Jan 25 Invisible Hand.pdf - Introduction to Macroeconomics...

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Unformatted text preview: Introduction to Macroeconomics ** We are NOT overriding closed sections ** ECON 104: Intro to Macroeconomics Text: Case·Fair·Oster, Principles of Macroeconomics, 11th or 12th edition, (Pearson) !! Course ID: dolenc99036 First assignments due Feb. 10th 2 Star%ng Assump%on: Humans are social creatures. A study of social creatures •  Ant colonies across space and 2me ... •  Wolf packs across space and 2me … •  Gorilla troops across space and 2me … In each case, their social structures appear to be hard-wired …. Their social rela5onships seem to be part of their biological iden5ty. How are we different? Consider human socie2es … We invent our social structures! Organizing against Calamity •  Custom & Tradi2on •  Command •  Self-Interest & Markets Robert Heilbroner (1919 – 2005)! 4 coreecon | Curriculum in Open Access Resources in Economics From “The Capitalist Revolution” entire period shown in the figure, but living standards began to rise in a sustained way only from the 18th century. 25,000 UK JAPAN 20,000 ITALY 15,000 10,000 CHINA 5,000 2000 1900 1800 1700 1600 1500 1400 1300 1000 0 1200 INDIA 1100 Living standards (GDP per capita) 30,000 Figure 1. $./*-4ȇ.#*& 4./$&ǽ'$1$)"./)-.$)!$1 *0)/-$ .șǔǓǓǓȐǕǓǔǓȚǻ The figure looks like a hockey stick, and our eyes are drawn to the kink. As can be seen from the figure, the kink is less abrupt in Britain, where slow growth began around 1650. In Japan the kink is around 1870, in China around 1980, and in India even more recently. What happened to make the long flat section of the hockey stick suddenly turn upwards? The answer is what we call the capitalist revolution, which combines changes in technology with the emergence of a new economic system. This combination of new ways of producing things with new ways of organising production, and the distribution of its benefits, transformed the way of life of people 10 Adam Smith (1723 – 1790) § Scottish philosopher & political economist § Author of 1776 work The Wealth of Nations § ‘the invisible hand’ 11 The Invisible Hand •  Self-interested behavior …! •  and competitive markets …! •  Result: socially optimal! 12 ...
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