Foundations of Economics Book

It's a really good book to understand economics. They make a traditionally dull subject fairly interesting. It would likely be tough to get through with zero understanding of economics as it gets fairly advanced, but does a decent job of explaining subjects from the beginning. It's a great book to gain knowledge of economics.

The rest of this review is notes I took while reading and not a review:
NoCapitalism - need to be able to own property and land. Have the choice to work. That's why it is new. Option to change jobs, not be a slave or apprentice like old times. Be able to gain and retain wealth from working. Caesar only became rich from being powerful, not vice versa. He conquered Spain and got wealthy, but only because he had a powerful army.

How did land, labor and capital become traded? 15th century Europe inflation from New world riches caused inflation, and Lords rates for serfs were set so they got much less actual money end became poor lords. City merchants became rich and used money to buy land. Before, no reason for technological change because no customers to sell any extra product too. And everyone very safe so nothing improved. With free market economy technology boomed

1800 - steel and iron Mills and looms for cloth led to bigger companies needed to keep up with huge machines fast production. More materials, more workers, bigger factories instead of homes, and needed to find a bigger market to sell the wares

Division of labor- everyone did specialized task. Result was everyone bound to the market because making a shoe heel not valuable without rest of the factory and market. No one was self sufficient any more

Capitalism leads to democracy

Adam Smith - wealth of Nations 1776 same year as declaration of Independence. Competition leads to market rate leads to not being able to have higher prices because people will buy from competitor.

Center of economic study started in Europe, Adam Smith 1776 one of first to make it a formal study. Economic thinking center shifted from Europe to the us after great depression 1929 and us became economic power House in the world during 20th century. China and Russia has revolutions to become communist in early 20th century and Russia overthrown again and lost communism 1991. In 21st century economic upheaval and recessions led to doubt in system, a huge area that looks like a flaw in the system is climate change caused by unregulated free market.

Karl Marx- problems with capitalism. Labor workforce underpaid. He was born in Germany and exiled to mainly London. Communist manifesto 1848. Also wrote capital but didn't finish it. Growth and evolution of capitalism is uncertain and not all puppies like Adam Smith says. Proletarianization is class struggle that will happen.

John Maynard Keynes ("canes") 1888-1946. Proponent of mixed economy where government plays big role. Book after great depression was general theory of employment, interest and capital. Thought there was no natural way to keep capitalism growing and would reach a equilibrium with high unemployment.

Fortune 500 is .1% of corporations but does 75% of sales.

Gross domestic product GDP is total value of output in economy. Also is private output + government public output. Government output small compared to private but it is a good chunk, and not just a drag on economy. Real GDP takes out inflation compared to nominal GDP. Then can use real GDP per capita to take out population growth effect on GDP

Big companies have a bigger share as economy has advanced due to economies of scale. Industries it matters for will go to whoever does Economy of scale first. Other reason for few big coldnes companies compared to 1900 is mergers. With globalization trend is reversing and companies want the be smaller and nimble in most industries

Government getting bigger - went from spending 10% of GDP to 20+% , 1929 only 1% redistribute as welfare now 11+. Why?- bigger companies need more reg to prevent monopolies and pollution. Everything is connected so need to have bris national programs for evergy, transportation etc.As tech grows need gov to supervise it

Microeconomics - worms eye view . Macroeconomics - bird's eye view. GDP made of consumers goods (things that end up being consimed or used by people) or investment goods like Bridges, office buildings, office furniture that never get used by regular people. Both count to GDP. Also includes human capital like education and knowledge from research and development. Public transfer payments (welfare, social security, unemployment) don't count towards GDP. Because it is reward for social programs not effort.

4 counters of GDP. Personal consumption, personal investment, government (should be split like personal but isn't) and net balance of import export.

Only final goods, bread, are tracked not intermediary (ingredients) because final includes value of all ingredients.

Money flows from consumer saving to company investment. This has to happen. If more people want to save and invest than there is demand for the goods in the economy there is deflation. If expanding sectors spend more than the money made available to them it causes upward pressure on the system and results in inflation and higher prices. P 86, it makes sense in the book. Prices are what makes the different parts coordinate, where to open a store, how much investment is needed etc

Government can also play investing role with any consumer savings that are extra since it has to all be used. Doesn't matter if the satellite is Verizon or government for the purpose of savings needing to be investment

Consumer spending is pretty much always based on the income at a pretty stable percent, exceptions of war time and depressions etc. Big long term purchases cars, TV's are more volatile than unstable items like restaurants food since those are needed. Consumption spending is not a driving force in GDP but a driven one. Wants alone don't drive economy upwards or else depressions would go up when everyone is hungry. It's must have money to spend and that is the base, ads always there to push spending to the max. Consumption by consumers doesn't really drive the economy at all it's basically a result and on the whole 95% in US of income gets spent and 5% saved with only rare or short term deviations.

Investment only happens when new stock or bonds are issued that the money is used to buy machinery or invest in something that will provide future profits. Investment is driving not driven force in economy.

Government is a buyer and a spender, bigger spender she the difference is transfer payments (welfare). Transfer payments do not add a penny to GDP. War spending adds to GDP and is about the same percent as 1940 spending. Transfers are much higher.

**Recessions are caused by more savings then investment by businesses. Government can fix this gap by spending the extra consumer savings. Also could try tax cuts to encourage investments by businesses

The Fed pretty much just controls the reserve rate. When it raises it Banks have less money to lend so things tighten up. When they lower the fractional reserve Banks have more money to lend (**and thus the banks can make more profit). The Fed can also let banks borrow money to add to their reserves and lend out. This is called the discount rate. Change the rate to make it more or less attractive to borrow. Third way to control money supply is bonds. To monetize the debt which adds money to the system they buy back government bonds which puts money in the bank account of the bond owner so they can invest more. They can also the the opposite - sell bonds, and the money from the purchaser disappears from the system. In these transfers of checking accounts there is basically no one on the other end so money supply goes up or down.