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SOCB42H3 Study Guide - Glossary Of Patience Terms, Capital Accumulation, Factor Price

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Dan Silver

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Lecture 1) Market Order: Commerce and Exchange
What does it mean to get rich and how?
Answer: division of labour
Biography of Adam Smith: Author of the wealth of nations. Scottish, came from a middle to upper class family. Went to
university at the age of 14 and learned from "Scottish enlightment". He was an professor of philosophy.
Agenda (Purpose of the book):
Title of the book: an inquiry into the nature and causes of the wealth of nations
What is the nature of wealth?
What does it mean to be rich? According to adam smith these are the reasons:
a) Having lots of money or stored treasure ex) who has the most pile of gold
b) Natural resources: soil, climate of a particular nation ex) Having Oil
c) Offers its people the most good things in life (gratification) GNP percapita
Implication of wealth: you get rich if you can organize the activity of your population that allows their ability to
produce goods in an effective way.
Book: understanding social conditions that will enhance or block human productivity.
Nature applies a cause ex) if the nature of wealth is natural resources there must be a theory on how ex) what causes
Mercantilism is the theory for money: exporting is good and importing is bad -> exporting a big pile of corn for
lots of money vs giving money to import corn.
Conquest is a theory that applies to natural resources. Ex) us going into Afghanistan
Improve national productivity for GNP -> two ways of doing this is by:
a) Universal: thinks that certain universal conditions, if they are applied improve productivity.
Answer: 1) DOL to improve workers social conditions for them to produce more (ex tools or
education). 2) Increase the workforce, go from 100 to 200 workers and ship to in some type of
production. - smith thinks the DOL is the most important.
b) Historical: is about the history of specific places and the history of adopting or not adopting
principles. Major types of historical conditions (what principles did the country focus on) 1)
develop agriculture vs. manufacture commerce. It is important to find out what a country does
first. He believes that developing agriculture is important principle 2) theory's that a leader of a
country believe in, if people believe in a bad theory about how to get rich, they will have a harder
time to get rich vs. having a good theory and having an easier time.

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Key word Nations: purpose of political is to enrich the nation.
Political economy: what kind of things should the government do to promote development in a country and
bring wealth?
Answer: how do you get rich?
Causes of Wealth:
1. Division of Labour
What is it? Key thing is people specializing their work.
what are its forms? 1) employment: separate jobs 2) tasks: doing specialized tasks for one
production ex) to make a shirt- one person comes up with a slogan, one makes the shirt, one prints
the slogan. Theory
why increase productivity?
a. Improves people's dexterity - meaning skill. Being the best at printing shirts - they
are better and this means they can produce more. - better kills
b. Time saving: this means they are not going to be wasting time and can produce more
c. Technological innovation: (3 groups)
- workers: who focus on one specific task means they might find the perfect
machinery to perfect whatever task they specialize in ex) the best hammer
- machine makers or engineers: these are the guys who are hired to invent better
-scientist or philosophers: they are able to combine ideas and create new ideas for
people who are to busy. They think for them
What are its consequences?
a) Surplus value: you can produce alot more then what you need yourself. That means
your going to have extra. (having alots of boxes of pins or shirts) now you need to be
able to trade- which is linked to
b) Increase of Commerce: now you can trade with people
c) Increase connectivity: everybody is interconnected - through commerce, we are all
connected with everyone else
what are its causes? Why does the DOL occur in the first place
a) truck, barter and trade: it generates impersonal markets. You give me this and il give
you that. Ex)giving 2$ for a coffee

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- markets + self interest ----> specialization:
- make sure theres a market for the product (shirts) and with me being good at it ---> i
get a group of people who do different tasks to make that shirt
- it coordinates talents and activities - >
Question: what limits the extension of DOL: depending on how big the market is and how many people
buy it. The size of the market limits Ex) 10 people in the universe that he can trade with, 30% of pop like
his shirts (3). Because there are only three people to trade with, he doesn't have enough tools to
continue to make his shirts. (Expanding the size of the market is key)
2. Capital Accumulation: is connected with increasing the number of people that is engaged in productive
Key words:
Stock: all the stuff you have - stock pile
Capital: subset of your stock, the stuff you dont have to consumer but to use to produce more stuff to sell.
Ex) 10 corns (stock), he needs 8 to survive so 2 is capital
Cause: more capital leads to more productive labour - meaning - that greater share of the population is
doing work that is productive vs. unproductive - productive labour is anything that adds value that produces
some sort of tangible outcome that can be traded for other things vs unproductive that does not do this.
Example of productive: traders, manufacturers - true source of the all the good things in life
Example of unproductive: medial servant, church people, philosophers, military, the king or sovereign
Capital generates useful employment: investing capital ex) corn from seed to more corn and corn - the more
capital you investment the more likey people will be doing things than consuming. More replacing capital is
more productive! Ex) 10 years of corn, eat 2 and then grow more. - keep replacing your capital and the
more richer country - take revenue and continue to invest and grow more and more of whatever you need.
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