Bus 105 1st Edition Lecture 8Outline of Last Lecture I. Mandeville, from The Fable of the BeesA. Prosperity and corruption II. Rand, from Atlas ShruggedA. Prosperity and moralsOutline of Current Lecture III. Chen Huan-Chang, Laissez-Faire Policy from The Economic Principles of Confucius and His SchoolA. Laissez-Faire B. Inequality of wealth IV.Smith, from An Inquiry into the Nature and Causes of the Wealth of NationsA. Investing closer to home B. Tariffs C. Invisible hand Current LectureChen 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 virtuouswouldn’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 self-regulating, 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 outcomefor 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 decision-making. - 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 BRevenue $200 $180Cost $100 $100Profit $100 $80We 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