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Economics Terms – Financial Education Is Your Best Investment



Economics Terms – Financial Education Is Your Best Investment PDF

Author: Thomas Herold

Publisher: Independently published

Genres:

Publish Date: February 27, 2019

ISBN-10: 1798176106

Pages: 317

File Type: PDF

Language: English

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Book Preface

Adam Smith

Adam Smith wrote the economic and political world shaking book The Wealth of Nations . This book marked the original birth of free market economics. It also spelled the doom of mercantilism, the dominant economic system of the day.
March 9, 1776 marked the publication of An Inquiry into the Nature and Causes of the Wealth of Nations that became known by the shorter title The Wealth of Nations around the world. Smith opposed mercantilism that predominated in the world economy of his day. Mercantilism believed that the amount of global wealth was limited and fixed.

The only way for countries to increase in prosperity lay in stockpiling gold and protecting markets from competition using tariffs. At the time nations felt they should sell their goods to others but not purchase any of their trade partners’ goods back. This caused international trade to be extremely limited because of the trade wars and tariffs that constantly erupted.
The central part of Adam Smith’s premise lay in the “invisible hand.” He argued that mankind acted in his own best interests naturally. This would result in prosperity because the invisible hand of free markets would ensure the optimal economic production levels. Smith wanted all individuals to be allowed to make and exchange the goods they wished in free trade.

He believed that all markets around the world would function better if allowed to freely compete. A national government would not need to intervene much except to support the invisible hand and its magic. He promoted the idea that countries could achieve universal prosperity if they had the three elements of enlightened self interest, free market economy with strong currency, and limited government.
Smith believed that individuals should labor in their self interest with hard work and thriftiness. He believed in an enlightened form of self interest as the natural trait for most people.

His famous example surrounded a butcher who supplied meat. He did not do it out of a good heart. The butcher sold the meat to profit. By selling low quality meat he would lose customers and not make any profits. The butcher’s best interests lay in offering quality meat to his customers at a fair price. Both groups realized a benefit with each transaction. Smith said that long term thinking would stop the majority of businesses from cheating their clientele. The government would enforce laws and penalties for those that failed.

This self interest extended to trade. Individuals who saved would invest for better returns and give industry the investment capital it needed to increase numbers of machines and promote innovation in business. This would boost the returns on invested money and cause the general living standards to increase.

Free market economy needed a strong currency to work well. Smith wanted a national currency backed up by precious metals so that the country could not depreciate the nation’s money through waste and wars. Starting with this limit on spending, Adam Smith continued with free market government recommendations. They were to maintain low taxes and repeal tariffs so that free trade could flourish over international borders. Smith demonstrated that these tariffs were only hurting the lives of ordinary citizens by raising prices and cutting off trade and industry’s efforts overseas.

Limited government proved to be the third big idea that Smith promoted in The Wealth of Nations. Governments should be limited to providing universal education to its citizens, national defense, infrastructure works, and the enforcement of law and justice. Governments were to intervene whenever people pursued short term interests or committed crimes. Larger governments only took money from their ordinary citizens’ pockets.


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