Oct 2, 2006

OUTLINE

American Heritage 100

Economics and the Founding I

I. Mercantilism (English System, 1500-1800)
  A. Government should regulate the economy to increase the 
     revenue of the crown
    1. Colonies exist for the benefit of the mother country
  B. Method: Navigation Acts
    1. Trade must be carried in English ships
    2. Enumerated goods
  C. Wealth = the amount of gold or silver in a nation's 
     treasury
II. Market system (capitalism) (Adam Smith, Wealth of 
    Nations, 1776)
  A. Govt. should keep hands off (laissez-faire)
  B. Interest vs. Benevolence
  C. Wealth - the yearly production and consumption of a 
     country (per capita income)
III. How an economy operates:
  A. Exchange
    1. Simple exchange (barter)
    2. Money
      a. Negates need for "coincidence of wants"
    3. Specialization
      a. Allows expansion of market
  B. Competition
    1. Interest of buyer and seller conflict; competition 
       curbs interest
    2. Supply and Demand
    3. Equilibrium price
    4. Profit and loss as economic signals

LECTURE NOTES

Day 1

MEDIA CLIP: Teacher standing in front of blackboard, students staring blankly...

Mercantilism: english system 1500-1800
-Theory- government control the economy for its own good
-Method- Navigation Acts
-Definition of Wealth- the amount of gold or silver in the country's treasury

Navigation Acts:
-Trade must be carried of english ships
-enumerated goods were required to ship to England and pay duties before going to another port.
-Included:
--Tobacco
--Sugar
--Dye stuffs (ie, indigo)

1678- '?' said that they were not bound by the navigation acts because they did not consent to them.

Capitalism vs Mercantilism
Adam Smith -- George III

Adam smith proposed an alternative to mercantilism


Market System - government should keep its hands out of the economy- don't interfere
-allow consumers to excercise their self-interest
-profits and losses regulate the market- the invisible hand
-New definition of wealth- the annual amount of production and consumption (income per capita)

Adam Smith put economic sovereignty in the hands of consumers like John Locke put political sovereignty in the hands of the people

Market economy operates:
-exchange
-competition

simple exchange, 2 parties have things that the other wants so they swap (barter)

barter doesn't always work because you don't always have a coincidence of wants

Money negates the need for a coincidence of wants
items used for money: seashells,tea,cocoa beans,cigarettes,salt

self-interest is the most important factor operating a market economy

Specializiation- division of labor
-allows expansion of the market
-specialize in making pins- an example adam smith used

MEDIA CLIP: Global economy, chinese seamstress factories

Friedman in his book, talks about how it is important to specialize.
However in a global economy, you need to re-specialize to remain competitive.
If you have a US factory to make cheap things, you need to re-specialize and produce more expensive products in a more niche market. (like the art pencils, vs. #2 pencils example she talked about in class)

Competition
- buyer wants the cheapest price, seller wants the most expensive price,
- competition mediates these prices with supply and demand

Supply and demand
-a lot of an item (surplus), prices drop
-a few of an item (scarcity), prices increase

MEDIA CLIP: two grandmas fighting over 1 photo, ad/commercial for a company offering 2 prints

Historical example-
MEDIA CLIP: Sam Brannen a mormon pioneer, came west, part of mormon battalion, got to california, discovered san francisco, his experience in San francisco
-Gold rush made him the richest person in california
-brannen sold shovels to the gold diggers,
-he purchased every pickaxe and metal pan in the area

examples:
crops-
vhs tapes-10 video tapes/$

Gas overpriced in Utah, 35c/40c kept prices prompted up in the USA
investigation started, but the prices dropped, (price-fixing?)
sltrib.com- gas prices high because lots of people drive SUVs

price/gram of meteorites ($500,000/1 gram)
people selling meteorites on ebay, then many people sold meteorites so now the price is $1000/1 gram

Health Care- expensive