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ECO428H1 Lecture Notes - Lecture 3: Bullionism, Mercantilism, Industrial Revolution

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28 Sep 2019

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Principles of Economics

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ISBN: 9781947172364

Principles of Macroeconomics

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Principles of Microeconomics

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Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : EO428H1 Chapter : E ○ Before, would be difficult to stop hired person from taking the whole harvest • Since there was plenty of land available in early times, people would not have had reason to cultivate other people's fields ○ Gradually, best lands all become occupied § Latecomers get less fertile lands rejected by others § Those without land had to become stipendiary class 12 • Since land returns surplus, proprietors able to hire laborers ○ Separates ownership from cultivation • Inequality comes from: ○ Original proprietors occupied as much land as they could cultivate § Those that were more industrious/bigger family were able to have more land ○ Those who originally occupied more fertile land would be richer ○ Land is passed from father to son, subdivided or recombined as new branches of family form and others die out ○ Most powerful reason is differing levels of economy of people § Those who save more will end up being more prosperous 14 • Produce of land divided into two parts ○ Subsistence and profits of husbandman § Are the reward for his labor ○ Proprietor receives the revenue § What land gives as pure gift of cultivation § Proprietor can thus live without labor 15 • Because proprietors do not need to work for subsistence, are free for general needs of society ○ War, justice ○ Either through personal service or by paying part of their revenue to state so that state can pay people for these functions ○ Thus, this is the disposable class • Non-disposable classes (cultivators and artisans) both possess no revenue, live purely off wages that are paid from produce of land ○ Get nothing but price of labor and their advances § Similar for both classes; proprietor bargains to try to get lowest price possible 16 • Cultivator produces his own wages and the revenue which ultimately pays wages of the stipendiary class • Artisans simply receive wages, do not produce revenue • Proprietor has nothing except through labor of cultivator ○ Depends on cultivator for food and for the wages he pays to the stipendiaries ○ Needs cultivators because land produces nothing without labor • Cultivator only needs proprietor because laws granted the first cultivators ownership of the land ○ However proprietor only has right to surplus of land above the recompense due to the cultivators • Cultivator is first mover of the whole machine of society ○ Wealth and wages of all other classes depend on him 18 • Proprietors can get land cultivated by: ○ Paying men to till the field and reserving whole of produce for themselves § Assumes proprietor makes advance for both seed and wages at beginning of year □ This requires work on part of proprietor, who must monitor workers □ Also expensive unless high unemployment leads to very low wages ○ Forcing others to work (slavery) § Slaves still need to be fed which means they are still being compensated § However conditions of slavery means many slaves die so need a large continuous supply □ This only happens if world divided into many small nations that are constantly at war with each other so there are always war prisoners to use as slaves □ As generations pass, slaves consider the land their home and masters begin to act with more humanity towards them 21 ○ Instead of slavery, can rent out land to tenants, retaining only rights to receive rent and other dues 22 § Tenant/vassal system means land is free to change proprietors, to be divided and re-united § Vassal may ultimately have more land than he can cultivate himself □ Product of land may be large enough above subsistence of cultivators that vassal can also have his land cultivated by others § This method basically turns original proprietor into a creditor of the new proprietor § Letting men cultivate land in exchange for some of the fruits induces them to work harder than if they worked for a fixed wage 23 ○ Give cultivator a fixed portion of produce (métayer): § Proprietor and peasant each have half of the land □ Proprietor makes all of the necessary advances required to cultivate and sustain peasant's family until harvest § Common in poorer countries ○ Proprietor can also let out land for fixed period of time in exchange for fixed annual payment § Cultivator retains right to all products of harvest but also has to make advances himself § Proprietor no longer has to worry about furnishing advances or monitoring worker § Most advantageous method (but requires country to already be rich): ECO428H1 Chapter Turgot Reflections on the formation and distribution of riches 3 • If land distributed so that everyone had exactly what was needed to survive and nothing more, nobody would want to work for others ○ Would also have nothing to pay for labor of others § Everything one produced would be consumed 4 • However, there is diversity of soil and multitude of wants • Not sustainable, because if only focusing on producing food to survive, cannot product other goods like shelter, clothing by self ○ Every piece of land would thus produce nothing because impossible for one person to produce everything they need ○ If land you own can only grow grain, cannot grow cotton for clothing; if your land can only grow cotton, no grain • Everyone will produce only what their land is best for and trade with neighbors to procure everything else 5 • We must do something to products of land so they are useful ○ Grain must be turned to bread, cotton must be spun into cloth ○ One man cannot efficiently produce the raw material and also transform it in intermediate stages § Need experience, skill that average laborer would not have § Would also lose out on economies of scale 6 • Thus we must also have a means to exchange crop for labor between cultivators and others in society • By devoting self to a specific type of work, everyone profits 7 • Husbandman (cultivator) has greatest independence because he furnishes everyone else with food and raw materials ○ Husbandman could theoretically live without labor of others, but other laborers cannot live without labor of husbandman ○ Only what husbandman is able to produce beyond his own needs are wages for rest of society drawn from § Other people, when buying from husbandman, only return to him what they have received from him 8 • Workman's wages are only subsistence ○ Wages limited by competition with other workers ○ Wages are decided jointly by worker and those who buy his labor § Buyer tries to pay as little as possible, if a large supply of workmen, workmen must accept lower wage □ Wages will be pushed down to subsistence as long as there is sufficient competition 9 • Husbandman is sole source of wealth because only one who produces above his wages ○ Wages come directly from land, independent of other men or agreements § Wages are result of fertility of soil • Husbandman can use excess wage that comes from soil to buy labor of other people in society • Husbandman gets wage beyond subsistence which he did not have to work for but which he can sell ○ Is only one who can do this (produce a surplus) 10 • Society is divided into two classes ○ Productive class ○ Stipendiary class § Sells labor to productive class, receiving subsistence in exchange • Proprietor and husbandman were not initially separate classes ○ Private land ownership is a result of the first people who started to cultivate fields 11 • Establishment of law is only thing that allows people to hire other people to cultivate your fields ○ Before, would be difficult to stop hired person from taking the whole harvest • Since there was plenty of land available in early times, people would not have had reason to cultivate other people's fields ○ Gradually, best lands all become occupied § Latecomers get less fertile lands rejected by others § Those without land had to become stipendiary class 12 • Since land returns surplus, proprietors able to hire laborers ○ Separates ownership from cultivation • Inequality comes from: ○ Original proprietors occupied as much land as they could cultivate § Those that were more industrious/bigger family were able to have more land ○ Those who originally occupied more fertile land would be richer ○ Land is passed from father to son, subdivided or recombined as new branches of family form and others die out ○ Most powerful reason is differing levels of economy of people § Those who save more will end up being more prosperous 14 • Produce of land divided into two parts ○ Subsistence and profits of husbandman § Are the reward for his labor ○ Proprietor receives the revenue § What land gives as pure gift of cultivation § Proprietor can thus live without labor 15 • Because proprietors do not need to work for subsistence, are free for general needs of society ○ War, justice ○ Either through personal service or by paying part of their revenue to state so that state can pay people for these functions ○ Thus, this is the disposable class • Non-disposable classes (cultivators and artisans) both possess no revenue, live purely off wages that are paid from produce of land ○ Get nothing but price of labor and their advances § Similar for both classes; proprietor bargains to try to get lowest price possible 16 • Cultivator produces his own wages and the revenue which ultimately pays wages of the stipendiary class • Artisans simply receive wages, do not produce revenue • Proprietor has nothing except through labor of cultivator ○ Depends on cultivator for food and for the wages he pays to the stipendiaries ○ Needs cultivators because land produces nothing without labor • Cultivator only needs proprietor because laws granted the first cultivators ownership of the land ○ However proprietor only has right to surplus of land above the recompense due to the cultivators • Cultivator is first mover of the whole machine of society ○ Wealth and wages of all other classes depend on him 18 • Proprietors can get land cultivated by: ○ Paying men to till the field and reserving whole of produce for themselves § Assumes proprietor makes advance for both seed and wages at beginning of year □ This requires work on part of proprietor, who must monitor workers □ Also expensive unless high unemployment leads to very low wages ○ Forcing others to work (slavery) § Slaves still need to be fed which means they are still being compensated § However conditions of slavery means many slaves die so need a large continuous supply □ This only happens if world divided into many small nations that are constantly at war with each other so there are always war prisoners to use as slaves □ As generations pass, slaves consider the land their home and masters begin to act with more humanity towards them 21 ○ Instead of slavery, can rent out land to tenants, retaining only rights to receive rent and other dues 22 § Tenant/vassal system means land is free to change proprietors, to be divided and re-united § Vassal may ultimately have more land than he can cultivate himself □ Product of land may be large enough above subsistence of cultivators that vassal can also have his land cultivated by others § This method basically turns original proprietor into a creditor of the new proprietor § Letting men cultivate land in exchange for some of the fruits induces them to work harder than if they woron of produce (métayer): s or monitoring

ECO428H1 Lecture Notes - Lecture 5: Productive And Unproductive Labour, Divisor, Absolute Advantage