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POL101 โ€œHow the Rest Got Richโ€January 31st 2011
Political Economy
๎€Relationship between the state and markets
๎€Thesis for today: getting rich has less to do with people and the protestant ethic and
more to do with economic systems and how these systems are structured by public
policy
๎€Hong Kongโ€™s economic pillars: Tourism, Business Services (finance, banking,
investment houses, stock market, legal services), Logistics (Shipping, allowing for
high amounts of goods to flow through China)
17 th
Century Dutch Hegemony
๎€Decline of Spanish Dominance end of 16th century
๎€Dutch economy was the biggest in the globe in this time
๎€As Spanish empire declines in 16th, rise of the Dutch economy in the 17th
century
๎€Multicultural
๎€Amsterdam was the most multicultural city in the world
๎€What these different people brought with them was knowledge, skills
๎€Industrial innovation
๎€This was before the era of steel
๎€Windmills and wind turbine power was effectively proliferated and used for
mechanized industrial innovation
๎€Sawmill, allowing wood to be cut faster and more precisely
๎€Modern finance
๎€Amsterdam was where the first stock exchange took place
๎€The first place of the central bank
๎€First economy that could raise capital from public
๎€This capital allowed it to build huge companies
๎€Trade
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POL101 โ€œHow the Rest Got Richโ€January 31st 2011
Political Economy
๎€Dutch economy was based on trade
๎€Flute ship: cheaply made (because of wind power and sawmills, it was a lot
easier and cheaper to make these ships), required less man power, the hull of
this ship was very shallow (allowed them to visit at any port, not just deeper
water ports), because itโ€™s a shallow hull it had a greater holding capacity
Market Principle
๎€If you can decrease the cost by which you provide a service or a good, you increase
the supply
๎€By decreasing the cost of production and increasing the supply, you are decreasing
the price
๎€If you decrease the price you will increase consumption
๎€If you increase consumption, you increase trade and market share
๎€The reason why China is getting rich and becoming the largest export economy in
the world is because they have figured out that if you lower the cost of
manufacturing (labour) you then increase your supply
๎€By increasing the supply, China and Chinese firms are able to decrease the price,
and by decreasing the price they are able to supply to larger companies (like
Walmart)
๎€It is the market principle at work
Principles of the Market Economy
1.Assuming demand is constant, consumption is a function of price โ€“ the lower the
price the better (Buffalo)
2.An increase in supply decreases price ๎€‚ Increase in consumption (Walmart)
3.A decrease in supply increases price ๎€‚ decrease in consumption (energy)
๎€Oil exampleโ€ฆ the price of oil depends on the supply of oil
Adam Smith, The Wealth of Nations (1776)
๎€Argues that the invisible hand of the market is what is most crucial
๎€Markets work by the intersection of supply and demand, more importantly the
unfettered intersection of supply and demand
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POL101 โ€œHow the Rest Got Richโ€January 31st 2011
Political Economy
๎€He believes that the flow of the market is natural, and the way things should be
๎€Consequences:
1.As a country, you take advantage of your advantage (for instance, if your country
is better at making wine than textiles, you should make wine, thereโ€™s no point in
making textiles) So, the invisible hand of the market means countries should
focus on what theyโ€™re good at. This leads to specialization.
2.Productive efficiency. There is no sense in messing around with the market. As
a global system, things will be efficient as long as people focus on what theyโ€™re
good at. This will thus lead to a universal division of labour โ€“ exports and
imports
๎€This means everyone wins, you make what youโ€™re good at and you sell what youโ€™re
good at
On the Universal Economic Benefits of Free Trade
๎€David Ricardo, 1817, โ€œUnder a system of perfectly free commerce, every country
naturally devotes its capital and labour to such employments as are most beneficial
to each. This pursuit of individual advantage is admirably connected with the
universal good of the whole.โ€
๎€Capitalism is a system in which everyone gains, only people who are irrational lose
Cosmo political Vision
๎€โ€œMost of the state 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 [England] needs nothing but bearable
taxation, fair administration of justice and peace.โ€ Adam Smith
๎€Believes that governments are not necessarily a good thing, they distort the invisible
hand of the market
๎€For Adam Smith, government intervention is bad and distorts the natural market
๎€For people like Smith, it doesnโ€™t matter what nation-state youโ€™re part of, itโ€™s the
individual that matters
๎€The individual has to take advantage of his/her advantages
๎€With little government intervention and a focus on the individual, for people like
Smith, this leads to universal equilibrium of peace and prosperity
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Document Summary

Thesis for today: getting rich has less to do with people and the protestant ethic and more to do with economic systems and how these systems are structured by public policy. hong kong"s economic pillars: tourism, business services (finance, banking, investment houses, stock market, legal services), logistics (shipping, allowing for high amounts of goods to flow through china) decline of spanish dominance end of 16th century. dutch economy was the biggest in the globe in this time. as spanish empire declines in 16th, rise of the dutch economy in the 17th century. amsterdam was the most multicultural city in the world. what these different people brought with them was knowledge, skills. this was before the era of steel. windmills and wind turbine power was effectively proliferated and used for mechanized industrial innovation. sawmill, allowing wood to be cut faster and more precisely.

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