Unit 4: Development of World Economies Study Notes

Unit 4: Development of World Economies

1. Economic Developments from the Paleolithic Era to the Early Modern Era

1.1 Overview of Economics
  • Definition of Economics: The study of how to maximize the use of resources to meet needs and wants.
    • Needs: Items required for survival (e.g., food, clothing, shelter).
    • Wants: Items that are desirable but not necessary for survival (e.g., cell phones, internet).
  • Scarcity: A fact of life because resources are finite, which means not all needs and wants can be satisfied at once.
1.2 Trade and Economic Prosperity
  • Definition of Trade: The exchange of goods and services.
  • Benefits of Trade:
    • Groups can sell surplus goods/services for profit.
    • Trade helps meet the needs and wants of different groups.
  • Methods of Trade:
    1. Imports: Goods bought from another group or country.
    2. Exports: Goods produced and sold to another group or country.
1.3 Money and Economic Innovation
  • Definition of Money: Any item that has value to people as an item of exchange.
    • Early Examples of Money: Livestock (e.g., cows, sheep) and cowrie shells that eventually evolved into paper money and coins.
  • Types of Money:
    1. Commodity Money: Items that have intrinsic value (e.g., gold, silver).
    2. Representative Money: Items that have little intrinsic value but represent greater value (e.g., bonds, paper money).
  • Importance of Money: Money is lighter and takes up less space than larger goods, allowing for increased trade potential.
1.4 Development of Trade Routes
  • Significance of Trade Routes:
    • Growth of cities along trade routes, which provided services to merchants, acting as international commercial centers.
    • As trade networks expanded, manufacturing specifically for trade became prominent.
  • Impact of Trade Routes: Served as communication highways for new inventions, ideas, and cultural exchanges, including goods and raw materials.

2. Economic Developments During the Medieval and Early Modern Periods

2.1 Establishment of Trade Routes and Guilds
  • Trade Routes in the Medieval Period: Land-based and sea-based routes became established between major European cities, facilitating free flow of goods across Europe.
  • Guilds: Organizations of individuals in the same business or occupation that improved economic and social conditions of members.
    • Types of Guilds:
    • Merchant Guilds: Controlled trade volume in specific areas, helping to keep prices high and secure trade.
    • Craft Guilds: Established standards for quality, production, wages, and working conditions in various trades.
2.2 Joint Stock Companies
  • Expansion of Trade: By 1500, economic development had expanded beyond local markets, partly due to the Renaissance, which ignited curiosity about the physical world.
  • Joint-Stock Companies: Legal charters granted monopolies to specific companies on trade routes and specific goods, encouraging investment and profitability.
    • Examples: The Company of Merchant Adventurers To New Lands, chartered in 1553, and Hudson's Bay Company in Canada.
  • Benefits of Joint-Stock Companies:
    1. Distributes investment risk.
    2. Allows for raising large sums of money.
    3. Successful ventures yielded high profits.
    4. Contributed to the emergence of a substantial middle class of merchants.

3. Changes in Economic Theories and Practices during the Late Modern Era

3.1 The Rise of Mercantilism
  • Definition of Mercantilism: An economic policy prevalent from the 16th to 18th centuries where nations sought to increase wealth by becoming self-sufficient through the accumulation of gold and silver and maintaining a positive trade balance (value of exports exceeds value of imports).
  • Consequences of Mercantilism:
    1. Colonization: Nations acquired territories to secure resources and create new markets for selling goods.
    2. Government Intervention: Increased governmental control over trade through charters and exclusive rights for certain companies (e.g., Hudson's Bay Company).
    3. Economic Exploitation: Resources from colonized regions benefitted European economies.
  • Triangular Trade: A global trade model linking Europe, Africa, and North America, encompassing the Columbian Exchange, which included an exchange of plants, animals, diseases, and slaves.
3.2 Criticisms of Mercantilism
  • Trade Restrictions: Hurt many merchants and businesses due to monopolies granted by royal charters.
  • High Tariffs: Taxation on imported goods made foreign products expensive, thus harming international trade.
3.3 The Atlantic Slave Trade
  • Scope of Enslavement: 15-20 million Africans forcibly shipped to the Americas.
    • Major Slave Traders: Portuguese, English, and Dutch, with England gaining dominance by 1700.
  • Resistance to the Slave Trade: Enslaved Africans maintained cultural traditions and resisted through various means, including work slowdown and escape attempts.
3.4 Lasting Effects of the Slave Trade
  • Impact on Africa: Economic and demographic disruption, capturing of strong young individuals leading to weakened societal structure, and forced labor did not enrich Africa.
  • African Diaspora: The spread of people of African descent throughout the Americas and Western Europe, significantly influencing culture, music, art, and religion.
3.5 Capitalism and Economic Innovation
  • Laissez-faire Philosophy (Let do): The concept that economic freedom is best achieved with minimal governmental intervention.
    • Basis of capitalism: Wealth is not finite; rather, it can be generated through free market dynamics without excessive regulation.
  • Adam Smith (1723-1790): Advocate of laissez-faire economics.
    • Key principles from Smith's "The Wealth of Nations":
    1. Law of Self-Interest: People act in their own advantage.
    2. Law of Competition: Competition drives improvements in product quality.
    3. Law of Supply and Demand: Prices fluctuate based on consumer demand and product availability, leading to economic equilibrium.
3.6 The Industrial Revolution
  • Definition: Transition from hand tool and simple production to complex machinery in goods production (c. 1750-1850).
  • Impact: Altered daily life, shifted populations into urban centers, significantly changed industries including textiles, and introduced the factory system that replaced the cottage industry.
3.7 Cottage Industry to Industrialization**
  • Cottage Industry: Entrepreneur-driven production that involved providing raw materials to home workers who produced goods for sale.
    • Transformation of this industry occurred during the Industrial Revolution.
  • Changes in Agriculture and Food Production:
    • New advancements in farming led to improved food availability and health, fueling population growth and urban migration.
  • Technological Progress: Innovations like iron plows and mechanical harvesters increased agricultural efficiency and crop yields.
  • Urbanization: A major trend where rural populations moved towards cities seeking employment as factories arose, driven by increased demand for manufactured goods.
3.8 The Role of Labor and Socialism
  • Rise of Unions: Workers began forming unions to negotiate better working conditions and wages.
  • Socialist Ideology: Emerged as a response to the inequalities perpetuated by capitalism. Advocates argued for public ownership of production for fair resource distribution.
  • Utilitarianism: Introduced by Jeremy Bentham, it emphasized achieving the greatest happiness for the greatest number, influencing social policies and government roles in the economy.
  • Karl Marx and the Communist Manifesto (1848): Condemned capitalism as exploitative and proposed class struggle identifying the bourgeoisie and proletariat, culminating in an eventual revolution leading to communism.
  • Predictions of Marx: Suggested that socialism would evolve into a classless society where goods and resources are shared equally among all citizens.

Conclusion

  • The evolution of economic systems, from trade and commodity exchange in ancient times, to capitalism and socialism debates in modern economies, reflects significant shifts in human societal structures, technology, and expectations regarding government roles in economic activities.