Ap World History/ Notebook Page 29/ Capitalism

Page 1: Promissory Note

  • Promissory Note Features

    • The document resembles a standard promissory note issued by the Bank of England.

    • Promise to Pay: "I PROMISE TO PAY THE BEARER ON DEMAND THE SUM OF TWENTY POUNDS."

    • Authority: Signed by the Chief Cashier of the Bank of England, symbolizing trust and authenticity in financial transactions.

    • The prominent figure 20 pounds illustrates the value exchange.

Page 2: Transition from Mercantilism to Capitalism

  • Historical Context

    • Transition period: 1750 CE - 1900 CE.

    • Western European countries moved away from mercantilism toward free trade policies.

    • Influence of Adam Smith: Advocacy of laissez-faire capitalism and free markets shaped economic ideologies.

    • Learning Objective: Understand different economic systems, institutions, and their impact during the Industrial Age.

Page 3: Overview of Mercantilism

  • What is Mercantilism?

    • An economic theory focused on maximizing exports and accumulating wealth (gold/silver) for the mother country.

    • Trade Dynamics:

      • Emphasis on trading raw materials from colonies.

      • Finished goods sold back to colonies.

      • Colonial Economics: Low prices for colonies while benefiting the mother country through enforced trade laws.

Page 4: Mercantilism in Practice

  • Trade Exclusivity

    • Colonies restricted to trading with the mother country regardless of price.

    • Economic Contracts: Colonies provided raw resources, in return, had to buy manufactured goods from the mother country.

    • Trade and Navigation Acts: Established to control colonial trade and bolster the economy of the mother country.

Page 5: Key Features of Mercantilism

  • Economic Foundations

    • Goal: Economic gain favoring the mother country.

    • Advocates for high exports and accumulation of bullion.

    • Extraction of raw materials from colonies to fuel mother country's economy.

    • Balance of power shifted towards European nations due to wealth generated from colonies.

Page 6: Problems of Mercantilism

  • Obsolete Economic Systems

    • Government and guild controls limited individual innovation and controlled pricing.

    • High tariffs and taxes harmed economic growth by inflating prices and stifling potential investments.

    • Lack of accessible financial capital prevented entrepreneurial efforts.

Page 7: Rise of Capitalism

  • Adam Smith's Contributions

    • Presented in "The Wealth of Nations."

    • Recognized European economic success, spurring the dawn of capitalism.

    • Factors leading to wealth:

      • Increased money supply from the Columbian exchange.

      • Establishment of banks and access to venture capital.

      • Decreased regulation and taxation benefiting private property rights.

Page 8: Factors Leading to Economic Expansion

  • Catalysts of Change

    • Less government and guild control fostered innovation and competitive pricing.

    • Increased money supply facilitated investments and business startups.

    • Previously, high prices due to regulations limited sales and consumer options, but new laws encouraged competition.

Page 9: Capitalist Economic Logic

  • Wealth Creation

    • Capitalist theorists argue that wealth is not fixed but can be generated through effective market practices.

    • Competitive markets will naturally regulate pricing and quality, leading to better outcomes for consumers.

    • Smith's assertion: Competition drives improvements in goods and prices; higher prices will repel consumers, thus forcing businesses to innovate and lower costs.

Page 10: Free Market Functionality

  • Mechanics of Capitalism

    • Lower production costs can lead to lower consumer prices, fostering higher purchasing power and economic growth.

    • The elimination of guild restrictions promotes innovation and wider market availability of goods.

    • Vital role of financial institutions (banks, venture capitalists) in facilitating businesses.

Page 11: Laissez-Faire Economic Theory

  • Invisible Hand Concept

    • The self-regulating nature of the marketplace—consumers’ needs being met through producers’ self-interest.

    • Example: Entrepreneurs filling needs for new products, leading to competition that benefits society through quality and price reductions.

Page 12: Excerpt from The Wealth of Nations

  • Societal Benefit Through Self-Interest

    • Individuals labor to support domestic industries, inadvertently benefiting society through the pursuit of personal gain.

    • Invisible Hand Principle: Market behaviors led by individual self-interest can lead to overall societal benefit, though potential for negative business practices still exists.

Page 13: Capitalism vs. Mercantilism

  • Comparative Analysis

    • Mercantilism (1450-1750): Focused on accumulation through exports; beneficial solely to mother country.

    • Capitalism (1750-present): Encourages wealth through competition, innovation, and consumer-driven market practices.

    • Long-term implications: Shift towards global interconnectedness and consumer choice.

Page 14: Evolution of Economic Policies

  • Adoption of Free Trade Policies

    • Countries moved towards capitalism influenced by Smith’s advocacy.

    • Key Elements of Capitalism:

      • Emphasis on competition, free enterprise, and efficiency in markets.

    • Aim to understand changes and developments in economic systems from 1750 onward.