Capitalism's Impact on Economy & Monetary Systems: Commodity, Fiat Money & Growth, Apuntes de Historia del Arte

¡Descarga Capitalism's Impact on Economy & Monetary Systems: Commodity, Fiat Money & Growth y más Apuntes en PDF de Historia del Arte solo en Docsity! WORLD ECONOMIC HISTORY FIRST SEMESTER Economics - described as a set of social and technical processes which rule the production and the use of material/economic wealth- it's the discipline that studies the production and distribution of specific goods that are limited (also created by mankind). Resources, aka wealth, are material or economic resources that improve our wellbeing. When talking about material wealth we are talking about that can be produced by human's will and takes some kind of effort to produce; but this kind of wealth is subjective as people needs and value changes depending on their eduction, lifestyle, location, etc.... Definition of Economic History: Discipline that studies the sets of social and technical processes that have characterized the production and the use of wealth across time. Economic systems depends on who holds the power, as example: TASA A (CITA VU Democratic Primitive Capable people Satisfy the needs Enough for the communism of the community reproduction Plutocratic Slavery, Subdued people Satisfy the Enough for the feudalism... desires of the reproduction privileged Meritocratic Capitalism Aggrieved people Create more As much as wealth possible Definition of Gross Domestic Product (GDP): Total market value of the goods and services produced by a country's economy during a certain period of time. It's the main measuring tool to know a country's wealth. To know the GDP we use the Market Value (that compares several wealth values), is an important factor for a capitalistic country as this system cannot survive without it. To calculate we have three methods: - From the demand side: we add up all final expenditures that take place in an economy during a specified period of time. - From the income side: we add up all the net incomes that economic agents received in a specified period of time. - From the supply side: we add up the amount of value added in each phase of the production process. There's two type of GDP: 1. Nominal GDP: we obtain it after adding all of the good from X economy straight from the data we obtain. 2. Real GDP: it measures real wealth since it ignores prices' changes and focus on specific goods and their prices evolutions . Some problems of the GDP: 1. |n measuring welfare (non-economic wealth): a. Many important determinants of welfare do not depend on market products: friendship, respect, love, nature, culture... b. The amount of satisfaction we get from (the same) goods and services varies from one society to another (comparison between poor and rich countries) 2. In measuring economic wealth: a. lt doesn't take into account those goods and services not sold in a “formal” or “official” market (house work; ¡illegal businesses; externalities such as pollution or culture). b. lt can't account for qualitative changes in the goods and services produced: i. Either in the quality of a certain good ii. Or in the composition of the basket of most consumed goods. Easterlin Paradox is an empirical relationship observed between measures of overall subjective wellbeing (such as life satisfaction or happiness) and income. lt states that population levels of happiness increases as GDP increases, but in “rich” countries that happiness does not increase at the same rate as GDP does even though this phenomena does happen in “poor” countries. Example: Spain Maly s0 Mexico | .. “0. UK omany lo China + E 5 ¿"E Cormay USA ney, 2000 > expe Ec life torial Guinea o O South Africa Namibia * Botswana T T T T 0 10,000 20,000 30,000 40,000 GDP per capita, 2000, current PPP $ Region 1: Primitive Communism Slavery Feudalism Capitalism Region 2: | Primitive Communism | Feudalism Slavery Capitalism Region 3: Slavery Primitive Communism Feudalism Why, who and how much to produce, are the questions that any economic system must respond. POWER ECONOMIC WHO PRODUCES — WHY HOW MUCH SYSTEM (USE OF WEALTH) Democratic Primitive Capable people Satisfy the needs of Enough for the communism the community reproduction PRIMITIVE COMMUNISM: DIN DIAMOND THEIR THESIS - First societies: organized as - Egalitarian and peaceful ways chimpanzees of living - No words 7 Few dozen individuals — No personal items/private - Work together property — Group decisions reached by — No fights (no need to defent face-to-face discussion land) - Democratic - Highly egalitarian - They differ little in “wealth” and - Leadership migrates from one political power to another — 90% human history The standart story about primmmitve communism says: Few people — Comradeship — Equality 8 Democracy N Limited technical progress - They're said to work out since there's few people and they relate better among them ergo they will be an egalitarian and democratic society as they are all at the same level. But that means that there'd be limited technical progress since they have no need to improve as they live up to nature products. That means that there won't be new ideas nor an increase on knowledge that leads to no specialization or pressure on being wealthier. - Being egalitarian and democratic involves no improvement on technical progress as equality doesn't “allow” competition; if you have nothing to compete for - no special treats, no more wealth, etc- you don't make efforts and you don't have the need to progress as person nor society. - Limited technical progress can't create equality. When societies can create surplus (something you get in exces of what you need) it means they can produce more than they nedd to survive and reproduct so they have more wealth than before. When societies improve technical progress and produce more from what they need in order to live it allows some of these members not to work and relegate their work to others - that's not egalitarian-. When they don't progress they are all forced to work in order to survive. A Disclaimer: this surplus doesn't equal inequality, it could be use to help the other members of the society - everyone earns a little bit more-. The ending of this primitive communism seems to have been the demographic growth -along with the sophistication of human needs- that lead to an economic growth that created inequality that just aggravated the economic growth and inequality. PROBLEMS WITH THIS STORY: 1. Closeness is not a synonym of peace or of conflict avoidance. Might be opposite. 2. The lack of technological progress can't be a consequence of the lack of demographic growth nor of the lack of competition (i.e. egalitarianism). a. Cooperation is a key ingredient for scientific progress: this can be seen in many historical events that we'll study soon (rise of corporations, Golden Age of Capitalism, USSR, COVID vaccine...). b. Thus the lack of demographic growth could have enhanced technological progress, as well 3. The lack of demographic pressure is not likely to have worked for more than 170.000 years. 4. Technical progress can reduce working time and avoid private surplus control. 5. It is false that primitive communities had no demographic or technological progress. REASSESSING OUR KNOWLEDGE ON PRIMITIVE COMMUNISM: Existence of sporadic luxurious and huge buildings and graves, with materials produced hundreds of KM's away, impossible to build by few people or without technical means. This implies: - Equality existed along technical progress and demographic growth. - Egalitarian societies coexisted with more hierarchical ones (as today). - The political economic organization of societies is not technically determined. As examples of this system we have: Trobriand Island inhabitants, American Indians, Piroa (Graeber, 2016), Uduk (James, 2015), Guayak tribes (Clastres, 1972) or Russian communities (Mauss, 1930) SLAVERY AND FEUDALISM: Once a group of people seizes the power in a certain society, its economy begins to work in accordance with the rules imposed by that group. Justifications for, and forms of, domination can be different (slavery vs feudalism; asian vs european modes of production; western Europe vs eastern Europe) but the principles are the same: 1. There's a class of (more or less) unfree labourers, and a ruling class, who appropriates the surplus of the former by extra-economic means. 2. Production is used for the reproduction of the society (and its inequalities). a. Labourers work to survive and to pay the rent to their lord. lf they produce surplus, lord will take it. b. Rulers enjoy the surplus of the labourers with no need to increase it (but during crisis). 3. As a result, the productive expansion of society is accidental and nonsystematic. a. Proto-industrialisation; Guilds; Asian Mode of Production; City-states of Italy. Asia was a huge empire with significant advanced technical progress among the other and even they were based on a feudal system rulers had to demonstrate and earn their position as leaders - their goodness towards the people- so that social pressure made them be more efficient. In other societies there wasn't no pressure on improving. WHAT MADE US BE CAPITALISTS? The struggle of the peasants to free themselves was succesful in certain parts of the Western Europe. Even though they were asking for lower pressure from the upper classes, freedom to move between lands and lands for themselves, in England - as an example- only got the liberty to move between lands. Having no lords meant having no lands Plutocratic societies Plutocracy: people who are rich govern or have influence over the government. It can exist as a consequence of the upper class interests or when the lower class coordinates efforts with nobility. . Upper class interests: dependent on their social roles. . Development of guilds (gremios): allows the coordination and planning of economic growth under the approval of the upper class. Profits from increasing returns to scale. + Carry-on effects: people perform a task better after being able to have had a chance to practice it. + Specialisation: one step improvement. MODEL OF MALTHUS: (pre-capitalist economies) The lack of investment and productivity improvements result in a declining labour productivity in front of a rising population (in spite of rising land productivity). A rising population with less resources can have positive checks, which higher mortality; or preventive checks, which lower natality. Both resulting in a decrease of population. Malthusian ceiling: the magnitude depends on the productive capacity and the level of inequality (both “natural” or “technical” and “social” or “political”). Cycles in European population + 500 - 1300 A.D: soft but continuous growth . 1300 - 1450 A.D: epidemics and Black Death, poor nutrition. . 1450 - 1700 A.D: epidemics and 30 Years War (Crisis of the 17th century). . 1700 - present: strong and sustained growth (with occasional exceptions). Feudal and slavery societies don't have incentive to increase production. In some asian societies it was supposed that rulers were so in order to provide common good. - Positive checks: ¿mortality | 17 Population >.J resources > < >) population - Preventive checks: 3 natality | CONTENDING INTERPRETATIONS: - Capitalism as the result of freedom: + No one was ever interested in putting themselves under the pressure of the market + Foritto appear people are needed not to be able to have acces to income - Capitalism as the result of technological progress: + Technology shape classes' struggle but don't determine social outcome - Capitalism as the result of cultral advance: + Economic behaviour depens on legal and institutional setting beyond each one's beliefs - Capitalism as the result of inequalities: + Itwas preferable to control the poor by extra-economic means THE NEW WORKINGS OF THE ECONOMY: Smith, 1776: “The real price of everything, what evertyhing costs to the man who wants to acquiere it, is the toil and trouble of acquiring it” Smith's example (adapted): 1 horse > 2 hours of labour 1 cow —> 1 hour of labour 1 horse = 2 cows Markets get a bigger importance under capitalism because the need to compte makes people specialise to be better at what they produce, which implies the need to exchange. The supply that is brought in pre-capitalist markets is fixes, under capitalism costs increases the quantity. Given the need to compete those who don't possess machinery or the money to acqueire it are forced to sell their labour power in the market which can have different prices than the other commodities produced with the use of that labour. The difference between what workers get as their wage and what the owners get as income from their sales are the owners' profits, those are the form that expropriation takes in capitalism - under feudalism it was the product itself-. lt does not depend on any productive activity but simply on property. The consequences of competing can be harsh as not every worker will be able to compete -meaning they will lose -. The main problem is that the tendency will reinforce itself: if you don't get money you won't be able to invest it in productive stuff, in capacity to compete and in the future you'll be less competitive. The higher wage you get the more capable you'll be to get more productive stuff and capacity to compete. Now, production does not only depend on human labour but also in machinery and resources. The selling and purchases of machinery follow the same rule of reinforcement: those who have been able to get machinery will be much more productive than those who don't own any. All those who get a higher income are able to be more competitive and so on. This leads to a constant competition. Those who don't own any machinery will end up working for those who have it, but this will create a situation of inequality as the one with machinery will impose almost every condition with no possibility to decline. In capitalism there's a tendency to inequality, as an example the expropriation. Is the distribution of income - dividends- fair? What allows profits to exist is the fact that are people who can't access machinery and therefore have lower wages that cannot be declined if they want to participate and compete in the market. From this situation of inequality it appears the Gini Index that measires the general inequality in a given society. lt can be a result of idfferent income distributions There's an exponential growth in which the richer you are, the higher your income will be. lt is possible to avoid this tendency by political means. INDUSTRIAL REVOLUTION (1750-1850) Usually characterised by the intense introduction of science and machinery in the production processes: - Ferltilizers in agriculture >— Unemployment in agriculture - Rationalization (enclosure) of fields - Steam engine (using coal) - Iron industry: railways and machinery - Textile industry (using Indian cotton): spinning Jenny In general these didn't requiere an improvement in scientific knowledge, the innovations were already known but not used. It isn't a consequence of scientific progress, culture, etc but a change of economic behaviour and changes in the legal structure of society. THE GREAT DIVERGENCE IN GDP PER HEAD: Some nations had a huge increase in their GDP thanks to the apparition of capitalism while other nations who didn't follow the capitalist transition would sitlle have the same GDP According to Marglin “the success of the factory isn't because of technological superiority but because of the susbtition of the capitalist's for the worker's control of the work process and the quantity of output”. THE EXPANSION OF CAPITALISM AND THE INDUSTRIAL REVOLUTION: A partial victory from the peasants movement was the reason England was the first country to see the rise of capitalims. The revolution in England helped other countries and their labourers to try and follow the same pace, revolt and look for freedom. - Pure fiat money: Even in the days of the Gold Standard, countries would abandon it in special times in which they needed perfect control of monetary issues. After the |WW and The Gret Depressions, countries began to abandon the Gold Standard and any commodity money monetary system which was possible because states made valuable by their imposition of taxes and fines. Central banks can increase or decrease the supply of money by: 1. Changing their “central” interest rate (the discount rate) 2. Engagin in Open Market Operations 3. Setting reserves requirements. - Cryptocurrencies Money it self has no value but there's legal requiement for banks to give you a commodity in exchange for that money -as example tokens (known as representations of commodity money)-. Nowadays we work with pure fiat money that has no value itself and can't exchanged by tokens. Money ¡is the specific commodity with its own price derived from its costs of production and its demand, the more it costs to produce the higher its the demand and the higher the price is the lower other commodities' prices are. The less costs to produce other commodities' the lower their prices will be and the higher money's prices will be. The price of a commodity is the cost of that commodity in terms of other commodities: how many other commodities you have to give in order to get that commodity. If X commodity that defines value changes in terms of costs or demand all the proces in the market change with them. The normal progress of a capitalist economy tends to put pressure on the commodity that acts like money. In scarce commodities there won't be a reduction of costs of production, but in general commodities will have a reduction of costs of production. As a consequence, economic growth results in an increase in the need for money. In commodity-money monetary systems there's a tendency towards a generalised deflation due to the economic growth and technological improvements: + Difficulties in the return of debt (*): + Difficulties in the payment of wages. ) negative impact on GDP + Incentives to avoid consumption and investment (*). As prices tend to decline people in debt will find it difficult to pay for their debt, it happens the same with wages. The interest rate when talking about money it's the price of finance and credits.The lower the interest rate os the higher amount of people willing to get in debt because they will have to return less amount of money. lf there's more money in the economy thare are more chances that people will be willing to lends - they have more they don't probably need it-. Central banks - as example the European Central Bacnk- have the policy to determine the interest rate. The limitation of supply in commodity money monetary systems encourages the adoption of: - “Two -commodieites-money” monetary systems —————> Bimetallism - Problem: Gresham's Law ESAS SAS TS rate of exchange between -taken as example - gold and silver will be officialy stated. IES ASA ES Md Ala MIES SEEN A ES ENS ENT S EAIAE ESN RAESAACEa (AN AIR A RIRS ln - Development of private fiduciary money ————-> Tokens - Problem: unnecessary multiplication of costs, coordination problems, chain effects of monetary issues on people not directly involved. Progress towars monometallism with state's fiduciary money (commodity backed fiat money): the Gold Standard - New, though limited, policy tool on inflation and interest rates - Several countries using a commodity-money monetary system, based on gold - International exchanges requiere the transportation of gold (or tokens of it) - The amount of gold a country has, and thus its interest rate and its risk of deflation, depend (besides its production) on ¡ts sales abroad: - The bigger the amount of sales, the bigger the disposal of gold, the lower the interest rate and the lower the risk of deflation that enhanced economic growth. INFLATION: Inflation is the generalised rise of prices. In the commodity system, prices are expressed in commodity money terms, if money is gold, all prices will be expressed as a certain amount of gold, When gold increases its cost of production, other commodities will tend to lower their prices in regard to gold. Money in the beginning of capitalism arises naturally from people's need to ease exchanges. They won't have to barter (trueque). First they will use a commodity, something everyone wants to exchange. Therefore, the first kind of money was commodity money, and it was determined by supply and demand. When money is a commodity, the prices of all other commodities, when expressed in terms of the other commodity, will vary in relation to the main commodity. Capitalism has certain dynamics that in commodity money monetary systems lead to deflation and a reduction of prices of most commodities in comparison to money - things become cheaper-. Problems that come with said deflation: - Difficulties in the retun of debt - Difficulties in the payment of wages - Incentives to avoid consumption and investment Economic growth and technological improvement will imply that the relative cost of production of other commodities will be lower compared to gold. Why does this tendency of cheapening doesn't apply to gold? Gold will reduce its price as will, but those commodities whose production depens on natural issues havw a slower process of deflation, because they are less open to technical improvement. The amount of supply doesn't only impact on the price of gold, but it also will have an impact on the well on interest rates - the % of money you'll get in retunr if you lend money-. The bigger the amount of money in an economy, the bigger the amount of money people will be willing to lend. When interest rates are low asking for a credit loan is cheaper and therefore costumers will ask for more credits, therefore, there will be more cosnumption and investment. The limited supply of gold will tend to create deflation, adn the commodity money monetary system will be characterised by deflation and it could lead to rising interest rates. Pople will have less money so interest rates will tend to increase. The main fatures of commodity money are delfation and high interest rates, both things being negative toward economy so in order to fix it they hall two or three usal commodity money, lf there's a lack of one commodity it's possible to use the other one. Therefore, having more than one commodity money enables the possibility to avoid deflation and high interest rates. Most economies will develop ways to avoid these shortage of money commodities: 1. Using more than one commodity as money 2. Developing fiduciary money (fiat money). However, eventually they might en up making more fiat money than the actual amount of gole they own. HYPERINFLATION: Is known as the self-feeding rise of prices. When the rises of prices are expectes producers rise their prices and workers claim for higher wages. THE RELATION BETWEEN INFLATION AND HYPERINFLATION: While inflation at a 2% rate is the target for central banks as incentive for cnomic growth, hyperinfation instead is problematic for the economy. Inflation of 2%: - Stimulus to consume and invest - Enhancement of debt payment - Enhancement of wages paymet Hyperinflation: - Difficulties to make payments and to calculate - Economic failure 3. Demand for different products has different price and income elasticities. Depending on the kind of product on which each country is specialised, its gains from economic growth and lowering prices will be different. Those products with low price elasticity of demand will face that when they low their prices thanks to technological progress will increase their demand in a low amount. It will happen if the whole world's income increases. REAL HISTORY OF TRADE: The reality is that in real life it happens exactly the opposite as it is thought. Poor countries tend to remain poor and rich countries tend to get richer. When current rich countries were at their first years of development they did have a lot of protection against international trade (England, EEUU, Western European countries, etc). They didn't do so when they were opening to international trade. Inequality among countries has increased almost wihotut any break. Countries that grew more were already rich and/or implemented a protectionist policy with regards to international trade. Higher growth rates coincided with a period of generalised protectionism for the analysed countries. Least growing economies implemented highly protectionist policies (but the Netherlands). Economic growth didn't depend on countries openness to international trade, nor on its protectioism - as a way to profit from good economic policies-. SOME ESPECIFIC CASES: USA: + “English merchant capitalists aimed to establish commodity-producing agriculture in the colonies but ran into obstacles. In the North, they failed to impose a capitalist market in land. After they had cleared away the Native American population through terror, they could not prevent small farmers from squatting on land and establishing what Post calls “non-capitalist independent household production,” essentially subsistence farming”. + *In the South, the merchants and planters attempted to set up commodity-producing plantations, but they immediately confronted a problem of scarce labor. In response the planters used racial slavery (...) and kept them down with a new ideology of racism. Post argues that this plantation slavery was non-capitalist". + “The dominance of non-capitalist social-property relations in both the South (plantation-slavery) and North (independent household-production) produced a pattern of extensive, non-capitalist economic growth in the British-North American colonies.” + After the Independence War (1776), the North became closer to feudal relations with few people in control of land. + Numerous rebellions against slavery and feudalism (Bacon's Rebellion, Shay's Rebellon) eventually led to capitalism, first in the North and, after the Civil War, also in the South, at beginning of the XIX century. FRANCE: Return to (absolutist-) feudalism: - Power was concentrated in few hands and military force was used to extract surpluses (in the form of taxes) from the peasantry. Ruling class' power ambitions (threatened by England's increasing power, XVII| cent): + State investment in English inventions: railway, textile, stock companies... + Capitalism as a second best option for the ruling class. Peasantry freedom ambitions (led by English liberation): - Capitalism as a second best option for the peasantry. Not proper capitalism until the Third Republic (1870) and always with tariffs GERMANY: Napoleon abolished feudal relations at the beginning of the XIX century: - Capitalism as a second best option for ruling classes facing feudal decline. Zollverein (1834) as a political institution to ensure a virtuous cycle of trade and growth: - Coordination among small “german” states, led by Prussia. State intervention (Otto Von Bismarck): public banking, public investments and “welfare” system. - Precedent of fascism. CONCLUSIONS: Joining capitalist development required specific political and institutional arrangements in each country. Even within capitalist economic systems, there are many variables that shape the national pattern of economic growth: + Legal environment. + State's provision of public goods: research and development, education, health and infrastructure. + Balance of power between classes. + Luck in scientific development and consequent carry-on effects. + Advantages of late-comers with regards to imitation THE CURRENT SITUATION OF THE RICARDIAN THEORY: Instead of flows of gold we talk about flows of currencies. Instead of inflation and deflation of national price levels, we talk about appreciation and depreciation of national currencies. + A deficit in the trade balance of a given country implies more currency outflow than inflow. This reduces the price of the national currency, relative to other currencies. Such depreciation is supposed to stimulate competitiveness. + A superavit in the trade balance of a given country implies more currency inflow than outflow. This increases the price of the national currency relative to other currencies. Such appreciation is supposed to decrease competitiveness. Same problems: it forgets changes in production, interest rates and financial capital flows. Some problems: it forgets changes in production, interest rates and financial capital flows. Exceptions: Japan after the Second World War = International aid, the advantage of the late-comer and development of zaibatsus. Asian Tigers and Latin American countries: - “The developing countries grew much faster when they used “bad” trade and industrial policies during 1960-80 than when they used “good” (at least “better”) policies during the following two decades” (Chang, 2005). - “Ofthe 14 countries discussed herein, only four managed steady growth of a period of a decade or more and nine went through financial crises. In general, growth and productivity, performances were sub-par by historical standards” (Taylor, 2005) CONCLUSIONS: International trade can benefit all its participants but nothing ensures that this will happen. In the end, it is not nations but firms the agents in charge of exchanges. Indeea, left without regulation, international exchanges will tend to increase the already existing differences among companies of different countries. International trade can be advantageous when there are similar levels of competitiveness and/or exchanges are politically regulated to avoid negative vicious circles, International institutions are an unavoidable element to ensure profits to all participants of international trade. The World Economy between 1870 and 1913: - International trade. - Strengthened working class. - Increasing public intervention of the economy. - Rise of transnational corporations. Economic growth is always the increase in the amount of goods and services produced. This can be achieved by: - Increasing the amount of resources used in the production process (natural, human and human made). Extensive growth: - — Working more. - Investing more (instead of consuming wealth). - Increasing the efficiency with which resources are used in the production process (increases in productivity). Intensive growth: - Developing knowledge and technology (investing on it). Both mechanisms reinforce each other: ifwe increase productivity we can use more resources. lf we use more resources we can further develop productivity. INNOVATION PROCESS: Defintion: Set of changes applied to the production process that improve the amount and/ or the quality of ts results. It is the result of consecutive steps: 1, Scientific progress is the understanding of how the world works. It is stimulated by: + Investment —> use of resources to do research and/or to let people think and investigate. Positive externalities ——> spillovers profited by free-riders ——> need to cooperate or to invest in its avoidance. + Sharing of knowledge: Increasing returns and network effects. 3. Diffusion enhances the development of scientific knowledge as well as its use (and thus, stabilizes the market and allows increasing returns). It is stimulated by: + More or less egalitarian distribution of income. Excludable goods Non-excludable Rival goods Private goods: Common goods: Food. - Wood in public forests. Clothes. - — Fishes in the sea. Non-rival goods Natural monopolies: Public goods: Communications. - Scientific knowledge. Films 8 books - National health. (culture). Fallacy of composition: whenever what is true at the individual level does not apply at the aggregate level. It's a misleading argument or belief based on a falsehood. One example: the economics of QWERTY (fallacy of composition) QWERTY keyboard is known not to be the most useful for quick writing (not for English, less for other languages). Even though, it is the most widely used because of the network effects that exist in its production and use: - People are used to type in this kind of keyboard. - Companies and softwares have their procedures adapted to this keyboard. - Ifa single company wanted to increase the speed with which its workers type, it would face bigger costs from teaching new skills to workers and asking for changes in softwares and other companies' services. This also applies to many other industries: electric vehicles, nuclear power... Paradox of thrift: personal savings can be detrimental to overall economic “growth.” Unemployment is justified by a fallacy of composition, because it” true only at an individual level. Technological innovation process: changes applied to the production process that improve the amound and/or the quality of its results. Steps for innovation proces: - Scientific progress: investment (positive externalities: a phenomenon that occurs when an economic activity has a positive impact on someone who wasn't involved in that activity) and sharing knowledge (increases the chances to improve knowledge). It's difficult for a company or a person to increase their knowledge without others doing the same. It's likely that economic agents can profit from investments they haven't done (free riders, “polizon”). This might cause that companies don't invest in developing knowledge as much as they would do if they could profit from all that knowledge, maybe their investments will be in trying to profit from other companies knowledge. The fact that there are positive externalities implies that splillovers are profited by free- riders, then companies won't invest in developing knowledge unless they can cooperate and reach deals. Applying knowledge is a different way to develop practical technology (investment is necessary). Technical applications of certain knowledges have impacts on other companies (positive externalities). In the practical application of knowledge, there are increasing returns and network effects (consequences of positive externalities. They imply that decisions must be coordinated in order to take a higher profit). SOME EARLY CONCLUSIONS: The continuity of capitalist economic growth requires productivity growth. This growth is enhanced by investment in innovation and by cooperative and sharing environments. + Investment in innovation depends on competitive pressures and on the potential rewards. Competitive pressures are inherent to capitalism but whether on innovation or not might depend of potential alternatives such as extensive growth. Potential rewards depend on laws and institutional arrangements that promote cooperation among economic agents (which, at their turn, depend on political struggles). + Cooperation and sharing depend on laws and institutional arrangements (which, at their turn, depend on political struggles).