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)
establishes 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 is the stationary becomes unchanged population, constant income, subsistence wages, complete elimination of profits, and absence of net 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.
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 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.