Adam Smith was a famous economist born on June 5th, 1923 in Kirkaldy, Scotland. He entered the University of Glasgow at age fourteen to study philosophy and in his twenties supported the idea of natural liberties and a free trade market. (JackTaylor92) He is famous for writing The Wealth of Nations, which explained his ideas about a free trade market. The idea of a free trade market was revolutionary. Adam Smith believed that if free trade existed, markets would work at maximum efficiency, as if guided by an "invisible hand" (XKohlTrainx). He thought that if there was minimal government intervention, the entire economy would prosper. Competition was a key feature in the success of an economy. Competition leads to more production, which lead to more profit. This leads to better quality and more customers. The more customers, the lower prices would be, causing a bigger and better variety of goods and services to be available (Adam Smith and the Natural Laws of Free Market Economics). Adam Smith also believed that if the government tried to control the market, it would create inefficiencies. The only purpose of the government was to referee the free trade market by watching out for fraud, coercion, monopoly, and other unjust activities. The four economic principles Adam Smith believed in were the freedom to buy, the freedom to try, the freedom to sell, and the freedom to fail. He also believed that labor was extremely important, whereas most people thought that land was the key to success. He also stated there was a need for an education system. The Wealth of Nations was so popular that it influenced many other economists. Governments allowed for more free trade in some countries and many still do today. Adam Smith died on July 17th, 1790.
What is "Capitalism/Free Market System"?
Capitalism is an economic system that relies on households and private businesses to control the economy. The free market system is necessary for a capitalist economy. In this market system, goods are taxed minimally or not at all. Sellers in a free market want to sell their goods for a higher price to gain more profit, but buyers want to pay the lowest price possible so they will have more money. This becomes equilibrium when the quantity supplied is the same as the quantity wanted (Fishback). There are six factors in supply and demand: buyers, income, compliments, expectations, preference, and substitution (Plethoras). The roles of the households and businesses are vital to this system. The businesses decide what goods or services to produced, while households decide what products or services to buy. The choices of the businesses determine how much labor or capital a business will need; while households request goods or services, and supply labor (through jobs) and capital (through savings and investments) (Case). Government interference depends on the type of market system. However, government is always necessary, to some extent. The government has more power than households and privately owned businesses, so provides services that households and privately owned businesses cannot achieve. For example, the government establishes property rights, uses police forces, and maintains a court system.
Should the U.S. Government have bailed out the auto industry?
Yes, the U.S. Government should have bailed out the auto industry. Loaning the Auto Industry money was the right choice because the consequences of bankruptcy outweigh the fact that the Auto Industry is totally at fault for their lack of money. General Motors, Ford, and Chrysler (also known as the big three or Detroit) each asked Washington for billions of dollars to avoid bankruptcy when they were faced with a bad financial situation in 2008 (Bowmer). The point of the loans was to give operating money to The Big Three. Detroit desperately needs the financial aid (Newman). If the Big Three went bankrupt, it would cause over 3 million layoffs, which would make the economy even worse. Other countries already supply over half of the car sales in the U.S, so losing Detroit would drastically decrease the number of American car sales. However, some people argued that the car companies were solely at fault for not becoming more energy efficient when they had the time and funds. Auto Makers could have been processing alternate energy vehicles years ago, but instead they profited from selling large trucks like SUVs and Hummers (Amadeo). Even though these statements are true and the fault lies within the companies, there is nothing the Big Three can do about it now. However, The Big Three promised to develop more energy efficient cars, as well as streamline the number of brands produced. Ford also promised to develop more hybrids and battery powered vehicles, as well as increase the production of smaller cars. The government ended up loaning GM six billion dollars, Chrysler four billion dollars, and Ford five billion dollars (Amadeo). Ford has made more money in 2010 than the last five years combined. General Motors is profiting, and Chrysler is even hiring new workers (Bowner). Hopefully Detroit will profit and become more environmentally friendly. Even though the fault lies within Detroit, loaning them billions of dollars to keep them from bankruptcy was the correct choice.
