Economic history Inequality and Great Economists

HISTORY OF ECONOMIC SYSTEMS AND WHAT IT MEANS TO US TODAY

Introduction

• Focus on market-based mixed economies where both private firms and government provide goods and services.

• Learn about market forces: supply, demand, incentives, and profits.

• Brief discussion on central planning and its collapse in the late 20th century.

• Overview of topics:

  • Historical economic systems (before capitalism and communism)

  • Income inequality

  • Influential economists: Adam Smith and Karl Marx

SECTION A: The Western World a Thousand Years Ago

Southern Africa

• Communities mostly comprised small huts, with settlements near water sources.

• Societal structure:

  • The San: hunter-gatherers; the Khoikhoi: pastoralists.

  • Egalitarian social structures with community decision-making.

  • Spirituality and oral traditions were integral to life.

• Absence of written records limits historical understanding.

• The Bantu migration introduced agriculture, ironworking, and new social practices.

Medieval Europe

• Predominantly agrarian society; barter system (limited use of money).

• Life stability affected by seasons/religion; significant local authority from the Church.

• Low life expectancy (30-40 years) due to high infant mortality and poor hygiene.

• Stark class divide: aristocrats lived in significant comfort versus peasant hardship.

• Rigid social mobility due to class birth.

Traditional Economic Systems

• Historical systems regarded as traditional, being rigid and slow-moving.

• Notable advancements during the Middle Ages:

  • Crop rotation, agricultural innovations, ironworking.

• Yet, belief in economic progress was non-existent; material conditions were low.

• Technology was basic, hence communities vulnerable to harvest failures.

• The narrative often romanticized in modern media.

The Industrial Revolution

• Major societal shifts aligned with the Industrial Revolution (late 18th - early 19th century).

  • Transition from hand methods to machine production; rise of factories.

• Notable Phases:

  • First: steam and water power; Second: electricity and assembly lines; Third: digital; Fourth: integration of digital, biological, and physical technologies.

• Originated in England; steam power catalyzed initial growth.

• Resulted in new social classes, with rising inequality and harsh labor conditions.

• Labor laws emerged by late 19th century, improving workers' rights and conditions.

• Economic growth termed "hockey-stick growth": dramatic increases in average living standards post-Industrial Revolution.

Hockey-Stick Growth

• Illustrates significant income increase over time relating to recent industrialization.

• GDP per capita as an indicator of income levels, demonstrating disparities among countries.

• Countries' growth trends show great variation post-Industrial Revolution; shifts often led to increased inequality among social classes.

SECTION B: Income Inequality

Between-Country Inequality

• Variances in GDP per capita observed, leading to classifications of income levels (low to high).

• Economic challenges prevalent in low-income countries impede overall growth.

• Discussion on emerging economies transitioning from low to middle-income status.

Within-Country Income Inequality

• Definition: measurement of income distribution within nations.

• High inequality can lead to social fragmentation and possible crime escalation.

• Gini coefficient as a critical measure of income inequality; South Africa noted for its high coefficient.

• Simon Kuznets' theory: economic growth initially increases inequality, followed by redistribution with development.

SECTION C: Two Important Economists

Adam Smith

• Authored "The Wealth of Nations" capturing economic changes during the Industrial Revolution.

• Critiqued mercantilism, valuing production over gold reserves.

• Advocated for free markets and minimal government intervention.

• Emphasized specialization and labor division for productivity improvement.

Karl Marx

• Analyzed worker exploitation in 19th century England, predicting class struggles.

• Advocated for a revolution by the proletariat against capitalists (bourgeoisie).

• Noticed an increasing divide leading to exploitation; viewed capitalism as unsustainable long-term.

• Marxist ideas were influential, despite not fully manifesting in history as he envisioned.

HISTORY OF ECONOMIC SYSTEMS AND WHAT IT MEANS TO US TODAY

Introduction

• Focus on market-based mixed economies where both private firms and government play critical roles in providing goods and services necessary for societal functioning.

• Understanding market forces: supply, demand, incentives, and profits is key to analyzing how economies operate and respond to various stimuli.

• Brief discussion on central planning and its collapse in the late 20th century, exemplified by the dissolution of the Soviet Union, highlighting the limitations and inefficiencies associated with command economies.

Overview of Topics:

• Historical economic systems that preceded the rise of capitalism and communism, examining their structure, function, and eventual decline.

• The issue of income inequality, looking at both historical and contemporary perspectives.

• Influential economists such as Adam Smith, known as the father of modern economics, and Karl Marx, whose critique of capitalism reshaped economic thought.

SECTION A: The Western World a Thousand Years Ago

Southern Africa

• Communities predominantly consisted of small huts uniquely adapted to local environmental conditions, with settlements strategically located near water sources to support daily living.

• Societal structure was defined by the San, who were hunter-gatherers, and the Khoikhoi, recognized as pastoralists, emphasizing a duality in resource use and lifestyle.

• An egalitarian social structure prevailed; decision-making was community-based, often reflecting consensus-driven processes, vital for social cohesion.

• Spirituality and oral traditions played a significant role in binding communities together, serving as a medium for knowledge transfer and cultural expression.

• The absence of written records from this period poses challenges for historical understanding, making archaeological evidence crucial in reconstructing social dynamics.

• The Bantu migration introduced transformative agricultural practices, ironworking technology, and varied social customs, leading to the establishment of more complex societies.

Medieval Europe

• Characterized as a predominantly agrarian society, where a barter system was the norm leading to limited use of money, reflecting local, self-sufficient economies.

• Seasonal cycles and religious observances heavily influenced life stability, with the Church holding significant local authority, often overriding secular power.

• Life expectancy was alarmingly low, averaging between 30-40 years, primarily due to high infant mortality rates, poor hygiene standards, and outbreaks of disease.

• Stark class divides existed: while aristocrats lived in comfort and access to resources, peasants faced economic hardships, often tied to the land they worked.

• Rigid social mobility due to class birth kept individuals in predetermined societal roles, limiting economic and social advancement.

Traditional Economic Systems

• Historical economic systems are viewed as traditional due to their rigidity, slow adaptability, and reliance on subsistence practices.

• Notable advancements during the Middle Ages included innovative agricultural techniques such as crop rotation, improvements in ironworking, and the development of plowing technologies that enhanced productivity.

• However, a prevailing belief in economic progress was largely absent, as material conditions remained low and technology was rudimentary, leaving communities susceptible to harvest failures.

• Narratives surrounding this era are often romanticized in modern media, leading to misconceptions about the lives of historical populations.

The Industrial Revolution

• The Industrial Revolution marked a pivotal era of societal transformation, beginning in the late 18th century and extending into the early 19th century.

• This period saw a drastic shift from manual labor and artisanal production methods to machine-based manufacturing, facilitating the rise of factories.

• Notable phases of the Industrial Revolution include:

  • First Phase: Introduction of steam and water power.

  • Second Phase: Adoption of electricity and assembly lines, revolutionizing production efficiency.

  • Third Phase: The advent of digital technologies beginning in the late 20th century.

  • Fourth Phase: Current integration of digital, biological, and physical systems, leading to innovations like AI and biotechnology.

• The Revolution originated in England, where steam power acted as a catalyst for economic growth and urbanization.

• This era resulted in the emergence of new social classes, with rising income inequality and often harsh working conditions in factories.

• Labor laws started to emerge in the late 19th century as a response to the poor treatment of workers, gradually improving workers' rights and conditions within the workforce.

• The term "hockey-stick growth" defines the dramatic increases in average living standards seen in many industrialized nations, particularly after the Industrial Revolution.

Hockey-Stick Growth

• Hockey-stick growth characterizes significant increases in income levels over time, closely linked to periods of industrialization and economic expansion.

• GDP per capita is a common indicator of income levels, demonstrating stark disparities among countries and reflecting the impact of historical economic practices.

• Varied growth trends post-Industrial Revolution indicate shifts in economic power and wealth distribution, often leading to heightened inequalities among different social classes.

SECTION B: Income Inequality

Between-Country Inequality

• Clear variances in GDP per capita highlight the economic disparities between countries, leading to classifications of nations from low to high-income status.

• Low-income countries face unique economic challenges, such as limited access to education, healthcare, and infrastructure, which impede overall growth and development.

• Exploration of emerging economies illustrates how certain nations are successfully transitioning from low to middle-income levels through improved economic policy and integration into global markets.

Within-Country Income Inequality

• Within-country income inequality refers to the disparity of income distribution among individuals within specific nations, illuminating the internal divides that can exist.

• High levels of income inequality are often correlated with social fragmentation, creating environments where crime can escalate and social stability is threatened.

• The Gini coefficient serves as a critical measure of income inequality, with countries like South Africa noted for their exceptionally high Gini coefficient, indicating severe inequality levels.

• Simon Kuznets' hypothesis suggests that initial economic growth may increase inequality; however, with development and subsequent redistributive policies, inequality may eventually decline.

SECTION C: Two Important Economists

Adam Smith

• Adam Smith authored the seminal work "The Wealth of Nations," which encapsulated the economic transformations during the Industrial Revolution.

• He critiqued the prevailing mercantilist practices of the time, advocating for the strength of production and market-driven initiatives over maintaining gold reserves as national wealth.

• Smith championed free markets and minimal government intervention as essential for driving innovation and efficiency.

• His emphasis on specialization and the division of labor laid the foundational principles for modern economic thought, promoting the idea that productivity is significantly enhanced through focused and specialized tasks.

Karl Marx

• Karl Marx offered profound critiques of the capitalist system, particularly regarding worker exploitation in 19th-century England, predicting inevitable class struggles arising from economic disparities.

• He argued for a revolutionary shift wherein the proletariat (working class) would rise against the bourgeoisie (capitalist class), seeking to dismantle the capitalist structures that perpetuate inequality.

• Marx observed the exacerbating divide between classes, asserting that capitalism, with its emphasis on profit over people, would ultimately prove unsustainable in the long run.

• Although Marxist theories influenced various social movements and economic policies, the practical implementation of his ideas did not fully manifest as he envisioned, leading to alternative interpretations and adaptations in various socialist movements across the globe.