Economy Evolution
29. THE INVISIBLE
HAND (or the principle of beneficial unintended
consequences): metaphor coined by Smith an menotioned in Book IV in WN and
other writings,Take in capitalism society, principle where an individual
pursues his own self-interest tends to also promote the good of his community
as a whole.Based on The principle of beneficial unintended consequences. People
seeking their own interests (profits) obtain the public good of the economy. The
market itself harmonise all the factors and the intervention of the state is
negative. People tend to invest in what is more productive, so that is good for
the economy. At first they invested in agriculture, then in industry and
finally in international trade.It also works as a balancing mechanism.
(capitalists build factories in poor contries->demand labor^pricel^ reaching
apoint there is no advantage for foreigns leaving alet local economy function
its own.
30. MERCANTILISM: It is the
economic system(16th-18th-). main goal: increase a
nation’s wealth by imposing government regulation of commerce ,prosperity
depends on the supply of capital,unchangeable volume of international trade,one
party benefit at expense of others.belief
National strength maximized by limiting imports via tariffs and
maximizing exports. school of thought important in France in the XVIIth
century.,know as Colbertists and they thought that the state was something like
a merchant and that it will be wealthier if it had more gold and silver. Adam
Smith was against them. He criticized their ten basic ideas (Decalogue):1)
National strength. Politics is more important than economics 2) Zero-sum
economy. or nation is wealthier,then we have a fixed quantity of wealth.3)
Money is wealth. the interest rates are the price of money, so if we increase
money, interest rates decrease and people will invest more. 4) Positive Balance
of Trade5) Preference of industry over agriculture industry is independent and
can develop more. 6) Protect infant industry. only industry not agriculture by
taxes and subsidies7) Royal Factories.create luxury goods being factories owned
by the state8) Utility of poverty. lower wages-> smaller costs and higher
profits 9) Population policies.increase supply of labour and decrease wages.10) Colonialism.
Colonialism(agriculture) be exploited by Metropoli(industry).
31. FISHER’S EQUATION (QUANTITY THEORY OF MONEY) economic hypothesis
based on FE that money supply changes have a direct effect on the price of
goods in the long run.equation is: M x V = P x Q/M= quantity o moneyV=velocity
of circulation of moneyP=price of goodsQ=quantity of goods or
transactions.determines If increase in money supply not followed by increased
in transaction(gdp)=inflation as predicted by mercantilism
32.BALANCE OF TRADE result of the total exports of a country in a
certain period of time minus the total level of imports in that period. If
positive,is receiving an inflow of money. It inform the economic policies of
Early Modern Europe grouped under the mercantilism. Its largest component is
the country’s current account.
33. SPECIE FLOW
MECHANISMlogical argument by David Hume against the
mercantilist (1700–1776) idea that a nation should strive for a positive
balance of trade, or net exports.Using the quantity theory of money, Hume
argued that in countries where quantity money ^, inflation set in and prices of
g and s tend to rise while in countries where the money supply decreases,
deflation would occur as the prices of g and s fell.higher prices in countries
with a positive balance of trade, cause exports ↓ and imports to ^, which will
alter the balance of trade downwards towards a neutral balance. Inversely, in
countries with a negative balance of trade, the lower prices would cause
exports to^ and imports to ↓, which will heighten the balance of trade towards
a neutral balance. These adjustments in the balance of trade will continue
until the balance of trade equals zero in all countries involved in the
exchange.
34.WEALTHdiferrent
definitions:
Smith:specialization of
labour which allowed a nation to produce more with its supply of labour and
resources. Divided him from wealth=gold definition
Hume:gold without increased activity only serves to raise prices.
‘Wealth’ refers to some accumulation of resources, whether abundant or not.
many countries is measured by reference
to access to essential services such as health care, or the possession of crops
and livestock.
In economics,refers
to the value of assets owned minus the value of liabilites owed at a point in
time. It implies a social contract on stablish maintaining ownership of this
items.
Sustainable wealth is defined
as meeting the individual’s personal, social and environmental needs without
compromising the ability of future generations to meet their own needs. (defined
by Brundtland Commission)
35. UTILITY OF
POVERTYestablishes a negative relationship between
economic growth and the well-being of the working classes. English
economists(16th-18th) state low real wages(subsistance level) for the working
class stimulate effort(and increase profits).Otherwise High wages encourage
idle behaviour.
36. BACKWARD BENDING OF THE LABOUR SUPPLY CURVE thesis that claims
that as wages increase, people will substitute leisure for working. The decision whether to work or not depends
on an income (you earn more every ohour,so you can work fewer hours and still
have enough) and substitution effect.(wages^:
leisure time more expensive( you are giving up more money). Usually the
substitution effect is greater. However, at some wages the income effect
outweighs the substitution effect. This causes a backward sloping supply curve
for labour. According to mercantilism however it was happens.
37. SHARE-CROPPING (METAYER) system of
agriculture in which a landowner allows a tenant to use the land in return for
a share of the crop produced on the land (e.g. 30% of the crop). Legal contract
systems such as the Italian mezzadria, the French métayage, or the Spanish mediero,
occur widely. Both propietor and tenant share the results of the production of
the land and the incentive of the tenant to produce more. So, there is an
increase in productivity.
38. GROWING
PATH (GROWTH) The main focus of the wealth of nations.It occurs when an
economy is growing. Capital is accumulated and people progressively have more
to consume and population growth is also increasing due to welfare. Due to growth, wages ^ profits↓ and the Rent
of the Land ^ due to a higher demand of it.Smith identified three major sources
of growth:(i) improvement in the efficiency with which capital is used in
labour through greater division of labour and technological progress however,
Smith recognized division and repetitive task lead to an ignorant dissatisfied
work force necesary the provide of education by th government(ii) promotion of
foreign trade that widens the market and reinforces the other two sources of
growth.make capital accumulation, a orecindition to the division of labor(iii)
growth in the labour force and stock of capital. The growth of the labour force
is dependent of the rate at which population grows(proper of growing economy in a country that its related
with higher wages). 4.Capital accumulation has a strategic role in the growth
process in Adam smith’s theory.more investment more growth.Growth continues until
a point where the economy’s capital stock grows large enough to eliminate any
chance of profits.it is the stationary state.it becomes unchanged population,
constant income, subsistence wages, complete elimination of profits, and
absence of net investment.it has reached the highest level of propensity
consistent with its present natural resources.
39. WAGES FUNDexpression from
economic theory that seeks to show that the amount of money a worker earns in
wages, paid to them from a fixed amount of funds available to employers each
year (capital), is determined by the relationship of wages and capital to any
changes in population. Entrepreneurs
have to save before, and that gives them the ability to pay wages. And the
increase in the Wages Funds (savings) will lead to an increase in economic
growth.
40.THE STATIONARY STATE(ver final 38.) The
term typically refers to a national economy, but it can also be applied to the
economic system of a city, a region, or the entire planet.
41. SECOND ECONOMIC REVOLUTION from 1750 to 1914, starting with
Britain’s eighteenth-century pioneering role. It implies a process of
structural change with the absolute and relative growth of industrial
activity.was largely a result of better specified and enforced property rights
that raised the private returns to invention and led to an invention
“industry.”It brought tremendous gains in the standard of living but
required new institutions to achieve gains from specialization.
42. FIRST, SECOND AND THIRD INDUSTRIAL
REVOLUTION are stages of the second economic revolution. The first one goes
from 1750 to 1850 in Great Britain. The
main inventions: iron, the textile industry, coal and steam engines. The second
one(techonological revolution goes from 1850 to 1914 ,spread throughout the
world especially in the US, Germany and France and started with bessemer steel
in the 60s and culmianated in mass production and production line The main
inventions: electricity, oil, chemistry, steel and the creation of the
railways. mechanization of agriculture and textile manufacturing and a
revolution in power (for example steam ships and railroads).Finally, the third
industrial revolution (1940) today called the third scientific-technical
revolution or revolution intelligence
originates at the end of World War II and is strengthened because
experiencing the crisis of capitalism of the time.
43. INVENTION, INNOVATION AND DIFFUSION OF TECHNOLOGY Three terms important on the industrial and economic development,the first one invention, is the discovery of product or process of producing by using imagination, thinking and experimenting.is based in scientific knowledge by individuals or members o Research and Development (R&D) departments in firms. Innovation is the introduction of new product (invention) in the market,. There are two types of innovation: product innovation, improving products and services, and process innovation, which is improved ways of production and spreading of these inventions in the market.