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HBC is primarily a history site. Marxists would say that economics fundamentally drives history. HBC believes that this is a gross over simplification, but of course economics is a powerful force that affects history, perhaps even the single most powerful force. It is clearly, however, not the only force and often not even the dominant force. Its importance, however, means that it has to be considered by historians. As a result, we will create some pages to address major economic trends such a feudalism, slavery, the industrial revolution, child labor, the depression, globelization, and other developments. Economics is especially important to HBC as the production of textile has been a major economic activity since the dawn of civilization and in fact was at the heart of the Industrial Revolution--the single most important development since the Agricultural Revolution thst created civilization..
The two basic sectors are commonly seen as the the agricultural and industrial sectors, but this is an oversimplification. Industrial is commonly see a ca generic term for a modern, complex economy. The aricultural sector developed first and the appearance of agriculture is what in fact generated civilzation. The wealth created by intensive agriculture vastly exceeded that which could be generated by hunter gatherers. Live stock raising is generally associated with agriculture, but some people advanced from the hunter-gathering level by associating with migrating heards or ctully domesticating the hears to a degree. This was the pattern in Central Asia. Another early economic sector was mining. The production of metals preceeded agricultural, but became much more sophisticated when praticed by the more advanced and better organized agricultural socities. Fisheries was another early sector, but unlike agricultural and live stock raising, remained largely a hunting sctivity until the 20th century. These societies financed and made possible the development of civlization. In the wake of civilization, artisans began producing the acoutements of civilization. Agriculture ramained the primary source of wealth for milenia. And this did not begin to cvhaznge ujntil the 19th century. In many areas of the seveloping world, agriculture continues to be the principal economic activity. True industrial production began with the Industrial Revolution fist in Britain and then in Europe in general as well as North America. Modern industrial societies have many important sectors beyond actual manufacturing, including construction, energy, financial, information, leisure, services, natural resources (fisheries, forestry, and mining, social (education and health), transportation, and trade. One important observation is that the portion of the ecomony devoted to producing goods and swevices is in many modern economies becoming overwealmed by the goverbmental sector, a development with profound economic and social consequences.
We note five major economic eras. As we approach the modern eras the duration of the eras shink from millenia to centuries. Some observers believe that we are now entering a new economic era--the information age.
The basic economic system for most of human history was hunting and gathering. In early stages of economic development, this was not unlike other animals and other primates. Humans proved particularly adaptable and unlike most other animals and apes proved able to deal with any envirment they encountered. Humand by about 12,000 years ago (some disagreement exists over the Ameeicas) had reached every habitable regions of the globe, including very difficult regions such as deserts and the Arctic. Armed with an inventive mind and developing cultures, loosely organized small bands of hunter-gatherers sucessfully adapted to all the climate zones and environmental condutions which they encountered. Hunting and gathering involved the exploit of available resources. Humans over time developed increasingly sophisticated tools to utlize the available resources.
Small, mobile human populations subsisted on whatever resources they encountered. They hunted the available game, fished, and gathered plant resources. They adapting their life style to the resources and environments they encountered. It is was not unusual for hunter gather bands, especially those in tropical areas, to identify and exploit several hundred plant species. In the Arctic the bands were more limited to a small number of animal or fish resources. Hunter gatherers commonly move seasonally to avoid over utilizing availablke resources and to take advantage of seasonally availble resources. Commonly hunting anf gathering is described as having relatively little impact on the environment. Some authors believe, however, have come to suspect that some hunter gsathers such as Native Americans in the Amazon and North America had a major impact on he environment
Historical assessment of the ancient world often neglect the economic basis of these societies. Important topics here are agriculture, textiles, and slavery. The production of textiles tended to be a much more important part of ancient economies than is the case today. The development of weaving technologies was an important step in the development of civilization. The fabeled Silk Road spanned both the ancient and Medieval era. Slavery is another important topic and was of great importance to many ancient economies.
Feudalism was the principal economic system of Medieval Europe. It was, however, more than just an ecomonic system, but a social and political system as well. Within Feudalism the enslaved peasantry gradually evolved from slavery to sefs. The difference was at first limited, but there were important legal differences. Other ecnomic topics considered here are the Silk Road, Crusades, plague, and the Medieval wool trade,
Mercantilism was the governing economic policy persued by European countries during the 17th and 18th cenuries. There was no great spokesman for mercantilism like Adam Smith fir capitalism (The Wealth of Nations) and Karl Marx for Comunism (Das Kapital). Mercantilism was esentially the attempt of pre-industrial European leaders to gain control over the increasingly complex ecomomies that emerged from the late-Medieval era. Other topics include the voyages of discovery, American gols and slver, the highland clearances, the potato, and slavery.
No development in modern history has affected individuals more than the Industrial Revolution and the manufacture of textiles played a key role. A range of topics are covered here, including the industrial revolution, European imperialism, the Opium War, the Irish Potato Famine, market capitalism, child labor, Communism, the Depression, the Soviet Economy, Globelization, free markets.
Some authors have suggested that with the advent of the computer that a new economic age has begun--the Information Age.
We want to look at the economies of individual countries. The ecomonies of these countries are closely intertwined with their history. Thus some basic ecomomics information is needed for our historical assessment. This is a major undertaking that will take some time to undertake. We will comcentrate on the larger countries, including America, England, France, Germany, Italy, Japan, and Russia. The success of each of these ecomomies was strongly correlated with the adoption of free market capitalist systems. Despite the unrefutable evidence of this, it is interesting to note the number of countries that fail to implenent free market econommies or place limits on free markets. Two of the most notable are the remaining Communist countries (Cuba and North Korra). Here political concerns explain the maintenence of failed economic policies. Other countries fail to develop a poliical and legal system necessary for free markets to floutish. African countries in particular have not been able to develop vibrant economies. Some countries like Nigeria have oil income to help finance ecomomic development, but seem to have made little real progress. Other countries do not have oil ot other major export income and are dependant on foreign capital. Developing countries (China and India) are now energing as major economies after pursuing disatrous socialist policies. Several smaller ecomonies (Argentina, Cuba, Poland, and Venezuela) are also interesting.
The history of money and credit is in large measure the history of civilization. This is because civilization began with settled agriculture and the creation of wealth beyond what hunter gathers could accumulate. This also involved a specilization in labor. With the specialization of labor pure bartar was akward leading to the development of money. The development of writing appears to have developed out of a need for accounting records. Early money was metal coins which had intrinsic value. Money was invented in Mesopotamia. The next step was credit. Modern banking traces its origins to the Templars. Christian pilgrims needed a way of transfering money to the far away Middle East and the Templars established a system to do this. It was the Medeci in Florence that established the foundation of modern banking (15th century). Banking was contrained in Europe because of the Church procriotion against paying interest which was consider usurious. For that reason Jews were commonly involved in lending money during the Middle Ages. From early times there has been a populist reaction to money lenders and banks. This was an elementb in European antiSemitism. Even the Medici faced a populist uprising led by Savanarola. He is best known for his religious teachings, but populist sentiment was an important factor in the rising against the Medici. Populist sentiment against banking has continued to this day. While populist has generally blamed banks for economic problems, throughout history it has been the lack of an efficent banking system that has impedxed economic growth, not the presence of banks. Along with money and credit has come economic cycles and financial bubbles.
Labor in the ancient world had no real satus, in part because much of it was performed by slaves or peasants with few rights. With the fall of Rome in the west the Feudal system evolved where the peasantry became serfs tied to the land. Artisans in the cities organized guilds when helped to raise their status. The position of skilled labor, however, was udermined by the industrial revolution and the mechamization of industry. The labor movement developed differently in various countries. The general pattern was that industrialits refused to recognize unions and attempted to break unions that organized strikes, often with violence. Governments often intervened to support the industrialists. The labor movement itself was split. Some radical unions were organized like the International Workers of the world (IWW). The IWW was not concered with collective barganing, but rather with radical social change. There were also divisions between trade unions and industrial unions. And union leaders had a range of social attitudes. Some union leaders especially in America beliece in free enterprise, but just wanted a reaonable share of the earnings in wages. European labor unions had more politiocal orientations ranging from Socialist to Communist. Generally speaking the Communist political leaders were more radical and had a more radical politcal agenda. After the Communist Revolution in Russia, Communist labor leaders came under the control of the Soviet inteligence services. Gradually after World War I, labor unions in most Western European countries and America won collective bargaining rights. In America this was one of the achievements of Franklin Roosevelt's New Deal.
Modern industrial ecomomies emerged in Europe beginning with Britain where the Industrial Revolution began about 1740 and gradually spread to the Continent. Economic development also occurred in the United States and some English colonies (Australia, Canada, and New Zealand). A comcomitant of industrial development has been varying degrees of political democracy. Except for Japan, other countries did not attempt or failed to succeed with the Western economic model. Russia which until World War I was rapidly developing, but the Rovolution shifted to state planning. This was also attempted by China after Wotld War II. Several Asian countries (Singapore, South Korea, and Taiwn) after the War have achieved considerable success. China after the economic catastrophies of the Great Leap Forward and the Cultural Revolution has endorse free markets, but without political democracy. India after independence embraced a socialist system with state planning and a stifeling beaircracy. The economy languished. Free market reforms have in recent years jump-started the economy. The countries of the Middle East, Africa, and Latin America have had great difficulty in developing productive modern ecomonomies.
HBC has addressed a number of controversial issues which involve the comparison of different countries. Here the issue of failed states has arisen. HBC has readers from all over the world. Most of our readers are Americans or Europeans, but we have readers from Asia, Africa, Latin America, and the Middle East. And some of our readers understandably don't like their country described as backward or a failed state. Our readers raise a fair question. How does one define a failed state and society. We need to estanlish metrics here so that we can fairly assess failed and successful states. Here the oil countries present a special problem. Several states (Brunei, Iraq, Iran, and the Gulf emirates, Kuwait, Saudi Arabia, and Venezuela) are endowed with vast quantities of oil. As a result of this oil these countries are able to finance a high standard of living. Our assessment of state failure relies heavily on living stndards, but they are not the only metrics involved. Paricularly important here is measurable indicators so that an assessment can be made free of idelogical and theocratic beliefs. Even this is complicated, however, because many failed states are such failures that they do not have reliable statistical systems which can provide us reliable statistics. We would suggest a range of factors, including ecomonic productivity, prosperity (percapita income), public health (infant mortality, longevity, sanitation, nutrition, etc.), education (literacy, school attendence--including girls), political democracy, civil liberties (especially free speech), religious freedom, artistic achievement, transportation network (paved roads, mass transit, ect.), communications (telephones per capita, access to the internet, ect), and number of books published, These are some of the major indicators that we would look at in assessing countries and in ranking advanced and backward countries. A country that consistently ranks low in these areas might fairly be called a failed state.
Economics is a social science. And by this it is mean that there are basic laws of economic behavior. The most obvious is the law of supply and demand. Thomas Carlyle it called economics the dismal science and without knowing it he put his finger on a basic problem with economics. Many authors want to ascribe moral values to economics. Thus political leaders who have the power to influence economies commonly instead of following the laws of economics instead try to insert their moral judgements. Thus you see President Obama when he talks about economic policy, continually use terms like compasion and fairness. Now you would not see those terms being used when discussing other sciences, both physical and social sciences. Now compassion of fairness are highly subjective values. For a host of politicians (Clemet Atlee, Hugo Chavez, President Obama, and others), what they mean by compassion and fairness is redistribution of wealth, to take from the affluent and give to the less affluent. Many Americans agree with this prescription. For other Americans the Governmrnt taking their income and passing it out to others is neither fair or compasionate. The fact that many Government programs redestributing income have proven very ineffective is a whole other, but no less important issue. Now readers can, based on their moral values, decide who is correct in the debate over resistrubution, but it should not be confused with economics as a science or optimal management of an economy. Such decesions reflect religious and social values, not economic laws. They do, however, have economic consequences. For example, if you pay people not to work, you will have more people not working and fewer people working and paying taxes. Or if you tax investors creating businesses and jobs, you will have fewer people risking their capital and creating jobs. Or if you increase the cost to business people of hiring people through regulations, you will have businessmen hiring fewer people. These are simple laws of economics. Of course the level of payments, taxes, and regulations are critical. If they are small, they will have negligibe impacts. If they are substantial, they will have a signigicant impact. The Liberal Democrats who have through regulations imposed their values on businessmen and investors are now asking, where are the jobs. This is the same question that Liberal Denmocrats asked during the New Deal which over 9 years never suceeded in ending the Depression in America.
The question arises as to why economic conditions are so varied around the world. The Communists claimed it was because evil capitalists were exploiting their own workers as well Third World countries. Many people bought this and other Socialist teants, especially on the heels of the Great Depression. The only thing is that in the later part of the decade several surprising economic trends emerged: 1) European countries became richer after losing their colonies, 2) Many colonies became poorer after independence, 3) The Soviet Union and its satellites as well as China and other Communist countries were unable to compete economically with the Western capitalist countries, 4) Free market reforms in China, India, and other countries turned torpid economies into engines for economic growth, and 5) Socialist policies in Western Europe and America are being exposed as being both unsustainable and counter productive. Others argued that natural resources were critical. Again we see countries disproving this thesis, Japan, Taiwan, South Korea, Singapore, Taiwan, and other ciuntries prioved that suceesful ecomomies can be built by countries without notable resources if a country develops it human capital. Increasingly it is becoming obvious, much to the dismay of Socialist acolytes around the world is that the key to economic success is economic freedom. And to test out that theory, one has to compare indices of economic feeedom with actual economic conditions. The Wall Street Journal andThe Heritage Foundation, a respected free market think tank, have tracked the economic freedom trends around the world with its Index of Economic Freedom. They define economic freedom as "the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself." They measure ten components of economic freedom, assigning a grade in each using a scale from 0 to 100, where 100 represents the maximum freedom. The ten component scores are then averaged to give an overall economic freedom score for each country. You can go to their site to see the country rakings and a detailed duiscussion of conditions in each country. While one can debate the precise findings and individual country assessments, the basic findings are unmistakable. Countries high on the economic freedom list are successful countries with high living standards. Countries ranking low on the economic freedom list are countries with failed economies with a population condemned to poverty. What the index does not measure very well is the ability of countries with oil-based economies to avoid freeing their economies. A variety of cultural factors can also affect economic conditions.
It is also true that the Royal Navy helped establish the modern world trading system. It broke up the closed international system established by Spain and Portugal and replaced it with a much more open system. Sea trade is of course the central vehicle for international trade. Even today, something like 95 percent of international commerce takes place by sea. There have essentially been three world trading systems. The first was the Silk Road. This was the medium connecting China and Europe. The Silk Road commerce was conducted over a Millenium and affected both by Byzantium, the rise of Islam. the advent of the Monguls. This trading system was suplanted by the rise of the Portuguese and Spanish empires and trading system beginning in the 15th century. It was this system that the fledgling Royal Navy began to attack, first as freedooters and then in the spectacular engagement of the Spanish Armada in the English Channel and the North Sea. The defeat of the Armada meant the beginning of the end of the world trading system dominated by Spain and Portugal and the beginning of the new trading system which would be made possible by the rise of the Royal Navy.
There are two basic modern economic systems, free-market capitalism and state socialism. These are of course the extremes. There are countless permutations between the two basic systems in actuality. Free market capitalism is an economic system in which the means of production are privately owned and operated. The economic goal is profit. Investments and business expansion are are determined by private decisions in the free market as opposed to the state through central economic planning. Prices are set in the open market by supply and demand. Private individuals invest in new enterprises seeking profit. Government in a capitalist system should pursue laizze faire policies. Laissez faire is a French term meaning "leave alone," meaning that the Goverment should not interfere in the operation of the free market. The mecghanics of capitalism were clearly set out by 18th century economists, most clearly by Adam Smith in the Wealth of Nations (1776) where he describes an invisible handn economics, the invisible hand, also known as the invisible hand of the market meaning the self-regulating operation of the marketplace. Economics has been called the 'dismal science'. An economists can be found to support a wide ramge of economic systems. One of the few unrefutable economic trends is that those countries which more closely appraoch Smith free market approach are the most prosperous (America, Britain, France, Germany, and Japan) and those countries which most greatly diverge and interfere or even control the market tend to be the least prosperous (Cuba, North Korea, the Soviet Union, and Vietnam). The change in China after the introduction of capitalist economics is the most stunning confirmation of Smith economic theories. Not only are capitalist countries the most prosperous, but they are also the most creative and innovative. Liberals in the 19th century struggled to remove the heavy hand of government, mostly monarchies, from the economy. Their successes were part of the massive increase of wealth during the century. It is interesting to hear politicians talk about change and new ideas. Adam Smith clearly described how a nation can achieve prosperity and the passage of time has only confirmed that he was correct. Smith did not believe as subsequently advocated by important industrialists that there was no role for government. Smith saw the need for the government to set rules to ensure the operartion of the free market. Smith foresaw that concentrations of capital could prevent the operation of the free market. While capitalism has clerly been shown to be the most successful economic system, it is also clear that the Government is needed to establish and enforce minimum social, health, worker safety, and environmental standards. The other basic economic system is socialism.
Socialism is an economic theory advocating public or common ownership and cooperative management of the means of production and allocation of resource in a society. And like capitalism, socialism had an outstanding theorist--Karl Marx. Mark publised Das Kapital about a century after Smith's ground-breaking work. Unlike Smith, very little of what Marx wrote proved to be accurate or workable. Marx explained that the driving force of capitalism was the exploitation of workers. He postulated that essential source of capitalist profits was the unpaid labor of wage laborers. He postulated that the excesses of capitalism would lead to worker revolutions in advanced industrial countries and the eventual creation of a communist society in which the state would whiter away. This of course did not occur. The communist Revolutions occurred in China and Russia, the two least advanced states in Europe and Asia. And Marx's theories proved so unworkable that Lenin/Stalin and later Mao had to rewrite the book--creating Marxist-Lennist ideology. This was a repudiation of liberalism, and the reintroduction of state controls. But the 20th century Communists went far beyond the monarchial controls of the 19th century, but attempted to totally operate the economy. The results for Russia, China, and other countries attemptingthis approach was economic failure and poverty. The interesting aspect of the demobstrable success of capitalism and the failure of socialism is the number of people in the modern world who continue to embrace socialism and socialist economic theories.
A major question in ecomomics is taxation. The question of what is and is not a tax can get complicated, but is more of a political than an economic question. A tax is essentially a mandatory charge or levy the government imposes upon a citizen or resident of a political entity. Historically taxes were imposed in various ways, such as a corvee or paymrnt in labor or payment in products, commonly part of an agricultural harvest. Since the Industrial Revolution and the development of more prosperous capitalist economies, taxes have geberally unvolved money payment. A tax is generally thought of as a revenue raising methods, but revenue is not always the primary purpose of a tax. Chief Justice John Marshall famously observed in the McCulloch v. Maryland (1819) decesion that the "the power to tax is the power to destroy." In this case it was a political effort to destroy the Bank of the United States. The Liberal movement of the 19th century was largely an effort to end the high taxes and other restraints on economic activity imposed by the largely monrchial governments of the time. Taxes are also used for social engineering, political efforts to advatage one group at the expense of another. Since the Progressive Era in America, many tax rates have been progressive, meaning that higher income people pay a higher tax rate than low income earners. This is also common in Western Europe. Top marginal tax rates in America have been as high as 92 percent (1952-53). This has been a major tool of liberals seeking 'social justice'. It is widely assumed that higher tax rates will increase revenue that the government can use to finance social welfare systems. This often is not the case as higher tax rates often not only result in lower tax collections, impede economic activity which also lowers tax collections. Even so, many liberals influenced with socialist ideology continue to push for higher taxes because of a virtually religious obsession with lowering the income of the wealthy regardless of the impact on low-income earners. President Obama whenbquestion about whether higher taxes would actually increased revenues, explained that there were other important considerations and that it was a 'matter of equity'. This obsession is often compounded by the fact that socialist economic policies generally fail to raise the very low-income earners they seek to aid. This has proven true of not only the Communist countries, but also the welfare state of Western Europe. Because of the widespread acceotance of socialist economics, rarely do modern governments set taxes at a rate designed to maximize the collection of revenue.
One of the interesting questions in history and economics is why did the West begin to generate wealth and power, outstripping other regions. The rise of the West is a very recent phenomenon. China until the 19th century was a richer society than the West. Britain fought the Opium Wars with China because it could not produc anthing else that the Chinese wanted. This began with the European maritime expandion and voyages of discovery. Several authors have addrssed this question nd there is no clear-cut answer, but there are several ghough provoking assessments. One authors sees the answer in the environment, the accidental combination of geographic and climatic facors affecting available flora and fauna and the importance of disease pathogens. [Diamond] This analysis offers important insights and explains part of the story. The authors mentions, but largely glances over two important issues. First ideas. He does not see ideas like free market capitalism, democracy, and the rule of law as a root cause. Second he briefly mentiions China, but does not really explain why it was not China that emerged as thne world leader rather than Europe. Another author offer has prpoposed what he calls six killer apps. These include: 1) cpmeition, 2) science, 3) the rule of law based on private property rights, 4) medicine, 5) the consumr society, and 6) the work ethic. [Ferguson] And we would add that the\ree effective mobements (the Renaissabce, the Reformation, and the Enlightenment) helped focus these killer apps in the West.
Diamond. Jared. Guns, Germs, and Steel: The Fates of Human Societies (Norton: New York, 1997), 494p.
Frguson, Niall. Civilization: The West and the Rest.
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