week 1 notes (unit 1/2)

Unit 1.1--1.3, 1.5--1.8,  Unit 2.1--2.4, 2.7 & 2.9 of the textbook

Flat world:

  • fourteenth century Bengal (Moroccan scholar Ibn Battuta) similar to seventeenth century visit by French Jean Baptiste Tavernier

  • India was not much richer or poorer than other nations of the time

  • difference between highest and lowest class was more significant than the differences between regions

  • Where you were born in the world didn’t make as much of a change

  • eg. India is much better off now compared to 1300s, but worse off against other parts of the world

Hockey stick:

  • GDP (output of a country)

  • GDP per capita can be used to estimate the average living standards

  • countries experienced the ‘kink’ in the hockey stick at different stages

    • less abrupt in Britain

    • sharper in 19th century Japan

    • China+India declined whilst Western Europe was growing, the kinks showing up in the 20th century

    • some economies improved after gaining independence

      • India (GDP per capita fell by 1/3 under colonial rule)

      • China (became 1/14 times the size of Britain’s wealth in the 20th century despite being richer previously)

      • Latin America (colonial rule or aftermath resembled the hockey stick)

      • Nigeria (little or no growth prior to independence in 1960)

  • living standards have not grown in a sustained way

  • Adam Smith:

    • founder of modern economics

    • An Inquiry Into the Nature and Causes of the Wealth of Nations (1776)

    • claim that coordination amongst economic agents would occur unconsciously

    • challenged previous ideas of rulers controlling the economy

    • happens because of the pursuit in favour of self interest (though sometimes agents band together or collaborate)

    • invisible hand

    • prosperity is dependent on the ‘extent of the market

    • believes the government should protect its people (against enemies, justice systems, public works, etc)

Climate Change:

  • average temperatures risen since 1900

  • associated with the burning of fossil fuels

  • And in each year of the twenty-first century, the average temperature has been higher than at any time in the previous millennium.’

  • affects densely habituated parts of the world

  • destroys agriculture

  • richer countries on average have higher emissions

Technological revolution:

  • previously there was no measurable change over a generation

  • all changed with the Industrial Revolution

  • technology⁠ is a process that takes a set of materials and other inputs—including the work of people and machines—and creates an output

  • since the time taken to produce has continued to decrease over time

  • eg. flames > candles > lightbulbs timeline

  • general purpose innovation/tech

  • progress raises living standards

Production Functions and diminishing APL:

  • production function

    • mathematical representation showing the relationship between inputs used in production and the resulting output

    • how varying levels of input can affect productivity and efficiency

  • labour combined with land = productive

    • more workers, the more production

  • diminishing APL:

    • more labour on fixed land

    • more (inferior) land brought into cultivation, leading to a decrease in average product of labor (APL) as the productivity of each additional worker declines.

The Malthusian trap, population, and APL:

  • population expands if living standards increase

  • incomes may flunctuate, but over time, they tend to stabilize at a level that sustains the population

  • ‘Men multiply like mice in a barn if they have unlimited means of subsistence’ - Richard Cantillon

  • eg. antelopes on a set plain with no predators

  • equilibrium in a Malthusian model of an agricultural economy
  • better tech provides subsistence income for a larger population

  • this model predicts tech improvements will not raise LS if:

    • APL diminishes as more labour is applied to a fixed quant. of land

    • population grows in response to an increase in LS

Capitalist institutions:

  • capitalist revolution

  • economic system characterized by a particular combination of institutions (private property, markets, firms)

    • private property: enjoy possessions in a way you choose, exclude others if you wish, can dispose or sell to others

    • markets: means of transferring g/s from one person to another

      • reciprocity

      • participation is voluntary

      • competition

    • firms: a way of organising production where some/one own capital used, pay wages, direct employees, own the g/s and sell them for profit

  • markets + private property help firms function by

    • outputs and capital goods being private property, meaning both inputs and outputs are owned by the firm

    • firms use markets to buy inputs and sell outputs (including labour)

  • ‘class of systems’

  • combines centralization with decentralization

  • lifespan of the firm

  • tech revolution coincided with the transition of firms organising most production

  • competition amongst firms allows for greater tech improvements

  • historically unprecedented specialization across multiple areas

Kutesmart automates personalized tailoring:

  • coal allows for efficient production processes, but comes at an environmental cost

  • if tech improves fast enough, it can break free of the model

  • people start to favor smaller families even if they can afford more

Economic decisions (OC, economic rents, incentives):

  • net benefit/ pay-off = benefit - cost

  • choices between alternative and mutually exclusive courses of action

  • also called the ‘reservation option

  • not taking the next best option is the cost of doing the best one, and is thus an opportunity cost

  • economic cost = direct costs + OC

  • economic rent = net benefit from option taken - OC

    • something you would like to get rather than something to be paid

  • relative prices refer to one option relative to another, as a ratio of both

Comparative advantage, specialization, and markets:

  • we become better at producing when focus is limited to a range

    • learning by doing

    • difference in ability

    • economies of scale

  • people do not produce the full range of g/s they use or consume

  • absolute advantage = being generally more productive

  • comparative advantage = lower relative cost of production

  • collaboration allows for higher production vs self-sufficiency

  • division of labour

    • specialization in producing things either within a firm

  • markets allow us to pursue private objectives to work together

    • unintended cooperation globally

Firms, technology, and production:

  • factors of production (raw materials, labour, capital goods, energy)

  • fixed proportions technology (have to increase all inputs to have an effect)

  • constant returns to scale

Cheap coal, expensive labour:

  • Labour was more expensive relative to the cost of energy in England

    • English wages were higher than elsewhere

    • Coal was cheaper than other countries

  • incentive to replace workers with machines increased in England

Markets, cheap calories, and cotton:

  • incentive to mass produce textiles came from overseas markets

  • Britain’s dominant position in politics helped them

  • feeding labourers in Britain with cheap foods from enslaved economies

  • capitalism jointly responsible with colonialism and slavery for the IR

robot