![]() ![]() Indeed the word had no appearance whatever before that era. It was Marxism and other left wing movements in the early and middle nineteenth century whence the rhetoric of capitalism appeared. That’s the - one last point, and the “ism” in capitalism is not something, which originally was invented by its friends, by rather by its enemies. Learning to analyze past success and past failure becomes a key part of it. Indeed, if you look at a market society, one of its great features is that its history is littered with failure. And that second piece, capitalism, was not invented by some smart guy like Adam Smith, but rather evolved organically by trial and error, by experimentation, by failure. But capitalism is the subspecies where wealth accumulated is deployed so as to create new wealth, and to do so in a competitive environment. ![]() ![]() That capitalism is a subset of the ways you can use capital, even socialism uses capital, even fascism uses capital, even squirrels and spiders in some sense or another use capital. Meeting one really just said this: That the enormous surge in human wealth over the past 250 years has a great deal to do with capital, with the intelligent use of accumulated wealth in fresh production. Then we’ll talk about some basic components of Smith’s argument, then I’ll turn the slides off for awhile and we’ll talk informally, and I’ll include Jim Alexander in the conversation about the way Smith and Smithism plays out in today’s world, and how it contradicts in many respects what the great man actually said and meant to say.īefore meeting two, meeting one. I will - I’ll begin, as I said, with a recapitulation. Rae: Since we are still in the shopping period and some turnover, I thought it might be good if I spent the first three or four minutes recapitulating from meeting one, and then a little more on meeting two, and then we’ll feather that into today’s topic, which is the great work of economics, and the great - the greatest and most thoughtful normative tract about markets and capitalism. Professor Rae also discusses Adam Smith’s complicated ideas about self-interest and morality.Ĭapitalism: Success, Crisis, and Reform PLSC 270 - Lecture 3 - Counting the Fingers of Adam Smith's Invisible Hand Corporations can leverage powerful political influence to affect the movements of the “invisible hand.” Guest speaker Jim Alexander, formerly of Enron, discusses problems of very imperfect information, as well as the principal-agent problem. Professor Rae suggests that submission to Adam Smith’s invisible hand may be contrary to basics of corporate strategy. These principles include avoiding direct competition, establishing high barriers to entry, and avoiding powerful buyers and powerful suppliers. However, many of these preconditions are at odds with the Porter Forces, which represent general rules of thumb, or principles, for a firm trying to make above average profits. Governments must enforce property and contracts. No producer can hold a pivotal private technology, and there must be more or less truthful information across the whole market. Markets must be open, and there cannot be just one buyer or one seller who can control product prices. Several preconditions must be met for the invisible hand to work. Professor Rae introduces Adam Smith’s notion of the “invisible hand” of the market. ![]() Lecture 3 - Counting the Fingers of Adam Smith's Invisible Hand Overview ![]()
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