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I Pencil by Leonard Read. “I am a lead pencil – the ordinary wooden pencil familiar to all boys and girls and adults who can read and write.... Simple? Yet, not a single person on the face of this earth knows how to make me . ”. I Penci l.

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i pencil by leonard read
I Pencil by Leonard Read

“I am a lead pencil – the ordinary wooden pencil familiar to all boys and girls and adults who can read and write.... Simple? Yet, not a single person on the face of this earth knows how to make me.”

i penci l
I Pencil
  • “The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society's legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed.”
what is capitalism

what is capitalism?

first, what is capital?

capital
capital
  • Cash or goods used to generate income either by investing in a business or income property
capital1
capital
  • Cash or goods used to generate income either by investing in a business or income property
  • The net worth of a business; that is, the amount by which its assets exceed its liabilities
capital2
capital
  • Cash or goods used to generate income either by investing in a business or income property
  • The net worth of a business; that is, the amount by which its assets exceed its liabilities
  • The money, property, and other valuables which collectively represent the wealth of an individual or business
capital3
capital
  • Cash or goods used to generate income either by investing in a business or income property
  • The net worth of a business; that is, the amount by which its assets exceed its liabilities
  • The money, property, and other valuables which collectively represent the wealth of an individual or business
  • Human resources considered in terms of their contributions to an economy
capitalism1
capitalism
  • A broad economic system where competition in a free market determines the price, production and consumption of goods and services through the “invisible hand” of supply and demand
invisible hand
Invisible hand
  • The idea that people acting in their own self interest in a free-market, price-controlled economy, can benefit society even without intending to. Describes the self-regulating nature of the free market.
  • “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”
capitalism2
capitalism
  • A broad economic system where competition in a free market determines the price, production and consumption of goods and services through the “invisible hand” of supply and demand
  • Capital, property and enterprises are privately owned and managed for a profit
capitalism3
capitalism
  • A broad economic system where competition in a free market determines the price, production and consumption of goods and services through the “invisible hand” of supply and demand
  • Capital, property and enterprises are privately owned and managed for a profit
  • New enterprises may freely gain market entry without state restriction
capitalism4
capitalism
  • Employment and wages are determined by the market and there will be some unemployment
capitalism5
capitalism
  • Employment and wages are determined by the market and there will be some unemployment
  • Some government intervention is necessary to guard against price fixing and collusion by producers
capitalism6
capitalism
  • Employment and wages are determined by the market and there will be some unemployment
  • Some government intervention is necessary to guard against price fixing and collusion by producers
  • The capitalist economy will likely follow a cycle of growth and recession
capitalism7
capitalism
  • Several basic forms:
capitalism8
capitalism
  • Several basic forms:

-- Mixed (state intervenes in market activity and provides some services)

capitalism9
capitalism
  • Several basic forms:

-- Mixed (state intervenes in market activity and provides some services)

-- Laissez-faire (state plays minimal role)

capitalism10
capitalism
  • Several basic forms:

-- Mixed (state intervenes in market activity and provides some services)

-- Laissez-faire (state plays minimal role)

-- Anarcho (markets completely free from state)

what are the world s freest economies1
What are the world’s freest economies?
  • Hong Kong, 20thconsecutive year
what are the world s freest economies2
What are the world’s freest economies?
  • Hong Kong, 20thconsecutive year
  • Singapore, Australia, Switzerland, New Zealand
what are the world s freest economies3
What are the world’s freest economies?
  • Hong Kong, 20thconsecutive year
  • Singapore, Australia, Switzerland, New Zealand
  • Canada, Chile, Mauritius, Ireland, Denmark
what about the u s1
What about the U.S.?
  • U.S. is 12th, down from 10th in 2013
  • “The U.S. is the only country to have recorded a loss of economic freedom each of the past seven years… Substantial expansion in the size and scope of government, including through new and costly regulations in areas like finance and health care, has contributed significantly to the erosion of U.S. economic freedom. The growth of government has been accompanied by increasing cronyism that has undermined the rule of law and perceptions of fairness.”
what are world s most restricted economies2
what are world’s most restricted economies?

North Korea, Cuba, Zimbabwe

Guess which are three of the poorest nations in the world?

socialism
socialism
  • Broad economic system in which the major enterprises are either owned or controlled by the state
socialism1
socialism
  • Broad economic system in which the major enterprises are either owned or controlled by the state
  • Some socialist societies direct the economy through a national plan, but most favor a mixed economy of public and private ownership
socialism2
socialism
  • Broad economic system in which the major enterprises are either owned or controlled by the state
  • Some socialist societies direct the economy through a national plan, but most favor a mixed economy of public and private ownership
  • Others (Social Democrats) advocate social welfare programs in a mainly market-based economy
socialism3
socialism
  • Private property and private ownership of capital typically is restricted
socialism4
socialism
  • Private property and private ownership of capital typically is restricted
  • The state usually decides what is produced, prices, incomes and levels of production
socialism5
socialism
  • Private property and private ownership of capital typically is restricted
  • The state usually decides what is produced, prices, incomes and levels of production
  • Often, unemployment is abolished and employment is guaranteed for life
socialist countries
socialist countries?
  • Would include Venezuela, Bolivia, Laos, Syria, Belarus, Turkmenistan, Zambia
socialist countries1
socialist countries?
  • Would include Venezuela, Bolivia, Laos, Syria, Belarus, Turkmenistan, Zambia
  • Lots of social democratic nations including Sweden, Netherlands, Norway, Finland, U.K.
socialist countries2
socialist countries?
  • Would include Venezuela, Bolivia, Laos, Syria, Belarus, Turkmenistan, Zambia
  • Lots of social democratic nations including Sweden, Netherlands, Norway, Finland, U.K.
  • Do we now include U.S. among social democracies?
u s owned controlled companies
U.S. owned/controlled companies
  • Fannie Mae, Freddie Mac, Amtrak, General Motors, Corporation for Public Broadcasting
  • Current administration financing hundreds of “green energy” companies… many of which are operated by cronies. Solyndra, A123, Amonix, Bright Source, Solar Trust of America, LSP Energy… all at room temperature
communism
communism
  • The evolution of socialism
communism1
communism
  • The evolution of socialism
  • The role of the state has withered away and is no longer necessary for the functioning of the planned economy
communism2
communism
  • The evolution of socialism
  • The role of the state has withered away and is no longer necessary for the functioning of the planned economy
  • All property and capital are collectively owned and managed in a communal, classless and egalitarian society
communism3
communism
  • The evolution of socialism
  • The role of the state has withered away and is no longer necessary for the functioning of the planned economy
  • All property and capital are collectively owned and managed in a communal, classless and egalitarian society
  • “…from each according to his ability, to each according to his need…”
communism4
communism
  • What are some communist countries?
communism5
communism
  • What are some communist countries?
  • Cuba, North Korea, China, Vietnam
communism6
communism
  • What are some communist countries?
  • Cuba, North Korea, China, Vietnam
  • China and Vietnam are run by the communist party but have mixed economies; even Cuba has reduced its state employment by 500,000 people and its permitting green shoots of capitalism
slide60

“...it is not what money the business owner hopes to make or whether he succeeds, but how all this affects the use of scarce resources which have alternate uses – and therefore how it affects the economic well-being of millions of other people in society at large.”

slide61

“More important than the fate of (any business) was the fact that millions of people were able to afford a higher standard of living than if they had to be supplied with goods through costlier channels…”

profits and losses1
Profits and Losses
  • Why are losses as important as profits?
profits and losses2
Profits and Losses
  • Why are losses as important as profits?
  • Each is equally important to force companies and industries to use SRTHAU efficiently
profits and losses3
Profits and Losses
  • Why are losses as important as profits?
  • Each is equally important to force companies and industries to use SRTHAU efficiently
  • P&Ls tell companies when they have to make changes
profits and losses4
Profits and Losses
  • Companies set up to make money in a particular set of circumstances can get left behind: A&P, Blockbuster, FAO Schwarz, U.S. Steel, Old Navy, Barnes & Noble, Sarasota Herald-Tribune
social changes1
Social changes
  • Refers to changes in society that demand a response from businesses
social changes2
Social changes
  • Refers to changes in society that demand a response from businesses
  • A&P missed social changes: urban to suburban trend, proliferation of autos, needs for parking, larger ‘rings,’ didn’t follow customers when they left inner cities
social changes3
Social changes
  • Refers to changes in society that demand a response from businesses
  • A&P missed social changes: urban to suburban trend, proliferation of autos, needs for parking, larger ‘rings,’ didn’t follow customers when they left inner cities
  • What social changes did Blockbuster miss?
social changes4
Social changes
  • Not important whether A&P made changes, what’s important is that consumers got cheaper groceries
social changes5
Social changes
  • Not important whether A&P made changes, what’s important is that consumers got cheaper groceries
  • Consumers are principal beneficiaries of lower prices made possible by the more efficient allocation of SRTHAU
general principle
General principle
  • Knowledge is one of the scarcest of all resources in any economy… insights based on that knowledge are scarcer still
general principle1
General principle
  • Knowledge is one of the scarcest of all resources in any economy… insights based on that knowledge are scarcer still
  • Market research departments
general principle2
General principle
  • Knowledge is one of the scarcest of all resources in any economy… insights based on that knowledge are scarcer still
  • Market research departments
  • Politicians and central planners cannot have the knowledge and insights of millions of people acting in their own self-interest
sowellian insight
Sowellian insight

“One of the big advantages of a free market is you don’t have to convince anybody of anything. You simply compete with them in the marketplace and let that be the test of what works best…”

economic changes
Economic Changes
  • Not only changes in the economy, but also changes within the firm’s management, especially in their response to economic changes
economic changes1
Economic Changes
  • Not only changes in the economy, but also changes within the firm’s management, especially in their response to economic changes
  • Lotza stuff we take for granted was fought: credit cards, computerization, answering machines, ATMs, on-line shopping, etc.
economic changes2
Economic Changes
  • Not only changes in the economy, but also changes within the firm’s management, especially in their response to economic changes
  • Lotza stuff we take for granted was fought: credit cards, computerization, answering machines, ATMs, on-line shopping, etc.
  • Some people are successful in certain economic conditions, not in others
econ changes round 2
Econ Changes, round 2
  • No economic system can depend on the continuing wisdom of current leaders
econ changes round 21
Econ Changes, round 2
  • No economic system can depend on the continuing wisdom of current leaders
  • Price-coordinated economy with competition does not have to because leaders will be forced to change or be replaced
econ changes round 22
Econ Changes, round 2
  • No economic system can depend on the continuing wisdom of current leaders
  • Price-coordinated economy with competition does not have to because leaders will be forced to change or be replaced
  • Society that can tap all kinds of talents throughout population has obvious advantages over controlled economies
techno changes
Techno changes
  • Manual typewriters, film cameras, faxes, newspapers, land lines, VHS, cassettes, cash, checks, etc.
techno changes1
Techno changes
  • Manual typewriters, film cameras, faxes, newspapers, land lines, VHS, cassettes, cash, checks, etc.
  • Up to business leaders to make the changes… or hire people who will
  • Business leadership not only impacts individual companies, also economy as a whole
coordination of knowledge1
Coordination of Knowledge
  • No matter whether socialist or laissez-faire, knowledge is scarce, the totality of which is not known to any one person
coordination of knowledge2
Coordination of Knowledge
  • No matter whether socialist or laissez-faire, knowledge is scarce, the totality of which is not known to any one person
  • Free-market biz exec: receives instructions from marketplace about prices, what’s popular, trends
coordination of knowledge3
Coordination of Knowledge
  • No matter whether socialist or laissez-faire, knowledge is scarce, the totality of which is not known to any one person
  • Free-market biz exec: receives instructions from marketplace about prices, what’s popular, trends
  • Gov official: gives instructions about same
assignment 2 11
Assignment 2/11
  • Chapter 6 “The Role of Profits – and Losses”
assignment 2 111
Assignment 2/11
  • Pick out a successful publicly listedcompany you admire such as Facebook, Wal*Mart, Apple. Research the company via its website, investor commentaries, annual reports, etc. Write a 400-word essay entitled “Why _____ is well positioned for future growth.” Cite how it is adapting to changes, use of economies of scale, profit margins, marketing, its leadership, etc. The idea is to demonstrate your Sowellianknowledge. Dazzle me…
brand vs company
Brand vs company
  • Sprite is a brand of the Coca-Cola Co.
  • Apple Inc. is a company, which markets the iPhone, iPad, Mac and other brands
  • Tropicana is a brand of PepsiCo
  • Amazon is a company
  • Companies that are public have their stock listed and you can track them by symbols: AAPL, KO, AMZN, PEP
  • Ergo, your company will have a stock symbol!