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Contents

Research Question....................................................................................................... 3
Research objective...................................................................................................... 3
Research Methodology................................................................................................. 3
Scope & Limitation of Research...................................................................................... 4
Laissez Faire Policy..................................................................................................... 4
Milton Friedman......................................................................................................... 5
Modern Economic Policy.............................................................................................. 6
Objectives for Government Intervention.........................................................................6
Maximize social welfare............................................................................................ 6
Macro-economic objectives........................................................................................ 6
Socio-economic objectives......................................................................................... 7
Other objectives...................................................................................................... 7
Rationales for Economic Regulation............................................................................. 7
Consumer Protection................................................................................................. 8
Infant Industry........................................................................................................ 8
Cut-throat Competition.............................................................................................. 8
Evolution of economic thought....................................................................................... 9
Criticism of Lassies Fare............................................................................................. 10
Conclusion.............................................................................................................. 11
Review of Literature.................................................................................................. 11
Reference............................................................................................................ 12
Book.................................................................................................................. 12
Article............................................................................................................... 12
Web Source.......................................................................................................... 12

" documented industrial development in Europe. the brewer. such as minimizing the role of government intervention and taxation in the free markets. It can not happen. then for most of human history. by looking out for him or herself. the result is the rich and the poor have a better economic situation. In fact. the means for producing and distributing goods (the land. Yes the poor are the ones who win in the free trade capitalism of Adam Smith. We refer to this group of people as the capitalist class. It is also often assumed that it has existed. The majority of people must sell their ability to work in return for a wage or salary (who we refer to as the working class. transport system etc) are owned by a small minority of people. but rather give everyone the freedom to make choices on their own enlightened self-interest. or the baker that we expect our dinner. Laissez-faire philosophies. he is responsible for popularizing many of the ideas that underpin the school of thought that became known as classical economics. When people are given the freedom to be the best they can be. technology. Capitalism is the social system which now exists in all countries of the world.Adam Smith. Under this system. and the idea that an "invisible hand" guides supply and demand are among the key ideas Smith's writing is responsible for promoting. "An Inquiry Into the Nature and Causes of the Wealth of Nations. The purpose of government is not to make everyone equal." also shortened as "The Wealth of Nations.) . if not forever. These ideas reflect the concept that each person. The word capitalism is now quite commonly used to describe the social system in which we now live.Introduction “It is not from the benevolence of the butcher. inadvertently helps to create the best outcome for all.”. but from their regard to their own interest. The philosophers of the enlightenment believed that the role of government was to protect the rights of the individual so people and society as a whole would be happier. As a result. capitalism is a relatively new social system. factories. After all happiness is the goal of life.

It may be popular to talk (usually vaguely) about various other 'classes' existing such as the 'middle class'. Research Methodology The researcher has used Primary and Secondary resources such as Cases.The working class are paid to produce goods and services which are then sold for a profit. for this the researcher will do a comparative analysis on both the classical economic theory and modern capitalism. Whether the role of government varies in Adam Smith’s theory and modern capitalism? 2. the researcher will also try to study how judiciary has had an effect on these theories. and aims to evaluate. Research Question 1. The profit is gained by the capitalist class because they can make more money selling what we have produced than we cost to buy on the labour market. Finally. . The capitalists live off the profits they obtain from exploiting the working class whilst reinvesting some of their profits for the further accumulation of wealth. the working class is exploited by the capitalist class. journals. interpret and suggest solution to the illustrative problems through Doctrinal Method. but it is the two classes defined here that are the key to understanding capitalism. books. It is a claim based upon simple facts about the society we live in today. This class division is the essential feature of capitalism. Whether the world economic policy is turning towards laissez faire policy with recent crisis? Research objective The primary objective of this research is to know the influence of Adam Smith’s laissez faire principle in modern economics. In this sense. websites etc.. Whether modern capitalism was an eventual transformation from Adam Smith’s theory? 3. This is what we mean when we say there are two classes in society. And try to study the evolution of modern capitalistic theory.

the brewer. N . This involved the establishment of individual rights. articles and web. “allow to do”. Laissez Faire Policy Traditionally. but from their regard to their own interest. and freedom of the individual to work. Adam (1776) [1937]. as well as the Keynesian critique of Laissez Faire and the 1 Smith. individual responsibility.” The tradition of Adam Smith’s policy is grounded in the idea of sacred individualism. No other resource has been used in this research work. Although laissez faire saw a serious low-point in the form of the interventionalist policies surrounding the Great Depression. This liberal individual-focus is perhaps where we can best draw Jefferson’s connection with laissez faire. It is known to represent a strain of economic and political thought that calls for minimal government intervention in the private sector. and civic participation. characterized by a ‘hands off’ approach by the government.Scope & Limitation of Research The scope of this study is a comparative analysis between Adam Smith’s laissez faire principle and modern capitalism. An Inquiry into the Nature and Causes of the Wealth of Nations. Perhaps Jefferson best exemplifies the goal of laissez faire in the statement “It is not from the benevolence of the butcher. and the writer of the Declaration of Independence itself. Adam Smith1. The ideals of a ‘hands off’ economic approached it rooted upon the principle that men are equal in their ability to work. Having been an important thinker. Smith makes a good starting point in our exploration of laissez faire.My research work is limited to books on economics related to topic unorganised sectors. create. laissez faire is coined from a French phrase meaning. or the baker that we expect our dinner. and compete. A general air of freedom scents the ideas of laissez faire. in hopes of having private sector solutions for private sector problems. as it necessitates a freedom from government interference. Free markets themselves cannot function with a weighted understanding of the importance of the individual. or the importance of preserving the individual as having precedence over government.

and theorized that Keynesian policies would lead to stagnation (which they did). Given its rise and fall between the 19 th and 20th century. there was no shortage of it’s support.M.” With the start of the 21st century. arguing that the private sector would respond to the government’s efforts. Friedman denounced the role of the government in micromanaging the private market. Perhaps the greatest 20 th century economist that idealized defence of laissez faire and free markets was found in Milton Friedman2. Milton Friedman A leader of the popular Chicago school of politics. In addition. One cannot underestimate the importance Friedman has had on bringing a justification to laissez faire on economist grounds. putting emphasis on private sector solutions for private sector problems. it is no wonder that even such critiques as Princeton University economist Paul Krugman claims he is “the best spokesman for the virtues of free markets since Adam Smith. it is interesting to guess where laissez faire will go. He rejected the Keynesian blame of laissez faire policies for causing the Great Depression. His ideas have been popular amongst conservatives and libertarians. thus nullifying any intended response. whether the 20 th to 21st century will have similar experiences.resulting developments that turned the state into a mixed economy. For these reasons. Friedman advocated a minimized role for the government in the economy. he argued for a natural rate of employment. and such free-market success stories as the Chilean Economic miracle. and although formerly a Keynesian himself. 2 Keynes.’” . it begs the question. J. as well as having influenced leaders from Ronald Reagan to Margaret Thatcher. Friedman argued that it was actually too much government that caused and prolonged the market meltdown. “’The End of Laissez Faire. given the current political climate. and have idealized an intellectual movement that has reshaped the study of economics. which focused on the connection between the supply of money and inflation. and how future generations will interpret it. Friedman developed the macroeconomic policy of monetarism. bringing successful economic theory attached to the ideas of free market capitalism.

Other types of market failure justifications for intervention involve the provision of certain public goods (a classic example being national defense) and the remediation of some types of information asymmetry. George J. in the context of transportation many modesexperience congestion where prices as a means of rationing capacity are absent. Maximize social welfare Among the most common set of objectives for government regulatory policy is the maximization of social welfare through the remediation of various types of market failure. com/ 2009/ POLITICS/ 03/ 13/ biden. Regulatory efforts toward externalities often focus on negative externalities. when unpriced. "The theory of economic regulation" . or other forms of organization4 that limit the benefits from competitive markets and trade. cnn. agents can gain market power through the creation of monopolies. Positive types ofexternalities are also possible and can in some situations justify government intervention. 3 http:/ / www. Likewise. government may be able to increase social welfare by speeding up the growth of the network so that it serves a large number of users. often due to the high fixed costs of developing infrastructure. Natural monopolies are one such type of market failure that has been prevalent throughout the historical development of transportation networks. For example. For example.Modern Economic Policy Objectives for Government Intervention There are many different objectives that governments might pursue by way of intervention in private markets. can lead to undesirable outcomes. Externalities are another common type of market failure that can justify regulatory intervention. cartels. amtrak/ index. The following are some of the more commonly observed regulatory objectives3. (1971). html 4 Stigler. For example. These objectives fall under a few broad categories that characterize many of the efforts at government regulation. the consumption of energy often leads to emission of pollutants which. in systems where Network effects are present.

The provision of national defense which. or even to promote individual industries or firms. such as programs that offer mobility to people with mental or physical disabilities. 5 Yandle. Bruce (May/June 1983). Finally. for example by adopting policies to maintain employment during periods of recession5. which may often involve the development of expensive new infrastructure projects. an agency that has the authority to regulate the sale and manufacture of thousands of consumer products. "Viewpoint: bootleggers and baptists -. Still other socio- economic objectives may include things like industrial policy. Other interventions may be designed to promote safety where it is thought that market participants are unable to account for certain types of risk 6. as noted above is an important type of public good.g. Socio-economic objectives Government may also intervene in order to promote a range of socio-economic objectives. some interventions are undertaken in order to promote national prestige. Some governments may also seek to actively control their country's balance of payments through the use of policies aimed at promoting or discouraging exports or imports (e. such as the construction of the Transcontinental Railroad in the US during the Civil War. where governments intervene to promote certain sectors of the economy. "Are urban bus services natural monopolies?" . Efforts in many world cities and their respective countries to attract the summer or winter Olympic Games. through tariffs and subsidies). or a desire to provide a basic standard of service to all citizens. An example of this in the United States is the Consumer Product Safety Commission (CPSC). for example through the adoption of monetary policy. Some interventions are undertaken to promote national unity. governments may intervene for other reasons broadly related to national interests. They also include efforts to counteract the effects of economic cycles. such as efforts to achieve a desired income distribution.Macro-economic objectives A second set of objectives that are pursued primarily by national governments revolve around macroeconomic performance. is almost universally seen as grounds for government intervention.the education of a regulatory economist" 6 Evans. Many of these objectives may be motivated by concerns over fairness. (1991). Macroeconomic objectives include efforts to control inflation. Other objectives Apart from the three categories of objectives for intervention listed above. might fall into this category. Andrew W.

Nominally. The infant industry argument for regulation is typically invoked in cases where a nation sees the existence of potentially large external benefits from the growth of an industry. and is characterized by competitive situations where prices do not cover production costs over extended periods. It is thus a means by which government can attempt to substitute its judgement of what constitutes a 'proper' allocation of resources and distribution of income for the outcome yielded by the market. Several types of outcomes may emerge from such competitive 7 Morrison. as described by Posner[4] .Rationales for Economic Regulation Economic regulation is an attempt by government to deliberately alter the allocation of resources and distribution of incomes away from that which would have occurred in the absence of such regulation. Monopolies may arise for a couple of reasons. Cut-throat Competition Governments have sometimes intervened in markets in order to prevent what is know as destructive or cut-throat competition. Steven A. Consumer Protection The traditional and ideal view is that regulation is a device for protecting the public against the adverse effects of monopoly. practices that reduce or prevent competition in a market. This view. which are discussed below. For example. governments may choose to regulate monopolies in order to force them to produce the level of output that maximizes social welfare. which may occur in several forms. or the potential for other important non- economic benefits7. Some other rationales for regulation are also described which don't fit neatly into these two categories.. consumer protection and industry protection. that is. Clifford Winston (1996). the main objective is to maximize social welfare by correcting market failure. is commonly referred to as the public interest theory of regulation. Infant Industry Economic regulation has also historically been employed in some cases where a government sought to promote the growth of an infant industry. Cut-throat competition is one example of anti- competitive business practices. There are two major opposing theories on why economic regulations exist. "Causes and consequences of airline fare wars" .

politics. the infrastructure tends more often to be publicly owned 8. most 8 Hilton. "The consistency of the Interstate Commerce Act" .short run pricing falls below average total costs. In other cases.since the "supply" function for a road link is a function of traffic volumes.oligopolists may overreact to a competitive event. (October 1966).governments (or even private owners) can set prices equal to marginal cost in order to eliminate the congestion externality and smooth output prices. Evolution of economic thought In Adam Smith’s day.governments may regulate to smooth out output prices • Uneconomic rate levels. George W. as when airlines engage in price wars • High fixed cost with slow adjustment . as with road networks. “economics” was part of a much broader social science inquiry that included and drew heavily upon sister disciplines such as history. which is wide.environments which could provide a theoretical justification for some form of regulatory intervention: •Instability in supply prices -. This is the top of the hourglass. where firms set artificially low prices in order to deter competition from potential market entrants. and sociology. representing the interdisciplinary nature of economic study and the “big picture”-type questions that this study asked. • Predatory pricing. In the case of road networks. especially in recessionwhen there are a lot of excess capacity When dealing with instability in supply prices in certain industries. To achieve efficiency in this case. as for example with electric power. congestion can create instability in supply prices. • Immature pricing behavior -. philosophy. or to drive existing competitors out of business. especially in urban areas. regulation is used to smooth output prices.

features of the world. by their own choice and from motives which determined his ordinary conduct. Unlike “economics.” in which history. as their French contemporaries wished. had not yet taken form. and psychology—in a word. A. Their aim was a system under which it should be possible to grant freedom to all. As he put it: Smith’s chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst. were shaped by—social outcomes. coping mechanisms that emerge to facilitate the ability of imperfect actors to coordinate their activities. Smith was fundamentally concerned with the connections and relationships between morality and the market. To go along with imperfect and socially-embedded man. but also because they reflected—i. if often intractable. and their discovery was .” “political economy” cannot do without these essential.” there was “political economy. A discipline of sterile rational choice. Instead of “economics. why are some nations rich while others are poor? Nowhere is this broad approach more evident than in the work of Smith himself. historically and in his own time. In creating the “rules of the game” that govern interaction. The classical political economists were thus first and foremost concerned with these institutions and the features of man’s reality that give rise to them. to contribute as much as possible to the need of all others. Hayek provides perhaps the best summary of this tradition and its motivations. classical political economy emphasized the importance of institutions. It would scarcely be too much to claim that the main merit of the individualism which he and his contemporaries advocated is that it is a system under which bad men can do least harm. which endeavoured to answer a specifically “economic” question. instead of restricting it. in which ends and constraints are taken as given. Even in his Wealth of Nations.” The chief concern of the great individualist writers was indeed to find a set of institutions by which men could be induced. institutions were central for those studying political economy because they not only shaped social outcomes.e.famously.. Smith could not explore this question without thoroughly understanding the foundational animating forces of human beings. morality. Criticism of Lassies Fare F. “humanity”—was at the centre of analysis. and perfectly informed (or even “boundedly rational”) agents respond deterministically to relative price changes to optimize consumption or production decisions. to “the good and the wise. Like his fellow Scottish moral philosophers.

F. Individualism and Economic Order. Having analyzed laissez faire within the 18th. Will the torch finally be extinguished by these modern economic problems and government’s interventionalist bailouts? Will Or will the environment bring about renewed discussion. and a possible rediscovery of laissez faire as the answer to the economy’s problems? Or perhaps the torch has finally met its match. He was a proponent of freer markets and more trade (as opposed to monopolies. along with discussing the division of 9 Hayek. Conclusion Laissez faire principles have been nearly trampled on.that the system of private property did provide such inducements to a much greater extent than had yet been understood9.” and many political economists offered “big answers” in response. One is thus left with the impression that laissez faire is again experiencing a renewed debate on it’s existence in the economy.A Hayek and others. Modern economics has followed an hourglass-shaped path over the past century. 19th. But during the 20th century. (1948). 20th. was the first comprehensive analysis of economic systems in the manner that we currently understand them. aristocracies and government control) as a way of improving society. Chicago: University of Chicago Press. sociology. and philosophy. we are left curiously looking for the free market’s future. political economy up through the 19th century was a broad- ranging discipline that touched upon issues in history. . the penchant for big questions was replaced with a striving for formal rigor and precision. politics. He coined the famous term "invisible hand" to refer to the interaction between supply and demand pushing markets to (temporary) equilibrium. A. and 21st centuries. Review of Literature The Wealth of Nations (published in 1776). and having explored such instrumental thinkers as Adam Smith. F. Political economy asked “big questions. Milton Friedman. Originally a branch of moral philosophy.

It states many different objectives and moral reasons that governments might pursue by way of intervention in private markets. Smith’s thesis. and he does a decent job of making the reader laugh while picking up the finer points of Adam Smith's works. and it makes me suspicious of whether he might have romanticized Smith a bit as to make his book appeal to libertarian ideals. for this project. O' Rourke also has a strong libertarian slant. Smith believed passionately in free trade. because freeing people and nations to do what they do best will produce vastly more wealth than if everyone strives for self-sufficiency. and many other concepts that we take for granted today as common knowledge. .J. Humorously. Free people allowed to make free choices in free markets will satisfy their needs (and society’s) far better than any government can. O'Rourke” O' Rourke's book actually not only summarized all 5 books of "The Wealth of Nations. which still resonates today. These objectives and reasons are then distinguished under a few broad categories that characterize many of the efforts at government regulation. both within countries and between them. the use and origins of money. “On The Wealth of Nations by P. Finally." O' Rourke is a humorist by trade." as well as his "Theory of Moral Sentiments. He felt that allowing people and countries to specialize and to trade freely would produce enormous wealth.labour. the theories of value and scarcity. he also dedicated a chapter on why the "Wealth of Nations" is so long. it is an entertaining summary. though some of the jokes seem dated. “Transportation of Economics” is an article that was referred to collect data on modern economic policies. and probably better than merely taking your econ teacher's word on what "Wealth of Nations" actually says. However. is that setting people free to pursue their own self- interest produces a collective result far superior to what you get if you try to impose political or religious diktats." but provided a complete guide to understanding both Adam Smith's "Wealth of Nations.

Krugman. O'Rourke Industrial and labour law2013 . Washington D. Volumn 54.BIBLIOGRAPHY Book The Wealth Of Nations by Adam Smith Macroeconomics by Samishth Arthshastra On The Wealth of Nations by P.C.ISBN Gopal Ghosh (2005) Indian Trade Union Movement. Paul. The Peoples History Publication Article American Political Thought.J. 2004. Avtarsingh. “The New York Review of Books. Number Web Source .: CQ Press.

.html&gt.http://nybooks.. http://ww.panarchy.com/articles/19857&gt.1926..org/keynes/laissezfaire.