Political Economy 101 Good for exam and essay
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January 31, 2011
“How the rest got rich” Political Economy 101
“…capitalism and bureaucracy have found each other and belong intimately together.” Max
- Getting rich has less to do with people, more with economic systems.
17th Century Dutch Hegemony
- Decline of Spanish dominance end of 16th century
o Rise of the dutch in 17th century
o Amsterdam was home to many different cultures
- Industrial innovation
o Before the era of steel.
Energy was used to begin mechanized industrialization
- Modern finance
o First stock exchange
o First central bank that was willing to invest in industry.
o It was the first nation that could raise capital from public sources.
o True multinational trading economy.
- Increase supply -> decrease price.
- Increase consumption
- Increase trade and market share.
Principles of the Market Economy
- Assuming demand is constant, consumption is a function of price – the lower the price
the better (Buffalo)
- An increase in supply decreases price -> increase in consumption (Walmart)
- A decrease in supply increases price -> decrease in consumption (energy, gas, etc…)
Adam Smith, The Wealth of Nations (1776)
- Invisible hand of the market is the most crucial.
- Absolute (and comparative) advantage
- Productive efficiency
- Universal division of labour – exports and imports.
o If you are good at making wine but not good at making textiles, then make wine.
- Most 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
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