UNIT 1: ECONOMIC AND SOCIAL

HISTORY

1. ADAM SMITH AND OTHER IMPORTANT ECONOMISTS

The economist Adam Smith is considered one of the most important of all times. He wrote a ton of books but
especially in The nature and causes of the wealth of nations he consolidated that what enriched European
nations was not importing gold and silver, but opening up new free-trade markets in the world.
Apart from Adam Smith there are several economists that are well known such as David Ricardo, Karl Max and
John Maynard Keynes.

2. INDEPENDENCE OF THE USA

In 1776 the independence of the USA happened, which meant political freedom. Thomas Jefferson was the
one who proclaimed the Declaration of Independence becoming one of the Founding Fathers of the nation; he
proclaimed life, liberty and the pursuit of happiness (prosperity), imitating John Locke.
Furthermore, in the same year, Adam Smith published the Wealth of the nations; which gave another
perspective of the economy. This represented the ideas of economic freedom.

3. THE GREAT DIVERGENCE

In the early 15th century the gap between poor and rich started with the first Globalisation. Countries in the
north (around the Netherlands) started to increase their capital. For example in the UK the GDP (Gross
Domestic Product) per capita increased, this is called the Great Divergence or European Miracle (XVIII-XIX).
Although the GDP can seem to be a measure of well-being, it is not adequate. It leaves out many factors such as
health, life expectancy, and educational attainment. To calculate the real income we must calculate the real
wages, the standard of living that can be bought with one’s earnings. Real wages tell us about the standard of
living of the average person and help explain the origins; if we know the origins of the problem we would
know how to solve it.

Late in the 16th century and early 17th century a European-wide market emerged. England took control of this
new market, expanding its textile industry, competing with other countries such as Italy. An also created an
intercontinental trading network (including the Americas and India) that depended on the acquisition of colonies,
mercantilist trade promotion and naval power.

4. INDUSTRIAL REVOLUTION
Between 1760 and 1850, the Industrial Revolution spread from Britain to the continent with remarkable success,
it became the turning point of sustained economic growth. Technological change was the motor of the Industrial
Revolution; in this period the steam engine, the machines to spin and weave cotton and new processes to
smelt and refine the iron and steel using coal instead of wood fuels were created.

Institutionalists believe that continental development in the 18th century was held back (retenido) by archaic
institutions. These were swept away by the ones of the French Revolution, which were exported to most of
Europe by the armies of the Republic and Napoleon, so these new institutions like the Parliament permitted
Europe to develop.

In the case of England, after the Glorious Revolution, in 1689 there was an institutional settlement between
the Crown and Parliament, where the Declaration of Right made the king subject to Parliament on matters of
legislation and taxation; this caused the Parliament to have more power than the king and that permitted the
Industrial Revolution. Furthermore, growth was also promoted by the Parliament’s power to take people’s
property against their wishes. This was not possible in France, but the British Parliament that overrode property
owners opposed to the enclosure of their land or the construction of canals or turnpikes across it.
What the Glorious Revolution meant in practice was that the ‘despotic power’ of the state that was only
available intermittently before 1688…was always available thereafter.

What could explain why the Industrial revolution was British lies in Britain’s unique structure of wages and
prices. Britain’s high-wage, cheap-energy economy made it profitable for British firms to invent and use the
breakthrough technologies of the Industrial Revolution.
As a result, the differences in wages and prices with other countries caused businesses in England to find
profitable the use of technology, which saved on expensive labour by increasing the use of cheap energy
and capital. With more capital and energy at their disposal, British workers became more productive; the secret
of economic growth. Although in Asia and Africa, the cheapness of labour led to the opposite result.

To conclude, there were many consequences such as the increase of life expectancy, especially in northern
countries because of better education or having a healthier diet. However, in Spain or other countries like Italy,
the life expectancy was lower due to the high infant mortality around the 20th century.

5. DISTRIBUTION OF INCOME
Income distribution is extremely important for development, since it influences the cohesion of society,
determines the extent of poverty for any given average per capita income and the poverty-reducing effects of
growth, and even affects people's health.

When there is an unequal distribution of incomes across various groups of individuals and households in an
economy there is what we call inequality income and it can vary by social factors such as sexual identity,
gender identity, age, and race or ethnicity, leading to a wider gap between the upper and working class. A great
example of this can be the unequal distribution that takes place in the frontier between Spain and Morocco that
has the highest differences in the distribution of income of all the times.

To calculate income distribution you divide the GDP by the nation’s population.

Geography, institutions and culture explains economic success and, of course, the levels of inequality.

Geography plays an important role in economy

To explain inequality distribution of income the institutions play an important role because countries differ
widely in institutional quality (because of the corruption). The recent report by Transparency International, an
organization whose studies on corruption levels are typically published in the popular press around the world.
The report ranks countries such as Finland, Iceland, Denmark and New Zealand as those with the lowest levels
of corruption, with a “cleanliness” score of 9.5 out of 10 points. On the other hand, countries such as Bangladesh,
Nigeria and Haiti are ranked at the highest levels of corruption.

6. DIFFERENCES BETWEEN POVERTY AND INEQUALITY

Beginning in the 1970s, economic growth slowed and the income gap widened.

Poverty is focused on the lower end of the distribution only—those who fall below the poverty line. Meanwhile,
inequality is concerned with the full distribution of wellbeing.
7. WORLD WELFARE

Why do not the poor countries adopt the methods and the policies that have made the others rich?
The starting point is different. The people in charge actually do not think is convenient to them because if
they adopt those methods then everyone would start to live wealthy and they do not want that because
the are selfish

open economy=developed country

KEY WORDS
Income: ingresos
Wages: salarios
Average: promedio
Trading network: red comercial
European-wide: a nivel europeo
Trade: comercio
Turnpikes: autopistas de peaje