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
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