Poly econ final

Decentralization of decision making

When you finance another's business in exchange for that person's ownership in the business

GM stock bought --> bankrupt -->didn't have to pay for its problem, even if you bought stock

• 900 -1450 AD
• 1. Primarily agricultural: farming manors
• 2. Political/Econ. power are centralized: Lord=leg, exec, jud
• 3. Exchange terms are set by custem and tradition
• 4. Food=#1 priority
• 5. Stagnant system

• 1. Science
• 2. Natural Resources
• 3. Luck-no-systematic
• Colonial exploitation- must be wealthy to be able to colonize others

• 1. Diffusion of power among the lords: Kings only have as much power as the lords give him
• 2. Rejected idea of absolute power in the state: Why Magna Carta was written
• 3. Disruption of labor force: due to plague/famine

• 1. Steam and water power: in factories and transportation
• 2. Iron and steel: more production and to move things more quickly
• Larger and sturdier factories and machines
• Led to expansion of urbanization
• Created workplace for displaced farmers

• They outcompeted the fuedal system b/c it made a mroe efficient way of making and selling goods
• TRADE

• 1. There's an increase in population
• 2. Political vaccuum: merchant class fills this and is in charge
• 3. Not restrained by custom
• 4. Used to individual liberty--> urbanization

• 6% rate of growth=things double in 12 years
• 1% rate of growth=72 years
• Even if something is at one percent, that is still have a fast paced compared to the medieval period

• 1. Restrained ability for govt to enfore regulation
• 2. Movement to grant monopoly: East india trading company

• 1. Legal system designed to give predictable results
• 2. Institution of credit and banking
• 3. Institution of insurance-risk sharing
• 4. Predictable system of taxation
• 5. Firms separate from the individual
• 6. System of accounting- Double entry book keeping
• 7. Legal system of property rights
• 8. Rising sense of individual responsibility

• You get gold, but you can't live on gold
• Adam Smith said you become wealthy by becoming productive

• 1. Get accumulation of power within a country
• 2. BUT there will be competition among countries

• Created organizational innovation
• Reduced marginal cost of production by increasing supply, which drives the price down
• (Textiles-first factory-made more existing items- later innovation starts

• Went from artisan-craftsman to employess-owner
• Written about in books
• Adam Smith said if you're just working in a factory, you lack intellectual development

• 1. Agricultural productivity had to increase
• 2. Develop raq materials industry
• 3. Develop transportation network
• 4. Develop whole sale and retail trade (Walmart)
• 5. Further development of insurance and banking

Inventing transportation and technology-->expand markets-->increases incentive to innovate-->inventing transportation and technology

• Nike factories paid $2/day: they think what a good deal! Our opp. cost is different and higher than Africa's
• Otherwise African workers would not have any money

No because the feudal system is based on tradition

They are taking the same steps that we took in the manufacturing society

• he must consider opp. cost of time
• needs a system of property rights
• needs an institutional mechanism for the exchange of goods and services

Because it takes a lot of people to make a pencil...increases trade because there is more specialized labor needed to make things

Innovation

• 1. Property rights
• 2. Belief in the individual's:
• a. importance
• b. unit of account (not a tribe)
• c. Individual can make a difference

To better the individual

• 1. Military technology (crossbow)
• 2. Plagues, droughts: stressed the labor market b/c ppl. were tied to the land
• 3. Trading cities outcompeted the feudal system

• 1450-1750
• Rise of themerchant class: lords lost power
• Technological innovation: primarily focused on trade: the beneficial cycle

• 1750-1880
• use of iron/steel and water/ steam power
• Reduced marginal cost by shifting supply curve to the right- cheaper goods
• Made more existing goods, not innovative yet
• Solution for displaced agricultural workers
• Led to more urbanization

• 1880-1913
• limited liability w/ tradeable stock
• Manufacturing surpasses agricultural
• With bigger firms, the marginal cost will be prolonged until a later point- needs financing-->corporation

• 1913-Present
• Institutional changes: Allows the govt. to get bigger
• 1. income tax: allows govt. to get bigger
• 2. Federal Reserve: decides how much money it is worth
• 3. 17th amendment: direct election of senators
• Changes that changed people's attitude:
• 1. WWI
• 2. WWII
• 3. Great Depression
• 4. 9/11
• 5. The Great Recession

• 1. Consumption: lower taxes increase income
• 2. Investment demand: Fed. res. buying bonds
• 3. Govt. spending