RSM100EnviroPart1B - Macroeconomic Environment of Commerce...

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Macroeconomic Environment RSM 100 Macroeconomic Environment of Commerce The Economic Environment of Commerce: Part 1: Lessons from the Past: 1.A The Origins of Money 1.B The Evolution of Capitalism 1.C The World Economy since WW2
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Macroeconomic Environment RSM 100 1.B The Evolution of Capitalism : „Capital‟ two meanings: . „Financial‟ capital; savings that can be deployed and concentrated . „Physical‟ capital: factories, equipment, transportation facilities
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Macroeconomic Environment RSM 100 • By 1750: . Financial capital system in place, but . Physical capital mostly in small, „craft‟ holdings: “cottage industry” . The major scarce input to production (or „factor of production‟) was land . Landowners – the aristocracy – were the chief powers
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Macroeconomic Environment RSM 100 The Industrial Revolution . James Watt – steam engine . Combination of fossil-fuel energy and mechanical/chemical science leads to huge increase in production . Physical capital now becomes key to production, and financial capital supports it
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Macroeconomic Environment RSM 100 ‘Pure’ Capitalism . How is capital (physical and financial) to be owned and organized?? . „Pure‟ Capitalism says: As private property, without government interference
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Macroeconomic Environment RSM 100 Economist No. 1: Adam Smith . Wealth of Nations – 1776 . Three Important Insights: 1) The power of „division of labour‟ - a key to early industrialization and mass production
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Macroeconomic Environment RSM 100 Economist No. 1: Adam Smith
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Macroeconomic Environment RSM 100 Adam Smith 2) Pure competition and private ownership give the best possible outcome of production and consumption: . Each producer is guided “as if by an invisible hand” to satisfy society‟s needs . The „Invisible Hand‟ has become a catchword for the power of free markets and private ownership to organize an economy
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Macroeconomic Environment RSM 100 Adam Smith 3) When possible, producers, merchants and traders will tend to collude to restrain pure competition and extract „above-normal‟ profits: „monopoly‟ – only one seller „oligopoly‟ – few sellers In these conditions the outcome is not fully beneficial for society as a whole.
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Macroeconomic Environment RSM 100 Economist No. 2: Karl Marx . Communist Manifesto – 1848 . Das Kapital – 1867 (Vol. 1) . Three Criticisms of Pure Capitalism: 1) Worker „Alienation‟ . Unlike early craftsmen who were „self employed‟ and owned their own tools, factory workers have no attachment to their capital or work; „cogs in the machine‟
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Macroeconomic Environment RSM 100 Economist No. 2: Karl Marx
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Macroeconomic Environment RSM 100 Karl Marx 2) Concentration of Capital Large firms will have greater access to
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This note was uploaded on 03/03/2011 for the course RSM 100 taught by Professor Oesch during the Spring '08 term at University of Toronto- Toronto.

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RSM100EnviroPart1B - Macroeconomic Environment of Commerce...

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