HONORS ECONOMICS PREINDUSTRIAL ECONOMIES & THE MONEY ILLUSION

HONORS ECONOMICSPREINDUSTRIAL ECONOMIES &

THE MONEY ILLUSION

THE GREAT DIVERGENCE

IRON / STEEL

TRIGONOMETRY / PAPER

PRINTING PRESS / MECHANICAL CLOCK

GUNPOWDER / EYEGLASSES

CALCULUS

THE WEST & THE REST

25¢

23¢

17¢

34¢

14¢

20¢

3¢

23¢

2¢

MING DYNASTY RENAISSANCE / COLUMBUS MUGHAL EMPIREOPIUM WAR INDUSTRIAL REVOLUTION INDIA BRITISH COLONY

CHINESE REVOLUTION WWI, WWII, DEPRESSION GANDHI /INDEPENDENCE

THE ECONOMY HAS LEFT THE BUILDING

PRODUCTION POSSIBILITY FRONTIERasdfasdf

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WA S T E D P OT E N T I A L

♀

INDUSTRIOUS vs. INDUSTRIAL REVOLUTION

TWO WAYS TO INCREASE PRODUCTION:1) WORK HARDER (INTENSIVE GROWTH)2) WORK SMARTER (EXTENSIVE GROWTH)

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THE REST: (CHINA, INDIA, etc.) NO FRONTIER NO MORE LAND TO USE FARM LAND MORE INTENSELY (RICE CULTIVATION)GROWING POPULATION INCREASED LABOR INPUTSNO CHEAP ENERGY – NO MORE FORESTS

THE WEST: (ENGLAND, FRANCE, etc.)DISCOVERY OF AMERICA PLANTATIONAGRICULTUREBUBONIC PLAGUE INCREASES LAND-LABOR RATIO CAPITAL INPUTS / INNOVATIONCHEAP NEW ENERGY SOUCES (COAL) NEAR WATERWAYS

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AGRICULTURAL DIVISION OF LABOR

CLERGYNOBILITY

LONG DISTANCE MERCHANTS

P E A N TAS S MONEY EXCHANGES

BARTER EXCHANGES

BARTER EXCHANGESLEANNE

WANTS COWS, SELLS CHICKENS

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1 CHICKEN = 4 GRAIN1 COW = 7 GRAIN

EXCHANGES WITH MONEYLEOMI

WANTS COWS, SELLS CHICKENS

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NW

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1 CHICKEN = 4 GRAIN1 COW = 7 GRAIN

1 GRAIN = $1

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THE KULA RING

KULA RING, PART IIPROBLEM:

HOW TO TRADE DIVERSE PRODUCTS AMONG ANONYMOUS INDIVIDUALS?

– How much should you produce?– How much should you charge?– How much should you pay your employees?– How much should you pay for raw materials?– How do you communicate this information to others?– What job should you choose? What training?

ANSWER: MONEY. (GIFT-EXCHANGE) NECKLACES (Counter-clockwise) BRACELETS (Clockwise)

NO PROFIT. GIFT = TOTAL VALUE OF GOODS

MONEY CHANGES EVERYTHINGMEDIUM OF EXCHANGE:

MONEY = LOWEST COMMON DENOMINATOR ALLOWS EFFICIENT TRANSACTIONS AMONG

ANONYMOUS INDIVIDUALS WITH DIVERSE PRODUCTSSTORE OF VALUE:

MONEY = PRESERVES VALUE OVER TIMEBORROW FROM THE FUTURE INCOMEWORK NOW, SPEND LATER INTERTEMPORAL SUPPLY & DEMAND IMBALANCES

UNIT OF ACCOUNT: MONEY = SCORECARD / PRICING THE PRICELESS

SAY’S LAWSUPPLY WILL CREATE ITS OWN DEMAND

HUMAN ACTIVITY IS EITHER WORK or LEISURE

LEISURE = PRODUCTION FOR PERSONAL CONSUMPTION WORK = FOR SALE TO OTHERS

===INCREASING SUPPLY OF GOODS INCREASE THE DEMAND

FOR GOODS===

ZERO-SUM NO FREE LUNCHIF YOU CONSUME MORE, I MUST CONSUME LESS

ARTIFICIALLY STIMULATING DEMAND = BAD IDEA THE MARKET IS ALWAYS RIGHTUNEMPLOYMENT = VACATION

COMMODITIES & ASSETSCOMMODITIES – OBJECTIVE, DEFINED CHARACTERISTICS &

HOMOGENOUS QUALITY – QUANTITY KEY

ASSETS – SUBJECTIVE OR INTANGIBLE DIMENSIONS & HETEROGENOUS QUALITY – QUALITY KEY

MARKETS = GOOD AT COMMODITIES / BAD AT ASSETSPREMODERN ECONOMY= BARTER = COMMODITIES

MODERN ECONOMY = EXCHANGE = ASSETSINT’L MERCHANDISE TRADE IN GOODS & SERVICES: $13 - $16 TRILLIONUS GDP: $14 TRILLIONGLOBAL GDP: $60 TRILLION GLOBAL FINANCIAL ASSETS: $140 TRILLION

• BUSHEL OF APPLES• GALLON OF GASOLINE• OUNCE OF GOLD• SHEET OF PAPER

• HIGH SCHOOL DIPLOMA• MEGAWATT OF ELECTRICITY• HEALTH INSURANCE

• METRIC TON OF CO2 • VOTE FOR PRESIDENT• MILLIGRAM OF PARACETAMOL

• PUBLICLY TRADED STOCKS • REAL ESTATE• SERVICE SECTOR JOBS• HEALTH

• TECHNOLOGY / PATENT • FASHION • CURRENCY • “BRAND NAME” MERCH’

• WORKS OF ART• CLEAN ENVIRONMENT• RELIGIOUS SALVATION• ADVICE

HUMAN BODY (AS AN ASSET) = $47 MILLION

Bone Marrow: $23.0 MillionDNA: $ 9.7 MillionAntibodies: $ 7.3 MillionLung: $ 116,400Kidney: $ 91,400Heart: $ 57,000

HUMAN BODY (AS A COMMODITY) = $4.50

“FICTITIOUS” COMMODITIESMONEY IS STERILE : MONEY IS A VEIL

BUYING / SELLING MONEY = BUYING / SELLING AN INCH– SIN OF USURY: CANNOT LEND MONEY AT INTEREST– CHRISTIANITY, ISLAM, & CONFUCIANISM ALL FORBADE FINANCIAL INSTITUTIONS (TEMPLARS)– JEWS DEMONIZED FOR “MONEY-LENDING” & “MONEY-CHANGING”– WALL STREET vs. MAIN STREET

TRAGEDY OF THE COMMONSLAND = NATURE; NOT PRODUCED FOR MARKET– STRANGE IDEA: MANHATTAN FOR $24– NATIONAL BORDERS INVISIBLE FROM THE “BIRD’S EYE” VIEW– EMINENT DOMAIN: GOD KING LORD VASSAL SERF– PEOPLE BELONG TO THE LAND, LAND BELONGED TO THE PEOPLE– GRAZING & FOREST LAND HELD IN COMMON FOR FOOD & ENERGY– TRAGEDY OF THE COMMONS / ENCLOSURE MOVEMENT

SELLING ONESELF

LABOR = HUMAN ACTIVITY; NOT PRODUCED FOR MARKET– CANNOT SELL YOUR TIME WITHOUT RELIABLE CLOCKS (c. 1700)– PROSTITUTION & ORGAN SALE ILLEGAL– STADTLUFT MACHT FREI – WORKERS BELONGED TO THE LAND & LORD