c1 - What is Economics About? Economics is about the wealth...

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What is Economics About? Economics is about the wealth of nations . That phrase comes from the title of a book published in 1776 by Adam Smith, the father of economics. The full title of the book is An Inquiry into the Nature and Causes of the Wealth of Nations . In simpler words, that title is asking an important question: Why are some nations rich and others poor? ...the savage nations of hunters and fishers. ..are so miserably poor that, from mere want, they are frequently reduced, or, at least, think themselves reduced, to the necessity sometimes of directly destroying, and sometimes of abandoning their infants, their old people, and those afflicted with lingering diseases, to perish with hunger, or to be devoured by wild beasts. Among civilised and thriving nations, on the contrary, though a great number of people do not labour at all, many of whom consume the produce of ten times, frequently of a hundred times more labour than the greater part of those who work; yet the produce of the whole labour of the society is so great that all are often abundantly supplied, and a workman, even of the lowest and poorest order, if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniences of life than it is possible for any savage to acquire. (Smith, 1776) Today, rich nations have grown even richer, while some poor nations are no better off than they were in Smith’s time. Annual per capita income in 2006 ranged from a high of $76040 in Luxembourg to a low of $100 in Burundi. The wealth of nations like Burundi has hardly changed since Smith’s time, while the wealth of nations like Luxembourg has increased hundreds of times. Why? Smith’s answer was that economic progress is greatest in countries that allow people to peacefully pursue their own best interest. Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things. (Smith, 1776) The Top Ten The Bottom Ten Income per person in Income per person in the ten richest countries the ten poorest countries 2006 Luxembourg 76040 Norway 66530 Switzerland 57230 Denmark 51700 Iceland 50580 Ireland 45580 United States 44970 Sweden 43580 Netherlands 42670 Finland 40650 Niger 260 Rwanda 250 Sierra Leone 240 Eritrea 200 Guinea-Bissau 190 Ethiopia 180 Malawi 170 Liberia 140 130 Burundi 100
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By “the natural course of things”, Smith meant people’s natural tendency to seek their own best interest: to own the most profitable business, to work at the best job, and to shop for the best products at the best prices. Smith found that a nation’s wealth would be promoted by free trade policies. The government should keep taxes low, avoid burdening businesses with excessive regulations, should not dictate prices or wages, and should not restrict imports or favor exports.
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This note was uploaded on 03/09/2010 for the course ECON 303 taught by Professor Cheng during the Spring '07 term at USC.

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c1 - What is Economics About? Economics is about the wealth...

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