Business Ethics-Adam Smith Perspective

Topics: Capitalism, Adam Smith, Supply and demand Pages: 4 (1263 words) Published: August 8, 2011
Question 1
a) Perspective of Adam Smith:

In An Inquiry into the Nature and Causes of the Wealth of Nations (1776) , Adam Smith stated that: “Free competition is the regulator that keeps a community activated only by self- interest from degenerating into a mob of ruthless profiteers.” Smith believed that everyone was free to pursue their own self-interest and in doing so, their actions were socially beneficial as well- this was called “The Invisible Hand”. He believed that there needed to be structure within society in order for the Invisible Hand to be effective; such factors include: strong property rights, adherence by all to moral norms and prohibitions against theft and misrepresentation. Competition is also an important factor in steering individual self-interest in a socially beneficial direction.

Wal-Mart is the world’s largest company and holds a large portion of the market share in countries around the globe. Adam Smith would support the following factors of the Wal-Mart case: Wal-Mart’s supremacy is a result of offering customers a wide range of products at bargain prices. Essentially everybody wins, customers receive low prices that they cannot obtain anywhere else, and the firm continues making profits. This is due to the efficiencies that Wal-Mart has achieved due to its productivity, and the more the firm grows the lower prices for customers will be. Wal-Mart is not yet a monopoly, but rather part of a oligopolistic environment, competing against only a few other major retailers. According to Smith, competition ensures that prices of goods do not escalate however high prices are self-correcting. Wal-Mart, being such a large retailer, contributes significantly the GDP and employment of a large proportion of the population, therefore contributing to alleviating poverty. According to the highest minimum wage in the US is $8.67 and the lowest is $5.15, however the Federal minimum wage is $7.25-...
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