Today in class professor Rizzo said that today's class is the first day that we start talking about what economics really is. Rizzo talked about technology and how important it is in our lives today. Each worker becomes more productive because of technology. This increases the number of sales from producers which ends up increasing wages as well. The chain of events that occur with technology are that 1. workers become more productive, 2. Wages rise because there are more sales. This motivates people who don't work to get into the production industry since wages are rising in that industry. This causes more products to be produced which in the end improves technology. Since wages rice, there is also a rise in living standards.
Rizzo next talked about the reasons that we were able to begin the Industrial Revolution. Some of these reasons are
1. The revolution occurred from a bunch of spontaneous changes over time rather than one particular event.
2. More people were encouraged to trade with and travel to other countries for goods.
3. There was a slow decay of religious mysticism. Religions began to preach of the importance of making the most of our lives while living rather than worrying about the afterlife.
4. scientific progresses as well as market systems becoming possible from material changes.
5. People stole ideas from each other and made new creations. This was one of the biggest factors leading to the IR.
6. Our defense system improved. this is important so that people could defend themselves and their inventions from outsiders.
7. Creativity increased leading to better ideas.
8. Adam Smith argues that institutions are the most important determinant of a person's wealth. This helps us get better social lives. Smith said that by respecting the rule of law, one would become a part of an institution.
9. England's government had more freedom than other coutries. This allowed for more innovation and creativity to be aloud. The IR started in England.
10. People attitudes changed on the Bourgeoise (middle class).
Next Rizzo talked about Mercantilism- a system that was present in the western world before the IR.
This existed until the mid 18th century. During then the kings oversaw and planned all economic activity. Mercantilism was known as a progressive corporation. Major aspects of Mercantilism were heavy restrains on citizens by the king, protectionism, existence of craft guilds, licenses, import/export regulation, the government granting monopolies like British East India Company, restriction on free movement of people, free movement was prohibited, there were limits on domestic production by kings, and wages were controlled (maximum wage limit, and people were arrested for paying people to much). The king could do this because resources and people were deemed to be property of the kings. The king owned 100% of the land and people. The king made decisions based solely on how he would benefit from it.
A reason why mercantilism declined was due to the French Physiocrats. These people thought you could define how people interacted with one another. Quesnay was the first guy ever to write the Circular Flows of Economic Activity. This consisted of two groups. Individualism and firms. There is always a constant flow of stuff between these groups because people rent their labor to firms. The firm then pay these people in money. These people then use their money to pay for goods that are made by the firms. The flow of money is circular- It goes from the individuals to the firms and then from the firms to the individuals and all over again. This constantly revolves. To sum this up, all income is used to buy things and all of this money becomes peoples income when they work. Income=Expenditures.
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