Economic Innovation: Pre-Modern and Early Modern Eras

Economic Change

Economic Innovation in the Pre-Modern and Early Modern Eras

  • Outcomes:
    • Explain economic innovation from the Paleolithic Era to the Ancient Era.
    • Explain economic innovations from the Pre-Modern and Early Modern Eras.

Ancient Era into the Middle Ages

  • Innovations like currency usage facilitated growth and interaction among different groups during the ancient era.
  • These interactions continued during the Roman Era but decreased into the Middle Ages.

Steps Backwards

  • Economic development does not always move forward.
  • During the early Middle Ages, trade in Europe was limited as communities became self-contained for protection due to lawlessness.
  • Transportation routes were unsafe compared to the Roman Era.
  • There was a major decline in trade at this time.

Changes in the Economy

  • Due to decreased international trade, many based the economy on self-sufficiency, leading to the manor system.
  • A lord's estate (manor) had enough resources to support 15-30 families.
  • Local resources were used, reducing variety for the people.

Slight Improvements

  • Monarchs consolidated power, restoring stability as law and order developed through feudalism.
  • Increased trade became safer, similar to ancient times.
  • The desire for luxury goods encouraged trade with other cities and kingdoms as specialty items couldn't be produced on manors.

Further Improvements

  • The desire for self-sufficiency declined in the later Middle Ages.
  • Long-distance trade connections were reestablished across Europe, leading to large-scale commerce called the Commercial Revolution.

The Commercial Revolution

  • From 1000-1300, Europe’s population nearly doubled.
  • This population increase led to urbanization (growth of cities).
  • The Commercial Revolution shifted from town-centered manorialism to a nation-centered economic system.
  • The Crusades (1095-1272) increased contact and trade with Arab civilizations in the Eastern Mediterranean, North Africa, and Moorish Spain.
  • Currency was reintroduced into trade, furthering economic development.

The Commercial Revolution

  • Accounting systems were developed to track the economic boom in the late Middle Ages and early Renaissance.
  • Businesses began recording and managing debits and credits.
  • Luca Pacioli (1446-1517) published a textbook in 1494 teaching merchants how to use double-entry bookkeeping.

Views of banking in the Middle Ages into the Renaissance

  • Lending money at interest (usury) was discouraged for moral and religious reasons by the Roman Catholic Church.
  • The Church eventually relaxed its views on usury.
  • Banks rose in popularity with banking families (Fugger, Medici) and state-based banks (Bank of Amsterdam, Bank of Sweden).

Other important terms of the Commercial Revolution

  • Trade Guilds: Associations of craftsmen or merchants in the same profession, aimed at protecting members' interests.

Other important terms of the Commercial Revolution

  • Trade Fairs: Large-scale sales events held annually in large towns, offering a greater range of goods and cheaper prices due to competition.

Banking System

The Commercial Revolution

  • Trade guilds produced more varied and higher quality goods.
  • Trade fairs and expanded trade routes allowed producers and merchants to sell goods locally and over long distances.
  • Modern banking developed.

Banking Services

Helped facilitate greater economic activity in three different ways:

  1. “Letters of Credit” (loan/debt) were issued to make it easier for merchants to trade.
  2. Entrepreneurs were allowed to borrow money in order to produce and buy goods for trade.
  3. Exchange rates were standardized between different countries/currencies.

Worldwide Trade

Worldwide Spread

  • As the Early Modern Era began, trade expanded beyond Europe.
  • Influenced by the Voyages of Discovery, trade expanded in unprecedented ways.

Long-Distance Trade

  • Besides the Commercial Revolution, long-distance trade of expensive goods (e.g., tea, spices) increased during the Early Modern Era.
  • Sea travel was the most efficient but dangerous method of transportation.

Overseas Trade

  • Ships could be lost at sea, overthrown, or robbed.
  • Entrepreneurs sought ways to lessen the impact of investment losses.
  • This unpredictability led to the introduction of JOINT-STOCK COMPANIES.

Joint-Stock Companies

  • Joint-stock companies/corporations shared risk among investors (e.g., East India Company).
  • They also provided economic innovation by raising large sums of money through share sales for business ventures.

Joint-Stock Companies

  • From the 1500s-1700s, governments regulated joint-stock companies.
  • Governments issued CHARTERS (royal approval) to direct business activities.
  • For example, the East India Company had exclusive rights to operate in the Indian subcontinent.

Government's Role

Government’s Role in the Economy

  • The operation of joint-stock companies demonstrated government control in the economy.
  • Wealth and power were linked, and governments influenced the economy.
  • Wealth accumulation was assumed to be finite.
  • Countries aimed to accumulate gold, silver, and precious resources.

Government’s Role in the Economy

  • Self-sufficiency and a positive balance of trade (exports exceeding imports) were desired.
  • Chartered joint-stock companies facilitated this.
  • These companies became so influential that in some cases they served as local governments with political power.

Mercantilism

  • European countries sought to gather as much wealth as they could because they assumed wealth was finite.
  • Mercantilism: An economic policy from the 16th-18th centuries under which nations sought to increase their wealth and power by becoming self-sufficient.
  • To do this they:
    • Obtained large amounts of gold and silver
    • Maintained a positive balance of trade

Consequences of MERCANTILISM

  • Mercantilism was based on countries acquiring as much wealth as possible.
  • This resulted in:
    1. Colonization: Acquiring overseas territories to secure resources and create markets (e.g., Newfoundland, Columbian Exchange).
    2. Strict Government intervention: Controlling business activities through charters (e.g., British East India Company).
    3. **Increased wealth for European countries at the expense of newly colonized territories.

Colonization:

  • European countries acquired overseas territories (colonies) for the purposes of securing resources and creating markets for the sale of goods.
  • Consider Newfoundland fisheries, for example.

Triangular Trade

  • A part of mercantilism in Europe was the use of Triangular Trade: this meant trade was conducted between three regions, in particular Europe, African territories and North America.
  • This global transfer of plants, animals, disease, slaves, and food is referred to as the Columbian Exchange.

European nations were the primary beneficiaries:

  1. They received a variety of trade goods from Africa and North America
  2. They sold their manufactured goods to the colonies

Economic Exploitation:

  • During this time, there was little to no wealth being accumulated in the colonies.
  • Merchants reinvested profits in areas that would maximize their own benefit; typically merchants invested the “bare minimum” in colonial territories, usually to create the minimal level of infrastructure needed to exploit the resources they sought.
  • This would ensure that the majority of wealth generated would benefit the colonizing country.