Basics of Capitalist Production
Capitalism is a “Monetary Economy”
Bank money → inputs → production process → outputs → monetary profits
1. Purpose of Production
Making monetary profits: Production will not occur unless it is deemed profitable, or
outputs are not sold.
2. Financing Production
Production begins with money because capitalists need money to purchase inputs
(workers, machines, resources) and realized profits should be enough to pay back debt
and interest.
A Big Picture of Economic Growth
Economic Growth? In the short- and long-run
Combination of:
- In the short-run: expansion in aggregate economic activities (including outputs,
incomes, and expenditures)
- In the long-run: the development of productive capacity and capability (human capital
+ physical capital)
Economic Growth
Consider whether the economy is growing over time:
(Case 1) A country with a larger size of economic activities mean:
High income
High standards of living
More jobs
(Case 2) If economic activities shrink,
Firms cut jobs
People’s incomes drop
, → worse off
Sources of Economic Growth
- “Equatorial Guinean” Economic Miracle?
Resource Bonanza: Found a large oil reserve in 1996
Guinean economy in 1996-2010
vs.
Growth of the U.S. in the late 19th century
What are the main differences?
(1) U.S.
- Abundance of natural resources and agricultural products
- Rapid growth in industrial capabilities
Capitalism is a “Monetary Economy”
Bank money → inputs → production process → outputs → monetary profits
1. Purpose of Production
Making monetary profits: Production will not occur unless it is deemed profitable, or
outputs are not sold.
2. Financing Production
Production begins with money because capitalists need money to purchase inputs
(workers, machines, resources) and realized profits should be enough to pay back debt
and interest.
A Big Picture of Economic Growth
Economic Growth? In the short- and long-run
Combination of:
- In the short-run: expansion in aggregate economic activities (including outputs,
incomes, and expenditures)
- In the long-run: the development of productive capacity and capability (human capital
+ physical capital)
Economic Growth
Consider whether the economy is growing over time:
(Case 1) A country with a larger size of economic activities mean:
High income
High standards of living
More jobs
(Case 2) If economic activities shrink,
Firms cut jobs
People’s incomes drop
, → worse off
Sources of Economic Growth
- “Equatorial Guinean” Economic Miracle?
Resource Bonanza: Found a large oil reserve in 1996
Guinean economy in 1996-2010
vs.
Growth of the U.S. in the late 19th century
What are the main differences?
(1) U.S.
- Abundance of natural resources and agricultural products
- Rapid growth in industrial capabilities
