Capital

Question 1

Ricardo’s Scarcity Principle

Answer 1

Certain prices might rise to very high levels over many decades enough to destabilize entire societies because the price system plays a key role in coordinating activities of all playing individuals
If certain prices rise very high levels for prolonged periods of time it can disrupt wealth in favor of those who happen to be initial owners if those scarce resources.

Question 2

Alimentary imperative

Answer 2

Drive to address immediate physical needs

Question 3

Supply and demand

Answer 3

If the supply of any good is insufficient and its price is too high then demand for that good will decrease which leads to a decline in its price.

Question 4

What is the difference between marxes analyses of capital and the bourgeoise economist?

Answer 4

Marx based his analysis on internal contradictions opposed to bourgeois economists who saw the market as a self regulating system capable of achieving equilibrium in accordance with Adam smiths “invisible hand.”

Question 5

Principle of unlimited accumulation

Answer 5

In a world where capital is primarily industrial (machinery, plants, etc.) rather than landed property, so there is no limit to the amount of capital that can be accumulated.
Capital accumulates and is concentrated in fewer and fewer hands.

Question 6

Marx’s Apocalypse

Answer 6

Either the rate of return on capital would steadily diminish (thereby killing the engine of accumulation and leading to violent conflict among capitalists) or capitals share of national income would increase indefinitely(which sooner or later would unite the workers in revolt.)

Question 7

National income

Answer 7

National income is defined as the sum of all income available to the residents of a given country.

Question 8

What is the difference between GDP and National income?

Answer 8

GDP measures the aggregation of goods and services produced in a given year while to find national income we must subtract the depreciation of that capital. I.e. Wear and tear on machines, infrastructure etc.

Question 9

What is ‘convergence’ and what mechanisms push towards it?

Answer 9

A force of inegalitarianism which pushes toward reduction and compression of inequalities.
Main forces are diffusion of knowledge and investment in training and skills.

Question 10

What is a driving factor in leaping forward productivity and increasing national income?

Answer 10

Diffusion and sharing of knowledge

Question 11

Rising human capital Hypothesis

Answer 11

Production technologies requiring greater skill raises labors share of income and capitals share falls.
(Simply)
The progress of technological rationality leads automatically to the triumph of human capital over financial capital and real estate

Question 12

Types of capital

Answer 12

Human capital (skilled labor) 
Financial capital (factories etc.)
Real estate

Question 13

Human Capital

Answer 13

Individuals labor power, skills, training and abilities

Question 14

Capital (non-human)

Answer 14

All forms of ‘real property’ financial and professional capital of real property (residential real estate) plants, infrastructure, machinery, patents etc.

Question 15

If a company values its capital investment at 5 million euros and has an annual production of goods valued at 1 million Euros (in profits) what is he capital/income ratio of this company?
If it goes to pay its employees 60,000 then what is its capital share on profits? And how much would it’s rate of return on capital be?

Answer 15

β=5

a=40%

Therefore it’s r=8

a=r x β

Question 16

Why was Charles Dunoyer (prefect economist under the July monarchy) opposed to labor law or social legislation?

Answer 16

He was quoted as saying “one consequence of the industrial regime is to destroy artificial inequalities, but this only highlights natural inequalities all the more clearly.”
Equalization would not proliferate the innate natural ability of the achievers and would thus bring industrial progress to a standstill.
It justifies inequality and privileges for the winners.

Question 17

Second fundamental law of Capitalism

Answer 17

The higher the savings rate and the lower the growth rate the higher the capital/income ratio (β)

Question 18

Why does inherited wealth grow faster than output and income?

Answer 18

People with inherited wealth need save only a portion of their income from capital to see that capital grow more quickly than the economy as a whole

Question 19

How do we justify social inequality?

Answer 19

By founding it in common utility

Question 20

What are the two types of growth of output?

Answer 20

Population growth and per capita output growth

Question 21

How could a country have a high GDP but a low national income?

Answer 21

Because some private firms could be owned abroad meaning they pay out to those countries I.E outsourced

Question 22

What was wealth used for in the beginning of the nineteenth century during the time or Balzac and Jane Austen?

Answer 22

Wealth seemed to exist in order to produce rents, that is, dependable, regular payments to the owners of certain assets.

Question 23

Why did British and US policies of economic liberalization have no effect?

Answer 23

Between 1950-1970 when the English speaking countries “fell behind” in economic growth it gave rise to the neo conservative “roll back the welfare state” revolution ideologies of Margaret Thatcher and R.Reagan. Yet these policies neither increases or decreased growth.

Question 24

Financial intermediation

Answer 24

Individuals deposit money in bank which then invests it elsewhere

Question 25

In Marxes “the class struggle in France” who did he attack?

Answer 25

The finance minister of Louise-Napoleon Bonaparte, Achille Fould, who represented bankers and financiers who imposed a tax on drinks to pay Rentiers their due

Question 26

David Ricardo “Ricardian Equivalance”

Answer 26

economic hypothesis holding that consumers are forward looking and so internalize the government’s budget constraint when making their consumption decisions.
1817 Britains public debt was 200% of its GDP yet didn’t dry out private investment or wealth.

Question 27

Laisser-faire faire

Answer 27

State nonintervention

Question 28

Why were the French skeptical of private capitalism after WWII?

Answer 28

Because of citizens making deals with Nazis during the occupation to enrich themselves. I.E. the case of Louise Renault whose private factories were nationalized after the war.

Question 29

What is one of the reasons Germany became an economic super power following their loss in WWII?

Answer 29

Because America feared the threat of the soviet super power they bolstered the German nation while soviets tried to make the communist half of Germany appear better than it was.

Question 30

What was French state capitalism following the war?

Answer 30

A mixed economy “capitalism without capitalists” where the largest industries were nationalized.

Question 31

What did the low capital/income ratio reflect in the burgeoning American economy?

Answer 31

A fundamental difference in the structure of social relations compared to Europe. Capital was barely three years worth of national income meaning the new world was closing the gap between rich and poor. 1840 Francis de Tocqueville observed the low amount of people with small fortunes.

Question 32

Why do Americans have a more benign view of capitalism than in Europe?

Answer 32

Because throughout the 20th century the capital/income ration remained somewhat stable.

Question 33

The Marshall plan

Answer 33

he Marshall Plan (officially the European Recovery Program, ERP) was an American initiative to aid Western Europe, in which the United States gave over $12 billion (approximately $120 billion in current dollar value as of June 2016) in economic support to help rebuild Western European economies after the end of World …

Question 34

Asymptotic law

Answer 34

Meaning that it is valid only in the long run.

Question 35

What evinced emergence of a new Patrimonial Capitalism.

Answer 35

A long term trend whereby private wealth grossly exceeds national annual income. From 2-3 years in the 1970s to 4-7 years in 2010.

Question 36

Types of savings

Answer 36

Savings on behalf of private firms

Savings on behalf of household incomes

Question 37

What is the average annual depreciation of capital in the developed countries?

Answer 37

10-15%

Question 38

How does the gap between national income and disposable income measure the value of public services from which households benefit?

Answer 38

How do you go from national income to disposable income?
One must deduct all taxes, fees and other obligatory payments
Traditional state functions.

Question 39

What causes increase in private wealth in developed countries between 1970-2010?

Answer 39

Slow growth coupled with high savings.

Question 40

Monospony

Answer 40

Owner of Capital can impose a rate of return greater than marginal productivity of his capital. (In monopoly position)

Question 41

Marginal Productivity

Answer 41

the marginal product or marginal physical product of an input (factor of production) is the change in output resulting from employing one more unit of a particular input (for instance, the change in output when a firm’s labor is increased from five to six units), …

Question 42

Why does marginal productivity go down when Capital stock increases?

Answer 42

Addition of Capital adds to the increase in the laborers potential to work it. This either the productivity cannot compensate for the added capital stock since more Labor power is inevitably required.

Question 43

Production function

Answer 43

Reflects the technological elasticity of substation between Capital and labor: that is, it measures how easy it is to substitute Capital for labor, labor for Capital, to produce require goods and services.

Question 44

Cobb/Douglas production function

Answer 44

No matter what happens and in particular no matter what quantities of Capital and labor are available the capital share of income is always equal to the fixed coefficient α which can be taken as purely technological parameter.
For example if α=30 % then no matter what the Capital/income ratio is incom from capita will account for 30% of national income.

Question 45

What did Robert Allen (British Economist during industrial revolution) mean by “Engels Pause?”

Answer 45

He was referring to the stagnation of wages where capitals share increased from 35-40 percent in the eighteenth century to 45-50 percent in the nineteenth century.
“The lions share of economic growth in this period went to profits while wages-objectively miserable-stagnated.”

Question 46

What does Marx mean by “The Bourgeoisie digs its own grave?”

Answer 46

Thomas Piketty refers to “the principle of infinite accumulation”
Increasing quantities of Capital leads to an ever decreasing rate of profit.

Question 47

Fixed Capital

Answer 47

Fixed capital includes the assets and capital investments that are needed to start up and conduct business, even at a minimal stage. These assets are considered fixed in that they are not consumed or destroyed during the actual production of a good or service but have a reusable value. Fixed-capital investments are typically depreciated on the company’s accounting statements over a long period of time, up to 20 years or more.

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Question 48

The Gino Coefficient

Answer 48

a measure of statistical dispersion intended to represent the income or wealth distribution of a nation’s residents, and is the most commonly used measure of inequality.

Question 49

How can we objectively show inequality?

Answer 49

By taking the national income and showing the distribution between shares of capital vs income (from labor).

Question 50

“Progressive” tax vs “Regressive” tax

Answer 50

A progressive tax is defined as a tax whose rate increases as the payer’s income increases. That is, individuals who earn high incomes have a greater proportion of their incomes taken to pay the tax. A regressive tax, on the other hand, is one whose rate increases as the payer’s income decreases.