Witness the Invention of Capitalism - The MBA Show Episode 14

While they are away on vacation Tom and Miro dig through The MBA Show archive to present great moments in business history. This week: a trip to 1776 for the invention of Capitalism.


Headlines: Adam Smith: The Wealth of Nations

I do say, my dear fellow, that I expect this to change business in a big way.

Tom: Could you start out by explaining how business works right now?

Here’s how business works now.
1. Be rich
2. Get a boat from the king to transport goods
3. Profit

So what does this change?

The main thing that changes is step number 2. Instead of renting your boat from the queen, you would get together with your rich buddies and buy your own boat.

So won’t there be boats everywhere? we’ll have too many boats.

No, we’ll have the optimal number of boats.

I don’t understand?

Have you read the book?

Read? You know I’m not literate. Just tell me the main take-aways.

So the basic idea is this:

If you let the government allocate resources, you end up with a non-optimal distribution of capital. Instead, if you do nothing, and allow people to compete over resources among one another, then you will arrive at a more efficient distribution of capital.

So you’re saying it’s a bad thing? Any idiot can make money by having a good idea, even if they don’t start out rich? I don’t like the sound of that at all.

The only way to make outsized returns is to do things more efficiently.

BREAKING NEWS:

Just signed the declaration of [What?!] Oh I don’t like the sound of that? Ah, it’ll probably amount to nothing.