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Showing posts with the label Economic Development

Adam Smith's Pin Factory

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Adam Smith’s Pin Factory Adam Smith’s description of a Pin Factory is on the first page of The Wealth of Nations .   (Chapter 1 – “Of the Division of Labour”)   Drawings of pin factories of this period show workers using hand tools. Smith says the process can be broken down into 18 distinct steps, including the packaging the pins.  He  mentions that pin factory workers were poorly paid, despite their high productivity.  This contradicts the economic assumption that higher productivity (output per worker) leads to higher wages.  Adam Smith goes on to say he visited a pin factory employing 10 men who produced 48,000 pins per day.   If ten workers did every step themselves, Smith says they could each produce 10 or 20 pins per day.   So the pin factory replaces up to 4,800 pin makers.   The increase in labor productivity (output per person per day) is as high as 50 times that of individual pin makers.    The reduction in unit cost or average cost (AC) and the huge increase in

How America Became Wealthy: Introductory Remarks

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INTRODUCTION This post and the next is on the topic of economic development and its contribution to economic growth.   Since the beginning of the Industrial Revolution more than 200 years ago, this is the central economic dynamic.    The following are factors that led to American economic development, many in place  before the beginning of the Industrial Revolution.   The United States, more than any other country, was positioned to take advantage of the new technology and ideas that were the basis of the Industrial Revolution.   The following is an outline of those factors.   For the full story of the early decades of America's Industrial Revolution, see Engines of Change and some of the excellent histories written about America after the Revolution. FACTORS IN AMERICAN ECONOMIC DEVELOPMENT AND GROWTH The usual narrative centers on the inventors and entrepreneurs who developed and commercialized new production and transportation technology and tech

A Stylized Model of Innovation: The Dynamics of Capitalism

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Nicola Tesla There has been a debate in economics on whether innovation is exogenous (outside the economy) or endogenous (inside the economy).   This is another one of those dichotomies that obscures explanations of economic processes. This is a stylized narrative of the path of economic innovation, the dynamics of the modern, industrial economic system.   The resulting economic structure is mostly oligopoly, the domination of markets by large corporations. Innovation begins with public knowledge, often scientific or mathematical discoveries that do not seem to have any practical value.   Imaginary numbers, general equations of electromagnetism, the Second Law of Thermodynamics, Brownian motion, E=mc**2, the structure of DNA, the conductivity of solids, etc.   Eventually, scientists and inventors begin to see possible applications of this scientific knowledge.   In the 20 th century, they are often funded by governments that see possible military applications.   A

The Beginning of the Industrial Revolution

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“The age is running mad after innovation.” Samuel Johnson In the Beginning Why study economic theory and analysis, read economic history, and make economic forecasts? The short answer is because of the Industrial Revolution and the attempt to understand its dynamics and structure. Economics is an attempt to understand the material world we live in, the environment created by the Industrial Revolution. THE BEGINNING OF THE INDUSTRIAL REVOLUTION The Industrial Revolution began in England in the late 1700s. It then spread to America  and western European countries. This tutorial will summarize its origins in England and describe the early decades of the Industrial Revolution in America. The Industrial Revolution was a radical break in history. But in England, many of the preconditions were already in place, as can be seen by the history of the Wedgwood  company. The revolutionary generation that first adopted steam engines