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POL101Y1 Lecture Notes - Dutch East India Trading, Comparative Advantage, Economic Nationalism

Political Science
Course Code
Jeffrey Kopstein

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How the Rest Got Rich (4)
“Capitalism and bureaucracy have found each other and belong intimately together.” Weber
17th Century Dutch Hegemony
-Decline of Spanish dominance end of 16th C
1. Multicultural – people from across the continents were trading goods and knowledge
2. Innovation – development of wind turbines saw mills
3. Modern Finance – stock firms; companies were able to raise capital by raising stock
4. Trade – Dutch East India Company dominated geographically, and issued stock to raise more capital
(ships) leveraged modern finance to create maritime insurance for ships travelling with goods
-The Flute (Dutch ship)
oCheap to produce b/c of industrial production
oFewer sailors req’d cheaper to operate
oShallow hull could travel to shallow water ports; could trade in-land and expand their trade
within the continent, rather than solely around the continent
oLarger cargo capacity
Able to reduce cost/unit East India Company was able to out-compete the British
Market Principle
-Increase supply decrease price b/c cost/unit drops
-Increase consumption achieve economies of scale by reducing prices
-Increase trade and market share
-Fast-forward to Chinese manufacturing….
o40 million migrant workers
oWages of 50 cents/hr
o80% of Wal-Mart’s global suppliers are located in China
oDemonstrates the reduction of per unit cost by reducing wages and leveraging labour
Principles of the Market Economy
1. Assuming demand is constant, consumption is a function of price – the lower the price, the better
2. An increase in supply decreases price increase in consumption
3. A decrease in supply increases price decrease in consumption
Adam Smith
-Invisible hand of the market
1. Make things that you have a comparative advantage at
2. Specialization
3. Productive efficiency – if everyone just did what they were good at, there would be no waste
4. Universal division of labour facilitated by free-trade
On the Universal Economic Benefits of Free-Trade
“Under a system of perfectly free commerce, each country naturally devotes its capital and the labour to such
employment as are most beneficial to each. The pursuit of individual advantage is admirably connected with the
universal good of the whole.” David Ricardo
Cosmopolitical Vision
“Most of the estate regulations for the promotion of public prosperity are unnecessary, and a nation in order to
be transformed from the lowest state of barbarism (the rest) into a state of the highest possible prosperity
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