Unit 1 – The Capitalist Revolution (CORE Econ)

The Capitalist Revolution and Modern Economic Systems

• Definition & Core Features of Capitalism: This economic system emerged permanently after the 1700s, marking the capitalist revolution. It fundamentally reshaped global economies and societies.

  • Driven by several key features:

  • Private property rights: Secure ownership of assets enabling investment.

  • Market exchange mechanisms: Goods/services distributed through competitive markets.

  • Profit-seeking firms specializing in tasks and products: Businesses aiming for profit, fostering innovation.

  • Outcomes: Led to sustained rises in living standards and rapid technological change. However, it also came with significant downsides including severe environmental threats (e.g., pollution, resource depletion) and unprecedented global inequalities.

• Economics as a Discipline: This field of study examines interactions among people (how they produce, distribute, consume goods/services) and with the natural environment. It relies heavily on quantitative data for understanding economic phenomena, comparing performance, and proposing evidence-based policy solutions.

The Industrial Revolution and Technological Progress

• Industrial Revolution: A wave of technological advances in the 18^{th} century in Britain that transformed an agrarian and craft-based economy into a commercial and industrial economy. Key innovations included the steam engine, mechanization of spinning and weaving, and new methods for iron production.

  • Impact: It dramatically increased productivity due to new technologies and the organization of work in factories.

  • Driving Force: Was a key factor in the 'hockey-stick' growth trajectory, allowing for sustained increases in living standards.

• Technological Progress: The process of new inventions and innovations taking hold and being widely adopted, leading to significant increases in productivity and efficiency over time. This includes the development of new machines, new techniques, and new ways of organizing production.

Historical Glimpses: Ibn Battuta, Tavernier & Pre-Industrial Equality

• Ibn Battuta (Moroccan scholar, 1304–1368): Described Bengal as having "extremely abundant" rice and provisions, indicating high agricultural productivity.

• Jean Baptiste Tavernier (French diamond merchant, 17^{th} century): Noted widespread food abundance in Indian villages reflecting localized self-sufficiency.

• Key Take-away: Around the 14^{th}–17^{th} centuries, significant regional differences in average income were relatively small. Instead, within-society inequality (e.g., feudal lords vs. serfs) was the dominant form of disparity.

The Hockey-Stick of Growth (Figure 1.1a)

• Data Builder: Relies on historical economic data compiled by Angus Maddison and the Maddison Project Database.

• Countries Illustrated (1000–2018): Typically tracks the UK, Japan, Italy, China, India.

• Pattern: Shows global per capita GDP remained relatively flat for centuries (the 'blade'), followed by a sharp, upward inflection starting around the 18^{th} century (the 'stick'), signifying rapid and sustained economic growth and increased average income in many countries.

The Environmental Impact and Inequality

• Anthropocene: A new geological epoch characterized by human impact on the Earth's geology and ecosystems. This period is directly linked to the rapid economic growth spurred by the capitalist revolution and industrialization.

  • Key Environmental Issues: Climate change (due to greenhouse gas emissions), deforestation, biodiversity loss, and resource depletion.

• Global Inequality: The capitalist revolution, while lifting many out of poverty, also created unprecedented disparities:

  • Between countries: Vast differences in average income and living standards between richer industrialized nations and poorer developing nations.

  • Within countries: Significant income and wealth gaps between individuals and groups within societies, often exacerbated by technological change and market dynamics.