WEBVTT NOTE Time Preference, Capital, Technology, and Economic Growth 1 00:00:00.000 --> 00:00:12.000 Okay, this lecture will be on time preference, on interest and capital and capital accumulation. 2 00:00:12.000 --> 00:00:21.000 I have already touched upon the problem of capital accumulation to a certain extent. 3 00:00:21.000 --> 00:00:30.000 Recall that agricultural societies make it possible for the first time that capital goods are accumulated, 4 00:00:30.000 --> 00:00:46.000 whereas the possibilities of accumulating much in terms of capital goods under hunter and gatherer societies that move from place to place is very limited. 5 00:00:46.000 --> 00:01:11.000 And this subject is, so to speak, the third dimension that we need to cover in order to understand the wealth of nations apart from ideological factors to which I will come tomorrow besides division of labor, 6 00:01:11.000 --> 00:01:30.000 Besides the development of money and the universalization of money, capital accumulation is the third leg, so to speak, on which societies stand. 7 00:01:30.000 --> 00:01:52.000 Let me begin with some theoretical considerations, some theoretical explanations about the phenomenon of time preference and how it relates to capital and capital accumulation in particular. 8 00:01:52.000 --> 00:02:02.000 People do not just have a preference for more goods over less. 9 00:02:02.000 --> 00:02:09.000 I explained that this preference explains, for instance, why there is division of labor. 10 00:02:09.000 --> 00:02:18.000 People also have a preference of goods earlier, satisfaction earlier, 11 00:02:18.000 --> 00:02:24.000 as compared to satisfaction later, goods later. 12 00:02:24.000 --> 00:02:33.000 Mankind cannot wait forever for satisfaction. 13 00:02:33.000 --> 00:02:43.000 Waiting for certain results involves a sacrifice. 14 00:02:43.000 --> 00:03:09.000 and without capital goods you recall it makes a distinction between consumer goods which are directly useful and in my first lecture I explained of course that besides directly useful consumer goods we also employ producer goods that are only indirectly useful. 15 00:03:09.000 --> 00:03:19.000 There are very few desires that we can satisfy immediately, instantaneously. 16 00:03:19.000 --> 00:03:26.000 It might be picking a berry that immediately leads to satisfaction. 17 00:03:26.000 --> 00:03:32.000 And there is of course leisure time, just lazing around, 18 00:03:32.000 --> 00:03:41.800 around that can also be immediately satisfied without doing anything else about it. 19 00:03:41.800 --> 00:03:55.440 But most of our desires require that we use intermediate products in order to satisfy 20 00:03:55.440 --> 00:04:24.440 or we need intermediate products in order to be more productive, that is, if we want to increase the amount of immediately usable consumer goods, we have to go about it in some sort of roundabout way rather than directly picking berries and satisfying us in this way. 21 00:04:24.440 --> 00:04:52.440 So what capital goods do is capital goods allow us a greater production of the same goods or they allow us to produce goods that cannot be attained without the help of capital goods at all. 22 00:04:52.440 --> 00:05:16.440 And in order to attain capital goods, it is necessary that we save, that we consume less than we could consume 23 00:05:16.440 --> 00:05:39.440 and use these saved up funds, so to speak, in order to feed us during the period of time that is necessary in order to complete the construction of capital goods, 24 00:05:39.440 --> 00:05:57.440 with the help of which then we can attain larger output of consumer goods or attain goals that we could not attain without capital goods at all. 25 00:05:57.440 --> 00:06:07.440 So this restriction of possible consumption is what we call savings. 26 00:06:07.440 --> 00:06:36.440 And the transfer of our saved funds allocating using land and labor to construct, to bring into existence capital goods is called investment. 27 00:06:36.440 --> 00:06:44.440 And the question that we always face is the following. 28 00:06:44.440 --> 00:07:00.440 Does the utility that is achieved by the higher productivity of longer roundabout production processes, 29 00:07:00.440 --> 00:07:23.440 Does the utility that we achieve by roundabout methods of production exceed the subjective sacrifice that we must make of present goods that we could conceivably consume? 30 00:07:23.440 --> 00:07:43.440 Or put it differently, the decision of an actor on what objects to invest will depend on the expected utility of the forthcoming consumer goods, 31 00:07:43.440 --> 00:07:50.440 on the durability of these forthcoming consumer goods 32 00:07:50.440 --> 00:08:01.440 and on the lengths that it takes before we attain these future consumer goods. 33 00:08:01.440 --> 00:08:12.440 And we can then explain the entire act of deciding whether or not to perform an act of capital formation 34 00:08:12.440 --> 00:08:41.440 as the balancing of relative utilities, that is the utility of the expected, the present utility that we attach to future goods, as compared to the utility of present goods available to consumption, discounted by the rate of time preference. 35 00:08:41.440 --> 00:08:52.640 That is, by our rate with which we value present goods more highly than future goods. 36 00:08:52.640 --> 00:08:57.120 Present goods are always valued more highly than future goods. 37 00:08:57.120 --> 00:09:06.320 Present goods sell at a premium against future goods, or put it the other way around, future 38 00:09:06.320 --> 00:09:27.320 This phenomenon, this discount or this premium, depending on what the angle is from which we look at the phenomenon, is called interest. 39 00:09:27.320 --> 00:09:51.320 And I want to illustrate these initial abstract remarks by looking for a moment at a simple Robinson Crusoe economy. 40 00:09:51.320 --> 00:10:01.320 Let's assume that Robinson Crusoe is the most knowledgeable person on earth. 41 00:10:01.320 --> 00:10:13.320 He knows all technological recipes that mankind knows, but is stranded on an island. 42 00:10:13.320 --> 00:10:31.320 And on this island, there is initially nothing else but land, that is nature-given resources, and labor, his own body and his own knowledge incorporated in it. 43 00:10:31.320 --> 00:11:00.320 and assume for a second that the immediately available consumer good that is available to him are fish and Robinson Crusoe now has to make a decision as to how he will produce 44 00:11:00.320 --> 00:11:07.320 How to Use this Consumer Good of Fish 45 00:11:07.320 --> 00:11:16.320 Given, as I assumed, that Robinson Crusoe knows every technological recipe under the sun, 46 00:11:16.320 --> 00:11:29.320 we can imagine that he knows various techniques how to attain his end that is fish as consumer goods. 47 00:11:29.320 --> 00:11:43.320 He can, for instance, use his bare hands to attain fish, to be grabbing into the water and pulling the fish out. 48 00:11:43.320 --> 00:11:50.320 He can build a net to produce fish. 49 00:11:50.320 --> 00:12:00.320 We can build a fishing trawler. This is a boat with a net attached. 50 00:12:00.320 --> 00:12:14.320 And we might easily imagine that there exist various other technologies that he is aware of as well. 51 00:12:14.320 --> 00:12:24.320 The question is then that Robinson Crusoe faces, what shall I do? How shall I produce fish? 52 00:12:24.320 --> 00:12:40.320 And the first thing that is worth pointing out here is that the fact that he knows extremely productive methods of catching fish, 53 00:12:40.320 --> 00:12:51.320 Let's say using a fishing trawler, that this fact does not help him much in his initial situation. 54 00:12:51.320 --> 00:12:57.320 And the reason for this should be obvious. 55 00:12:57.320 --> 00:13:05.320 The reason has to do with the fact that he is constrained by time preference. 56 00:13:05.320 --> 00:13:14.320 That is, he cannot wait forever until the satisfaction of his most urgent desires. 57 00:13:14.320 --> 00:13:27.320 And if he would start building a fishing trawler, then he would likely be long dead before the fishing trawler is ever completed. 58 00:13:27.320 --> 00:13:54.320 So what he will likely have to do is he will have to start in a capital-less mode of production without any capital goods, just using his bare hands to get fish out of the pond or the river, whatever the waters there are. 59 00:13:54.320 --> 00:14:06.320 And he will then have to, if he is done at the end of the day and he has caught ten fish, 60 00:14:06.320 --> 00:14:12.320 he will have to make a decision what he will do with these ten fish. 61 00:14:12.320 --> 00:14:20.320 Obviously if he decides I will consume at the end of the day all ten fish, 62 00:14:20.320 --> 00:14:26.320 Then the next day he will be exactly in the same position that he was on day one. 63 00:14:26.320 --> 00:14:35.320 On the other hand, if he decides that I will put away some fish, 64 00:14:35.320 --> 00:14:46.320 a certain fraction of those that he could consume, then he engages in an act of saving. 65 00:14:46.320 --> 00:14:59.320 And he can now form some sort of expectation, how long will it take me to build the net? 66 00:14:59.320 --> 00:15:11.320 And what will be the output of fish per hour, let's say, that I can attain with the help of a net? 67 00:15:11.320 --> 00:15:38.320 And based on his evaluation of this time lag, let's take a week to build the net, and his expectation, I will double or triple my output, he can now decide, so to speak, how much or how little he wants to save. 68 00:15:38.320 --> 00:15:50.520 If Robinson Crusoe has what we call a high degree of time preference, that is, he prefers 69 00:15:50.520 --> 00:16:03.440 present goods very highly over future goods, meaning saving represents a great sacrifice 70 00:16:03.440 --> 00:16:06.240 for him. 71 00:16:06.240 --> 00:16:14.700 Then the process of saving will be relatively slow and it takes quite a while before he 72 00:16:14.700 --> 00:16:22.960 has accumulated enough fish, saved enough fish in order to be in the position to say 73 00:16:22.960 --> 00:16:31.740 now I have saved enough fish in order to feed myself during the week that is necessary in 74 00:16:31.740 --> 00:16:41.660 In order to build the net, and once the net comes into existence, then his standard of 75 00:16:41.660 --> 00:16:46.040 living goes up. 76 00:16:46.040 --> 00:16:53.420 The same, of course, if he wants to move from stage two to stage three. 77 00:16:53.420 --> 00:17:01.260 Again, he would have to make an estimation of how long will it take me to build that 78 00:17:01.260 --> 00:17:11.580 Fishing Trawler, what will be the likely increase in productivity that I can achieve if I have 79 00:17:11.580 --> 00:17:23.380 a fishing trawler available and then he determines how much or how little in terms of savings 80 00:17:23.380 --> 00:17:27.180 he is willing to do. 81 00:17:27.180 --> 00:17:31.260 Again, if his time preference is very high, 82 00:17:31.260 --> 00:17:35.820 preferring present satisfaction very much over future 83 00:17:35.820 --> 00:17:40.900 satisfaction, then the process of going from here to here 84 00:17:40.900 --> 00:17:43.020 will take very long. 85 00:17:43.020 --> 00:17:46.260 If his time preference is very low, 86 00:17:46.260 --> 00:17:50.220 that is, he is willing to make larger sacrifices. 87 00:17:50.220 --> 00:18:09.420 He can delay his future gratification more and save more than the process of going from stage one to stage two and from stage two to stage three is shorter. 88 00:18:09.420 --> 00:18:16.020 Each way along the line, his standard of living increases. 89 00:18:16.020 --> 00:18:36.540 It should be clear from the outset that no one would engage in the construction of any capital goods unless he expected that production with the help of a capital good is more productive than production without the help of a capital good. 90 00:18:36.540 --> 00:18:46.340 If I can produce ten fish per day by using my bare hands, and if I can also only produce 91 00:18:46.340 --> 00:18:55.260 ten fish per day by using a net, then obviously the net would never come into existence because 92 00:18:55.260 --> 00:19:02.820 the entire time spent on constructing the net would be nothing but sheer waste. 93 00:19:02.820 --> 00:19:21.820 Capital goods are always brought into existence with the expectation that production with capital goods is more productive than production without capital goods. 94 00:19:21.820 --> 00:19:31.820 Because of this, because of the productivity of capital goods, people are only willing to pay a price for it. 95 00:19:31.820 --> 00:19:41.140 If the net would not yield a higher output per hour than the bare hands, then obviously 96 00:19:41.140 --> 00:19:46.540 nobody would ever be willing to pay a price for the net. 97 00:19:46.540 --> 00:19:57.300 If the fishing trawler would not promise a larger output per hour, then the net, the 98 00:19:57.300 --> 00:20:07.300 The price of the fishing trawler could not conceivably be higher than the price of the net and so forth. 99 00:20:12.300 --> 00:20:24.300 What holds men back, so to speak, as far as investment and capital goods accumulation is concerned, 100 00:20:24.300 --> 00:20:35.300 is always time preference. We do not automatically choose, so to speak, the most productive method, 101 00:20:35.300 --> 00:20:49.300 but it is time preference and related to it, savings, that allows us or does not allow us to choose certain techniques 102 00:20:49.300 --> 00:21:08.300 Let me just, in order to illustrate this concept of time preference a little bit more, use some examples, some of which you find in Mises, some of which I developed. 103 00:21:08.300 --> 00:21:18.300 Some of which you find in Mises, some of which I developed. 104 00:21:20.300 --> 00:21:29.300 Let's assume we would be like angels who can live off love and air alone. 105 00:21:33.300 --> 00:21:37.300 That is who have no need for consumption. 106 00:21:38.300 --> 00:21:59.300 We can imagine that an angel, for instance, would in fact produce, so to speak, immediately in the most productive fashion, even though the angel would not have any motive to produce at all. 107 00:21:59.300 --> 00:22:10.300 After all, he can live off love and air alone, but let's say he had some sort of fun to produce large amounts of goods, 108 00:22:10.300 --> 00:22:16.300 because the angel could wait forever. 109 00:22:16.300 --> 00:22:26.300 The interest rate, the degree to which he prefers present goods to future goods, is zero. 110 00:22:26.300 --> 00:22:34.300 It doesn't make any difference for him whether he has the fish right now or the fish in 10,000 years. 111 00:22:34.300 --> 00:22:45.300 For us who are somewhat less than angelic, that does of course make a tremendous difference 112 00:22:45.300 --> 00:22:54.300 whether we have a fish 10,000 years from now or today or in one week. 113 00:22:54.300 --> 00:23:04.300 So we are constrained by time preference. Our interest rate is positive. It is higher than zero. 114 00:23:04.300 --> 00:23:15.300 Take another example that helps you illustrate this concept of time preference. 115 00:23:15.300 --> 00:23:26.980 Let's assume for instance, this gets us already in some sort of cultural influence on this 116 00:23:26.980 --> 00:23:36.420 phenomenon of time preference and capital accumulation, let's assume for instance that we would know 117 00:23:36.420 --> 00:23:42.980 that the world will end in one week from now and we are all perfectly certain that this 118 00:23:42.980 --> 00:23:58.980 What would then happen, so to speak, to the willingness of exchanging a present good for a future good? 119 00:23:58.980 --> 00:24:04.980 And the answer is, of course, this willingness would essentially disappear. 120 00:24:04.980 --> 00:24:09.980 The interest rate in this case would skyrocket. 121 00:24:09.980 --> 00:24:27.980 Nothing, no interest payment would be high enough in order to induce anybody to sacrifice current consumption for a higher amount of future consumption because, after all, there is no future for us. 122 00:24:27.980 --> 00:24:51.980 As I said, there are, for instance, certain sects, religious sects, who believe that the world will go down and very quickly we will be, the good guys will go to heaven and the bad guys will go some place else. 123 00:24:51.980 --> 00:25:08.980 And these people of course then do stop to save. They will just have one more glorious day of consumption and then of course the whole story will be over. 124 00:25:08.980 --> 00:25:33.980 As I said, all humans prefer present goods over future goods, but the degree to which people do this is different from individual to individual and also from specific groups to other specific groups. 125 00:25:33.980 --> 00:25:51.980 Let me just give you a few examples of which we know with pretty good certainty that their degree of time preference differs on the average. 126 00:25:51.980 --> 00:26:02.980 Take little children for instance. Little children have a very high degree of time preference. 127 00:26:02.980 --> 00:26:10.980 Another way to say it, little children have tremendous difficulties delaying gratification. 128 00:26:10.980 --> 00:26:23.300 Very high rewards in the future do not necessarily induce children to make the 129 00:26:23.300 --> 00:26:31.460 current sacrifice of not consuming, of not satisfying current desires. There have 130 00:26:31.460 --> 00:26:39.380 been experiments done in this regard, like you give a dollar to a child and 131 00:26:39.380 --> 00:26:48.380 and tell them, if you don't spend the dollar until tomorrow, I'll double the amount. You get another dollar. 132 00:26:48.380 --> 00:27:00.380 And if you then tomorrow have not spent $2, I will again double it, give you $4 and so forth. 133 00:27:00.380 --> 00:27:05.380 You realize how high is the interest rate here. It's 100% per day. 134 00:27:05.380 --> 00:27:13.380 If you have a calculator, you can figure out what sort of annual interest rate that is. 135 00:27:13.380 --> 00:27:26.380 And nonetheless, you will find that many children are absolutely incapable of accepting a deal such as this. 136 00:27:26.380 --> 00:27:33.380 They have to rush out to the next 7-11 and get their big gulp right now, 137 00:27:33.380 --> 00:27:44.380 Even though they could have two big gulps or four big gulps in a very short distance in the future. 138 00:27:44.380 --> 00:28:00.380 Or another way to illustrate this would be to say we offer a child a perfectly secure certificate of $100 in one year from now. 139 00:28:00.380 --> 00:28:17.380 But the child has the possibility of selling this perfectly safe, secure promise of $100 one year from now in the present. 140 00:28:17.380 --> 00:28:26.380 Then we will find that children might be willing to just sell this whatever for ten cents. 141 00:28:26.380 --> 00:28:38.620 because waiting is basically intolerable for them let me give you a few other 142 00:28:38.620 --> 00:28:44.540 examples and you realize of course depending on sort of what mentality 143 00:28:44.540 --> 00:28:53.340 exists in the public capital accumulation can take forever or can go 144 00:28:53.340 --> 00:29:09.340 go quite quickly. If Robinson Crusoe would have a childlike mentality, he might never ever reach the second stage, or if he does reach it, it might take him about a hundred years before he does. 145 00:29:09.340 --> 00:29:14.340 Here are some other examples of groups. 146 00:29:14.340 --> 00:29:20.940 Very old people are sometimes said to go through a second childhood. 147 00:29:20.940 --> 00:29:33.220 Not necessarily so, because very old people can of course also provide for future generations. 148 00:29:33.220 --> 00:29:41.160 But assuming that they do not care for future generations, they might not have any offspring 149 00:29:41.160 --> 00:29:50.700 or any friend that they want to hand over their own fortune, then because their own 150 00:29:50.700 --> 00:30:00.100 life span is very short, they have not much of a future left, they again go through the 151 00:30:00.100 --> 00:30:15.100 in the face of a second childhood, by and large, consuming and stopping, more or less, entirely to accumulate. 152 00:30:15.100 --> 00:30:28.100 We can take the example of criminals, which are also typically speaking, 153 00:30:28.100 --> 00:30:43.100 I mean the normal run-of-the-mill type criminal, not the white-collar type criminal, the muggers, the murderers, the rapists, those friendly figures. 154 00:30:43.100 --> 00:30:53.100 They are also characterized by, typically by high time preference. 155 00:30:53.100 --> 00:31:15.100 The way I explain this to my students is always using the following example. Sometimes people hiss at it, most people like it. Imagine a normal person, so to speak, that is in pursuit of a girl or vice versa, a girl in pursuit of a man. 156 00:31:15.100 --> 00:31:37.100 Then what we do of course is we take her out to dinner, we bring her flowers, we take her out to dinner again, we listen to the conversation, we are very impressed by all the deep thoughts that we hear. 157 00:31:37.100 --> 00:31:44.100 We have never heard anything interesting like that before in our lives. 158 00:31:44.100 --> 00:31:57.100 Of course, with some expectations, which are, of course, in the more or less distant future. 159 00:31:57.100 --> 00:32:01.100 This is how normal people operate. 160 00:32:01.100 --> 00:32:10.100 If you have a childlike mentality, but you have that in an adult body, 161 00:32:10.100 --> 00:32:18.860 Then, this sort of stuff is almost an impossible sacrifice. 162 00:32:18.860 --> 00:32:26.100 You cannot wait that long and then you become whatever, a rapist or something of that nature. 163 00:32:26.100 --> 00:32:31.780 Normally, in order to satisfy any desire, we have to work for a day, at least for a 164 00:32:31.780 --> 00:32:38.260 day, then we get paid at the end of the day and then we can buy our beer. 165 00:32:38.260 --> 00:32:42.700 But what if a day of waiting is too long? 166 00:32:42.700 --> 00:32:50.420 The only other alternative that you have there is look for some old lady and rob her of her 167 00:32:50.420 --> 00:32:57.380 purse and this way satisfy your desires. 168 00:32:57.380 --> 00:33:12.380 Let me give you another example that already touches upon some lectures that I will give later on in the week. 169 00:33:12.380 --> 00:33:19.380 Democratic politicians also have a very high degree of time preference. 170 00:33:19.380 --> 00:33:24.380 They are in power for a very short period of time. 171 00:33:24.380 --> 00:33:35.380 and what they do not loot right now, they will not be able to loot in five, six years. 172 00:33:35.380 --> 00:33:43.380 So their intention is of course, I have to milk the public as much as possible 173 00:33:43.380 --> 00:33:51.380 because then, with a lot of tax income, I can make myself right now a lot of friends. 174 00:33:51.380 --> 00:33:56.380 and who cares about the future. 175 00:33:59.380 --> 00:34:06.380 The last example is one that has gotten me in deep trouble recently at my university. 176 00:34:06.380 --> 00:34:14.380 I have used that example for 16 years or so and had never any problem with it whatsoever. 177 00:34:14.380 --> 00:34:26.380 This time, however, some fanatic wanted to bring me down. This whole process is still underway. 178 00:34:26.380 --> 00:34:37.380 So I warn you not to bring harassment suits against me again. I've had it up to here with this. 179 00:34:37.380 --> 00:34:51.380 I also made the point that if you compare regular heterosexuals with families to homosexuals, 180 00:34:51.380 --> 00:34:57.940 you can also say that homosexuals have a higher time preference because life ends with them. 181 00:34:57.940 --> 00:35:06.300 I always thought that that was so obvious, almost beyond dispute, and then pointed out 182 00:35:06.300 --> 00:35:22.300 in the next sentence that just helps us understand, for instance, the attitude of a man like Keynes whose economic philosophy is, in the long run, we are all dead. 183 00:35:22.300 --> 00:35:35.300 Now this is true, so to speak, for some people, but it is not true for most people who, of course, have their own children and so forth, future generations to come. 184 00:35:35.300 --> 00:35:51.300 As I said, these harmless remarks have led to three months of harassment at my university and the whole thing is still not over yet. 185 00:35:51.300 --> 00:36:09.540 So much about the concept of time preference, and now I want to say a few words about the 186 00:36:09.540 --> 00:36:21.540 The development of time preference and of interest over time in the course of history. 187 00:36:21.540 --> 00:36:28.540 As you can imagine, this is not difficult to get intuitively immediately clear. 188 00:36:28.540 --> 00:36:38.540 We would expect that the degree of time preference gradually falls in the course of human history. 189 00:36:46.540 --> 00:36:57.540 Something like this, here we have interest or degree of time preference on one axis and here we have real money income. 190 00:36:58.540 --> 00:37:09.500 That is, income that can be converted into immediate present satisfaction. 191 00:37:09.500 --> 00:37:21.740 Then we would expect that with very low real income, the sacrifice of exchanging a present 192 00:37:21.740 --> 00:37:30.340 Good for a Future Good is very high, and people will save and invest a small amount. 193 00:37:30.340 --> 00:37:39.720 And as real incomes rise, the interest rate will gradually tend to fall. 194 00:37:39.720 --> 00:37:45.740 That is, savings, the volume of savings and investing will become greater. 195 00:37:45.740 --> 00:37:49.380 Again, intuitively, that is perfectly clear. 196 00:37:49.380 --> 00:37:56.560 For a rich man it is easier to save and invest than it is for a poor man. 197 00:37:56.560 --> 00:38:06.660 If we look over the course of history we would find capital accumulation, savings and investment 198 00:38:06.660 --> 00:38:11.220 does so to speak become successively easier. 199 00:38:11.220 --> 00:38:17.260 It is more difficult at the beginning of mankind, requires a bigger sacrifice and it becomes 200 00:38:17.260 --> 00:38:23.860 is successively easier as we grow wealthier. 201 00:38:23.860 --> 00:38:29.540 This is something that we can indeed see in history. 202 00:38:29.540 --> 00:38:35.620 This has been studied, long-run interest rates 203 00:38:35.620 --> 00:38:39.100 for the safest possible investments and so forth. 204 00:38:39.100 --> 00:38:42.580 And we find by and large that interest rates fall. 205 00:38:42.580 --> 00:38:45.140 Of course, there are exceptions to this rule. 206 00:38:45.140 --> 00:38:51.980 If you have wars and so forth, then you have an increase in interest rates, because the 207 00:38:51.980 --> 00:39:03.020 risk attached to loans becomes significantly higher. 208 00:39:03.020 --> 00:39:10.860 But we also have certain periods when the degree of time preference does seem to rise. 209 00:39:10.860 --> 00:39:16.860 I will come back to that again later on in a later lecture. 210 00:39:16.860 --> 00:39:21.860 This seems to be something that has happened in the 20th century. 211 00:39:21.860 --> 00:39:29.860 We should have expected that interest rates, real interest rates, 212 00:39:29.860 --> 00:39:34.860 in the 20th century should be lower than in the 19th century, 213 00:39:34.860 --> 00:39:42.860 given that on the average, wealth in society is greater in the 20th century than in the 19th. 214 00:39:43.980 --> 00:39:53.100 However, we do not find this to be true. That is, the interest rates in the 20th century rarely, 215 00:39:53.100 --> 00:39:59.100 if ever, the real interest rates reached the low point that they reached around 1900, 216 00:39:59.100 --> 00:40:27.100 which was about two and a quarter percent. So the conclusion would be for this, for instance, that this entire time preference schedule must have risen in the 20th century, which would amount to saying that the population in the 20th century has become somewhat more childlike than the population in the 20th century. 217 00:40:27.100 --> 00:40:32.100 than the population in the 19th century. 218 00:40:32.100 --> 00:40:41.100 We are somewhat more, how can I say it, frivolous and hedonistic in our lifestyle 219 00:40:41.100 --> 00:40:46.100 than our forefathers, our parents and our grandfathers were, 220 00:40:46.100 --> 00:40:53.100 despite the fact that it was more difficult for them to engage in savings and capital accumulation 221 00:40:53.100 --> 00:41:21.100 Now a word about the accumulation of capital. Obviously in every society it is possible to add something to the existing stock of capital, to maintain the existing stock of capital, or to deplete the existing stock of capital. 222 00:41:21.100 --> 00:41:35.100 Even to maintain the existing stock of capital, continued savings is necessary because all capital goods wear out over time. 223 00:41:35.100 --> 00:41:39.100 That is what we call capital consumption. 224 00:41:39.100 --> 00:41:52.100 Capital consumption, however, can take quite some time before it becomes visible because capital goods last for a long time. 225 00:41:52.100 --> 00:42:06.100 For instance, when the communists took over Russia, they inherited, of course, a substantial stock of capital goods, machines, houses, and so forth. 226 00:42:06.100 --> 00:42:34.100 And things then can still go on for a while, but if due to the fact that no private property and factors of production exists anymore and according to the practically no savings will be forthcoming, you could expect that eventually, of course, this inherited stock of capital goods will dilapidate 227 00:42:34.100 --> 00:42:50.100 and whatever, in 10, 20, 30 years you will experience some sort of catastrophe, all the capital goods are worn out and nothing is there to replace them. 228 00:42:50.100 --> 00:42:57.100 The same thing is true for the process of capital accumulation. 229 00:42:57.100 --> 00:43:19.100 Let me point out this first. Obviously, the amount of capital accumulation depends not just on the time preference that various individuals have, it depends also on the security of private property rights. 230 00:43:19.100 --> 00:43:42.100 Imagine Friday comes onto the island. We can imagine Friday to be like Robinson Crusoe engaging in division of labor, then standards of living would go up, capital accumulation would even be faster than with Robinson Crusoe being alone, standards of living go higher and so forth. 231 00:43:42.100 --> 00:44:11.100 But we can also imagine that Friday is whatever, some mugger from Brooklyn, and he sees that Robinson Crusoe has already built the net, or has already saved all sorts of fish, and he's all very nice that you have done this already for me, and I'll take the net, or I force you to pay a tax to me, half of the fish that you produce every day you hand over to me. 232 00:44:11.100 --> 00:44:28.100 Now in that situation, you can of course easily imagine that the process of capital accumulation will be drastically slowed down, or will come to a complete standstill. 233 00:44:28.100 --> 00:44:49.100 So if we look at societies currently that are rich, we cannot necessarily infer that those societies that are currently rich are societies in which property rights receive the best possible protection. 234 00:44:49.100 --> 00:44:51.480 Research. 235 00:44:51.480 --> 00:44:58.180 What we can only infer is that these must be societies in which property rights must 236 00:44:58.180 --> 00:45:02.460 have been protected somewhere in the past. 237 00:45:02.460 --> 00:45:09.140 And it might well be that we encourage, that encounter societies that are quite poor right 238 00:45:09.140 --> 00:45:19.300 right now and do have very secure private property rights of those societies we would expect 239 00:45:19.300 --> 00:45:27.900 that in the future they will show rapid rates of growth. 240 00:45:27.900 --> 00:45:36.460 So one might say, for instance, that to a large extent the endowment in the United States 241 00:45:36.460 --> 00:45:44.260 with Capital Goods is due to circumstances that are long gone. 242 00:45:44.260 --> 00:45:51.540 That is, a lot of the capital goods have been accumulated under far more favorable circumstances 243 00:45:51.540 --> 00:45:59.300 than the circumstances that currently exist, and we might already be in a phase of gradual 244 00:45:59.300 --> 00:46:03.820 capital consumption without actually knowing it. 245 00:46:03.820 --> 00:46:11.340 It might take us decades, so to speak, before actually finding out that this is the case. 246 00:46:11.340 --> 00:46:18.180 As far as the United States itself is concerned, savings rates in the United States are atrociously 247 00:46:18.180 --> 00:46:23.820 low, and to a large extent the United States still benefits from the fact that they receive 248 00:46:23.820 --> 00:46:29.940 the savings from other countries who still consider the United States, despite the fact 249 00:46:29.940 --> 00:46:36.540 that property rights are no longer nearly as safe as they were in the 19th century. 250 00:46:36.540 --> 00:46:43.980 Just keep in mind, almost 40 percent of the saved up fish of Robinson Crusoe is nowadays 251 00:46:43.980 --> 00:46:54.380 handed over to the mugger from Brooklyn, and in the 19th century, this might have been 252 00:46:54.380 --> 00:47:02.780 and whatever, two or three percent of the output of Robinson Crusoe. 253 00:47:02.780 --> 00:47:14.700 In any case, so capital needs to be preserved and in order to be preserved, it is necessary 254 00:47:14.700 --> 00:47:27.060 that there exists an institutional legal framework that makes private property safe. 255 00:47:27.060 --> 00:47:35.660 And if this framework is lacking, then one should not be surprised that very little in 256 00:47:35.660 --> 00:47:42.460 terms of capital accumulation takes place or even capital consumption takes place. 257 00:47:42.460 --> 00:47:51.180 Just imagine a place where there is an impending communist revolution, where you must be fearful 258 00:47:51.180 --> 00:47:57.240 that maybe in the next election the communists will come to power and the first thing that 259 00:47:57.240 --> 00:48:02.640 they will do is expropriate all owners of capital goods. 260 00:48:02.640 --> 00:48:10.400 Now imagine what that does to your motivation to engage in savings and to accumulate additional 261 00:48:10.400 --> 00:48:36.400 and Capital. Large parts of the world are like this. That is, we explain the poverty of many countries by the fact that property rights in those countries have for many, many years, sometimes for centuries, not been secure enough for people to engage in savings and capital accumulation. 262 00:48:36.400 --> 00:48:59.400 Now I want to come to some historical illustration and I want to use population growth and city growth, so to speak, as vague approximations of what happens to capital accumulation. 263 00:48:59.400 --> 00:49:13.400 Recall, accumulating more capital means societies become richer. Societies becoming richer implies that larger numbers of population can be sustained. 264 00:49:13.400 --> 00:49:20.400 And just recall some of the numbers that I gave you in previous lectures. 265 00:49:20.400 --> 00:49:27.400 50,000 people lived about 100,000 years ago. 266 00:49:27.400 --> 00:49:39.400 Five million people lived at the beginning of the Neolithic Revolution, that is 10,000 to 12,000 years ago. 267 00:49:39.400 --> 00:49:56.400 At the year one, the population is estimated to be somewhat between 170 million to 400 million. 268 00:49:56.400 --> 00:50:20.400 A greatly, a far more rapid growth of population after the Neolithic Revolution, a doubling of the population every 1,300 years until the Neolithic Revolution, a doubling of the population every 13,000 years or so. 269 00:50:20.400 --> 00:50:40.400 That is again a reflection, so to speak, that under agricultural societies there is already a significantly increased amount of capital accumulation that allows this larger population to be sustained. 270 00:50:40.400 --> 00:51:07.400 In the handout you see some, on the second and third page, you see some estimates of world population beginning at 10,000 before Christ and going almost to the present until 1950. 271 00:51:07.400 --> 00:51:16.840 You see also the wide variety of estimates, considerable 272 00:51:16.840 --> 00:51:25.240 disagreement, especially in the early periods of mankind. 273 00:51:29.200 --> 00:51:37.360 During the period beginning with the Neolithic Revolution, 274 00:51:37.360 --> 00:51:52.120 We see the development of various civilizations indicating obviously sharp increases in the 275 00:51:52.120 --> 00:51:55.160 accumulation of capital goods. 276 00:51:55.160 --> 00:52:06.760 The table one gives you some sort of historical overview of these various civilizations, the 277 00:52:06.760 --> 00:52:20.340 beginning and the end, then the name of the most dominant group, and finally the names 278 00:52:20.340 --> 00:52:33.200 of those groups that were responsible for the destruction of these civilizations. 279 00:52:33.200 --> 00:52:41.920 I already indicated in the previous lecture that in these early civilizations, Mesopotamia, 280 00:52:41.920 --> 00:52:54.880 Egypt and so forth, we experience for the first time major cities coming into existence. 281 00:52:54.880 --> 00:53:05.680 And we also have indications of specific new technologies being developed. 282 00:53:05.680 --> 00:53:12.080 Again, recall, it requires a certain amount of wealth and capital accumulation in order 283 00:53:12.080 --> 00:53:21.280 to allow people to develop new inventions, try out new things and so forth. 284 00:53:21.280 --> 00:53:28.920 Just to give you some examples of the major technological and capital goods developments 285 00:53:28.920 --> 00:53:47.260 that took place during the Babylonian civilization that is in the period of 4,500 B.C. to 2,500, 286 00:53:47.260 --> 00:53:57.340 We find their plows for the first time. We find wheeled carts for the first time. We 287 00:53:57.340 --> 00:54:07.580 find draft animals being used in agriculture. We find bricks being used for the first time 288 00:54:07.580 --> 00:54:17.760 and Magnificent Buildings Erected, we find what is quite unique and has not been repeated 289 00:54:17.760 --> 00:54:26.740 independently anywhere else in history, but has been an important invention to other areas, 290 00:54:26.740 --> 00:54:34.360 the invention of the arc, which allows of course constructions that otherwise would 291 00:54:34.360 --> 00:54:51.960 collapse under their own weight, we find the potter wheel, we find copper smelting, we 292 00:54:51.960 --> 00:55:00.280 find the development of bronze, which is a combination of tin and copper at a certain 293 00:55:00.280 --> 00:55:09.880 In combination 1 to 10, we find the development of writing, which indicates, so to speak, 294 00:55:09.880 --> 00:55:17.800 that there must have been a class of intellectuals in existence who can only be supported if 295 00:55:17.800 --> 00:55:21.620 there exists a certain amount of wealth in society. 296 00:55:21.620 --> 00:55:29.060 And a certain amount of wealth, of course, requires a certain amount of capital accumulation. 297 00:55:29.060 --> 00:55:48.780 We find quite far-developed mathematical techniques in Babylonia, and we find traces of metallic 298 00:55:48.780 --> 00:55:51.220 money being used. 299 00:55:51.220 --> 00:56:02.220 And obviously in the cities which reached sizes of 80,000 people or so, we had quite 300 00:56:02.220 --> 00:56:12.460 an extent of specialized professions coming online. 301 00:56:12.460 --> 00:56:24.500 But as I said, there exist in history also periods that we can describe as economic disintegration. 302 00:56:24.500 --> 00:56:28.820 That is, some of these empires fall apart. 303 00:56:28.820 --> 00:56:39.380 There are invaders that destroy them and division of labor shrinks, techniques that were once 304 00:56:39.380 --> 00:56:50.380 if known become forgotten and we would expect then during those periods also a decline in population 305 00:56:50.380 --> 00:57:03.380 if you look at the estimate of world populations there 306 00:57:03.380 --> 00:57:26.380 You find, for instance, that only from 1000 A.D. on, do we again see something like a trend towards increase of population. 307 00:57:26.380 --> 00:57:37.860 Whereas, with the fall of Rome, shortly after 200 or so, the numbers closest here would 308 00:57:37.860 --> 00:57:49.980 be 200, we see by and large a stagnation in the overall population. 309 00:57:49.980 --> 00:58:03.780 For almost 1,000 years, there is virtually no population growth that takes place. 310 00:58:03.780 --> 00:58:16.500 And even in the period after 1,000 AD, there are some centuries that see a more or less 311 00:58:16.500 --> 00:58:45.500 is a significant decline. Look, for instance, at the 13th century, from 1200 to 1300, there appears to be no increase in world population, 312 00:58:45.500 --> 00:58:56.500 indicating, so to speak, capital consumption taking place, or at least no capital accumulation taking place. 313 00:58:56.500 --> 00:59:14.500 And even more clearly, look at the 15th century, that is here 1400s, there is a clear decline during this century in terms of population 314 00:59:14.500 --> 00:59:22.300 as compared to the previous to the previous century and it takes almost 200 315 00:59:22.300 --> 00:59:29.460 years or so before the population size is reached again that had been already 316 00:59:29.460 --> 00:59:38.860 reached in in the 14th century and once again look at the at the 17th century 317 00:59:38.860 --> 00:59:54.280 that is the century of the Thirty Years War that compares the numbers from 1600 to 1650. 318 00:59:54.280 --> 01:00:02.840 You find again that there is a significant decline in population which indicates in this 319 01:00:02.840 --> 01:00:11.840 in this case, major wars, major destruction, and so forth. 320 01:00:11.840 --> 01:00:20.080 And only from 1650 on do we see then an uninterrupted rise 321 01:00:20.080 --> 01:00:23.240 in the number of population. 322 01:00:23.240 --> 01:00:30.280 From 1650 to 1850 the doubling of the population 323 01:00:30.280 --> 01:00:37.120 requires about 200 years, then from 1850 to 1950, 324 01:00:37.120 --> 01:00:42.960 the doubling of the population is about every 100 years. 325 01:00:42.960 --> 01:00:53.360 And after 1950, the doubling requires less than 50 years. 326 01:00:53.360 --> 01:00:56.880 Another interesting look in all this 327 01:00:56.880 --> 01:01:04.960 is to look at the growth of cities. 328 01:01:04.960 --> 01:01:08.160 Again, city growth being, so to speak, 329 01:01:08.160 --> 01:01:10.640 a rough indicator of what happens 330 01:01:10.640 --> 01:01:16.000 to capital accumulation. 331 01:01:16.000 --> 01:01:35.320 Before 1600, almost the 10 largest or the 11 largest cities were outside of Europe. 332 01:01:35.320 --> 01:01:49.040 In the order of magnitude, that is around 1600, they were Beijing, which had more than 700,000, 333 01:01:49.040 --> 01:02:02.120 Istanbul, which had about 700,000, Agra in India 500,000, Cairo 400,000, Osaka 400,000, 334 01:02:02.120 --> 01:02:26.120 Canton, 350,000, Yedo, which is I think Tokyo, 350,000, Kyoto also 350,000, Hangzhou 350,000 and Laos 350,000 and Nanking somewhat above 300,000. 335 01:02:26.120 --> 01:02:32.600 That corresponds roughly with what we know about the world until 1500 or so, there was 336 01:02:32.600 --> 01:02:43.480 absolutely no doubt that China was far more developed as a civilization than Western Europe. 337 01:02:43.480 --> 01:02:58.880 I will explain in later lectures what might be the causes of the change of this, but interesting 338 01:02:58.880 --> 01:03:12.120 are now also on the last page of this handout the rapid growth of European cities which 339 01:03:12.120 --> 01:03:34.120 As I said, we're at this time comparatively small to Asian cities, but nonetheless spring up in large numbers and show a dynamic, especially in the later century, that is unsurpassed by Asian cities. 340 01:03:34.120 --> 01:03:47.120 I just want to make you aware first of these are the 30 largest cities in Europe in the period from 1050 to 1800. 341 01:03:47.120 --> 01:04:00.120 First take a look at the total numbers at the very bottom, and you see of course that the total numbers always go up, 342 01:04:00.120 --> 01:04:15.120 But they do go up in a particularly drastic way only from about 1650 on and before the growth is comparatively moderate. 343 01:04:15.120 --> 01:04:44.120 But if we take a look at some specific cities, we can also see, so to speak, in which way the centers of economic development changed, which places lost in significance, where obviously political events must have taken place that were unfavorable to capital accumulation. 344 01:04:44.120 --> 01:04:57.240 Simulation, and how other places show a rapid increase in their ranks among the top 30 places. 345 01:04:57.240 --> 01:05:05.320 Let me just pick out a few places here. 346 01:05:05.320 --> 01:05:32.320 Cordoba was the biggest city in thousand fifty, these are in thousands, and the first two numbers are two hundred fifty thousand, four hundred fifty and three hundred fifty thousand are somewhat disputed that is noted in that footnote, 347 01:05:32.320 --> 01:05:41.920 So I put the more realistic numbers on there, 150,000 and 120,000 for these two cities. 348 01:05:41.920 --> 01:05:46.800 Otherwise, that seems to be somewhat disproportionate. 349 01:05:46.800 --> 01:06:00.000 But in any case, Cordoba, the biggest city in 1,050, has completely dropped out of the top 30 by 1,500. 350 01:06:00.000 --> 01:06:08.520 There's a general tendency that we can say that Spanish cities, or even more general, 351 01:06:08.520 --> 01:06:18.400 southern European cities, lost increasingly in significance and the center of economic 352 01:06:18.400 --> 01:06:26.400 development and capital accumulation shifted to the north. 353 01:06:26.400 --> 01:06:51.400 Let's take some other spectacular cities here. Palermo, for instance, which you realize is the second biggest city, around 1,000, has no more inhabitants in 1800 than it has in 1,000. 354 01:06:51.400 --> 01:07:01.400 Obviously Palermo was not exactly the center of economic development during this time, but was, so to speak, a dying city. 355 01:07:01.400 --> 01:07:18.400 The same is also true for Seville. Again, Seville ranks number three in thousand and has hundreds of years later a population 356 01:07:18.400 --> 01:07:28.400 that is not in any way, in any significant way larger. 357 01:07:28.400 --> 01:07:44.400 Then look at the spectacular rise of Florence since 1330. 358 01:07:44.400 --> 01:07:55.400 that is spectacularized until 1330. 359 01:07:55.400 --> 01:08:07.400 So Florence is the lowest one in the first column with 15 million at 1,000 360 01:08:07.400 --> 01:08:28.400 and then moves rapidly up the rank order until about 1330 where it has increased from 15,000 to 95,000 and then a decline of Florence takes place. 361 01:08:28.400 --> 01:08:49.400 Look at the spectacular growth of London, which in the last column, of course, is by far the biggest European city. 362 01:08:49.400 --> 01:09:11.400 In the previous column, it's the second biggest. In the 1500s column, it has just 50,000 inhabitants, and in 1330, only 35,000 inhabitants. 363 01:09:11.400 --> 01:09:21.960 So in this period from 1330 to 1800, a spectacular rise of London, again indicating obviously 364 01:09:21.960 --> 01:09:30.720 a very favorable climate for capital accumulation that existed there. 365 01:09:30.720 --> 01:09:38.960 And interesting are also some cases of decline. 366 01:09:38.960 --> 01:09:51.720 For instance, there is a very quick rise and a very quick fall of Bruges in what would 367 01:09:51.720 --> 01:10:06.320 be Belgium today, and then the place of Bruges, after it falls, obviously the economic environment 368 01:10:06.320 --> 01:10:08.680 becomes very unfriendly. 369 01:10:08.680 --> 01:10:15.120 We see then, as a substitute, a very quick rise 370 01:10:15.120 --> 01:10:20.120 in the city size of Ghent, which is almost neighbor cities, 371 01:10:20.120 --> 01:10:24.840 so to speak, which indicates to what extent 372 01:10:24.840 --> 01:10:31.040 very narrow neighbor cities competed against each other 373 01:10:31.040 --> 01:10:34.640 for capital accumulation and for merchants 374 01:10:34.640 --> 01:10:45.880 Settling at those places and again then also falls very quickly in order to be overtaken 375 01:10:45.880 --> 01:10:55.400 by another place very close by that is Antwerp and then Antwerp falls also very quickly and 376 01:10:55.400 --> 01:11:08.200 And then we see a spectacular rise of Amsterdam, again a place very close to Antwerp, again 377 01:11:08.200 --> 01:11:17.400 illustrating so to speak in this case also the mobility of capital, leaving one place 378 01:11:17.400 --> 01:11:25.180 because it offers less favorable conditions for capital accumulation and moving it to places 379 01:11:25.180 --> 01:11:32.660 not far away and exhibiting there a spectacular growth and a similar spectacular growth you 380 01:11:32.660 --> 01:11:38.100 find for instance with the city of Hamburg. 381 01:11:38.100 --> 01:11:45.900 With this I'm done for this lecture and again I thank you for your attention. 382 01:11:45.900 --> 01:11:46.900 Yeah. 383 01:11:46.900 --> 01:11:57.900 Just wondering if we look at the last 50 years and some of the countries that have had a 384 01:11:57.900 --> 01:12:02.900 dramatic population, like India perhaps, or Kenya and Africa, some of the cities in South 385 01:12:02.900 --> 01:12:09.900 America, and based on this analysis, then we would have to regard those as being centers 386 01:12:09.900 --> 01:12:14.900 of economic development in relation to capital? 387 01:12:14.900 --> 01:12:39.400 Several things have to be said to this. First of all, we have, within the last 100 years, of course, developed methods of birth control that somehow distort, so to speak, the natural tendencies that you see. 388 01:12:39.400 --> 01:12:57.800 Second, in those countries, we have to keep in mind also that because of very corrupt governments, people from the countryside have moved into the capital city. 389 01:12:57.800 --> 01:13:15.800 that was less so of an organic growth of cities, but almost a forced resettlement of people from the countryside into cities. 390 01:13:15.800 --> 01:13:27.800 And certainly, yes, we can say this, that the overall world population has still risen 391 01:13:27.800 --> 01:13:34.960 drastically, does indicate that the overall wealth in society, in the world as a whole, 392 01:13:34.960 --> 01:13:40.840 has dramatically increased, even within the last century. 393 01:13:40.840 --> 01:13:48.120 That is, many of these people that populate these countries would in the 19th century 394 01:13:48.120 --> 01:13:51.840 simply have died. 395 01:13:51.840 --> 01:14:00.600 So as far as your question is concerned, yes and no. 396 01:14:00.600 --> 01:14:09.040 It does indicate that things have also improved in those places. 397 01:14:09.040 --> 01:14:19.360 would overstate, so to speak, the advances that those countries have made as compared 398 01:14:19.360 --> 01:14:25.880 with the western world, because in the western world we do not see that spectacular population 399 01:14:25.880 --> 01:14:29.760 growth in cities anymore as we see in those. 400 01:14:29.760 --> 01:14:39.020 This overstatement is, as far as I can see, mainly due to the fact that these are just 401 01:14:39.020 --> 01:14:54.700 just political capitals and where the population can best participate in the political looting 402 01:14:54.700 --> 01:14:58.180 process that goes on in these countries. 403 01:14:58.180 --> 01:15:08.500 There's people leaving the countryside because the cities actually exploit the countryside. 404 01:15:08.500 --> 01:15:14.500 and Enforce the Depopulation of the Countryside. 405 01:15:14.500 --> 01:15:20.500 Just take examples like, what's it called, 406 01:15:20.500 --> 01:15:26.500 where we have Mugabe, what's the country, Zimbabwe. 407 01:15:26.500 --> 01:15:32.500 Now there you can see, for instance, that a government 408 01:15:32.500 --> 01:15:48.500 incorporates the farmers, contributes of course to the depopulation of the countryside, and if you are robbed of your land, where will you go? 409 01:15:48.500 --> 01:16:00.500 You will of course go into the cities where you can live out of the garbage can, so to speak, and hope for some sort of political connections getting you here or getting you there. 410 01:16:00.500 --> 01:16:17.500 I think the entire 20th century is not as suitable when it comes to is city size and population growth a good indicator of capital accumulation as previous centuries were. 411 01:16:17.500 --> 01:16:20.500 Is there a welfare incentive? 412 01:16:20.500 --> 01:16:33.500 Yes, of course there is a welfare incentive. If I would have had the time to go into the various cities in greater detail, 413 01:16:33.500 --> 01:16:46.500 cities can be merchant cities, which would be cities that grow by and large organically, 414 01:16:46.500 --> 01:17:06.500 Or cities can of course also increase in size because the government located their residents to this place and then a large number of the population are simply hangers-on instead of being productive individuals. 415 01:17:06.500 --> 01:17:34.500 One of the big differences in this regard between the European cities and the Chinese, the Asian cities is precisely that the European cities, even though they were initially much smaller, were predominantly merchant cities, productive cities, 416 01:17:34.500 --> 01:17:49.140 or cities that were capitals of very small princes, whereas these big cities in Asia 417 01:17:49.140 --> 01:18:01.580 were more, at least in the typical case, more capital towns with large contingents of bureaucracy 418 01:18:01.580 --> 01:18:07.900 were only a smaller proportion of the people actually conducted themselves in productive 419 01:18:07.900 --> 01:18:13.740 enterprises as compared to Europe. 420 01:18:13.740 --> 01:18:24.060 But again, those ideological things I will come back to tomorrow in greater detail to 421 01:18:24.060 --> 01:18:52.060 I remember I think Mises talked about in his book, Liberalism, about the potential for the movement of capital, how economic growth in other parts of the world could actually proceed once they got capital because of its mobility more quickly than it took the West to build it up. 422 01:18:52.060 --> 01:19:11.060 So in the 20th century, could it also be a combination of the fact that they didn't have two world wars occurring in certain other parts of the globe that took up 40 years of time, and also that these were times when western capitals and techniques were just starting to really catch on? 423 01:19:22.060 --> 01:19:42.060 A place like Seoul, 15 million people or something like that, is a bustling place, so that does indicate, so to speak, that South Korea is a country where a lot of capital accumulation does take place. 424 01:19:42.060 --> 01:20:12.060 I think also recently the spectacular growth that you have of some Chinese cities are also due to the fact that indeed whereas for a long time in communist China for instance restrictions existed for people to move from places to places where people were tied so to speak to you have to stay here, you cannot leave this province, you have to stay in this village and so forth 425 01:20:12.060 --> 01:20:21.060 Now that in the southern part of China, capitalism has been allowed, private property is allowed all of a sudden. 426 01:20:21.060 --> 01:20:33.060 You see that the influx of population into those cities and their spectacular growth can indeed be referred to as an organic growth. 427 01:20:33.060 --> 01:20:45.060 There are indeed many riches to be made in those places, and people are attracted to go to these places, 428 01:20:45.060 --> 01:20:51.060 and they are also hustling and bustling places with large amounts of capital accumulation. 429 01:20:51.060 --> 01:21:02.060 I have not traveled in China, but what I hear is that large parts of China look like one big construction business. 430 01:21:02.060 --> 01:21:22.060 I did visit South Korea a few times. That was my impression too, at least in large parts of it, that this growth is, so to speak, largely organic. 431 01:21:22.060 --> 01:21:40.060 Some of the numbers are of course also numbers where we have to keep in mind, they might just say Seoul and all the surrounding towns are considered to be part of Seoul. 432 01:21:40.060 --> 01:22:06.060 worse, when we talk about New York City, New York City, of course, is then separated from various other, whatever, New Jersey towns, which are basically in the same conglomerate and if we would count all of them, we would get these spectacular numbers in the West, in the West as well. 433 01:22:06.060 --> 01:22:19.060 It's just for administrative reasons that they frequently do not appear as one huge city with huge numbers of people living there, but as several large cities. 434 01:22:19.060 --> 01:22:22.060 The same would apply to Los Angeles. 435 01:22:22.060 --> 01:22:33.060 I think the population of New York and Los Angeles has actually declined, but not the entire metropolitan area around it. 436 01:22:33.060 --> 01:22:43.060 How much of that entry you speak of Southern China rather than being too leakage from Singapore? 437 01:22:43.060 --> 01:22:45.060 Is Singapore influenced? 438 01:22:45.060 --> 01:22:49.060 No, Singapore is too small in order to have an influence on that. 439 01:22:49.060 --> 01:22:56.060 Singapore itself is, of course, a major place of attraction. 440 01:22:56.060 --> 01:23:13.060 And a place like Hong Kong would also not have a major impact on the rest of China because, I mean, as compared with the massive population that China has, Hong Kong is just a drop in the bucket. 441 01:23:13.060 --> 01:23:17.060 It didn't leak out into Hong Kong, it leaked out into the countryside? 442 01:23:17.060 --> 01:23:23.060 It leaked out to a certain extent but there are also processes going in the opposite direction. 443 01:23:23.060 --> 01:23:37.060 I must say I do not know enough about China to explain why Southern China has been developed 444 01:23:37.060 --> 01:23:49.060 more so than Northern China. That might have been political decisions, it might have been 445 01:23:49.060 --> 01:24:17.060 My sense to the Chinese through the years is that the hierarchies have been in conflict, but at the level of the community, it's had very much an exchange economy, quite contrary to what they had... 446 01:24:17.060 --> 01:24:40.060 I just wanted to say, I guess that success stories of Hong Kong and Singapore and the other Asian tigers just definitely have intellectually an influence on mentality in China, which does also have its effect indirectly on, like, Shanghai and... 447 01:24:40.060 --> 01:24:55.060 In studying the 20th century, we can't necessarily draw this correlation between population and city growth with capital accumulation? 448 01:24:55.060 --> 01:25:07.060 Is there anything that you found that is a result more of interventionist policy or monetary policy? 449 01:25:07.060 --> 01:25:35.060 I have not investigated that. That might be an interesting thing to look at, but I have to do that another time. 450 01:25:37.060 --> 01:25:44.060 In that case, again, I thank you very much for your attention.