Scotland

    Question: According to Adam Smith who should manage the economy f the nation? Why?
    According to Adam Smith, the government should not interfere in the economy and who should manage it are the
    Businessmen. Because our economic system controls itself, there's a "invisible hand" guiding what happens, but
    Businessmen should be free to run their businesses in a way that brings them the greatest profit.
    Adam Smith
    The following are three excerpts from the writings of Adam Smith.

    From the Wealth of Nations:


    “The sole purpose of all production is to provide the best possible goods to the consumer at the lowest possible
    price. Society should assist producers of goods and services only to the extent that assisting them benefits the
    consumer…he intends his own gain; and he is in this, as in many other causes, led by an invisible hand to pro-
    mote an end which was no part of his intention…By pursuing his own interest, he frequently promotes that of
    society.”

    According to Smith what should the role of Government be in the economy?


    Because the government violates laws and that the Economy works best if the government keeps its hands off it.
    What does the “invisible hand” mean?
    A "invisible" market force that helps the demand and supply of goods in a free market to reach equilibrium.
    From The Quest for a Principle of Authority in Europe:
    “Though the involvement of government must have slowed the progress of England toward wealth and improve-
    ment, it has not been able to stop it…England has never been blessed with a economical government. It’s
    highly foolish to believe that Kings and Ministers can watch over the economy of private people and restrain
    their own expenses through laws or importation of foreign luxuries. They (The politicians) are the greatest
    spendthrifts (cheapskates) in the society. Let them look after their own expense, and they may safely trust pri-
    vate people with theirs. If their own extravagance does not ruin the ate, that of their subjects never will.”

    Who does Smith think should run the economy?


    He thinks that the Businessmen should run the Economy and be free to run their businesses in a way that brings them the
    greatest profits.
    Why does Smith think the Kings and Ministers should stay out of the economy?
    Because they watch over the economy of private people and restrain heir own expenses through laws or importation of foreign
    luxuries.
    Adam Smith Believes in: Invisible Hand, Laissez-Faire, and Capitalism.
    Invisible Hand: A "invisible" market force that helps the Laissez-Faire: The economy system works best when the
    demand and supply of goods in a free government keeps its hands off.
    market to reach equilibrium.

    Example: An individual making a decision to buy coffee Example: A house owner wants to use his front yard
    and a bagel to make them better off. That's to plant some flowers. He can plant whatever
    person decision will make the economic flower he wants in his front yard without having
    society as a whole better off. to get permission from his complex or his city.

    Capitalism: An economic and political system in which a country's trade and industry are controlled by private owners for
    profit, rather than by the state.

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