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How the Rest Got Rich (Jan. 30).docx

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Political Science
Joseph Wong

“How the Rest Got Rich” – Political Economy 101  Ecothmics has less to do with people and more to do with systems  17 century Dutch Hegemony o Decline of Spanish dominance – end of 16 century o Next emerging economic power are the Dutch o Dutch had maritime supremacy o Multicultural society o Industrial innovation – result of diverse wealth of knowledge o Modern finance – first modern stock exchange in Amsterdam  One of the first countries to have a central bank  Increase in flow of money as result o Lots of trade – Dutch sold the service of trade o Dutch East India Trading Company – first multinational corporation that sold stock  The flute – critical to maritime innovation o Main ship used in Dutch East India Trading Company o Cheap to produce o Required less manpower o Shallow hull – could reach shallow ports o Large cargo capacity  Market principle o Increase supply – decrease price o Decrease price – increase consumption o Increase consumption – increase trade and market share  Fast forward to Chinese manufacturing o Lowering of wages – lowering of cost of production – increased supply of finished goods – reduced price – increased demand  The price function o Intersection of supply and demand curve o Increase supply – decrease price  Principles of the market economy o 1. Assuming demand is constant, consumption is a function of price – the lower the price the better o 2. Increase in supply decreases price – increase in consumption o 3. Decrease in supply increases price – decrease in consumption  Adam Smith, The Wealth of Nations (1776) o Invisible hand of the market o Advantage – make what you are good at o Specialization – specialize in what you are good at o Productive efficiency – specialization leads to efficiency o Universal division of labor – exports and imports Cosmopolitical vision o “[M]ost of the state regulations for the promotion of public prosperity are unnecessary…” – Adam Smith o No government intervention o Focus on the individual o Universal equilibrium, peace and prosperity  Positive sum game  Can the “market” be manipulated? o Adam Smith says no – the invisible hand of the market – for productive efficiency, should not be manipulated o Friedrich List (German) and Alexander Hamilton (US) say yes – the visible hand of the government – for national power, should and can be manipulated  Economic realists  Friedrich List o England wants free trade because it benefits England o Smith is naïve – world is not positive sum o England would be huge manufacturing city, other European countires would supply trivial specialized products (wine, etc.)  Alexander Hamilton o US cannot exchange with England on equal terms o If US took Adam Smith seriously, it should remain exclusively an agricultural country o Would make for a weak country o America needs industry  Mercantilism
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