Week 2 - Early Thinkers and Adam Smith 28.3.2024.ppt

SOCIOLOGY

1. SSF3044
Adam Smith
&
Early Thinkers

2. +
Historical Background
wheredid notion of
“development” come from??

3. +
Rooted in Events of and
Economic growth in 18
th
Century Europe –why?
Classical Theories -Adam
Smith and David Ricardo
(market-centred approach -
capitalism)

4. +
BRITAIN
Industrial Revolution

5. Videos on why the Industrial Revolution
https://youtu.be/VQdv8VZqlAU?si=fJCrGpHwHC
zOB6UI
https://www.youtube.com/watch?v=Wrmax07
bxyQ

6. +

8. +
16
th
Century

9. +
Steam Engine

10. +
Railway Expansion

11. +
The Rise of Factories

12. +
Thames Estuary

13. River Thames 21 st Century

14. How to make
sense??

15. Sea of Change …
•economic structures
•financing the revolution,
•technological change,
•markets and demand,
•transport
•food.

16. Classical theories

17. +
Adam Smith (1723-1790)
Key theorist in 18th
century
Economic based
He influence later ideas
about economic
development
Book: An inquiry into the
Nature and Causes of the
Wealth of Nations (1776) or
simplyas “Wealth of
Nations”

18. +
Wealth of Nations by Adam Smith
a response to the
mercantile (trade) focus of
economic policy at that time
in Europe
Trade was the major force
for economic growth in the
18
th
century.
Rising of mercantilism
A move 2wds
Protectionism policy through
high tariffs on goods
produced outside a country

19. + Adam Smith was Against
Mercantilism
The Wealth of Nations –opposed
Mercantilism
Mercantilism benefitted
governments and merchants.
detrimentalto economic growth
of the country and greater wealth
for all citizens.
He argued that governments
should promote free trade, which
would benefit the entire nation by
creating new markets and
enabling commodities to circulate
freely and thus more cheaply.

20. +
What is mercantilism? What are its
major features?
Mercantilism is a theory of economic nationalism
designed to consolidate state power at the expense of
other nations.The objective of a national government
operating under mercantilist theories would be to limit
imports and increase exports to obtain a positive
balance of trade.According to mercantilist theorists, this
favorable balance of trade would result in a net gain of
precious metals, such as gold and silver, which were
considered to be the true source of wealth in the world.

21. + Adam Smith was Against
Mercantilism (cont..)
Believed division of labor accounted
for the generation of wealth in a
society.
He wrote that the increasing
diversity of industrial production
consequently created a more
elaborate division of labor that
enabled wealth and prosperity to
extend throughout society.
Greater division of labor meant
cheaper and more efficient
production of manufactured
goods, which meant more
material wealth for everyone.

22. +
Reduce competition and
cheaper domestically
produced goods.

23. +
ADAM SMITH :
argued for greater attention to be
paid to production, rather than
trade.
-divisions of labour would help
improve productivity, thus economic
growth and wealth creation.
-system regulated by the
“invisible hand of the market” rather
than by the state = free market

24. +
Why Free Market?
individuals act in self interest: wont
buy if prices are high; seller lower the
price or sell something else.
workers move to other jobs if wages
are low
role of marketin economic
development
market-centred approach = laissez-
faire economics = free market =
Capitalism

25. +
25
Traditional Capitalism
“Free Market” or “laissez-faire” or
Capitalism has five components:
1.Private ownership of property
2.No legal limit on accumulation of property.
3.Free Market-no government intervention in
the economy
4.Profit motive as driving force.
5.Profit as measure of efficiency

26. +
26
Adam Smith (1723-1790)
Intellectual Father of Capitalism who said:
1.Humans motivated by self interest.
2.Should be free to pursue profits.
Result: “The Invisible Hand.”
1.Efficienteconomic system; all will benefit
because goods will be produced and sold
cheaply.

27. +
Capitalism -summary
A market economy is based on capitalism,
a system in which private citizens own the
factors of production.
Capitalism thrives on competition, the
struggle among sellers to attract
consumers while lowering costs.
Buyers also compete to find the best
products at the lowest prices.

28. +
David Ricardo
-Echo Adam Smith
-advocate of free trade
-theory of ‘Relative Advantage’
-countries to produce and sell
goods they have an advantage
in producing because of their
assets (mineral resource,
labour, technical or scientific
expertise).
-global division of labour (i.e.
specializing), production would
be more efficient, increased
capacity for growth and more
effective resource utilization.

29. +
Events in 1929 -1930s
Rethinking of the roles of the
market in national economy :
1929 -Wall Street Crash
1930 -Great Depression
onwards in USA

30. +
Wall Street Crash 1929?

31. Videos:
https://www.youtube.com/watch?v=qlSxP
ouPCIM

32. +
Impact of the 1929 Wall Street
Crash
1)12 million people out of work
2)12, 000 people being made unemployed every
day
3)20,000 companies had gone bankrupt
4)1616 banks had gone bankrupt
5)1 farmer in 20 evicted
6)23,000 people committed suicide in one year -
the highest ever

33. +
Significance of the
events
failure of the market to reach
equilibrium
search for new understandings
of national economies

34. +
Led to Economic Growth Theory
Main proponent -John Maynard
Keynes
Government-centred approach

35. +
Economic Growth Theories
John Maynard Keynes, a British
economist published the book ‘The
General Theory of Employment, Interest
and Money’ in 1936
free market was not necessarily the
positive force for economic growth.
key to growth was real investment, i.e.
investment in new infrastructure
projects.

36. + Keynesianism
government key role in promoting
economic growth rather than letting market
operate alone.
Government could intervene to promote
investment either through monetary
policiessuch as changing interest rates, or
directly through government expenditure.
Companies will also make profits which
can be invested further in productive
capital

37. +
This investment would
have a positive effect on:
Job creation
Further generation of
wealth through
multipliereffect.

38. +
Multiplier Effects

39. +
World War II
1939 -1945 widespread war involved
majority nations and all great powers
Germany invading Poland
Axis and Allies
Wide spread war
Deadliest conflict in human history:
more than 60 million died over 6 long
and bloody years

40. +

41. +

42. +
World War II

43. +

44. +

45. +

46. +
Marshall Plan
oofficially theEuropean Recovery
Program,ERP)
oTarget was Western Europe
oUS gave over $12 billion(approximately
$120 billion in current dollar value in
economic support to help rebuild Western
European economies after the end of WWII.
The plan was in operation for four years
beginning April 8, 1948.
oThe goals of the United States were to
rebuild war-devastated regions, remove
trade barriers, modernize industry, make
Europe prosperous once more, and prevent
the spread ofcommunism

47. +
Opportunity to consider the most
appropriate forms of international
organizationand interventionto
ensure that the economic crises of
the 1930s would never happen again.
Promote peace by replacing
warfare with diplomacy and
negotiation

48. +
Formation of International Organizations
Economic Sphere -1944 Bretton woods
Conference in New Hampshire, USA (44
nations represented)
Creation of 3 key international institutions
to promote stable economic growth within
a capitalist system:
The international Monetary Fund (IMF)
The World Bank
The General agreement on tariffs and
Trade (GATT)

49. +
Inauguration speech on January
20, 1949, President Truman
The Point Four Programme

50. +
"we must embark on a bold new program for making the
benefits of our scientific advances and industrial progress
available for the improvement and growth of
underdeveloped areas. More than half the people of the
world are living in conditions approaching misery. Their
food is inadequate. They are victims of disease. Their
economic life is primitive and stagnant. Their poverty is a
handicap and a threat both to them and to more
prosperous areas. For the first time in history, humanity
possesses the knowledge and skill to relieve suffering of
these people. The United States is pre-eminent among
nations in the development of industrial and scientific
techniques. The material resources which we can afford to
use for assistance of other peoples are limited. But our
imponderable resources in technical knowledge are
constantly growing and are inexhaustible"

51. +
What are the Implications on
‘Development’?

52. +
Marshall Plan and Harry Truman Speech
oPhilosophy underlying:
oDetrimental effects of poverty and low levels of
economic development in other parts of the
world on developed countries
oPeace and prosperity of USA is linked with the
rest of the world
oUse technological knowledge to assist poorer
parts of the world –increase production,
improve economic development and living
conditions

53. +
Development through Intervention
Important roles of government and
multilateral organizations in economic
intervention, international reconstruction and
development
Government (USA) as a key actor in
international reconstruction and
development
e.g Marshall Plan or the European Recovery
Program (1948-52) reflected Keynesian
theory -investment in infrastructure
programmes to recreate physical capital and
kick-start the national economies

54. +
“Development”
One of the most contested term in
modern history
Development have been studied,
examine, dissected and analyzed
From classical sociological thinkers to
contemporary thinkers
Led to theories of development