C [1-(1+R)^-n]/R

The succesive form of the division of labor

The distinction of sex gave rise to a difference of economic function, and the rudimentary division of tasks thus evolved coincided with the first phase of economic evolution, - the phase which we have called the home or family economy. Yet this division of labour is far from corresponding to the modern conception of the peculiar province of the two sexes, viz. the idea that man should perform the hard work and woman the household duties. Cura agrorum feminis delegata – Tacitus

2. The second phase – that of corporations or guilds – coincided with a more detailed division of labour, viz., the rise of separate trades.

3. In the third phase, that of the workshop and domestic manufacturing, the division of labour attains the highest degree of perfection.

4. In the next phase, - that of factories, - the division of labor seems almost to have retrograded;; or rather, not men but machines do the specializing.

5. Finally, there is beyond this another form of the division of labour, which may be called international division of labour, because it has grown up under the influence of the development of international transportation and exchange.

Conflict between South and North Korea

http://www.moneylife.in/article/81/11534.html

GS hosted an investor conference call with Doctor Lee, Ambassador for International Security Affairs in the Lee Myung-bak Administration and Dean of the Graduate School of International Studies at Yonsei University. In the call, the expert said that there could be three reasons for the provocation:

1. This could be a tactic to put pressure on the US and South Korea for renewing the Six-Party Talks and to get more economic concessions.

2. North Korea might have wanted to raise tensions in the Korean peninsula to consolidate domestic support for an emerging leadership-for the 27-year-old son of the current leader, who has recently been promoted to a general and ranked as the No 2 in the government.

3. North Korea might have sought to weaken the South Korean government and divide public opinion in South Korea, given the current South Korean government's adherence to UN sanctions against North Korea.

However, the war should be short lived and will not going deeper as in current circumstances (the Korea is facing its challenges from global recession and engaged in the recovery process), there is insufficient capital for government to support a long war even the government able extending its government deficit.

Hysteresis

Hysteresis

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- Standard analysis suggested that raising unemployment above NAIRU should reduce inflation

- But estimates of NAIRU kept rising through 70s and 80s – NAIRU= Current rate + 2 percent

- Hysteresis: once a metal is magnetized, it is easier to magnetise in the future

Explaining

- Skill atrophy

- Network Breakdown

- Scarring

- Changes in employer behavior (end of labour hoarding)

- People who have been unemployed, more likely to remain so

Implication

- Even with expectation taken into account, medium-term Phillips curve is not vertical

- Use of high unemployment to bring down inflation can have long-lasting costs

W

Hysteresis refers to systems that have memory, where the effects of the current input (or stimulus) to the system are experienced with a certain delay in time. Such a system may exhibit path dependence, or “rate-independent memory”. Hysteresis phenomena occur in magnetic materials, ferromagnetic materials and ferroelectric materials, as well as in the elastic, electric, and magnetic behavior of materials, in which a lag occurs between the application and the removal of a force or field and its subsequent effect. Electric hysteresis occurs when applying a varying electric field, and elastic hysteresis occurs in response to a varying force. The term “hysteresis” is sometimes used in other fields, such as economics or biology, where it describes a memory, or lagging effect.

In a deterministic system with no dynamics or hysteresis, it is possible to predict the system’s output at an instant in time, given only its input at that instant in time. In a system with hysteresis, this is not possible; there is no way to predict the output without knowing the system’s current state, and there is no way to know the system’s state without looking at the history of the input. This means that it is necessary to know the path that the input followed before it reached its current value.

Many physical systems naturally exhibit hysteresis. A piece of iron that is brought into a magnetic field retains some magnetization, even after the external magnetic field is removed. Once magnetized, the iron will stay magnetized indefinitely. To demagnetized the iron, it would be necessary to apply a magnetic field in the opposite direction. This is the effect that provides the element of memory in a hard disk drive.

A system may be explicitly designed to exhibit hysteresis, especially in control theory. For example, consider a thermostat that controls a furnace. The furnace is either off or on, with nothing in between. The thermostat is a system; the input is the temperature, and the output is the furnace state. If one wishes to maintain a temperature of 20 °C, then one might set the thermostat to turn the furnace on when the temperature drop below 18 °C, and turn it off when the temperature exceeds 22 °C. This thermostat has hysteresis. If the temperature is 21 °C, then it is not possible to predict whether the furnace is on or off without knowing the history of the temperature.

The word hysteresis is often used specifically to represent rate-independent state. This means that if some of input x(t) produce an output Y(t), then the inputs X(at) produce output Y(at) for any α > 0. The magnetized iron or the thermostats have this property. Not all systems with state (or, equivalently, with memory) have this property; for examples, a linear low-pass filter has state, but its state is rate-dependent.

The term is derived from ὑστέρησις, an ancient Greek word meaning deficiency or lagging behind. It was coined by Sir James Alfred Ewing.

Economics

Economics systems can exhibit hysteresis. For examples, export performance is subject to strong hysteresis effects: because of the fixed transportation costs it may take a big push to start a country’s exports, but once the transition is made, not much may be required to keep them going.

Hysteresis is a hypothesized property of unemployment rates. It is possible that there is a ratchet effect, so a short-term rise in unemployment rates tends to persist. An example is the notion that inflationary policy leads to a permanently higher natural rate of unemployment, because inflationary expectations are sticky downward due to change wage rigidities and imperfections in the labour market. Another channel through which hysteresis can occur is through learning by doing. Workers who lose their jobs due to temporary shocks may become permanently unemployed because they miss out on the job training and skill acquisition that normally takes place. This explanation has been invoked, by Olivier Blanchard among others, as explaining the differences in long run unemployment rates between Europe and the US.

Hysteresis occurs in applications of game theory to economics, in models with product quality, agent honesty or corruption of various institutions. Slightly different initial conditions can lead to opposite outcomes and resulting stable good or bad equilibria.

Another area where hysteresis phenomena are found is capitals controls. A developing country can ban a certain kind of capital flow (e.g. engagement with international private equity funds), but when the ban is removed, the system takes a long time to return to the pre-ban state.

Monetarism

Monetarism

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Friedman’s successful critique of Keynesianism – encouraged acceptance of other views

Monetarist macroeconomics – no fine tuning

Money supply targeting

- Nominal income identity MV=PY

- Assume stable velocity + full employment

- Growth of money stock determines inflation

- Central bank can control this

- Choice of monetary aggregate – base money M1, M2, M3

Failure of monetary targeting

- Financial innovation associated with deregulation – made money supply measures hard to interpret

- More fundamental – changes in behavior associated with targeting – Goodhart’s law – the lost of its role for indicators of the target.

- Policy abandoned by early 1980s

W

Monetarism is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over the longer periods and that objective of monetary policy are best met by targeting the growth rate of the money supply.

Monetarism today is mainly associated with the work of Milton Friedman, who was among the generation of economists to accept Keynesian economics and then criticize it on its own term. Friedman and Anna Schwartz wrote an influential book, A Monetary History of US, 1867-1960, and argued that “inflation is always and everywhere a monetary phenomenon.” Friedman advocated a central bank policy aimed at keeping the supply and demand for money at equilibrium, as measure by growth in productivity and demand. The monetarist argument that the demand for money is a stable function gained considerable support during the late 1960s and 1970s from the work of David Laidler. The former head of US Federal Reserve, Alan Greenspan, is generally regarded as monetarist in his policy orientation. The European Central Bank officially bases its monetary policy on money supply targets.

Critics of monetarism include both neo-Keynesians who argue that demand for money is intrinsic to supply, and some conservative economists who argue that demand for money cannot be predicted. Joseph Stiglitz has argued that the relationship between inflation and money supply is weak when inflation is low.

Description

Monetarism is an economic theory which focuses on the macroeconomic effects of the supply of money and central banking. Formulated by Milton Friedman, it argues that excessive expansion of the money supply is inherently inflationary, and that monetary authorities should focus solely on maintaining price stability.

This theory draws its roots from two almost diametrically opposed ideas: the hard money [Hard money policies are those which are opposed to fiat currency and this in support of a specie standard, usually gold or silver, typically implemented with representative money] policies that dominated monetary thinking in the late 19^th century, and the monetary theories of John Maynard Keynes, who, working in the inter-war period during the failure of the restored gold standard, proposed a demand-driven model for money which as the foundation of macroeconomics. While Keynes had focused on the value stability of currency, with the resulting panics based on an insufficient money supply leading to alternate currency and collapse, then Friedman focused on price stability, which is the equilibrium between supply and demand for money.

This result was summarized in a historical analysis of monetary policy, Monetary History of the US 1867-1960, which Friedman coauthored with Anna Schwartz. The book attributed inflation to excess money supply generated by a central bank. It attributed deflationary spirals to the reverse effect of a failure of a central bank to support the money supply during a liquidity crunch.

Friedman originally proposed a fixed monetary rule, called Friedman’s K-percent rule, where the money supply would be calculated by known macroeconomic and financial factors, targeting a specific level or range of inflation. Under this rule, there would be no leeway for the central reserve bank as money supply increased could be determined “by a computer”, and business could anticipate all monetary policy decisions.