Factors Determining a Country's Material Standard of Living

  • Original Natural Resources

    • National output increases with the development and availability of new techniques or transportation to exploit natural resources.

    • In predominantly agricultural economies, variations in weather significantly affect output, leading to fluctuations that influence the material standard of living of the country.

  • The Nature of People, Particularly of the Labour Force

    • With all other factors being equal, a higher standard of living correlates with a greater proportion of workers in the total population.

    • Longer working hours also contribute positively to the standard of living.

  • Capital Equipment

    • The effectiveness of natural resources and labor primarily depends on capital equipment.

    • Output from workers is almost directly proportional to the capital equipment and power available to them.

    • Investment, defined as the addition to capital, is highlighted as the most critical single cause of material progress.

  • The Organization of the Factors of Production

    • Efficient organization of the scarce factors of production is necessary to achieve maximum output.

    • Relevant questions include:

    • Is there the correct proportion of machinery to each worker?

    • Is production taking place in the optimal locality?

    • Can the factors be better deployed within the factory?

  • Knowledge of Techniques

    • Technical knowledge is gained through capital expenditure on research and invention.

    • Further expenditure is required to develop discoveries (e.g., utilizing knowledge of nuclear energy).

    • The rapid increase in the standard of living in Canada over the last century has been mainly due to new inventions, including:

    • Steam engine

    • Internal combustion engine

    • Electrical power

    • Electronics

  • Political Organization

    • A stable government fosters confidence, encouraging saving and investment in long-term capital projects, resulting in greater production.

  • Foreign Loans and Investments

    • A net income from foreign property allows a country to obtain goods and services without yielding its own.

    • Welfare from this source is generally subject to long-term fluctuations.

  • The Terms of Trade

    • Fluctuations in terms of trade can significantly affect material welfare in the short term, particularly for countries like the UK with high levels of imports and exports.

    • The terms of trade refer to the quantity of another country's products received in exchange for a given quantity of a country's own products.

  • Gifts from Abroad

    • International gifts aimed at economic development and defense contribute positively to the standard of living of receiving countries.