Lecture 1: Introduction to the key concepts (2017)Apunte Inglés
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Carmen V. Olivares
International Economics and Business History
INTERNATIONAL ECONOMICS AND
L E C TU R E 1 : I N TR O D U C T I O N T O T H E K E Y C O N C E P T S
Economic history provides a structural approach to history; an investigation of the dynamic
change of economic and social variables through time. It studies demography, incomes,
prices, the standards of living, productivity and the changes in technology; but also international
comparisons (esp. relative income per capita) and international transfers (goods, services,
finance, investment, technology and people).
Funding Fathers of Economic History: Adam Smith, David Ricardo; Thomas Malthus; Karl Marx; Alfred Marshall; John Maynard Keynes Adam Smith: the consolidation of the market leads to the triumph of capitalism. Father of economics. “Consumption is the purpose of all production”. The real purpose of every economics activity is consumption. He wrote “The Wealth of Nations”, an investigation on the wealth of nations. He stresses the class nature of British society, the difference between productive and unproductive labour, the invisible hand of the market (he thinks that governments should be kept out of economic matters), the labour theory of value, “Laissez-faire”— Government & monopolies, division of labour and specialization and demand, supply and the size of the market.
He believed that you could split the British society into 3 classes: labourers who get wages, capitalists who receive profits and landowners who receive rents. He believes that social harmony is achieved if we let these classes search for their own private benefits, he believed in growth through accumulation of capitals, through the profits made by capitalists because they reinvest.
Productive and unproductive labourers: productive labour, physical output is emphasized over services; which leads to a concentration in economy upon the industry, which lasted for a long time.
LABOUR THEORY OF VALUE: THE PRICE OF LABOUR DETERMINES THE REST OF THE PRICES The invisible hand: it’s an analogy by a divine hand. You don’t need to have a central agency deciding what to do with economics, you don’t need state intervention, which he reinforces with Laissez-faire.
Division of labour: demonstrated by the pin manufacture; in which the output was bigger if they divided the work of making a pin that if one single person makes the whole pin. If a workers specializes in one task they can archive a bigger output. Specialization increases labour productivity.
Demand supply and the size of the market: the extent of the marked determines the division of labour; as the market grows and people generate more income, there are more opportunities to divide labour; “the division of labour is limited by the extent of the market”; bigger markets allow more specialization.
1 Carmen V. Olivares International Economics and Business History David Ricardo: He is a great formalizes of economics ideas; defender of capitalism. Explicit use of economic models-simplification of economy to distil the essential relationship under investigation. He looks at the abstract analysis of the determinants of distribution.
Thomas Malthus: demographic pessimist with a flair for economic analysis. He corresponds with David Ricardo, and he argues that humans are determined to procreate and they don’t see the advantages of reinvesting, they would expand to the limits of their resources.
Karl Marx: historical sequence in which economics conditions are determined by class relationships; an struggle between the different classes; those who own the means of production and those who provide labour. They believed that the labourists would realize that they had the actual power and would upraise.
Alfred Marshall: Founding father of modern economics. Mary Marshall, his wife, must be credited for a lot of work, because she helped him a lot. Marshall wanted to see capitalism as a balanced system; he rejects the idea of class conflict, and identifies individualism. He converts economics into a science that can use mathematics.
John Maynard Keynes: is Marshall’s best student, play an important role in both first and second world war. He becomes critical of Marshals idea of that the economy is self equilibrating, and tarts thinking both the state getting involved in economics to help with unemployment, etc. He argues that in a recession government should increase expending and fomenter economic activity because income is formed by Consumption, Investment and Government Spending, and the later is the only thing you can influence. He is considered and inflationist economist.
**** Mirar de vez en cuando: Economic History Society / Economic History Association; European Journal of Economic History….. Si te sobra el tiempo, leer: If You’re So Smart: The narrative of Economic Expertise; Econometric History both y Donald McCloskey NEW ECONOMICS HISTORY 3 features: Theory: there is more explicit use of economics theory, drawn from any of the above, ep.
Marshall. We are coming to a historical applied economics.
Quantitative analysis: use of statistical techniques to estimate the strength of an economic relationship; esp. regression models.
Historical data: hard work in the archives; cliometricians have contributed much more than their share of recently discovered historical data which was previously neglected.
What can you expect them to do? They’ll construct supply and demand models by looking at goods, capital and labour.
What are we looking at when we look at national income? Measured inputs: capital K, labour L, Land T and residual A (the change that doesn’t come from the other inputs, but it’s NOT equivalent to productivity) . What "forms" the residual: errors and omissions (maybe we are now better at measuring, maybe it was measured wrong, etc.), relative movements (e.g. war), economies of scale (there might not be a real productivity growth, but just an economy of scale).
Where does the productivity increase comes from? A part is managerial (reorganization of equipment, e.g. change from 12h shift to 8h shift caused an increase in productivity, without anything else changeing) and a part is technological (technical innovations).
Economic growth & Structural change: Major Sectors: Primary: farming; fishing; forestry 2 Carmen V. Olivares International Economics and Business History Secondary: Manufacturing; Transport, Industry and construction Tertiary - Services: finance, etc.