ユニット 1 資本主義革命

• 1700年代以来、多くの国の経済生活では、平均生活水準の上昇が永続的な特徴となった。
• これは、資本主義という新しい経済システムの台頭のおかげだ。そこでは私有財産、市場、企業が大きな役割を果たす。
• この経済を組織する新しいやり方の下で、技術進歩と生産物や作業の特化が一日の作業で生産できるものの量を増やした。
• このプロセスは資本主義革命と呼ばれる。これは自然環境への脅威を高め、空前の世界的な経済格差ももたらした。
• 経済学は、人々がその生活資材を作り出すにあたり、他の人々や自然環境とどんなふうに相互作用するかを研究する。

　14世紀にモロッコの学者イブン・バトゥータはインドのベンガルについて「広大な国であり、そこでは米がきわめて豊富である。いやまさに、私は世界で食糧供給がこれほど豊富な地域は見たことがない」と描写している。

イブン・バトゥータ (1304–1368) はモロッコの旅行者兼商人だった。かれの旅は30年にわたるもので、北アフリカと西アフリカ、東欧、中東、南アジアと中央アジア、そして中国にまで足を伸ばしている。

　そういうイブン・バトゥータは、世界の相当部分を実際に見ていた。中国、西アフリカ、中東、ヨーロッパに旅をしていたんだから。その3世紀後、17世紀のフランスのダイヤモンド商人ジャン・バプティスト・タヴェニエールもベンガルについての記述の中で、同じ気持ちを述べている:

　一番小さな村ですら、米、小麦粉、バター、牛乳、豆などの野菜、砂糖や、固形や飲料を問わず甘味類が豊富に調達できる。¹

Jean Baptiste Tavernier, Travels in India (1676). 

　イブン・バトゥータが旅した頃のインドは、世界の他の部分よりも豊かというわけではなかった。でもそんなに貧しくもなかった。当時の観察者なら、人々は平均で見れば、日本やインドに比べてイタリア、中国、イングランドでのほうが豊かだとわかったはずだ。でもその旅人は、どこへ言っても金持ちと貧乏人とのすさまじい差に気がついたはずだ。その差のほうが、地域ごとの差よりもずっと激しかった。金持ちと貧乏人はしばしば身分もちがった。場所によっては封建領主と農奴、あるいは王侯貴族とその臣民、奴隷所有者と奴隷、商人とその商品を運ぶ船乗りたちとなる。当時は——今もそうだけれど——人生の先行きは、両親が経済のはしごでどの位置にいたか、そして男か女かで決まった。14世紀と今日とのちがいは、当時は世界のどの地域で生まれるかは、今ほど豊かさに大きくは影響しなかったということだ。

　時は変わって現在。インドの人々は、食糧、医療、住居、生活必需品へのアクセスで見れば、7世紀前よりははるかによい生活を送っている。でも世界の基準から見れば、その大半は貧困だ。

　図 1.1aでその一端がわかる。各国の生活水準を比べるときには、一人あたりGDP という指標を使う。人々は、財やサービスを生産して売ることで所得を得る。GDP (国内総生産) は一定期間 (たとえば一年間) に生産されたあらゆるモノの総価値なので、一人あたりGDPは平均年間所得に対応する。GDP はまた、国内総所得とも呼ばれる。図 1.1aでは、それぞれの折れ線グラフの高さは、横軸の時代における平均所得の推計値だ。

歴史のホッケースティック

5カ国の国内総生産 (GDP) 推移 (1000–2015)

図 1.1a 歴史のホッケースティック: 5カ国の国内総生産 (GDP) 推移 (1000–2015)

Jutta Bolt and Jan Juiten van Zanden. 2013. ‘The First Update of the Maddison Project Re-Estimating Growth Before 1820’. Maddison-Project Working Paper WP-4 (January). Stephen Broadberry. 2013. Accounting for the great divergence. 1 November. Conference Board, The. 2015. Total Economy Database.

　この見方だと、イギリスの人々は平均でインドの人々の六倍よい生活を送っている。日本人はイギリス人と同じくらい豊かで、14世紀も両者は同じくらいだったけれど、いまやアメリカ人は日本人よりもっと豊かで、ノルウェー人はそのさらに上を行く。

　図 1.1a のグラフが描けるのは アンガス・マディソンの研究のおかげだ。マディソンは、人々が過去千年以上にわたりどう暮らしてきたかについて、まともな比較を行うのに必要な乏しいデータを、生涯をかけて探しつづけてきた (かれの研究は マディソン・プロジェクトに引き継がれている)。この講義の中で、世界各地と、そこに住む人々についてのこうしたデータこそが、あらゆる経済学の出発点だということがわかるはずだ。次のビデオでは、経済学者ジェームズ・ヘックマンとトマ・ピケティが、データ収集こそ自分たちの経済格差やそれを削減する政策に関する研究の基盤となったことを説明している。

A thousand years ago the world was flat, economically speaking. There were differences in income between the regions of the world; but as you can see from Figure 1.1a, the differences were small compared to what was to follow.

Nobody thinks the world is flat today, when it comes to income.

Figure 1.2 shows the distribution of income across and within countries. Countries are arranged according to GDP per capita from the poorest on the left of the diagram (Liberia), to the richest on the right (Singapore). The width of each country’s bars represents its population.

For every country there are ten bars, corresponding to the ten deciles of income. The height of each bar is the average income of 10% of the population, ranging from the poorest 10% of people at the front of the diagram to the richest 10% at the back, measured in 2005 US dollars. Note that this doesn’t mean ‘the richest 10% of income earners’. It is the richest 10% of people, where each person in a household, including children, is assumed to have an equal share of the household’s income.

The skyscrapers (the highest columns) at the back of the right-hand side of the figure represent the income of the richest 10% in the richest countries. The tallest skyscraper is the richest 10% of people in Singapore. In 2014, this exclusive group had an income per capita of more than $67,000. Norway, the country with the second highest GDP per capita, does not have a particularly tall skyscraper (it is hidden between the skyscrapers for Singapore and the third richest country, the US) because income is more evenly distributed in Norway than in some other rich countries.

The analysis in Figure 1.2 shows how the distribution of income has changed since 1980.

The richest and poorest

In Singapore, the richest country on the furthest right, the average incomes of the richest and poorest 10% are $67,436 and $3,652 respectively. In Liberia, the furthest left, the corresponding incomes are $994 and $17.

Figure 1.2a In Singapore, the richest country on the furthest right, the average incomes of the richest and poorest 10% are $67,436 and $3,652 respectively. In Liberia, the furthest left, the corresponding incomes are $994 and $17.

GCIP 2015. Global Consumption and Income Project. Bob Sutcliffe designed the representation of global inequality in Figure 1.2. A first version was published in: Robert, B Sutcliffe. 2001. 100 Ways of Seeing an Unequal World. London: Zed Books. See the interactive version of this graph on the Globalinc website.

Skyscrapers

The skyscraper bars in the back right of the figure are the richest 10% in some of the richest countries.

Figure 1.2b The skyscraper bars in the back right of the figure are the richest 10% in some of the richest countries.

GCIP 2015. Global Consumption and Income Project. Bob Sutcliffe designed the representation of global inequality in Figure 1.2. A first version was published in: Robert, B Sutcliffe. 2001. 100 Ways of Seeing an Unequal World. London: Zed Books. See the interactive version of this graph on the Globalinc website.

World income distribution in 1980

In 1980 the ranking of countries by GDP was different. The poorest countries, coloured darkest red, were Lesotho and China. The richest (darkest green) were Switzerland, Finland and then the US. At that time the skyscrapers were not as tall: the differences between the richest 10% and the rest of a country’s population were not as pronounced.

Figure 1.2c In 1980 the ranking of countries by GDP was different. The poorest countries, coloured darkest red, were Lesotho and China. The richest (darkest green) were Switzerland, Finland and then the US. At that time the skyscrapers were not as tall: the differences between the richest 10% and the rest of a country’s population were not as pronounced.

GCIP 2015. Global Consumption and Income Project. Bob Sutcliffe designed the representation of global inequality in Figure 1.2. A first version was published in: Robert, B Sutcliffe. 2001. 100 Ways of Seeing an Unequal World. London: Zed Books. See the interactive version of this graph on the Globalinc website.

World income distribution in 1990

You can see from the colours that some countries changed their ranking between 1980 and 1990. China (dark red) is now richer; Uganda, also red, is in the middle of the distribution amongst countries coloured yellow. Some taller skyscrapers have appeared: inequality increased in many countries during the 1980s.

Figure 1.2d You can see from the colours that some countries changed their ranking between 1980 and 1990. China (dark red) is now richer; Uganda, also red, is in the middle of the distribution amongst countries coloured yellow. Some taller skyscrapers have appeared: inequality increased in many countries during the 1980s.

GCIP 2015. Global Consumption and Income Project. Bob Sutcliffe designed the representation of global inequality in Figure 1.2. A first version was published in: Robert, B Sutcliffe. 2001. 100 Ways of Seeing an Unequal World. London: Zed Books. See the interactive version of this graph on the Globalinc website.

World income distribution in 2014

By 2014, many countries have changed their ranking. China has grown rapidly since 1990. But the countries that were richest in 1980 (darkest green) are still near the top in 2014.

Figure 1.2e By 2014, many countries have changed their ranking. China has grown rapidly since 1990. But the countries that were richest in 1980 (darkest green) are still near the top in 2014.

GCIP 2015. Global Consumption and Income Project. Bob Sutcliffe designed the representation of global inequality in Figure 1.2. A first version was published in: Robert, B Sutcliffe. 2001. 100 Ways of Seeing an Unequal World. London: Zed Books. See the interactive version of this graph on the Globalinc website.

Inequality within countries has risen

Income distributions have become more unequal in many of the richer countries: some very tall skyscrapers have appeared. In the middle-income countries, too, there is a big step up at the back of the figure: the incomes of the richest 10% are now high relative to the rest of the population.

Figure 1.2f Income distributions have become more unequal in many of the richer countries: some very tall skyscrapers have appeared. In the middle-income countries, too, there is a big step up at the back of the figure: the incomes of the richest 10% are now high relative to the rest of the population.

GCIP 2015. Global Consumption and Income Project. Bob Sutcliffe designed the representation of global inequality in Figure 1.2. A first version was published in: Robert, B Sutcliffe. 2001. 100 Ways of Seeing an Unequal World. London: Zed Books. See the interactive version of this graph on the Globalinc website.

Figure 1.2 Countries are ranked by GDP per capita from left to right. For each country the heights of the bars show average income for deciles of the population, from the poorest 10% at the front to the richest 10% at the back. The width of the bar indicates the country’s population. The interactive graphic and data to download are available here.

GCIP 2015. Global Consumption and Income Project. Bob Sutcliffe designed the representation of global inequality in Figure 1.2. A first version was published in: Robert, B Sutcliffe. 2001. 100 Ways of Seeing an Unequal World. London: Zed Books. See the interactive version of this graph on the Globalinc website.

Two things are clear from the 2014 distribution. First, in every country, the rich have much more than the poor. A handy measure of inequality in a country is called the 90/10 ratio, which we define here as the average income of the richest 10% divided by the average income of the poorest 10%. It is more commonly defined as the income of the 90th percentile divided by that of the 10th percentile. Even in a relatively equal country such as Norway, the 90/10 ratio is 5.4; in the US it is 16 and in Botswana in southern Africa it is 145. Inequality within the very poorest countries is difficult to see in the graph, but it is definitely there: the 90/10 ratio is 22 in Nigeria, and 20 in India.

The second thing that jumps out from Figure 1.2 is the huge difference in income between countries. Average income in Norway is 19 times the average income in Nigeria. And the poorest 10% in Norway receive almost twice the income of the richest 10% in Nigeria.

Imagine the traveller Ibn Battuta’s journey across regions of the world in the fourteenth century and think of how this would have looked in a diagram like Figure 1.2. He would of course notice that everywhere he went there were differences between the richest and poorest groups in the popu­lation of each region. He would report back that the differences in income between the countries of the world were relatively minor by comparison.

Countries that took off economically before 1900 (Figure 1.1a) are in the ‘skyscraper’ part of Figure 1.2.

The vast differences in income between the countries of the world today take us back to Figure 1.1a, where we can begin to understand how this came about. The countries that took off economically before 1900—UK, Japan, Italy—are now rich. They (and countries like them) are in the skyscraper part of Figure 1.2. The countries that took off only recently, or not at all, are in the flatlands.

Exercise 1.1 Inequality in the fourteenth century

What do you think a ‘skyscraper’ figure like Figure 1.2 would have looked like at the time of Ibn Battuta (early to mid-fourteenth century)?

Exercise 1.2 Working with income data

You can see the interactive graph and download the spreadsheet data that we used to create Figure 1.2. Choose five countries that you are interested in.

1. For each one calculate the 90/10 ratio in 1980, 1990 and 2014.
2. Describe the differences between countries and the changes over time that you find.
3. Can you think of any explanations for them?

Humans have always relied on their environment for the resources they need to live and produce their livelihoods: the physical environment and the biosphere, which is the collection of all forms of life on earth, provide essentials for life such as air, water and food. The environment also provides the raw materials that we use in the production of other goods—such as wood, metals, and oil.

Figure 1.5 shows one way of thinking about the economy: it is part of a larger social system, which is itself part of the biosphere. People interact with each other, and also with nature, in producing their livelihood.

Figure 1.5 The economy is part of society, which is part of the biosphere.

Through most of their history, humans have regarded natural resources as freely available in unlimited quantities (except for the costs of extracting them). But as production has soared (see Figures 1.1a and 1.1b), so too have the use of our natural resources and degradation of our natural environment. Elements of the ecological system such as air, water, soil, and weather have been altered by humans more radically than ever before.

The most striking effect is climate change. Figures 1.6a and 1.6b present evidence that our use of fossil fuels—coal, oil, and natural gas—have profoundly affected the natural environment. After having remained relatively unchanged for many centuries, increasing emissions of carbon dioxide (CO₂) into the air during the twentieth century have resulted in measurably larger amounts of CO₂ in the earth’s atmosphere (Figure 1.6a) and brought about perceptible increases in the northern hemisphere’s average temperatures (Figure 1.6b). Figure 1.6a also shows that CO₂ emissions from fossil fuel consumption have risen dramatically since 1800.

Exercise 1.5 How much difference does a couple of degrees warmer or colder make?

Between 1300 and 1850 there were a number of exceptionally cold periods as you can see from Figure 1.6b. Research this so-called ‘little ice age’ in Europe and answer the following.

1. Describe the effects of these exceptionally cold periods on the economies of these countries.
2. Within a country or region, some groups of people were exceptionally hard hit by the climate change while others were less affected. Provide examples.
3. How ‘extreme’ were these cold periods compared to the temperature increases since the mid-twentieth century and those projected for the future?

Figure 1.6b shows that the average temperature of the earth fluctuates from decade to decade. Many factors cause these fluctuations, including volcanic events such as the 1815 Mount Tambora eruption in Indonesia. Mount Tambora spewed so much ash that the earth’s temperature was reduced by the cooling effect of these fine particles in the atmosphere, and 1816 became known as the ‘year without a summer’.

Figure 1.6a Carbon dioxide in the atmosphere (1010–2010) and global carbon emissions from burning fossil fuels (1750–2010).

Years 1010–1975: David M. Etheridge, L. Paul Steele, Roger J. Francey, and Ray L. Langenfelds. 2012. ‘Historical Record from the Law Dome DE08, DE08-2, and DSS Ice Cores’. Division of Atmospheric Research, CSIRO, Aspendale, Victoria, Australia. Years 1976–2010: Data from Mauna Loa observatory. T. A. Boden, G. Marland, and Robert J. Andres. 2010. ‘Global, Regional and National Fossil-Fuel CO₂ Emissions’. Carbon Dioxide Information Analysis Center (CDIAC) Datasets.

Since 1900, average temperatures have risen in response to increasingly high levels of greenhouse gas concentrations. These have mostly resulted from the CO₂ emissions associated with the burning of fossil fuels.

Figure 1.6b Northern hemisphere temperatures over the long run (1000–2006).

Michael E. Mann, Zhihua Zhang, Malcolm K. Hughes, Raymond S. Bradley, Sonya K. Miller, Scott Rutherford, and Fenbiao Ni. 2008. ‘Proxy-based reconstructions of hemispheric and global surface temperature variations over the past two millennia’. Proceedings of the National Academy of Sciences 105 (36): pp. 13252–13257.

The human causes and the reality of climate change are no longer widely disputed in the scientific community. The likely consequences of global warming are far-reaching: melting of the polar ice caps, rising sea levels that may put large coastal areas under water, and potential changes in climate and rain patterns that may destroy the world’s food-growing areas. The long-term physical and economic consequences of these changes, and the appropriate policies that governments could adopt as a result, are discussed in detail in Unit 20 (Economics of the environment).

The authoritative source for research and data about climate change is the Intergovernmental Panel on Climate Change.

Climate change is a global change. But many of the environmental impacts of burning fossil fuels are local, as residents of cities suffer respiratory and other illnesses as a result of high levels of harmful emissions from power plants, vehicles, and other sources. Rural communities, too, are impacted by deforestation (another cause of climate change) and the depletion of the supply of clean water and fishing stocks.

From global climate change to local resource exhaustion, these effects are results of both the expansion of the economy (illustrated by the growth in total output) and the way the economy is organized (what kinds of things are valued and conserved, for example). The relationship between the economy and the environment shown in Figure 1.5 is two-way: we use natural resources in production, which may in turn affect the environment we live in and its capacity to support future production.

But the permanent technological revolution—which brought about dependence on fossil fuels—may also be part of the solution to today’s environmental problems.

Look back at Figure 1.3, which showed the productivity of labour in producing light. The vast increases shown over the course of history and especially since the mid-nineteenth century occurred largely because the amount of light produced per unit of heat (for example from a campfire, candle, or light bulb) increased dramatically.

In lighting, the permanent technological revolution brought us more light for less heat, which conserved natural resources—from firewood to fossil fuels—used in generating the heat. Advances in technology today may allow greater reliance on wind, solar and other renewable sources of energy.

Looking back over the data in Figures 1.1a, 1.1b, 1.3, 1.4 and 1.6 we see an upward turn, like the kink in our hockey stick, repeated for:

• gross domestic product per capita
• productivity of labour (light per hour of work)
• connectivity of the various parts of the world (the speed at which news travels)
• impact of the economy on the global environment (carbon emissions and climate change)

How can we explain the change from a world in which living conditions changed little unless there was an epidemic or a war, to one in which each generation is noticeably, and predictably, better off than the previous one?

An important part of our answer will be what we call the capitalist revolution: the emergence in the eighteenth century and eventual global spread of a way of organizing the economy that we now call capitalism. The term ‘capitalism’—which we will define shortly—was barely heard of a century ago, but as you can see from Figure 1.7, its use has skyrocketed since then. The figure shows the fraction of all articles in the New York Times (excluding the sports section) that include the term ‘capitalism.’

Figure 1.7 Mention of the word ‘capitalism’ in New York Times articles (1851–2015).

Calculations by Simon DeDeo, Santa Fe Institute, from New York Times. 2016. ‘NYT article archive’.

capitalism

An economic system in which private property, markets, and firms play an important role.

economic system

The institutions that organize the production and distribution of goods and services in an entire economy.

institution

The laws and social customs governing the way people interact in society.

Capitalismcapitalism An economic system in which private property, markets, and firms play an important role.close is an economic systemeconomic system The institutions that organize the production and distribution of goods and services in an entire economy.close characterized by a particular combination of institutionsinstitution The laws and social customs governing the way people interact in society.close. An economic system is a way of organizing the production and distribution of goods and services in an entire economy. And by institutions, we mean the different sets of laws and social customs regulating production and distribution in different ways in families, private businesses, and government bodies.

Private property

This means that you can:

• enjoy your possessions in a way that you choose
• exclude others from their use if you wish
• dispose of them by gift or sale to someone else …
• … who becomes their owner

In some economies in the past, the key economic institutions were private property (people owning things), markets (where goods could be bought and sold) and families. Goods were usually produced by families working together, rather than by firms with owners and employees.

In other societies, the government has been the institution controlling production, and deciding how goods should be distributed, and to whom. This is called a centrally planned economic system. It existed, for example, in the Soviet Union, East Germany and many other eastern European countries prior to the end of Communist Party rule in the early 1990s.

Though governments and families are essential parts of the workings of every economy, most economies today are capitalist. Since most of us live in capitalist economies, it is easy to overlook the importance of institutions that are fundamental for capitalism to work well. They are so familiar, we hardly ever notice them. Before seeing how private property, markets and firms combine in the capitalist economic system, we need to define them.

Over the course of human history, the extent of private property has varied. In some societies, such as the hunters and gatherers who are our distant ancestors, almost nothing except personal ornaments and clothing was owned by individuals. In others, crops and animals were private property, but land was not. The right to use the land was granted to families by consensus among members of a group, or by a chief, without allowing the family to sell the plot.

In other economic systems some human beings—slaves—were private property.

capital goods

The equipment, buildings, raw materials, and other inputs used in producing goods and services, including where applicable any patents or other intellectual property that is used.

In a capitalist economy, an important type of private property is the equipment, buildings, raw materials, and other inputs used in producing goods and services. These are called capital goodscapital goods The equipment, buildings, raw materials, and other inputs used in producing goods and services, including where applicable any patents or other intellectual property that is used.close.

Private property may be owned by an individual, a family, a business, or some entity other than the government. Some things that we value are not private property: for example, the air we breathe and most of the knowledge we use cannot be owned or bought and sold.

Markets

Markets are:

• a way of connecting people who may mutually benefit
• by exchanging goods and services
• through a process of buying and selling

Markets are a means of transferring goods or services from one person to another. There are other ways, such as by theft, a gift, or a government order. Markets differ from these in three respects:

They are reciprocated: unlike gifts and theft, one person’s transfer of a good or service to another is directly reciprocated by a transfer in the other direction (either of another good or service as in barter exchange, or money, or a promise of a later transfer when one buys on credit). They are voluntary: Both transfers—by the buyer and the seller—are voluntary because the things being exchanged are private property. So the exchange must be beneficial in the opinion of both parties. In this, markets differ from theft, and also from the transfers of goods and services in a centrally planned economy.

In most markets there is competition. A seller charging a high price, for example, will find that buyers prefer to buy from other competing sellers.

Exercise 1.6 The poorest man’s cottage

‘The poorest man may in his cottage bid defiance to all the forces of the Crown. It may be frail, its roof may shake; the wind may blow through it; the storms may enter, the rain may enter—but the King of England cannot enter; all his forces dare not cross the threshold of the ruined tenement.’ – William Pitt, 1st Earl of Chatham, speech in the British Parliament (1763).

1. What does this tell us about the meaning of private property?
2. Does it apply to people’s homes in your country?

Exercise 1.7 Markets and social networks

Think about a social networking site that you use, for example Facebook. Now look at our definition of a market.

What are the similarities and differences between that social networking site and a market?

Firm

A firm is a way of organizing production with the following characteristics:

• One or more individuals own a set of capital goods that are used in production.
• They pay wages and salaries to employees.
• They direct the employees (through the managers they also employ) in the production of goods and services.
• The goods and services are the property of the owners.
• The owners sell the goods and services on markets with the intention of making a profit.

But private property and markets alone do not define capitalism. In many places they were important institutions long before capitalism. The most recent of the three components making up the capitalist economy is the firm.

The kinds of firms that make up a capitalist economy include restaurants, banks, large farms that pay others to work there, industrial establishments, supermarkets, and internet service providers. Other productive organizations that are not firms and which play a lesser role in a capitalist economy include family businesses, in which most or all of the people working are family members, non-profit organizations, employee-owned cooperatives, and government-owned entities (such as railways and power or water companies). These are not firms, either because they do not make a profit, or because the owners are not private individuals who own the assets of the firm and employ others to work there. Note: a firm pays wages or salaries to employees but, if it takes on unpaid student interns, it is still a firm.

labour market

In this market, employers offer wages to individuals who may agree to work under their direction. Economists say that employers are on the demand side of this market, while employees are on the supply side. See also: labour force.

Firms existed, playing a minor role, in many economies long before they became the predominant organizations for the production of goods and services, as in a capitalist economy. The expanded role of firms created a boom in another kind of market that had played a limited role in earlier economic systems: the labour marketlabour market In this market, employers offer wages to individuals who may agree to work under their direction. Economists say that employers are on the demand side of this market, while employees are on the supply side. See also: labour force.close. Firm owners (or their managers) offer jobs at wages or salaries that are high enough to attract people who are looking for work.

demand side

The side of a market on which those participating are offering money in return for some other good or service (for example, those purchasing bread). See also: supply side.

supply side

The side of a market on which those participating are offering something in return for money (for example, those selling bread). See also: demand side.

In economic language, the employers are the demand sidedemand side The side of a market on which those participating are offering money in return for some other good or service (for example, those purchasing bread). See also: supply side.close of the labour market (they ‘demand’ employees), while the workers are the supply sidesupply side The side of a market on which those participating are offering something in return for money (for example, those selling bread). See also: demand side.close, offering to work under the direction of the owners and managers who hire them.

A striking characteristic of firms, distinguishing them from families and governments, is how quickly they can be born, expand, contract and die. A successful firm can grow from just a few employees to a global company with hundreds of thousands of customers, employing thousands of people, in a few years. Firms can do this because they are able to hire additional employees on the labour market, and attract funds to finance the purchase of the capital goods they need to expand production.

Firms can die in a few years too. This is because a firm that does not make profits will not have enough money (and will not be able to borrow money) to continue employing and producing. The firm shrinks, and some of the people who work there lose their jobs.

Contrast this with a successful family farm. The family will be better off than its neighbours; but unless it turns the family farm into a firm, and employs other people to work on it, expansion will be limited. If, instead, the family is not very good at farming, then it will simply be less well off than its neighbours. The family head cannot dismiss the children as a firm might get rid of unproductive workers. As long as the family can feed itself there is no equivalent mechanism to a firm’s failure that will automatically put it out of business.

Government bodies also tend to be more limited in their capacity to expand if successful, and are usually protected from failure if they perform poorly.

Defining capitalism precisely

In everyday language, the word ‘capitalism’ is used in different ways, in part because people have strong feelings about it. In the language of economics, we use the term in a precise way because that helps us to communicate: we define capitalism as an economic system combining three institutions, each of which we need in turn to define.

‘Capitalism’ refers not to a specific economic system, but to a class of systems sharing these characteristics. How the institutions of capitalism—private property, markets, and firms—combine with each other and with families, governments, and other institutions differs greatly across countries. Just as ice and steam are both ‘water’ (defined chemically as a compound of two hydrogen atoms bonded with one oxygen atom), China and the US are both capitalist economies. But they differ in the extent to which the government influences economic affairs, and in many other ways. As this demonstrates, definitions in the social sciences often cannot be as precise as they are in the natural sciences.

Some people might say that ‘ice is not really water’, and object that the definition is not the ‘true meaning’ of the word. But debates about the ‘true’ meaning (especially when referring to complex abstract ideas like capitalism, or democracy) forget why definitions are valuable. Think of the definition of water, or of capitalism, not as capturing some true meaning—but rather as a device that is valuable because it makes it easier to communicate.

Definitions in the social sciences often cannot be as precise as they are in the natural sciences. Unlike water, we cannot identify a capitalist economic system using easy-to-measure physical characteristics.

Exercise 1.8 Capitalism

Look again at Figure 1.7.

1. Can you suggest an explanation for why the usage of the term capitalism spikes when it does?
2. Why do you think it has remained so high since the late 1980s?

Figure 1.8 shows that the three parts of the definition of a capitalist economic system are nested concepts. The left-hand circle describes an economy of isolated families who own their capital goods and the goods they produce, but have little or no exchange with others.

A capitalist economy adds firms to a market economy built on family-centred enterprises and private property.

Figure 1.8 Capitalism: Private property, markets and firms.

In a capitalist system, production takes place in firms. Markets and private property are essential parts of how firms function for two reasons:

• Inputs and outputs are private property: The firm’s buildings, equipment, patents, and other inputs into production, as well as the resulting outputs, belong to the owners.
• Firms use markets to sell outputs: The owners’ profits depend on markets in which customers may willingly purchase the products at a price that will more than cover production costs.⁸

  Paul Seabright. 2010. The Company of Strangers: A Natural History of Economic Life (Revised Edition). Princeton, NJ: Princeton University Press. 

Historically, economies like the left-hand circle have existed, but have been much less important than a system in which markets and private property are combined (the middle circle). Private property is an essential condition for the operation of markets: buyers will not want to pay for goods unless they can have the right to own them. In the middle circle most production is done either by individuals (shoemakers or blacksmiths, for example) or in families (for example, on a farm). Prior to 1600 a great many of the economies of the world were like this.

ownership

The right to use and exclude others from the use of something, and the right to sell the thing that is owned.

The distinctive hallmark of the capitalist economic system is the private ownershipownership The right to use and exclude others from the use of something, and the right to sell the thing that is owned.close of capital goodscapital goods The equipment, buildings, raw materials, and other inputs used in producing goods and services, including where applicable any patents or other intellectual property that is used.close that are organized for use in firms. Other economic systems are distinctive because of the importance of privately owned land, the presence of slaves, because the government owns capital goods, or because of the limited role of firms. Capitalist economies differ, too, from earlier economies in the magnitude of the capital goods used in production. Massive power looms have replaced spinning wheels; a tractor now pulls a plough to do a job once done by a farmer using a hoe.

Capitalism is an economic system that combines centralization with decentralization. It concentrates power in the hands of owners and managers of firms who are then able to secure the cooperation of large numbers of employees in the production process. But it limits the powers of owners and of other individuals, because they face competition to buy and sell in markets.

So when the owner of a firm interacts with an employee, he or she is ‘the boss’. But when the same owner interacts with a potential customer he or she is simply another person trying to make a sale, in competition with other firms. It is this unusual combination of competition among firms, and concentration of power and cooperation within them, that accounts for capitalism’s success as an economic system.

How could capitalism lead to growth in living standards?

Two major changes accompanied the emergence of capitalism, both of which enhanced the productivity of individual workers:

Technology

As we have seen, the permanent technological revolution coincided with the transition to firms as the predominant means of organizing production. This does not mean that firms necessarily caused technological change. But firms competing with each other in markets had strong incentives to adopt and develop new and more productive technologies, and to invest in capital goods that would have been beyond the reach of small-scale family enterprises.

Specialization

The growth of firms employing large numbers of workers—and the expansion of markets linking the entire world in a process of exchange—allowed historically unprecedented specialization in the tasks and products on which people worked. In the next section, we will see how this specialization can raise labour productivity and living standards.

Exercise 1.9 Firm or not?

Using our definition, explain whether each of the following entities is a firm by investigating if it satisfies the characteristics that define a firm. Research the entity online if you are stuck.

1. John Lewis Partnership (UK)
2. a family farm in Vietnam
3. your current family doctor’s office or practice
4. Walmart (US)
5. an eighteenth-century pirate ship (see our description of The Royal Rover in Unit 5)
6. Google (US)
7. Manchester United plc (UK)
8. Wikipedia

Capitalism and specialization

Look around at the objects in your workspace. Do you know the person who made them? What about your clothing? Or anything else in sight from where you are sitting?

Now imagine that it is 1776, the year that Adam Smith wrote The Wealth of Nations. The same questions, asked anywhere in the world, would have had a different answer.

At that time many families produced a wide array of goods for their own use, including crops, meat, clothing, even tools. Many of the things that you might have spotted in Adam Smith’s day would have been made by a member of the family, or of the village. You would have made some objects yourself; others would have been made locally and purchased from the village market.

economies of scale

These occur when doubling all of the inputs to a production process more than doubles the output. The shape of a firm’s long-run average cost curve depends both on returns to scale in production and the effect of scale on the prices it pays for its inputs. Also known as: increasing returns to scale. See also: diseconomies of scale.

One of the changes that was underway during Adam Smith’s life, but has greatly accelerated since, is specialization in the production of goods and services. As Smith explained, we become better at producing things when we each focus on a limited range of activities. This is true for three reasons:

• Learning by doing: We acquire skills as we produce things.
• Difference in ability: For reasons of skill, or natural surroundings such as the quality of the soil, some people are better at producing some things than others.
• economies of scaleeconomies of scale These occur when doubling all of the inputs to a production process more than doubles the output. The shape of a firm’s long-run average cost curve depends both on returns to scale in production and the effect of scale on the prices it pays for its inputs. Also known as: increasing returns to scale. See also: diseconomies of scale.close: Producing a large number of units of some good is often more cost-effective than producing a smaller number. We investigate this in more detail in Unit 7.

These are the advantages of working on a limited number of tasks or products. People do not typically produce the full range of goods and services that they use or consume in their daily life. Instead we specialize, some producing one good, others producing other goods, some working as welders, others as teachers or farmers.

But people will not specialize unless they have a way to acquire the other goods they need.

For this reason, specialization—called the division of labour—poses a problem for society: how are the goods and services to be distributed from the producer to the final user? In the course of history, this has happened in a number of distinct ways, from direct government requisitioning and distribution as was done in the US and many economies during the Second World War, to gifts and voluntary sharing as we do in families today and as practiced among even unrelated members of a community by our hunting and gathering ancestors. Capitalism enhanced our opportunities for specialization by expanding the economic importance of both markets and firms.

Specialization exists within governments and also in families, where who does which household chore is often associated with age and gender. Here we look at the division of labour in firms and in markets.

The division of labour in firms

Adam Smith begins The Wealth of Nations with the following sentence:

The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.

He went on to describe a pin factory in which the specialization of tasks among the working men allowed a level of productivity—pins produced per day—that seemed to him extraordinary. Firms may employ thousands or even hundreds of thousands of individuals, most of them working at specialized tasks under the direction of the owners or manager of the firm.

This description of the firm stresses its hierarchical nature from top to bottom. But you can also think of the firm as a means by which large numbers of people, each with distinct skills and capacities, contribute to a common outcome, the product. The firm thus facilitates a kind of cooperation among specialized producers that increases productivity.

We return to the question of who does what within the firm and why in Unit 6.

Markets, specialization, and comparative advantage

Chapter 3 in The Wealth of Nations is titled: ‘That the Division of Labour is Limited by the Extent of the Market’, in which Smith explains:

When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for.

When you hear the word ‘market’ what word do you think of? ‘Competition’ probably is what came to mind. And you would be right to associate the two words.

But you might have also come up with ‘cooperation’. Why? Because markets allow each of us pursuing our private objectives to work together, producing and distributing goods and services in a way that, while far from perfect, is in many cases better than the alternatives.

Markets accomplish an extraordinary result: unintended cooperation on a global scale. The people who produced the phone on your desk did not know or care about you; they produced it rather than you because they are better at producing phones than you are, and you ended up with it because you paid them, allowing them to buy goods that they need, also produced by total strangers to them.

A simple example illustrates how, when people differ in their ability to produce different goods, markets allow them to specialize. It shows something surprising: all producers can benefit by specializing and trading goods, even when this means that one producer specializes in a good that another could produce at lower cost.

Imagine a world of just two individuals (Greta and Carlos) who each need both of two goods, apples and wheat, to survive. They differ in how productive they are in growing apples and wheat. If Greta spent all her time, say, 2,000 hours in a year, producing apples, she would produce 1,250. If she only produced wheat, she would produce 50 tonnes per annum. Carlos has less fertile land than Greta for producing both crops: if he devoted all his time (the same amount as Greta) to apple growing, he would produce 1,000 per year, and if he produced only wheat he would produce 20 tonnes. See Figure 1.9a for a summary.

absolute advantage

A person or country has this in the production of a good if the inputs it uses to produce this good are less than in some other person or country. See also: comparative advantage.

Although Carlos’ land is worse for producing both crops, his disadvantage is less, relative to Greta, in apples than in wheat. Greta can produce two and a half times more wheat as he can but only 25% more apples.

Economists distinguish who is better at producing what in two ways: absolute advantage and comparative advantage.

Greta has an absolute advantageabsolute advantage A person or country has this in the production of a good if the inputs it uses to produce this good are less than in some other person or country. See also: comparative advantage.close in both crops. Carlos has an absolute disadvantage. She can produce more of either crop than he can.

comparative advantage

A person or country has comparative advantage in the production of a particular good, if the cost of producing an additional unit of that good relative to the cost of producing another good is lower than another person or country’s cost to produce the same two goods. See also: absolute advantage.

Greta has a comparative advantage in wheat; Carlos has a comparative advantagecomparative advantage A person or country has comparative advantage in the production of a particular good, if the cost of producing an additional unit of that good relative to the cost of producing another good is lower than another person or country’s cost to produce the same two goods. See also: absolute advantage.close in apples. Although she is better, Carlos is least disadvantaged in producing apples. Greta has a comparative advantage in producing wheat.

Initially, Carlos and Greta are not able to trade with each other. Both must be self-sufficient, consuming exactly what they produce, so they will each produce both goods in order to survive. Greta chooses to use 40% of her time in apple production, and the rest producing wheat. Column 1 of Figure 1.9b shows that she produces and consumes 500 apples and 30 tonnes of wheat. Carlos’ consumption is also shown: he spends 30% of his time producing apples, and 70% producing wheat.

Now suppose that there are markets where apples and wheat may be bought and sold, and that 40 apples can be bought for the price of 1 tonne of wheat. If Greta specializes in growing wheat only, producing 50 tonnes of wheat and no apples, while Carlos specializes in apples, total production of both crops will be higher than it was under self-sufficiency (column 2). Then they can each sell some of their own crop in the market, and buy some of the good that the other produced.

For example, if Greta sells 15 tonnes of wheat (column 3) in order to buy 600 apples, she can now consume more apples and more wheat than before (column 4). And the table shows that buying the 15 tonnes of wheat produced by Greta, in return for 600 apples, similarly enables Carlos to consume more of both goods than was possible in the absence of specialization and trade.

In constructing this example we assumed market prices are such that a tonne of wheat could be exchanged for 40 apples. We will return to how markets work in Units 7 to 12, but Exercise 1.10 shows that this assumption was not critical. There are other prices at which both Greta and Carlos would benefit from trading with each other.

The opportunity to trade—that is, the existence of an apple market and a wheat market—has benefited both Greta and Carlos. This was possible because specializing in the production of a single good increased the total amount of each good produced, from 800 to 1,000 apples and from 44 to 50 tonnes of wheat. The surprising thing mentioned above is that Greta ended up buying 600 apples from Carlos even though she could have produced those apples at a lower cost herself (in terms of labour time). This was a better way to spend their time because while Greta had an absolute advantage in producing both goods, Carlos had a comparative advantage in producing apples.

Markets contribute to increasing the productivity of labour—and can therefore help to explain the hockey stick of history—by allowing people to specialize in the production of goods for which they have a comparative advantage, that is the things at which they are—relatively speaking—least bad!

Exercise 1.10 Apples and wheat

Suppose that market prices were such that 35 apples could be bought for 1 tonne of wheat.

1. If Greta sold 16 tonnes of wheat, would both she and Carlos still be better off?
2. What would happen if only 20 apples could be bought for the price of a tonne of wheat?

We have seen that the institutions associated with capitalism have the potential to make people better off, through opportunities for both specialization and the introduction of new technologies, and that the permanent technological revolution coincided with the emergence of capitalism. But can we conclude that capitalism caused the upward kink in the hockey stick?

We should be sceptical when anyone claims that something complex (capitalism) ‘causes’ something else (increased living standards, technological improvement, a networked world, or environmental challenges).

In science, we support the statement that X causes Y by understanding the relationship between cause (X) and effect (Y) and performing experiments to gather evidence by measuring X and Y.

causality

A direction from cause to effect, establishing that a change in one variable produces a change in another. While a correlation is simply an assessment that two things have moved together, causation implies a mechanism accounting for the association, and is therefore a more restrictive concept. See also: natural experiment, correlation.

We want to make causalcausality A direction from cause to effect, establishing that a change in one variable produces a change in another. While a correlation is simply an assessment that two things have moved together, causation implies a mechanism accounting for the association, and is therefore a more restrictive concept. See also: natural experiment, correlation.close statements in economics—to understand why things happen, or to devise ways of changing something so that the economy works better. This means making a causal statement that policy X is likely to cause change Y. For example, an economist might claim that: ‘If the central bank lowers the interest rate, more people will buy homes and cars.’

But an economy is made up of the interactions of millions of people. We cannot measure and understand them all, and it is rarely possible to gather evidence by conducting experiments (though in Unit 4 we will give examples of the use of conventional experiments in one area of economics). So how can economists do science? This example shows how the things we observe in the world can help us investigate causes and effects.

How economists learn from facts Do institutions matter for growth in income?

natural experiment

An empirical study exploiting naturally occurring statistical controls in which researchers do not have the ability to assign participants to treatment and control groups, as is the case in conventional experiments. Instead, differences in law, policy, weather, or other events can offer the opportunity to analyse populations as if they had been part of an experiment. The validity of such studies depends on the premise that the assignment of subjects to the naturally occurring treatment and control groups can be plausibly argued to be random.

We can observe that capitalism emerged at the same time as, or just before, both the Industrial Revolution and the upward turn in our hockey sticks. This would be consistent with the hypothesis that capitalist institutions were among the causes of the era of continuous productivity growth. But the emergence of a free-thinking cultural environment known as ‘The Enlightenment’ also predated or coincided with the upturn in the hockey sticks. So was it institutions, or culture, both, or some other set of causes? Economists and historians disagree, as you will see in Unit 2, when we ask ‘What were the causes of the Industrial Revolution?’

Scholars in all fields try to narrow the range of things on which they disagree by using facts. For complicated economic questions, like ‘Do institutions matter economically?’, facts may provide enough information to reach a conclusion.

A method for doing this is called a natural experimentnatural experiment An empirical study exploiting naturally occurring statistical controls in which researchers do not have the ability to assign participants to treatment and control groups, as is the case in conventional experiments. Instead, differences in law, policy, weather, or other events can offer the opportunity to analyse populations as if they had been part of an experiment. The validity of such studies depends on the premise that the assignment of subjects to the naturally occurring treatment and control groups can be plausibly argued to be random.close. It is a situation in which there are differences in something of interest—a change in institutions for example—that are not associated with differences in other possible causes.

The division of Germany at the end of the Second World War into two separate economic systems—centrally planned in the east, capitalist in the west—provided a natural experiment. During this time a political ‘Iron Curtain’, as the British Prime Minister Winston Churchill described it, divided the country. It separated two populations that until then had shared the same language, culture, and capitalist economy.⁹

More detail about Winston Churchill’s ‘Iron Curtain’ speech. 

Because we cannot change the past, even if it were practical to conduct experiments on entire populations, we rely on natural experiments. In this interview, Jared Diamond, a biologist, and James Robinson, a professor of government, explain.

In 1936, before the Second World War, living standards in what later became East and West Germany were the same. This is a suitable setting for using the natural experiment method. Before the war, firms in Saxony and Thuringia were world leaders in automobile and aircraft production, chemicals, optical equipment and precision engineering.

With the introduction of centralized planning in East Germany, private property, markets and firms virtually disappeared. Decisions about what to produce, how much and in which plants, offices, mines and farms were taken not by private individuals, but by government officials. The officials managing these economic organizations did not need to follow the principle of capitalism and produce goods and services that customers would buy at a price above their cost of manufacture.

West Germany remained a capitalist economy.

The East German Communist Party forecast in 1958 that material wellbeing would exceed the level of West Germany by 1961. The failure of this prediction was one of the reasons the Berlin Wall separating East from West Germany was built in 1961. By the time the Berlin Wall fell in 1989, and East Germany abandoned central planning, its GDP per capita was less than half of that of capitalist West Germany. Figure 1.10 shows the different paths taken by these and two other economies from 1950. It uses the ratio scale.

West German GDP grew faster than East German GDP between 1950–89.

Figure 1.10 The two Germanies: Planning and capitalism (1950–89).

Conference Board, The. 2015. Total Economy Database. Angus Maddison. 2001. ‘The World Economy: A Millennial Perspective’. Development Centre Studies. Paris: OECD.

Notice from Figure 1.10 that West Germany started from a more favourable position in 1950 than East Germany. Yet in 1936, before the war began, the two parts of Germany had virtually identical living standards. Both regions had achieved successful industrialization. East Germany’s relative weakness in 1950 was not mainly because of differences in the amount of capital equipment or skills available per head of the population, but because the structure of industries in East Germany was more disrupted by splitting the country than was the case in West Germany.¹⁰

Hartmut Berghoff and Uta Andrea Balbier. 2013. ‘From Centrally Planned Economy to Capitalist Avant-Garde? The Creation, Collapse, and Transformation of a Socialist Economy’. In The East German Economy, 1945–2010: Falling behind or Catching Up? Cambridge: Cambridge University Press. 

Unlike some capitalist economies that had even lower per capita incomes in 1950, East Germany’s planned economy did not catch up to the world leaders, which included West Germany. By 1989, the Japanese economy (which had also suffered war damage) had, with its own particular combination of private property, markets, and firms, along with a strong government coordinating role, caught up to West Germany, and Spain had closed part of the gap.

We cannot conclude from the German natural experiment that capitalism always promotes rapid economic growth while central planning is a recipe for relative stagnation. Instead what we can infer is more limited: during the second half of the twentieth century, the divergence of economic institutions mattered for the livelihoods of the German people.

economics

The study of how people interact with each other and with their natural surroundings in providing their livelihoods, and how this changes over time.

Economicseconomics The study of how people interact with each other and with their natural surroundings in providing their livelihoods, and how this changes over time.close is the study of how people interact with each other and with their natural surroundings in producing their livelihoods, and how this changes over time. Therefore it is about:

• How we come to acquire the things that make up our livelihood: Things like food, clothing, shelter, or free time.
• How we interact with each other: Either as buyers and sellers, employees or employers, citizens and public officials, parents, children and other family members.
• How we interact with our natural environment: From breathing, to extracting raw materials from the earth.
• How each of these changes over time.

In Figure 1.5 we showed that the economy is part of society, which in turn is part of the biosphere. Figure 1.12 shows the position of firms and families in the economy, and the flows that occur within the economy and between the economy and the biosphere. Firms combine labour with structures and equipment, and produce goods and services that are used by households and other firms.

The economy of households and firms depends on a healthy biosphere and stable physical environment.

Figure 1.12 A model of the economy: Households and firms.

Production of goods and services also takes place within households, although unlike firms, households may not sell their outputs in the market.

In addition to producing goods and services, households are also producing people—the next generation of the labour force. The labour of parents, caregivers and others is combined with structures (for example, your home) and equipment (for example, the oven in that home) to reproduce and raise the future labour force working in firms, and the people who will work and reproduce in the households of the future.

All of this takes place as part of a biological and physical system in which firms and households make use of our natural surroundings and resources, ranging from fossil-fuel or renewable energy to the air we breathe. In the process, households and firms transform nature by using its resources, but also by producing inputs to nature. Currently, some of the most important of these inputs are the greenhouse gases, which contribute to the climate change problems that we saw in Section 1.5.

Exercise 1.11 Where and when would you choose to have been born?

Suppose you can choose to be born in any time period in any of the countries in Figure 1.1a, 1.10 or 1.11, but you know that you would be among the poorest 10% in the population.

1. In which country would you choose to be born?
2. Now suppose, instead, you know you would initially be among the poorest 10% in the population, but you would have a fifty-fifty chance of moving to the top 10% of the population if you work hard. In which country would you now choose to be born?
3. Now suppose that you can only decide on the country and time period of your birth. You cannot be sure if you would be born in the city or the countryside, would be male or female, rich or poor. In which time and country would you choose to be born?
4. For the scenario in (3), in which time and country you would least want to be born?

Use what you have learned from this unit to explain your choices.

Throughout most of history, living standards were similar around the world and changed little from century to century. Since 1700 they have risen rapidly in some countries. This upturn coincided with rapid technological progress, and with the advent of a new economic system, capitalism, in which private property, markets and firms play a major role. The capitalist economy provided incentives and opportunities for technological innovation, and gains from specialization.

Countries differ in the effectiveness of their institutions and government policy: not all capitalist economies have experienced sustained growth. Today, there are huge income inequalities between countries, and between the richest and poorest within countries. And the rise in production has been accompanied by depletion of natural resources and environmental damage, including climate change.

Concepts introduced in Unit 1

Before you move on, review these definitions:

• Economics
• Industrial Revolution
• Technology
• Economic system
• Capitalism
• Institutions
• Private property
• Markets
• Firms
• Capitalist revolution
• Democracy

• Acemoglu, Daron, and James A. Robinson. 2012. Why Nations Fail: The Origins of Power, Prosperity and Poverty, 1st ed. New York, NY: Crown Publishers.
• Augustine, Dolores. 2013. ‘Innovation and Ideology: Werner Hartmann and the Failure of the East German Electronics Industry’. In The East German Economy, 1945–2010: Falling behind or Catching Up? by German Historical Institute, eds. Hartmut Berghoff and Uta Andrea Balbier. Cambridge: Cambridge University Press.
• Berghoff, Hartmut, and Uta Andrea Balbier. 2013. ‘From Centrally Planned Economy to Capitalist Avant-Garde? The Creation, Collapse, and Transformation of a Socialist Economy’. In The East German Economy, 1945–2010 Falling behind or Catching Up? by German Historical Institute, eds. Hartmut Berghoff and Uta Andrea Balbier. Cambridge: Cambridge University Press.
• Coyle, Diane. 2014. GDP: A Brief but Affectionate History. Princeton, NJ: Princeton University Press.
• Diamond, Jared, and James Robinson. 2014. Natural Experiments of History. Cambridge, MA: Belknap Press of Harvard University Press.
• Eurostat. 2015. ‘Quality of Life Indicators—Measuring Quality of Life’. Updated 5 November 2015.
• Kornai, János. 2013. Dynamism, Rivalry, and the Surplus Economy: Two Essays on the Nature of Capitalism. Oxford: Oxford University Press.
• Landes, David S. 2003. The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. Cambridge, UK: Cambridge University Press.
• Robison, Jennifer. 2011. ‘Happiness Is Love – and $75,000’. Gallup Business Journal. Updated 17 November 2011.
• Seabright, Paul. 2010. The Company of Strangers: A Natural History of Economic Life (Revised Edition). Princeton, NJ: Princeton University Press.
• Smith, Adam. 1759. The Theory of Moral Sentiments. London: Printed for A. Millar, and A. Kincaid and J. Bell.
• Smith, Adam. (1776) 2003. An Inquiry into the Nature and Causes of the Wealth of Nations. New York, NY: Random House Publishing Group.
• Sutcliffe, Robert B. 2001. 100 Ways of Seeing an Unequal World. London: Zed Books.
• World Bank, The. 1993. The East Asian miracle: Economic growth and public policy. New York, NY: Oxford University Press.