Mary Eschelback Hansen American University Washington, D.C. Mary Hansen teaches introductory economics, economic history, and international economics at American University. She is the author of numerous articles on economic history and has received grants and awards for her research.

At the start of each semester, I discuss with my Principles of Economics students the differences between their lives and the lives of their parents and grandparents. My students talk about how their parents were unable to attend college, and how the families of their parents had only one car. They note that their parents, aunts, and uncles shared bedrooms, whereas they are, in many cases, sharing rooms for the first time in their dorms. They discuss the pervasiveness of the computer, the microwave, television, and the telephone. They emphasize the ease and rapidity with which they can access information. They note the variety of foods they consume — from tacos to sushi to kabobs — and they note that they eat often in restaurants, seldom cooking at home. Frequently they tell of relatives who have passed away, victims of diseases that are curable today.

The stories students tell are everyday stories about modern world history. Central to the story of world history is the theme of economic growth. Over time, the nations of Western Europe and North America, as well as some Asian countries, have achieved staggering advances in their standards of living. In the developed countries today, people enjoy more consumer products, better nutrition, and longer lives than they did 500, 100, or even 50 years ago.

Economists explain economic growth as growth of productivity. Productivity is measured as the average output per hour of work. Productivity, in turn, depends upon the resources available for each worker. Of course, human resources are essential. The health and education of the population contribute to productivity growth, while rapid population growth may inhibit it. Natural resources are also important, including rich farmland, sufficient fresh water, fish, forests, coal, and oil. While natural resources can be protected and sometimes renewed, in general, they do not grow. Over time, human-made resources have gained in importance relative to natural resources. Today, growth in physical capital, the equipment and buildings used to produce other things, contributes a great deal to productivity. Technology — defined by economists as knowledge of the best way to do or make things — is also a human-made resource and an important contributor to productivity growth.

The political institutions of a nation may also be considered resources that contribute to productivity. Enforcement of the rule of law and of property rights reduces uncertainty. With less uncertainty, people expend fewer resources on protecting themselves and their belongings, and productivity increases. The laws of a nation concerning openness to international trade and investment also influence productivity. If the people of a nation do not have to produce all the things they want, but can focus on the activities for which their resources are well suited, then productivity increases. The people then can trade what they are good at making for something that they want to consume, but are not so good at making.

In Virginia, beginning in the third grade, students explore the key ideas of economic resources and international trade as determinants of historical economic growth (History and Social Science Standards of Learning 3.7 and 3.8). They compare present-day economies with ancient economies, including Greece, Rome, and the West African Empire of Mali. They are challenged to experience and explain how people make things using resources, tools, and knowledge. They learn that when people become very good at making something that other people want, everyone can benefit through specialization and exchange. The multi-cultural aspects of the third grade Standards of Learning encourage students to understand that specialization and exchange are ideas that led to economic growth for many cultures at many times in history.

The middle and high school Virginia Standards of Learning put more stress on identification of historical facts and less stress on understanding economic growth in history. Nonetheless, teachers will find ample opportunity to discuss resources, productivity, and trade in grade 7 civics and economics curriculum (SOL CE. 10d) and in high school world history (SOL WHII.4-WHII.8) and world geography courses (SOL WG.5-WG.9). An example from the Industrial Revolution in England provides a view of the confluence of economics and world history.

Although the Industrial Revolution did not occur suddenly, the years from 1760 to 1830 saw reorganization of production that increased productivity in England, most famously in the cotton textile industry. Of the many inventions in cotton yarn manufacture, the most important is probably the spinning mule, developed by Samuel Crompton in the 1770s. The mule (called a mule because it was a hybrid of two other spinning technologies, as a mule is a hybrid of a horse and donkey) was important because it made better yarn faster than its predecessors did. The spinning mule is an example of a technological innovation that allowed the same number of workers to produce more output each hour they worked.

To show how the invention of spinning mules changed and contributed to English growth, consider Figure 1, which shows England's production possibilities curve. The production possibilities curve shows the combinations of outputs that can be produced with a given amount of resources and the best-known technology. The technology of the spinning mule made it possible for English workers to make more cotton textiles with available resources. The spinning mule did not directly affect the production of other goods. The slope of the production possibilities curve represents the trade-offs in production. The flattening of the production possibilities curve means that production of each unit of cotton textiles required a smaller sacrifice in the production of other goods. That is, the spinning mule made cotton textiles relatively cheap to produce in England.

The invention of the spinning mule increases England's ability to produce textiles.

Investment, the growth of physical capital, further increased the capacity of English workers to produce cotton textiles. In order to realize the productivity benefits of the invention, producers had to manufacture and use many mules. In fact, the number of cotton mills in Manchester, England, increased from two to 52 between 1782 and 1802. At the same time, textile manufacturers in Manchester were building factories, chemical manufacturers were building plants in the Tyne basin, and turnpikes and canals were being built across England. In the case of industrializing England, growth of physical capital affected all outputs and therefore shifted the production possibilities curve outward as in Figure 2.

Investment increases England's ability to produce all goods and services, including textiles.

A change in governing or social institutions that increases security for the people of a nation pushes out the production possibilities frontier, just as investment in physical capital does. In the English case, the Stuarts (the royal family that held the crown after Queen Elizabeth and lost the crown during the English civil war) were infamous for breaking terms of loan agreements and for seizing property, including the 1640 seizure of £130,000 of gold stashed by merchants for safekeeping in the Tower of London. The Glorious Revolution of 1688 brought an end to the confiscatory state in England. When William and Mary were offered the crown, Parliament overhauled the crown's responsibilities to make abuses less likely. A newfound confidence in the government provided an investment environment conducive to the Industrial Revolution.

Finally, consider how international trade enhanced the effect of the Industrial Revolution for the English. As textiles became cheaper to manufacture, England made relatively more textiles and relatively less of other outputs, including food. Food production on English farms did not grow, and may even have fallen slightly, between 1700 and 1860. Yet in 1860, the English had access to more foodstuffs than ever before. For example, textiles were traded for wheat and meat from the United States and Argentina and for sugar and coffee from newly independent Brazil. Because they could trade, the English consumed more food than they could make for themselves (see Figure 3). Trade, essentially, is an institutional technology that allows a country to transform what it can make most cheaply into products that its people desire but cannot make easily.

At point A, the English produce a lot of textiles but little food. At point B, they have traded some textiles for food, and they experience an overall gain from trade. Point O shows production before the Industrial Revolution.

In the history of the West, the development of trade, institutions, investment, and technological innovation has led to "that universal opulence which extends itself to the lowest ranks of the people." (Adam Smith, The Wealth of Nations, Book 1, Chapter 1.)