EC 2096

ECONOMIC HISTORY SINCE 1900

CHAPTER 1
COURSE INTRODUCTION

Copyright © 2014 by Singapore Institute of Management Pte Ltd. All rights reserved.
This Module is a great
challenge because:
This Module is a great
challenge because:
1. It has ?? independent
Chapters compared to an
average 12 Chapters for other
UOL modules.
This Module is a great
challenge because:
1. It has 17 independent
Chapters compared to an
average 12 Chapters for other
UOL modules.
This Module is a great
challenge because:
1. It has 17 independent
Chapters compared to an
average 12 Chapters for other
UOL modules.

2. Its exam format up till 2014

was 4 out of 12 questions.
This Module is a great
challenge because:
1. It has 17 independent
Chapters compared to an
average 12 Chapters for other
UOL modules.

2. Its exam format up till 2014

was 4 out of 12 questions.
Since 2018, it has been
slashed to 4 out of 8
questions.
This Module is a great
challenge because:
1. It has 17 independent
Chapters compared to an
average 12 Chapters for other
UOL modules.

2. Its exam format up till 2014

was 4 out of 12 questions.
Since 2018, it has been
slashed to 4 out of 8 questions.
From 2021, it is 3 out of 6
questions!
This Module is a great
challenge because:
1. It has 17 independent
Chapters compared to an
average 12 Chapters for other
UOL modules.

2. Its exam format up till 2014

was 4 out of 12 questions.
Since 2018, it has been
slashed to 4 out of 8 questions.
From 2021, it is 3 out of 6
questions! What’s more …
This Module is a great
challenge because:
1. It has 17 independent
Chapters compared to an
average 12 Chapters for other
UOL modules.

2. Its exam format up till 2014

was 4 out of 12 questions. Since
2015, it has been slashed to 4
out of 8 questions.

3. History has loads of facts

to remember.
This Module is a great
challenge because:
1. It has 17 independent
Chapters compared to an
average 12 Chapters for other
UOL modules.

2.Its exam format up till 2014

was 4 out of 12 questions. Since
last year, it has been slashed to
4 out of 8 questions.

3.History has loads of facts to

remember.

4. Economics has loads of

theories to remember.
This Module is a great
challenge because:
1. It has 17 independent
Chapters compared to an
average 12 Chapters for other
UOL modules.

2.Its exam format up till 2014

was 4 out of 12 questions. Since
last year, it has been slashed to
4 out of 8 questions.

3.History has loads of facts to

remember.

4. Economics has loads of

theories to remember.
Economic history
• uses many economic concepts to help us understanding
economic changes, including present time.

• is the study of history using economic concepts.

• explains how economies have developed.

• is not political history (what individuals like kings did) but

large groups (industrial workers), technological change,
how business worked or effects of institutions
(governments or trade associations) on the economy.
Economic history
• is concerned with quantities (GDP, TFP).

• uses more theory as social science, not as humanities.

• is not economics which uses abstractions (‘other things

being equal’) that are not easy to apply to the ‘real world’.

• like all history, can apply the theory to real circumstances

that actually happened.
Economic history
• is not a blueprint about the future (history rarely repeats
itself) but the historical context.

• explains how the present world economy was created.

• Provides a tool to understand economics and the other

social sciences.
Objectives: To learn
• how economic growth is transferred from one economy to
another;
• how the international economy affects the transfer of
economic growth;
• benefits of fixed versus fluctuating exchange rates;
• free capital mobility and controls on capital flows;
• free labour mobility (migration) on the effects of controls
on mobility;
• ability of a country to ‘catch up’ is affected by its ‘social
capabilities’ (the underlying conditions); and
• how technical change affects the economy.
Objectives: To acquire
• techniques for using simple economic theory to explain
how various factors led to economic growth;
• the ability to construct economic reasons for historical
events; and
• the ability to identify and assess the data needed to do
this.
Text:
ASSIGNMENTS

L15
ASSIGNMENTS
ASSIGNMENTS
 GROUPWORK

Deadline: L15
GROUPWORK
 CONCEPT
• Gross national product (GNP) measures the total output
or size of an economy. It includes:
a. all the output of goods (eg manufactures), all the
output of resources (eg oil) and all the output of
services (eg transport);
b. all exports; and
c. all the money returned to the country from overseas
investments.
Concept:
• Gross domestic product (GDP) only measures the output
made within the country. It includes exports but not
money made from overseas investments, like profits from
overseas factories.
Concept:
• Gross domestic product (GNP)
Concept:
• The production function measures the
‘inputs’ that go into making the ‘outputs’
(goods). For example US farmers used
more machinery and less labour than
European farmers. (But efficiency is unclear
because the cost of labour and machinery
were different.)
Concept:
• Total factor productivity (TFP) measures efficiency. It
calculates each input (labour, capital and other
resources) and the price of the inputs to the producer.
The ‘residual’ measures changes in technology causing
increase in output not accounted by more labour, capital
or resources. Or if quality of inputs increases (eg better
education on the quality of workers). TFP growth is
usually more important than the increase in resources,
labour or capital.
Concept:
Concept:
• Comparative advantage (in international trade): It can
make more economic sense for a country to import
products (A) even though it could produce A cheaper
itself because of the even greater cost advantage in
producing B (and selling B); and importing A.

a. The country has a ‘comparative advantage’ in the

production of B compared with other countries.

b. Similarly, for the trading partner, the comparative

advantage lies with A and the disadvantage lies with B.
Concept:
Concept:
Concept:
• Tariffs prevent countries from trading their comparative
advantage as they change the price of goods A and B. An
import tariff makes it not worthwhile for a country to
specialise in B and export B while importing A.
Concept:
• Gains from trade: If two countries have comparative
advantages in the production of something, then there
are gains from trade. World output rises because the
same resources are used to make more goods than if
there was no trade. There is no automatic mechanism for
evening out the gains and losses from trade. Trade is an
intentional, cooperative action; governments must
choose to want to trade.
Concept:
• Liquidity trap is the situation in a depression where very
few people are willing to risk putting their money into
investment. So the economy stagnates. With liquidity
preference (LP), people are more likely to hold cash or
government bonds.
Concept:
• Liquidity trap
The ‘solution’ involves government expenditure, often paid
out of borrowing. But if liquidity preference is high,
government expenditure will not lead to an increase in
income level.
Concept:
• Liquidity trap
The ‘solution’ involves government expenditure, often paid
out of borrowing. But if liquidity preference is high,
government expenditure will not lead to an increase in
income level.
Concept:
• Human capital is the skills in the labour force, eg literacy
and formal schooling, but historically many skills are
‘embodied’, i.e. learned on the job, such as an apprentice.

• Entrepreneurs are people who take risks to make a profit.

They see a market, raise finance and organise production.
Governments themselves have often engaged in
entrepreneurial behaviour. Obtaining and using capital is
an important part of the risk an entrepreneur takes.
Concept:
• Catch up and social capability explain why poorer
countries take such a long time to catch up with the
income levels of richer countries. Social capability
includes labour skill level and nature of government. If a
government cannot
guarantee the rule
of law, entrepreneurs
will not invest.
Concept:
• Increasing returns to scale means that the cost of a
product is related to the scale of production. Increasing
returns means that if you double the scale and use
double the inputs, you more than double output. As a
result unit costs fall. Increasing returns occur because
the cost of the technology involved can be spread over a
greater amount of output.
Concept:
• Increasing returns to scale means that the cost of a
product is related to the scale of production. Increasing
returns means that if you double the scale and use
double the inputs, you more than double output. As a
result unit costs fall. Increasing returns occur because
the cost of the technology involved can be spread over a
greater amount of output.

Economies in production are not the only economies.

There can be economies in marketing or in purchasing
raw materials.
Concept:
• External economies are the main reason why industries
tend to cluster together and the main reason for the
growth of cities. One example is a ‘thick’ labour market
where there are many people with similar skills; another
is the existence of particularly good transport links. To
‘catch up’ an economy needs more than importing
technology.
Concept:
• External economies are the main reason why industries
tend to cluster together and the main reason for the
growth of cities. One example is a ‘thick’ labour market
where there are many people with similar skills; another
is the existence of particularly good transport links. To
‘catch up’ an economy needs more than importing
technology.

• Negative external economies eg pollution coming from

industry. Pollution raises costs for a firm; for instance,
workers are less healthy and less productive.
Concept:
• Principal-agent problems:
It was difficult for
governments and
businesses (principals) to
monitor the performance
of their faraway ‘agents’.
Concept:
• Principal-agent problems:
It was difficult for
governments and
businesses (principals) to
monitor the performance
of their faraway ‘agents’.
The development of
modern transport and
communications improved
this as it allowed agents to
be monitored.
Concept:
• Transactions costs: Nowadays, tax-gatherers cost
relatively little money but taxes raise a lot. So more of
government expenditure can be used for beneficial
purchases. There are service sector used to reduce
transaction costs (lawyers who enforce contracts).
Concept:
• Tariff barriers are one way to protect a country from
imports is to erect a tariff. This is a charge on goods
entering the country. Tariffs are either a fixed payment
per unit or a proportion of the price.
Concept:
• Non-tariff barriers are more protective. For example, a
refusal to recognise foreign qualifications to reserve jobs
for locally trained people. Non-tariff barriers are
frequently used when tariff barriers are low or non-
existent.
Concept:
• Opportunity cost is the cost of the next best alternative.

• Contagion: Since all banks have large funds with other

banks, the collapse of one bank is likely to lead to the
collapse of other banks. Contagion makes it very close to
essential that the government will step in eg by
increasing money supply or nationalising the banks.
Concept:
• The prisoner’s dilemma explains the difficulties in
making agreements because one party may not be able
to predict what the other will do. It may be necessary for
governments to force cooperation in the best interests of
the suspecting parties.
Concept:
• Terms of trade show the prices a country obtains for
exports compared with the prices for imports. If export
prices are rising, the terms of trade are moving against
the country. But a country may not be worse off since it
depends on the volume of exports and imports.
Concept:
• Rational expectations is the ability to anticipate future
government policy, making it ineffective. For example,
government wishes to control inflation by increasing
interest rates. But if the population anticipates this, they
now spend as much as possible or borrow at the old
interest rate before it goes up, increasing inflation.
Government finds it harder to control and imposes a
second round of interest rates, which is also subject to
rational expectations and could be damaging to the
economy.
Concept:
• Rational expectations is the ability to anticipate future
government policy, making it ineffective. For example,
government wishes to control inflation by increasing
interest rates. But if the population anticipates this, they
now spend as much as possible or borrow at the old
interest rate before it goes up, increasing inflation.
Government finds it harder to control and imposes a
second round of interest rates, which is also subject to
rational expectations and could be damaging to the
economy.
Concept:
• Hedge funds are to lead the market. In a depression, a
hedge fund will sell the local currency with the aim of
forcing a devaluation, then changing the money back
again at a profit. This happened in the Thailand
devaluation in the 1997.
Concept:
Hedge funds have become much more dominant in recent years,
possibly because globalisation has made it easier to finance.
Hedge funds usually say that the desired effect (that is,
devaluation) would have happened anyway. But many people
deny this.
Concept:
• Elasticity shows the effect of a change in one variable on
another variable. It has many forms. Price elasticity
shows how much more of a commodity will be purchased
if the price falls and how much less will be purchased if
the price rises. If a fall in the price leads to more than a
rise in purchases, demand is said to be ‘price elastic’.
Concept:
• Elasticity may also relate to income. If a rise in income
leads to an increase in sales then demand for that good
is said to be income elastic. An example would be the
demand for health care in rich countries.
Concept:
• Quantitative easing is the introduction of new money into
the money supply by a central bank. It is a way of
increasing money supply in a depression. The
government sells an additional tranche of government
stock which the central bank buys. The government now
has a currency which it can use. The central bank does
not market the government stock.

Of course, quantitative easing may not work if the

money is saved – that is, it does not increase money
supply, for example if liquidity preference is very high.
Concept:
• Quantitative easing is a way of increasing money supply
in a depression. The government sells an additional
tranche of government stock which the central bank
buys.
Countries:

• ‘Britain’ = ‘the UK’

UK = All of Ireland (1801–1922).
UK = Only N Ireland minus Republic of Ireland (since 1922)
• ‘Germany’ = West Germany (1945–90)
= Both East / West Germany (since 1990)
• ‘Americans’ = USA
Others on Continent = Canadians, Brazilians, Argentines etc
• European Economic Community (EEC), European
Community (EC) and European Union (EU) according to
period under discussion.
END