•Classical Economic

Thought & its Critics

•Adam Smith
Chapter 4
 Table of contents
01 Group Members 04 Nature of Wealth of the
Nation

02 Ice breaker
05 Factors and Main Points
of Wealth of a Nation

03 Introduction to
Economic Theory 06 Classical Economic
thoughts and its Critics
 Pretty Reporters for
Today

SHAIRA EVANGELISTA SOFIE AGUSTIN NICOLE CALLORA DANIELA SERRANO

SANIA DOMETITA CRISTINE MAE LIRAZAN CAMILLE QUISTO

MECHANICS
•Group them into two and each
group will have
7 representatives
•7 representatives will be given
3 minutes to change or
exchange things that they
visible have.
•after the given time they will
be back to the room and each
group will try to find what
changed to representatives
appearances.
Economic Theory of
Adam Smith
•Adam Smith
•Adam economic Theory
-18th Century Philosopher
-Wealth of the Nation -most
popular work
-Famous Concept -The Invisible
Hand Theory
 example
-Imagine a farmer with several plots of land. Each
year, he must choose what to plant. Under a
command economy, the government might decide
that each person in the surrounding area needs a
certain amount of food. They might calculate the
number of lima beans, potatoes, corn, and grains
each person needs. Then, they might instruct the
farmer on what to grow to meet those needs.
-Take away
 Adam Smith's
Economic Theory
Adam Smith’s economic theory is the idea that markets tend to work best
when the government leaves them alone.

How did Adam Smith contribute to economics?

Adam Smith didn’t just contribute to economics, he basically invented it.
Smith grew up in Kirkcaldy, Scotland and studied moral philosophy at the
University of Glasgow in the 1730s.
Did Adam Smith create capitalism?
Adam Smith was among the first philosophers of his time to declare that
wealth is created through productive labor, and that self-interest
motivates people to put their resources to the best use.
 Why was Adam Smith important to the industrial revolution?
Adam Smith is sometimes cited as an influential figure of the
Industrial Revolution, which is usually described as beginning in 1760
in England.

What is the main purpose of Adam Smith’s The Wealth of Nations?

The main purpose of Adam Smith’s The Wealth of Nations was to
further the understanding of political economy (the role of
government in economic policy). He wanted to encourage
governments to adopt a free-market approach to production and
commerce.
 Nature of Wealth of the Nation
When Adam Smith published his Wealth of Nations in 1776, Britain was
just beginning to enter the Industrial Revolution.

Smith began his book with a radical definition of "national wealth." He

rejected the old mercantilist definition of acquiring gold and silver. Nor
did he fully accept the Physiocrat view that wealth consisted solely of
the produce of a nation’s farms. Instead, Smith proposed that the
wealth of a nation consisted of both farm output and manufactured
goods along with the labor it took to produce them. To increase its
wealth, Smith argued, a nation needed to expand its economic
production.
 2 Important Factors of
Wealth of the Nation
Good institutions and human creativity are important factors influencing the
wealth of nations.
Institutions include a legal system to enforce contracts and laws and to protect the
right of citizens and ideas they create, a legislative process to develop laws and
policies that provide incentives to individuals and firms to work hard, a government
free of corruption, and a strong monetary system.

It is important that the society is able to create ideas. Ideas are the basis for
creating new products and finding new ways to improve upon existing goods and
services. It all start with a strong educational system.
 3 Main Points of
Wealth of Nations
Pursuit of self-interest Freedom of Trade Division of labor
- capitalism fueled by - would benefit - It aims to enhance
self-interest is individuals and society efficiency and
ultimately the best way as a whole. He promote
to a thriving economy. believed that specialization in
Because of human governments should various fields.
desire for money, not impose policies
success, or fame, they that interfered with
will be motivated to free trade,
improve their quality of domestically and
work, products, and abroad.
compete with others.
 Classical Economic thoughts
and its Critics
Classical economic thought refers to a school of economic thinking that
emerged during the 18th and 19th centuries. This school of thought focused
on the principles of:

1.)Laissez-faire: Classical economists believed in minimal government

intervention in the economy.
2.)Law of Supply and Demand: Classical economists recognized the
importance of supply and demand in determining prices.
3.)Theory of Comparative Advantage: David Ricardo's theory of
comparative advantage
4.)Labor Theory of Value:Classical economists, including Adam Smith,
often subscribed to the labor theory of value, which suggests that the
value of a good or service is determined by the amount of labor required
to produce it.
 Classical Economic thoughts
and its Critics
The Labor Theory of Value is an economic theory that suggests the
value of a commodity is determined by the amount of labor
required to produce it. While this theory has historical significance
and was proposed by economists like Adam Smith and David
Ricardo, it has also been criticized for several reasons. Here's an
example of a common critique of the Labor Theory of Value:
1.Subjective Value
2.Technological Advancement
3. Heterogenous Labor
4.Marginal Utility
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