James d. Gwartney

Read:
What Is Seen and What Is Not Seen by Frédéric Bastiat

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Seven Major Sources of Economic
Progress
Elements:
1. Legal system: The foundation for economic progress is a legal system that protects
privately owned property and enforces contracts in an evenhanded manner.
2. Competitive markets: Competition promotes the efficient use of resources and provides
the incentive for innovative improvements.
3. Limits on government regulation: Regulatory policies that reduce exchange and restrict
competition impede economic progress.
4. An efficient capital market: To realize its potential, a nation must have a mechanism
that channels capital into wealth-creating projects.
5. Prudent monetary policy: A stable monetary policy is essential for the control of
inflation, efficient allocation of investment, and achievement of economic stability.
PART 2

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6. Low tax rates: People produce more when they can keep more of what they earn.
Control of government spending and deficits (fiscal policy) is crucial to economic
stability and growth.
7. Free trade: People achieve higher incomes when they are free to trade with people in
other countries.
Introduction
Video:
200 Countries, 200 Years 
(15)
Robert Lucas, the 1995 Nobel Laureate in economics, stated, “Once you start thinking about
economic growth, it is hard to think about anything else.”
(16)
 Why do Lucas and many other
economists place so much emphasis on economic growth? Growth of real output is necessary
for the growth of real income. Without growth, higher income levels and living standards
cannot be achieved.
During the past two hundred years, economic growth, particularly in the West, has
elevated living standards and improved both the length and quality of life. This period,
however, is exceptional. Throughout most of human history, economic growth has been
extremely rare. Prior to 1800, most of the world’s population worked hard for fifty, sixty, and
seventy hours per week in order to obtain enough food and shelter for subsistence. It was a
constant struggle for survival and many lost the battle. Living standards in 1800 were not much
different than a thousand years earlier, or even two thousand years earlier, during the time of
ancient Rome.
The bleak economic story of human history began to change about two hundred years
ago. The late Angus Maddison, an economist for the Organization for Economic Co-operation
and Development, is widely recognized as the leading authority on historical income and life
expectancy data. Exhibit 5 presents his estimated annual income levels per person for the past
thousand years. Measured in 1990 dollars, the gross domestic product (GDP)
(?)
per person of

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the world was $667 in 1820, compared to $450 in 1000.
(17)
 Thus, over 800 years, per-person
income levels increased by only about 50 percent. Western Europe and its offshoots of the
United States, Canada, Australia, and New Zealand—commonly referred to as the West—did a
little better, as income in this region approximately tripled from $426 in 1000 to $1,202 in
1820. But even in the West it took around five hundred years for income to double.