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

• 

• 

• 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