The Real Adam Smith

  • Part 1 of 2: Morality And Markets
    • SLIDES:
    • Smith was brightest lights of the Scottish Enlightenment
    • He called himself an ardent observer of everything more than anything else. His great gift was observation and study of human behavior and of society and creating principles and insights from his observation.
    • He firmly believed that division of labor leading to high productivity and specialization are key to wealth and prosperity
    • He said “Do what you do best and trade for the rest”
    • He was against Govt Intervention in controlling the market, and instead proposed that free markets driven by invisible hand of supply and demand are the best for the economy to thrive.
    • He’s called the father of modern world and father of economics.
    • Smith On The East India Company
      • EIC was according to Adam, a grotesque monopoly
      • It never made much profit, but it’s management thrived
      • It essentially became “Too big to fail”
      • It had it’s own army of 7K troops and its own Navy and ruled India
      • The British Govt had to bail it out and assist it on many occasions using public funds. One such incidence was when it was given rights to sell tea to American Colonies(US was a British Colony then) at a lower tax rate than the British Govts. local tax rate in Boston. This led to Boston Tea Party and was followed by the American Revolution.
    • Smith on Trade
      • Smith saw the formation of Britain in early 18th century and later the French Revolution
      • He was a fervent advocate of free markets and the power of invisible hand of the market
      • He was against the mercantile system and promoted open and free trade and not hoarding of wealth
      • Smith calculated and proved that controlling the colonies by extracting wealth would never be profitable in the long run due to the cost of Army and Navy to keep the colonies under the thumb. Instead he lobbied the british govt. to promote free trade and open migration between colonies. He even imagined US to be the future seat of the british empire.
    • He was equally a moral philosopher and a free market advocate
  • Part 2: Ideas That Changed The World
    • SLIDES:
    • More than a Economist, Smith was truly a social psychologist.
    • Benign neglect is a free market economic policy (along with no corruption, fair and swift judiciary and low and easy tax system) implemented first in Hong Kong in 1960s by their Finance Minister who was a follower of Smith’s principles. This caused their GDP to increase 10 fold in the next 40 yrs while Socialist China remained stagnant with its low performing state controlled industries. Soon China followed suit and is now a Capitalist Economy
    • Smith maintained that free market doesn’t promote selfishness but cooperation coz everyone is doing what their strengths are and sharing their talents and services and produce with others.
    • His key insight was that Competition is not a way of giving power to Companies, but a way of giving us power over them.
    • He was against special laws and subsidies for anyone coz it promotes lobbying as a means to make profit instead of innovation and in fact stifles innovation and alternate ideas.
    • A free market is one of the most powerful forces in the world
    • US Constitution is Smithian in it’s bones. Madison, Jefferson and Hamilton had studied and admired Smith.
    • 750 million people have been lifted out of poverty as global trade has increased from 2 trillion to 19 trillion $ in the last 40 yrs, just as Smith had predicted.

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