DEFINING THE ECONOMY All societies must decide what they will produce and how they will

produce it; what resources will be used for what purposes; and how goods and services will be distributed. In addition, there must be ways of deciding how these decisions are to be made.

Economics is often presented as a technical matter that only experts can understand. People get the impression that the economy is some complex combination of technical relationships...that the key aspects of the economy are numbers like interest rates, levels of investment, rates of capacity utilization, trade deficits, balance of payments, a whole list of head-spinning numbers, and that only an elite group of economists can understand it.

But the economy is made up of people: making decisions, working, in a global and natural environment, distributing and consuming what they have produced. Economy is really about relationships between people (social relationship) not relationships between numbers. Economies are made up of people and created by people. They also create the kinds of people who function in them.

We can imagine very different kinds of social relationships in an economy, ranging along a continuum from egalitarian (and really free) to hierarchical (and coercive). Economic structures are subject to change. Humanity has had many different kinds of economies, and current ones constantly change. The economic system we live in today is called capitalism. In human history this is a recent development which turned the world upside down.

CHAPTER 1: Capitalism Shakes the World The purpose this chapter is to illustrate the profoundly revolutionary nature of capitalism as an economic system and the way in which it has transformed the human world in a very short period of time when compared to the span of modern human history. Students often imagine capitalism to be a consequence of industrial development. The chapter suggests, by contrast, that capitalism as a system came into being in a particular historical and geographical context preceding the industrial revolution. The system displays a tendency to perpetual change, including, but certainly not limited to scientific and technological development. The numerous examples of the changes wrought by capitalism are meant to give the student a sense of the vast differences in the culture, daily life, and social and ecological impacts between capitalist and precapitalist societies. The hope is to make the student more curious about the history, development and nature of capitalism as a system.

MAIN POINTS

1. Capitalism has not always existed; it began in a definite period of history around 1500 in Europe. Currently, following the collapse of Soviet Communism, Capitalism is the predominant mode of production in the world. 2. Capitalism by its very nature is relentlessly changeful, even revolutionary: it uproots old ways of life and old production methods, causes massive population migrations and changes the fabric of daily life intensely. 3. Capitalism, like other systems, has both positive and negative aspects. It differs, however, in its scale and rapidity of transformation. 4. Understanding change is an important part of understanding capitalism.

DETAILED OUTLINE OF CHAPTER 1

1. Capitalism has supplanted almost every competing economic system since its inception (except the family, if that is considered and economic system). The most recent competitor, Soviet Communism, has (like other systems) been replaced by capitalism.

2. Capitalism, an economic system in which employers hire workers to produce goods and services that will be marketed with the intention of making a profit began in Europe around A.D.1500, and unleashed a dynamism, a tendency toward constant change, unknown in previous times.

Among the changes wrought by capitalism are:

3. The Permanent Technological Revolution. As technical change revolutionized production, it reduced the amount of time required to produce most products. Figure (1.1) shows the increase in agricultural productivity.

4. The Enrichment of Material Life. The technological changes of the past five centuries have been accompanied by significant increases in peoples consumption standards, and the quality of economic goods. Figure 1.2 (Real wages in London over 7 centuries), Figure 1.3 (Two Millennia of World GDP per capita) and Figure 1.4 (Improvements in lighting technology: 1700 to the present) are striking evidence of this.

5. Uneven Development. Because some countries saw capitalism before others and because these countries also were able to translate their economic gains into political gains, growth has been uneven across the globe and has resulted in large inequalities. Figure 1.3 inset (share of world output by region) and Figure 1.5(growing world inequality 1820-1992) are evidence of this.

6. Population Explosion. Migration and Urbanization. Capitalism, through the spread of modern medicine has allowed for massive population growth, especially in the twentieth century. At the same time, because of the rapid destruction and creation of livelihoods engendered by capitalism, there have been large scale migrations, both forced (slavery) and voluntary. Finally, there has been a trend towards living in cities as more and more people leave the countryside. Figures 1.6 (Capitalism and the population explosion Growth) and Figure 1.7 (Cities of the world with more than a million inhabitants 2002) show this graphically.

7. Changing Nature of Work. Capitalism has profoundly changed the activity of work. After capitalism, there are fewer self-employed and more people working for a wage or salary. Job skills are rendered rapidly obsolete. Peoples sense of natural time has been supplanted by clock time. Finally, there has been a decline in the percentage of productive population engaged in producing food.

8. Transformation of Family. Family life has been changed: families are smaller, the household is no longer a production unit, and many households no longer are families. In addition, people do not stay in the same location as a family as before but move around in response to the dictates of the economy.

9. Threats to the ecosystem. It is no longer very controversial that capitalism has led to a large scale destruction of certain aspects of our natural environment. Figure 1.8 and 1.9 focus on global warming and carbon dioxide emissions as an example of these changes.

10. Changes in government. Along with capitalism, there has been a growth, generally, of democratic government. Governments have more functions and more direct influence over the lives of their subjects than in the past.

11. Globalization. The capitalist economy, unlike its predecessors is the first truly global economy, bringing most of the world into an interdependent (but unequal) system.