THE ECONOMY CAN BE COUNTED MEASURING WEALTH - William Petty ( ): Political Arithmetick; real world data instead of logical reasoning; the basis of what we now call “economics” - Wealth = population + property → population (P) and average expenditure (AE) can be estimated → PxAE = national income national income – rents – profits = total worth of labour - Gross domestic product (GDP) is defined as the value of all goods and services produced in a country within a period of time (usually one year). - Genuine progress indicator, or GPI, is a metric that has been suggested to replace, or supplement, gross domestic product (GDP). Adjustments are made for resource depletion, pollution, and long-term environmental damage. - Happy Planet Index (HPI) is an index of human well-being and environmental impact. The index is designed to challenge well-established indices of countries’ development, such as Gross Domestic Product GDP) and the Human Development Index (HDI), which are seen as not taking sustainability into account.

LET FIRMS BE TRADED PUBLIC COMPANIES - To share the risk → joint-stock companies were formed → gives the investors to be joint holders of the company and a right to a proportional share of the profits (dividend). Thus voyages could easily be funded. - East India Company; formed in 1599 to develop trade between Britain and the East Indies. - Josiah Child ( ) : was an English merchant and politician. He was an economist proponent of mercantilism (father of mercantilists) and governor of the East India Company. He was a moderate in those days of the mercantile system, and has sometimes been regarded as a sort of pioneer in the development of the free-trade doctrines of the 18th century. Though Child considered himself a proponent of the competitive market, he simultaneously argued for a government-controlled interest rate and restricted trade among the colonies which would benefit England. - Public limited company: shareholders are protected from liability beyond their investment.

WEALTH COMES FROM THE LAND AGRICULTURE IN THE ECONOMY - François Quesnay ( ) and his followers, the physiocrats, argue that land and agriculture are the only sources of economic prosperity. - Net surplus only in agriculture; not in manufacturing, manufacturing is sterile. - Theodore Schultz ( ): Agricultural development is the foundation for progress in poor countries. - World Bank: Growth in the agricultural sector contributes more to poverty reduction than growth in any other sector.

THE CIRCULAR FLOW OF THE ECONOMY - Microeconomics – macroeconomics - Physiocrats: Physiocracy means “power over nature”. Nature is the source of wealth. - Physiocrats are in favour of Free trade Low taxes Secure property rights Low government debt - Quesnay developes Economic Table, the first empirical macroeconomic model. Money and goods flow between producers and consumers 1.Landowners 2.Farmers 3.Artisans

THE CIRCULAR FLOW OF THE ECONOMY The interdependence of consumers and producers Goods and services HouseholdsConsumer expenditure Firms Wages, rent, dividents Labour

PROVISION OF PUBLIC GOODS AND SERVICES PRIVATE INDIVIDUALS NEVER PAY FOR STREET LIGHTS - Public good: A product that one individual can consume without reducing its availability to another individual and from which no one is excluded. Economists refer to public goods as "non-rivalrous" and "non-excludable". National defense, sewer systems, public parks and basic television and radio broadcasts could all be considered public goods. - Non-excludability means that it is difficult to prevent people who don’t pay for the goods from using them. - Non-rivalry means that one person’s consumption of the good does not diminish the ability of others to consume it. - Free-riding means that consumers enjoy the goods without paying for them. - David Hume ( ): A failure of the market to provide these goods was recognized by the philosopher David Hume in the 18th century. - Adam Smith ( ): A government’s role is to provide those public goods that it would not be profitable for individuals or firms to produce.