This is the lesson from 23 October 2018. This covers about the Economics. The text source is unknown at the moment.
Lesson
- Lesson of Tuesday, October 23, 2018
- Fourth Week, Day Fourteen
- First Economics Summary
Bartering, Currency and Markets
People who move in groups have economic activity. People produce, consume and trade goods all the time. They do this not only to survive but to create wealth. People in ancient times relied on bartering, or trading goods for other goods or services. As societies grew and became more complex, currency, or money, was invented. Currency could be used to buy goods and services without having to trade goods and services in return. The earliest currency were grains and other trade goods that were small and easily carried.
The earliest currency-based economies were centered around markets. Farmers, artisans, and craftspeople would bring their goods to the market in towns or cities, where people would gather to make purchases. The money earned by the producers of the goods could then be used to produce more goods, thus growing the economy, the market, and the cities that housed them. Cities grew because goods and services could more easily be concentrated in one place. In the cities of ancient Mesopotamia (modern Iraq), for example, temples became money lending institutions, allowing people to borrow money with interest.
The Silk Road
By the late Bronze age, (1500-1200 BC), trade had become multinational, taking place among many countries. Goods produced by one society were now traded for goods produced by other societies. This trade led to the development of trade routes, or pathways used for the transportation of goods. By 650 BC merchants had developed coins, made from precious metals such as gold and silver, which could be exchanged across borders.
The ancient world was also witness to the first developments in economic awareness and thought. Beginning with the ancient Greeks and philosophers such as Plato and Aristotle, people began to examine the way in which trade and business were conducted and how these interactions could be improved. The first economist is considered to be Greek poet named Hesiod, who, in 800-line poem titled Works and Days, wrote that labor, or work performed by people, was the source of all good.
After the fall of Rome, the world’s economy grew slowly. New trade routes were established. The most famous among them was the Silk Road, which extended more than 4,000 miles and connected Europe and China. Silk and spices traveled west, while horses, fruits, and jewels flowed east. The trade along the Silk Road helped transform.
Europe from relatively poor to rich, with cities such as those in Italy emerging as rich trade centers. It was in these trade cities, that the first modern accounting systems were developed to help people keep track of goods being transported and the wealth they were earning.
The First Economic System
Through the middle ages, Europeans did not travel far beyond their corner of the world. Trade with Asia along the silk road had encouraged some Europeans, such as Marco Polo in the late 13th century to travel east, but with the conquests of the Ottoman Turks in the 14th century, Europeans found themselves restricted from travel by land to Asia. The closing of land routes to China also meant that silk and spices that had fueled economic growth for almost a thousand years all but stopped flowing west. Thus, European merchants, adventurers, and state officials began looking for new ways to make wealth. The desire for new trade opportunities, along with religious zeal to expand Christianity and recent advances in sailing technology, all made it possible for Europe to enter a new age of exploration.
Beginning in the early 1400s, Portuguese explorers sponsored by Prince Henry the Navigator and equipped with a new ship, the caravel, began to probe the western coast of Africa. Encouraged by an abundant spices trade, Portuguese ships charted new routes along the southern tip of Africa to India and captured several trading cities to serve as way-points for the passage east. Eager to share the wealth of its neighbor, Spain agreed to sponsor expeditions of its own. Christopher Columbus, who sailed from Europe in 1492 to reach the Americas, led the first of these trips. Columbus believed that he had found a westerly route to Asia. It took later explorers to realize that he had instead discovered a new world in the Western Hemisphere.
The 1500s saw a mass expansion of European power, Spanish conquerors, known as conquistadors, flooded the Americas in search of “gold, God, and glory”. Relying on superior technology such as gunpowder, these Spanish profiteers were able to conquer several civilizations, including the Aztecs and Incas, enslaving the populations and looting their cities for precious goods. The flood of gold and silver and other precious metals from the Americas quickly made Spain the dominant power in Europe and motivated other nations to send expedition of their own. Although the Dutch failed at their attempts at colonization, the British and French established control over the eastern seaboard of the Americas by the 1600s.
Mercantilism and Tariffs
Dominating the rush to colonize the Americas, and to establish trade was the theory of mercantilism, which held that the prosperity of a nation depended on a large supply of gold and silver. Mercantilism believed creating balanced trade, which favored exports over imports. It was the role of government to create a favorable balance by building roads and stimulating growth of businesses through subsidies – payments made to support industries. Governments also placed tariffs, or taxes on foreign imports to make foreign goods more expensive and thus less attractive to consumers. Colonies were crucial to this new economy as they provide raw materials and import goods.
The Colombian Exchange and Triangular Trade
All the economic activity between Europe and its colonies created the world’s first truly global trade network. Goods, plants, and animals flowed across the Atlantic Ocean in what became known as the Colombian Exchange. Colonies in the Americas established plantations, or large agricultural estates, to grow cash crops such as sugar, cotton, vanilla, and tobacco for export, while bringing in imports such as wheat, citrus, and horses. The exchange not only created wealth and new markets for goods on both sides of the Atlantic but also transformed the ecology of both the Americas and Europe.
The Colombian Exchange also proves deadly. Diseases from Europe devastated the Native Americans. Europeans enslaved people from Africa and brought them to work on colonial plantations. Millions of people died or were forcibly relocated as a result of the Colombian Exchange and what was to become known as triangular trade, a flow of goods and slaves connecting Europe, Africa, and the Americas. In this system, European goods were traded for slaves, who were then sold to in the American Colonies in exchange for cash crops which were shipped off to Europe. The results of this system were devastating to some people. Native Americans were all but wiped out, while parts of Africa were depopulated. Slavery as an institution survived well into the 1800s, and in some parts of the world still exists.
The Rise of Modern Economics
Laissez-Faire
The greatest changes in the ways people thought about labor and the creation of wealth came in the Enlightenment of the 1700s and from the Scottish philosopher Adam Smith, considered to be the father of modern economics. Smith believed that if people were free to pursue their own economic self-interest, then all of society would benefit. The government should leave the economy alone. The doctrine became known as laissez-faire, a French term roughly translated as “to let the people do what they want”. In his book, The Wealth of Nations, Smith argued that the state had only three basic roles. Those roles were to protect society from invasion, defend citizens from injustice, and maintain public works – such as roads and canals-that individuals could not afford but were necessary for trade.
Industrial Revolution
While smith was developing his ideas about modern economics, a major event was transforming the way economies functioned. Beginning in the 1780s in Great Britain, the Industrial Revolution was beginning to take place. It began with major advances in agriculture that dramatically increase food supplies, allowing more people to eat at lower cost with less labor. As the population grew, more people moved to towns and cities looking for work, while the government and wealthy individuals began investing in machines and factories. Britain was especially well positioned to do so.
The 1800s
Machines quickly transformed first the cotton industry and then industries based on coal and iron. Raw materials fed factories, thus growing the demand for more raw materials. Labor became highly systematized, with workers working in shifts to keep machines producing at a steady rate. Conditions in factories were harsh. Workers had few rights or protections and could be fined or even beaten for poor performance or bad behavior.
With the expansion of the industrial economy, more efficient means of moving resources and goods were needed. In 1804 the first steam locomotive was invented. Within a hundred years, vast railway systems were being developed across Europe and America. The building of the railroads created new jobs. Lower transportation costs led to more affordable goods, thus creating larger markets and more demand. The new industrial economy became self-feeding, ensuring steady growth and greater wealth than had ever been known before.
Society was forever transformed as a result of the Industrial Revolution. Cities grew as never before. In 1800, for example, London’s population was about one million. By 1850 that number had more than doubled. A better fed population meant the decline of famine and disease and an increase in life span, which only added to the population boom. Soon reform movements sprang into existence calling for greater political participation and better sanitation.
The Middle Class
Perhaps the most important result of the industrial revolution was the development of a new middle class. Throughout history society was divided between the small wealthy upper class and the large, poor lower class. Doctors, lawyers, teachers, and factory workers suddenly made up a middle class. The middle class did not have enough wealth to be considered rich but had enough wealth to afford bigger homes, and some luxury goods. As the middle class grew, so did new industry most notably industries that provided entertainment such as theaters and restaurants.
Socialism
However, as some people prospered under the Industrial Revolution, many others struggled with poverty and harsh working conditions. This gave rise to a political movement favoring the establishment of socialism, a system in which society, usually the government owns the means of production such as factories. Developed chiefly by a German philosopher named Karl Marx, socialism maintained that the industrial economic system was essentially unfair, with only a few getting rich at the expense of the majority. Socialists believed that only government-controlled industry could promote true and fair economic equality. The conflict between capitalism and socialism would become the defining structure of the next one hundred years.
Developments in American Economics
The American Revolution was fought in part as a protest against unfair taxation of the American colonies by Great Britain. Once the colonies gained independence and established the United States of America, the country was formed as a common market with no internal taxes or taxes restricting trade between the states. Although this system encouraged the free and open exchange of goods and services, it did nothing to regulate and fund the new, struggling federal government.
Alexander Hamilton, the first US secretary of treasury, proposed the creation of a government sponsored bank and tariffs on foreign imports to encourage economic growth. Furthermore, he consolidated the debt amassed by the colonies during the Revolutionary War, building national credit and encouraging investment in the federal government through the sale of bonds. There was much resistance to Hamilton’s plan of a strong central bank to regulate the economy, most notably from Thomas Jefferson, who favored a smaller, weaker federal government. However, conflict between France and England, and later the war of 1812, forced many forced many opponents of the national bank to support the institution as a stabilizing force in times of crisis. Thus, the American economy became a compromise, in which states were encouraged to trade goods freely and without restriction, while the federal government, through the national bank, would regulate the economy overall.
Credits
- This lesson was originally made with LibreOffice Writer by John M. Harpster.
- Formatted with Notepad++ for space removal.
- Made and published to PDF with LibreOffice and Microsoft Word by John T. Harpster.