Bus 105 1st Edition Lecture 8 Outline of Last Lecture I Mandeville from The Fable of the Bees A Prosperity and corruption II Rand from Atlas Shrugged A Prosperity and morals Outline of Current Lecture III Chen Huan Chang Laissez Faire Policy from The Economic Principles of Confucius and His School A Laissez Faire B Inequality of wealth IV Smith from An Inquiry into the Nature and Causes of the Wealth of Nations A Investing closer to home B Tariffs C Invisible hand Current Lecture Chen Huan Chang Chen argues that we don t want the government telling us what to do because we don t need them dictating economic policy or regulating business If a company were to pollute the water and air Confucius would say that those who are virtuous wouldn t pollute In other words he would advocate for self regulation He believed that we need more people conducting business affairs and we want the government to be selfregulating for the best interest of society Ideally everyone would be moral and self righteous and there would be no need for government regulation The foundation for economic policy should be self interest We should follow the profit of the people and profit them These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Laissez Faire policy fears that government will interrupt with economy Most argue that government intervention would shift production Confucius did not like the class system The problem with monopolies is that there is a lack of competition which leads to monopoly profits Tariffs import taxes are intended to protect domestic producers The clever will get more then they need while the stupid will get less than they need This is a result of free competition and is why we have rich and poor according to Chen But the rich will increase job opportunities Confucius says that he likes large production but hates unequal distribution of it and wants to find around this Adam Smith Adam Smith is father of modern economic theory He built the foundation of economics as a philosopher He thought about the difference between wealth nations with little resources and poor countries with lots of resources Adam came up with the thought of the invisible hand where self interest leads to best outcome for society as a whole The political economy is the economy as a nation Mercantile economy is the economy of the individual A Tariffs and Import Restrictions They benefit from domestic producers Do they benefit nations as a whole Government needs to protect domestic producers by keeping import commodities higher than local commodities Consumers want the lowest price Tariffs benefit producers but do they benefit the country as a whole B Self interest Every individual has his or her own interest in mind in his or her business decisionmaking First upon equal expectations of profit we will invest closer to home C Investing closer to home Our capitol is nearby We know the people better We know the laws better We will invest closer to home in our own self interest Smith tells us what we will do not what we should do D Which investment do we choose We choose the investment which provides the greatest annual produce This is equivalent to the greatest expectation of profit A B Revenue 200 180 Cost 100 100 Profit 100 80 We are going to choose the investment that brings the greatest return due to self interest Trade deficit Value of imports exports from country Trade surplus Value of imports exports from country GDP Gross Domestic Product value of all goods and services provided by a nation By acting in our own self interest we unintentionally bring forth the best economy E Combine two tendencies Invest closer to home Choose investment which will produce the greatest annual profit We make these choices because it s in our best interest to do so Yet the inevitable result is the greatest GDP F The Invisible Hand Everyone should act selfishly because for some reason working for the common good is not as good as working for your own self interest We can act selfishly but we still must behave morally and do business fairly By acting in our own self interest it will lead to the greatest common good Everyone should act selfishly Tariffs Imposed to protect domestic industry When you impose tariffs you protect inefficient industries There is a natural advantage of different countries Some countries have larger more resources than other For example Japan can manufacture very efficiently