Adam Smith and the history of economic thought
Economic thought goes back thousands of years. The ancient Greek, Xenophon, used the word oikonomikos (from oikos, meaning family, household, estate, and nomos, for usage, law). He was talking about skilful or clever ways to manage land and households. We could call many of Aristotle’s political writings economics, although he did not use the word. The English word economics first appeared in the 19th century – two and a half thousand years after Xenophon.
At this time, thinkers like Adam Smith wrote down ideas that are still important today. His work «Enquiry into Nature and Causes of the Wealth of Nations», which was published in 1776, was a great event in economic science and won him world recognition. Adam Smith is often called the Father of Modern Economics, although the science was called political economy then. Smith realized that a nation’s wealth depended on its ability to produce goods. The value of these goods depended on the cost of production. The cost of production depended on the cost of workers, raw materials and land. This was really the first example of macroeconomics.
In his understanding the economic development is guided by objective laws and is independent of the volition of an individual. He called those laws “natural” and tried to deduce them from the nature of the human being. “The natural properties of man” upon which Smith proceeded were characteristic features of the capitalism of his time.
Smith and other classical economists were writing at a time of great change. The industrial revolution had begun. Paper money began to replace precious metals. The middle classes were growing stronger. Economists’ theories echoed these changes. They wrote about the division of labour (each worker taking their part in the production process). They discussed the problems of population growth. They influenced thinking about social classes.
· SPEAKING
3. Answer the following questions:
1. What was Adam Smith?
2. What helped him to win the world recognition? Why?
3. What is the real source of a nation’s wealth?
4. What are the features of the capitalism of his time?
5. How can you characterize the period of classical economists?
Now read the text again and decide whether these statements are true or false.
1. Aristotle did not use the word economics, but he did write about economic ideas.
2. Modern Economics was called political economy then.
3. Adam Smith gave the first example of microeconomics.
4. The economic development is guided by “natural” laws.
5. The industrial revolution had no effects on economists’ theories.
Read the text quickly and put the sentences in the correct order to explain ideas of Adam Smith.
1. The cost of production depended on the cost of workers, raw materials and land.
2. Adam Smith wrote down ideas that are still important today.
3. Nation’s wealth depended on its ability to produce goods.
4. This was really the first example of macroeconomics.
5. The value of these goods depended on the cost of production.
· READING
TEXT№3 Henry Ford
1. What do you know about Henry Ford? What is the secret of his success?
2. Read the text and check your answers.
Henry Ford
Henry Ford (1863 – 1947) was the American founder of the Ford Motor Company and father of modern assembly lines used in mass production. His introduction of the Model T automobile revolutionized transportation and American industry. The Model T was introduced on October 1, 1908. It had the steering wheel on the left, which every other company soon copied. The entire engine and transmission were enclosed, the four cylinders were cast in a solid block, the suspension used two semi-elliptic springs.
By 1918, half of all cars in America were Model T's. However, it was a monolithic block. As Ford wrote in his autobiography, "Any customer can have a car painted any colour that he wants so long as it is black". Model T's were available in other colors including red. The design was fervently promoted and defended by Ford, and production continued as late as 1927. The final total production was 15,007,034. This record stood for the next 45 years.
As owner of the Ford Company he became one of the richest and best-known people in the world. He is credited with “Fordism”, that is, the mass production of large numbers of inexpensive automobiles using the assembly line, coupled with high wages for his workers.
Ford had a global vision, with consumerism as the key to peace. Ford didn’t believe in accountants. He amassed one of the world’s largest fortunes without ever having his company audited under his administration.
Henry Ford’s intense commitment to lowering costs resulted in many technical and business innovations, including a franchise system that put a dealership in every city in North America, and in major cities on six continents.
Ford left most of his vast wealth to the Ford Foundation but arranged for his family to control the company permanently.
· SPEAKING
3. Answer the following questions:
1. What role did he play in American industry?
2. When was the Model T automobile introduced?
3. What are the distinctive features of the Model T?
4. How long was it popular?
5. What does the word “Fordism” mean?