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The January 29 testI 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.Some basics of econfirst, what is capital?

what is capitalism?

capitalCash or goods used to generate income either by investing in a business or income property

capitalCash or goods used to generate income either by investing in a business or income propertyThe net worth of a business; that is, the amount by which its assets exceed its liabilities

capitalCash or goods used to generate income either by investing in a business or income propertyThe net worth of a business; that is, the amount by which its assets exceed its liabilitiesThe money, property, and other valuables which collectively represent the wealth of an individual or business

capitalCash or goods used to generate income either by investing in a business or income propertyThe net worth of a business; that is, the amount by which its assets exceed its liabilitiesThe money, property, and other valuables which collectively represent the wealth of an individual or businessHuman resources considered in terms of their contributions to an economy

capitalismcapitalismA 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

capitalismA 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 demandCapital, property and enterprises are privately owned and managed for a profit

capitalismA 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 demandCapital, property and enterprises are privately owned and managed for a profitNew enterprises may freely gain market entry without state restriction

capitalismEmployment and wages are determined by the market and there will be some unemployment

capitalismEmployment and wages are determined by the market and there will be some unemploymentSome government intervention is necessary to guard against price fixing and collusion by producers

capitalismEmployment and wages are determined by the market and there will be some unemploymentSome government intervention is necessary to guard against price fixing and collusion by producersThe capitalist economy will likely follow a cycle of growth and recession

capitalismSeveral basic forms: capitalismSeveral basic forms: -- Mixed (state intervenes in market activity and provides some services) capitalismSeveral basic forms: -- Mixed (state intervenes in market activity and provides some services) -- Laissez-faire (state plays minimal role)

capitalismSeveral 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 worlds freest economies?What are the worlds freest economies?Hong Kong, 18th consecutive year

What are the worlds freest economies?Hong Kong, 18th consecutive yearSingapore, Australia, New Zealand, SwitzerlandWhat are the worlds freest economies?Hong Kong, 18th consecutive yearSingapore, Australia, New Zealand, SwitzerlandCanada, Chile, Mauritius, Denmark, U.S.

The U.S. only 10th??The United States, with an economic freedom score of 76, has lost ground again in the 2013 Index. Its score is 0.3 point lower than last year, with declines in monetary freedom, business freedom, labor freedom, and fiscal freedom.what are worlds most restricted economies?what are worlds most restricted economies? North Korea, Cuba, Zimbabwe

what are worlds most restricted economies? North Korea, Cuba, ZimbabweGuess which are three of the poorest nations in the world?

what is socialism?

socialismBroad economic system in which the major enterprises are either owned or controlled by the state

socialismBroad economic system in which the major enterprises are either owned or controlled by the stateSome socialist societies direct the economy through a national plan, but most favor a mixed economy of public and private ownership

socialismBroad economic system in which the major enterprises are either owned or controlled by the stateSome socialist societies direct the economy through a national plan, but most favor a mixed economy of public and private ownershipOthers (Social Democrats) advocate social welfare programs in a mainly market-based economy

socialismPrivate property and private ownership of capital typically is restricted

socialismPrivate property and private ownership of capital typically is restrictedThe state usually decides what is produced, prices, incomes and levels of production

socialismPrivate property and private ownership of capital typically is restrictedThe state usually decides what is produced, prices, incomes and levels of productionOften, unemployment is abolished and employment is guaranteed for life

socialist countries?Would include Venezuela, Bolivia, Laos, Syria, Belarus, Turkmenistan, Zambia socialist countries?Would include Venezuela, Bolivia, Laos, Syria, Belarus, Turkmenistan, Zambia Lots of social democratic nations including Sweden, Netherlands, Norway, Finland, U.K.

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 companiesFannie Mae, Freddie Mac, Amtrak, General Motors, Corporation for Public BroadcastingCurrent 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 temperaturewhat is communism?

communismThe evolution of socialism

communismThe evolution of socialismThe role of the state has withered away and is no longer necessary for the functioning of the planned economy

communismThe evolution of socialismThe role of the state has withered away and is no longer necessary for the functioning of the planned economyAll property and capital are collectively owned and managed in a communal, classless and egalitarian society

communismThe evolution of socialismThe role of the state has withered away and is no longer necessary for the functioning of the planned economyAll property and capital are collectively owned and managed in a communal, classless and egalitarian societyfrom each according to his ability, to each according to his need

communismWhat are some communist countries?communismWhat are some communist countries?Cuba, North Korea, China, VietnamcommunismWhat are some communist countries?Cuba, North Korea, China, VietnamChina 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 capitalismThe rise and fall of businesses

...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.Profits and LossesProfits and LossesWhy are losses as important as profits?Profits and LossesWhy are losses as important as profits?Each is equally important to force companies and industries to use SRTHAU efficiently

Profits and LossesWhy are losses as important as profits?Each is equally important to force companies and industries to use SRTHAU efficientlyP&Ls tell companies when they have to make changes

Profits and LossesWhy are losses as important as profits?Each is equally important to force companies and industries to use SRTHAU efficientlyP&Ls tell companies when they have to make changesCompanies set up to make money in a particular set of circumstances can get left behind: A&P, Blockbuster, FAO Schwarz, U.S. steel

The three major changes companies need to makeSocial changesSocial changesRefers to changes in society that demand a response from businesses

Social changesRefers to changes in society that demand a response from businessesA&P missed social changes: urban to suburban trend, proliferation of autos, needs for parking, larger rings, didnt follow customers when they left inner cities

Social changesRefers to changes in society that demand a response from businessesA&P missed social changes: urban to suburban trend, proliferation of autos, needs for parking, larger rings, didnt follow customers when they left inner citiesWhat social changes did Blockbuster miss?

Social changesNot important whether A&P made changes, whats important is that consumer got cheaper groceries

Social changesNot important whether A&P made changes, whats important is that consumer got cheaper groceriesConsumers are principle beneficiaries of lower prices made possible by the more efficient allocation of SRTHAU

Did you catch the error on previous slide?Social changesNot important whether A&P made changes, whats important is that consumer got cheaper groceriesConsumers are principle beneficiaries of lower prices made possible by the more efficient allocation of SRTHAU

General principleKnowledge is one of the scarcest of all resources in any economy insights based on that knowledge are scarcer stillGeneral principleKnowledge is one of the scarcest of all resources in any economy insights based on that knowledge are scarcer stillMarket research departments

General principleKnowledge is one of the scarcest of all resources in any economy insights based on that knowledge are scarcer stillMarket research departmentsPoliticians and central planners cannot have the knowledge and insights of millions of people acting in their own self-interest

Sowellian insight One of the big advantages of a free market is you dont have to convince anybody of anything. You simply compete with them in the marketplace and let that be the test of what works bestThe three major changes companies need to makeEconomic changesEconomic ChangesNot only changes in the economy, but also changes within the firms management, especially in their response to economic changes

Economic ChangesNot only changes in the economy, but also changes within the firms management, especially in their response to economic changesLotza stuff we take for granted was fought: credit cards, computerization, answering machines, ATMs, on-line shopping, etc.

Economic ChangesNot only changes in the economy, but also changes within the firms management, especially in their response to economic changesLotza 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 2No economic system can depend on the continuing wisdom of current leadersEcon Changes, round 2No economic system can depend on the continuing wisdom of current leadersPrice-coordinated economy with competition does not have to because leaders will be forced to change or be replaced

Econ Changes, round 2No economic system can depend on the continuing wisdom of current leadersPrice-coordinated economy with competition does not have to because leaders will be forced to change or be replacedSociety that can tap all kinds of talents throughout population has obvious advantages over controlled economies

The three major changes companies need to makeTechnological ChangesTechno changesManual typewriters, film cameras, faxes, newspapers, land lines, VHS, cassettes, cash, checks, etc.Techno changesManual typewriters, film cameras, faxes, newspapers, land lines, VHS, cassettes, cash, checks, etc.Can cut both ways: tube guitar amps, 60 year-old designs fetching premium prices Coordination of KnowledgeCoordination of KnowledgeNo matter whether socialist or laissez-faire, knowledge is scarce, the totality of which is not known to any one personCoordination of KnowledgeNo matter whether socialist or laissez-faire, knowledge is scarce, the totality of which is not known to any one personFree-market biz exec: receives instructions from marketplace about prices, whats popular, trends

Coordination of KnowledgeNo matter whether socialist or laissez-faire, knowledge is scarce, the totality of which is not known to any one personFree-market biz exec: receives instructions from marketplace about prices, whats popular, trendsGov official: gives instructions about same

Assignment 2/12Chapter 6 The Role of Profits and LossesAssignment 2/12Pick out a successful private company you admire such as Facebook, Wal*Mart, Apple, the Dallas Cowboys, Ferrari. Research the company via its website, commentaries, annual report. Write a 350-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 Sowellian knowledge. Dazzle me