HIST124: Economic History – Flashcards

- Islam = dominated between the 12th and 16th centuries (had more to offer the Western world than they did, had solid financial systems - used credit and had a single currency - served as the link between the east and west) - Mongol - contained the Silk Road - huge growth as ar result - Ming - strong maritime power (Kublai Khan had 900 ship fleet that held 40,000 men) --> stopped building ships in the 1500s however and focused on building the Great Wall of China - Mughal empire - farther behind because they were mostly a subsistence agricultural economy that did not allow for growth, were hindered by their religion - caste system created an oppressive system

Feudalism = system that dominated in medieval Europe and that was formed following attempted invasions in the 8th century. The system involved a relationship based on the holding of land in exchange for labor/services --> military personnel could occupy land in exchange for their military service. This lasted for a while (manorial system is also representative of this); however, following the Black Death, the peasants gained greater leverage over their wages and there was a shift away from this system in Western Europe (Eastern Europe still relied on local power because it lacked central authority powers). Moreover, advancements in commercial sphere led to the shift --> shift towards urbanization and increased market demands which made feudalism less sustainable

The commercial revolution occurred because of increases in trade (shift from the Islamic Mediterranean to Italy), new wealth from successful voyages, the Reformation resulted in the change in mindset to one in which one's faith was preordained so that you could focus on the creating wealth, shift away from feudal organization following Black Death Commercial Revolution occurred between the 15th and 18th centuries and was characterized by the intercontinental trade (plunder and exchange with Europe and Asia), the slave trade, the Columbian exchange, an increasing in financial centers (to facilitate trade), increase in entrepôts (trading posts), shift towards joint-stock companies

Columbian exchange involved the transfer of animals, plants, culture, etc. between the Americas and Europe between the 15th and 16th century as a result of colonization. Brought products such as maize, tomatoes and potatoes but also took to the New World livestock and diseases.

- New wealth/global trade --> convergence of interest rates - Price revolution - inflation due to inflow of gold/silver - did not match wages - increase in slave trade - brought to America - increase in intercontinental trade - plunder - had little to offer the West - shift towards joint-stock companies - needed capital and this allowed for a spreading of risk. couldn't pull money out, it was only transferrable which created a market. first reflection of a modern day corporation - highly reflected in Dutch East India Company - bills of exchange and credit - used at entrepôts (trading posts) - FINANCIAL MARKETS BORN OUT OF THE NEED TO MANAGE RISK

The VOC was formed after many Dutch companies began competing with one another and pushing each other out. Created one overhead company, where regional offices were still maintained but shares were distributed for the joint stock company as a whole. This allowed for multiple investors to invest in the company and raise capital fairly quickly. Dutch had advantage over the EIC because of advantages in technology, greater centralization of the company (decentralization in the EIC led to corruption and inter-competition), better financial practices (low interest rates, strong capitalization, not exposed to an authoritarian regime

The Royal Exchange was set up in England following the Glorious Revolution as a place of exchange for stockbrokers. Representative of the financial revolution

Tontine coffee house = coffee house that became a center for buying/selling shares --> representative of the financial revolution. tontine = innovative financial instrument = annuity + lottery

Joint-stock company allows for multitude of investors, permanency of the company, mitigation of risk, ease of obtaining capital, creation of a secondary market - cannot just cash your share, etc.

Glorious Revolution occurred in London in 1688 with the overthrow of King James II - replaced by union of Parliamentary members. They took greater control over the economy. They triggered a financial revolution - Bank of England: issued banknotes, tokens, scrips --> allow for increase in money supply - creation of bills of exchange, annuities - creation of joint-stock companies - Promissory Notes Act

Speculative bubble = discrepancy between the intrinsic value of an asset and its market value that occurs because of overzealous trading 1) change that creates expectations of profits (ex. new tech) 2) buyers start investing in those shares, prices go up; those who are less experienced start buying into this well - usually are able to joint because of easy credit and low interest rates 3) buyers who are less experienced are more likely to make emotional swing. bubble continues to grow until buyers run out 4) bubble bursts

John Law - France - noticed that a bank could stimulate growth by increasing the money supply - sought to do the same - created MC - given exclusive rights to trade with french colony of Louisiana in exchange for buying off its debt - private investors could buy shares of MC in exchange for gov't debt - MC would pay them the value of the bond at face value (they were happy), the burden of interest payments was lifted off the gov't because they only had to make smaller payments, and MC benefited because it gained capital investment - suffered at first - Law was a foreigner and joint stock companies were not as well known in France - began to buy more and more exclusive rights - funded this by issuing more shares --> ponzi scheme - publicized the shares by announcing that he and a few others would buy shares --> share prices went up - unable to manage inflation of the economy and the price of the shares --> fears of inflation turned people away from the shares, when he tried to burn some of the shares to reduce the money supply it only increased fears

- South Sea Bubble occurred simultaneously in Britain - South Sea Company's creation prompted by the influence of Law - SSC gained exclusive rights to trade with Spanish America - however, at the time they did not trade much with GB - stock was going up minimally - they decided to buy more debt off of the gov't - this time in the form of annuities --> since annuities proved to be highly unwieldy, people were attracted to this option because it offered a LIQUIDITY PREMIUM - placed shares in the hands of the elite - crony capitalism --> they had a personal interest in the shares doing well - however outflow of money after failure of MC resulted in depreciation of share price for SSC --> went to Bank of England which faced a run on the bank --> collapse

Economic nationalism was adopted in the 18th century; however, this backfired because the authoritarian regimes in Spain and Portugal had little understanding of how to run the economy. Engaged in a lot of distortionary policies in order to fund their wars. Spain went bankrupt 7 times beginning in 1577

Economic nationalism = system of mercantilism in which balance of trade is favored, want to encourage exports, discourage imports (only raw materials), and favor bullionism (influx of gold/silver) - Spain, Portugal adopted it - Colbertisme in France - Colbert had difficulty making this successful because of Louis XIV's wars - but he focused on controlling interest rates, putting up tariffs - Parliamentary Colbertisme in GB - not as interventionist but the Parliament controlled the finances (influenced by a number of interest groups) - defined by mercantilist policies such as Navigation Acts

Navigation Acts promoted mercantilist policies - promoted exports only from the British colonies, if it came, had to come on a British ship, focus on raw materials

- theory of leisure is that as the consumerism culture grew, you had to show your wealth in order to have evidence of it - increase in consumption of luxury goods - would eventually become a consumption of commodities (i.e. coffee/tea - coffee houses, sugar, cotton, etc.) - seen in the fashion world - display of wealth - the increase in consumption even by the middle class resulted in a cyclical process for industrialization - had to work harder to afford these products --> supplied more labor --> furthered industrialization

1) shift to mechanical sources of power (wheel, pulley, lever) 2) energy source (steam, charcoal --> coal) 3) production of synthetic materials

- Agricultural change --> better crop rotation systems led to larger farms and need for new tech - Charcoal --> coal --> iron industry expanded - introduction of power loom in 1820 - allowed women/children to work and increased cotton production - financial revolution following glorious revolution - more capital because of scrips/tokens, Bank of England, minor setback with South Sea Bubble, Parliament controlled finances, joint-stock companies - Adam Smith = specialization and division of labor - New mentality - individual inquiry, scientific method, routinization of experimentation - population growth due to increased birth rates since people went to factories (didn't wait for farmstead/apprenticeship) ; lower death rates (inoculations) - Household had increased demand for manufactured and consumer goods

Proto-industrial craftsmen produce goods for distant markets, competing with others - Products are made by peasant manufacturers who combine farming with manufacturing during slack periods in the farming cycle --> stimulates commercial farming to supply peasant manufacturers Stimulates growth of towns to provide specialist services and surplus profits lead to establishment of true factories Putting out work = subcontracting --> occurred during this time period and helped with SPECIALIZATION

- Social change --> emergence of formal, competitive, and impersonal markets in goods and factors of production including labor --> changed the way economic transactions took place - Industrial Organization: structure and scale of the firm changed with the emergence of capitalist employment and the factory system - large firms where production was managed and supervised and where workers were concentrated under one roof, subject to discipline and quality control. - Macroeconomics: rate of growth accelerated - increasing national income, the labor force, investment and capital formation - Technology - leads to new inventions, equipment, industrial techniques, organization, distribution and consumer marketing.

= 1776 Wealth of Nations - invisible hand - if individual's pursue own self-interest, the invisible hand of market forces would coordinate their actions and result in increased wealth for all - believed in laissez faire economy --> shift away from economic nationalism - theory of absolute advantage - specialization and division of labor - somewhat hypocritical - supported GB mercantilism and Navigation Acts

Theory of comparative advantage --> opportunity cost Heckscher-Ohlin model --> based on factor endowments

List = response to laissez faire economists - argues that laissez faire economy does not make sense because the mutual advantages of trade will only be gleaned if each state has an equal level of development - father of the infant industry argument and proponent of protectionism

Says that laissez faire economy cannot explain the income inequality inherent in trade btwn developed and developing states

Import substitution = economic policy of replacing imports with domestic production

- economy divided by class, not nationalism - wrong that value of labor is based on the value of a good it produces --> value of labor will be reduced as growth occurs - proletariat will eventually rebel against the bourgeosie = communist revolution

- believes that regulation mandates a level of expertness at the top --> belief triggered by Great Depression

- belief in fiscal policy as a tool for states - DEFICIT SPENDING

- back towards liberalism - does not believe that the state has the necessary knowledge to adopt these measures

- MONETARY POLICY - 3 ways: discount rate, open market operations, reserve requirement

- reserve requirement - discount rate (Fed funds rate) - open market operations - buying/selling bonds

Hamiltonian = developmental state - unit of analysis is the state - it is necessary for the state to play a role in furthering economic developing. The public and private sector must work together to do this (Clay). Jefferson = producers state - producer is the main unit of the economy and is more important than the aristocrat. Role of the state should simply be removing barriers to trade and enforcing competition policies.

Cannot beat the market - cannot only profit by making the riskiest investments

1) 1770s-80s: water power replaced by steam --> cotton industry had expanded but the political turmoil of this meant that there was political controversy of whether to industrialize --> was not integrated till 1830s 2) 1860s - rise of railroad, New Nationalism (regulation of large companies) vs. New Freedom (antitrust laws - help small companies) 3) 1930s/40s - electrical grid, blend of New Nationalism and New Freedom Current: rise of computer

Cotton gin transformed the American economy - previously most of the cotton had been produced in India but with the advent of the power loom in 1820 it allowed the US to produce 15-20x the amount of cotton. South began exporting enormous amounts - market in the North (manufacturing --> created finished product) and internationally. Created specialization in the regions and propelled manufacturing in the North - factories being built in rural towns and women and children joining the workforce. Did result in some backwardness however in that it gave great weight to slave labor - slave wealth concentrated in the hands of a few - very expensive to rent out to factories = limitation on industrialization. Desire to maintain power in the South and prevent the abolition of slavery would prove to be detrimental to the US.

Rural towns had factories - did not have to travel to the cities. Allowed for specialization and the putting out of work. Great involvement by women and children.

He adopted the Hamiltonian perspective - focused on internal protective measures (high tariffs), infrastructure improvement (roads, canals - Erie Canal -etc.), and national finance regulations (central bank)

see above

Railroad made a huge difference to the US - increased domestic trade and travel, allowed the US to become a market for its own goods, resulted in further expansion West Railroads only went 1 way however - lots of accidents Came to realization that they could not leave railroad industry up to market --> needed to be regulated - otherwise created inefficient competition and waste Would later expand trade elsewhere and create a convergence in prices - later changes included chilled storage units and even freezers - part of industrialization but also further promoted it - illustrated the technological improvement in charcoal --> coal --> made it easier to produce iron - represented the first modern business enterprise

European industrialization saw a large population increase (improved agricultural productivity, more land under cultivation, greater technology, better knowledge of chemistry and fertilizer); price convergence - it was easier to transport things (innovations such as freezer/chilled cart), eventually would result in fears of domestic competition Greater migration, urbanization Shift to common law, Napoleonic code in France Technological innvoations: steam engine, electricity, cheap steel

Of 1890 - meant to oppose the creation of monopolies --> desire for perfect competition and regulation further seen by the US at later points

Courts were actually friendly to cartels - believed that this could be effective as long as it promoted the good of the whole above the good of the individual

1) light industry = agricultural productivity, manufacturing (power by water/steam power), etc.. 2) heavy industry = transportation/communication, (telegraph) - metals, chemicals, consumer goods 3) Information Economy

GB - large population growth, now the economic center, was one of the first to industrialize, had great deal of economic resources (coal); became a maritime power

US - huge demographic increase, able to engage in regional specialization because of large size of the country, rise of railroads led to greater access of the rest of the country

Belgium followed along right after GB - potentially due to it being in proximity to GB. Had similar levels of natural resources - high in coal/iron --> contributed to the building of railroads

France lagged behind somewhat. Was still more of an agricultural economy, had lower rates of urbanization, lacked as many natural resources (coal/iron) - had to import 1/3 of it from elsewhere

Would eventually become one of the largest economic powers. Building of railroads was key to its success (relates to it having coal/iron); cartels began to develop - cartel policy was favorable towards it as long as it helped the good of society; large technological successes (ex. chemical industry - aspirin) First step towards industrialization occurred in 1833 with the creation of the Zollverrein = economic union of the German states - uniform tariffs allowed for trade expansion. Railroad was key to its success. Franco-Prussian war was then an important factor after --> huge number of joint-stock companies came into existence (1871) After that chemical and electrical industries became critical and cartels began to develop.

- outlet for population --> never actually tried to settle there however --> FALSE - Marxist theory = capitalism leads to growth of large enterprises, their output expands, masses do not have the purchasing power to purchase their output, with no where for their output to go they resort to imperialism to find areas where they can invest their surplus capital - market for its goods --> false - matter of international pride - best explanation = political opportunism + aggressive nationalism AND social darwinian attitude about race/ethnocentrism and regarding lesser races

Africa had previously remained out of affairs with the Europeans; however this changed in the mid-19th century. Had previousl had diseases and been difficult to navigate due to its rivers. But in 1867 and 1886, diamonds and gold were discovered which intrigued treasure seekers. Prominent figure = Rhodes who came to Africa and set up a mining company; however, he soon had plans to annex the territories as his colony. SIimultaneous the Egyptian khedive had built the Suez canal but was in a great deal of debt and control over the canal was handed over to the English - gave them access to Africa. 1884 - Berlin Conference specified that occupation was necessary to call something a colony --> GB occupied Africa. Result was highly detrimental - began being forced to produce cash crops - now had to pay taxes and earn wages. Colonists were extractive in their efforts - did not leave any infrastructure in place

Asia had previously been isolationist - West had little to offer them and China had viewed them as inferior. Had little to offer until opium that is...with the arrival of opium there were attempts made to block its supply which triggered the Opium war beginning in 1838 --> ended with Treaty of Nanking, the granting of Hong Kong, five ports, and 5% tariffs. Encouraged others to pursue such favorable treaties --> resulted in violence from anti-foreigner groups that culminated in the Boxer Rebellion.

Extracted surplus through plunder or through profit/royal repatriation

- transportation had made trade much easier - led to a convergence in prices - GB began adopting free trade policies - repealed the Corn Laws in the 19th century (partial trigger = the potato famine) and repealed the Navigation Acts - Cobden-Chavalier Act - Anglo-French treaty promoting trade and reducing tariffs - used the MFN principle which resulted in a general reduction of tariffs throughout - however, depression following 1873 = first real depression - return to somewhat more inward stance out of fear that transportation would allow for significant domestic competition

Great Depression of 1873

- the Great Depression of 1929 has been highly disputed: --> overall effects = precipitous drop in GNP of 50% and increase in unemployment to 25% - on one hand, there could have been issues related to a speculative bubble. After the stock market crashed, investors became insolvent and could not pay back their debts. They became hesitant to invest again and the bank failed because its borrowers became insolvent. This was a time in which many of the individuals investing in the stock market were first timers and had little experience - some believed it was actually exacerbated by monetary policy - constraints on money supply as the US gov't raised t-bill interest rates in 1929 to suck money out of the economy; however, this backfired because it meant people were saving/investing less, decreased money supply, the economy contracted - structural causes: manufacturing during WWI had resulted in overproduction of both manufactured goods and food stuffs - there was no longer a market for this. technological improvements had also reduced the reliance labor - unemployment - problems of capital formation - high interest rates discouraged investment, crash made people reluctant to borrow and banks reluctant to lend, low consumption discouraged plant expansion

- fiscal response - Keynes = deficit spending - New Deal by FDR: recover (economy), relieve (burden on poor), reform (economic system to prevent this from ever happening again) - new emphasis on welfare - social security act of 1935 - housing act - national industry recovery act (fair competition, wage restrictions, price reduction restrictions, production restrictions) - Glass-Steagall act - separate commercial and investment banks - WPA - stimulate growth by building a great deal of infrastructure which would then employ large parts of the population - securities act of 1933 - regulate the stock market

Economic dirigisme = form of state interventionism that arose during the interwar period --> fascism at the time was a radical form of authoritarian nationalism in which a totalitarian single party state was needed in order to be able to prepare a country for war and ensure that its economy could be handle --> byproduct of WWI. This involved the regulation of the economy through state intervention and high protection in nationalist regimes. Though this was an oppressive form, it gained popularity because it greatly increased employment, it detailed leisure time, and adopted welfare measures. All began as political doctrines that were not too harsh but then morphed into violent and highly nationalist regimes (Italy, Germany, Greece, Portugal). System of warfare + welfare

- Mussolini - nationalist but did not want a dictatorship - would later adopt a form of economic dirigisme - believed the state must be militarized and tried to create self-sufficiencies (aggressive agricultural policy - process of land reclamation --> resulted in a great deal of jobs), import substitution, and protectionist policies. Industrial output actually increased substantially

Similar trend in Germany. Nazi Germany = economic dirigisme, focused on creating employment (i.e. autobahn - actually highly effective network and a model for other countries and increased employment tremendously) however was also an oppressive regime

- dictatorship of the proletariat, state-interventionism, state, dependent on central distribution

Occurred in 1868 when the Tokugawa Shogunate dynasty was brought to an end - had been a feudal dynasty that was state interventionist and focused n economic development and laid the foundation for Japan's economy but was inwards and becoming ineffective for the samurai (indebted and not earning wages). Pressure to improve technology and arms as foreign ships began entering their waters - unable to protect themselves due to military inferiority and were forced to open their ports to trade - similar result as the uequal treaties that China faced. There was a great deal of violence towards foreigners amongst the people as a result and Japan saw a large balance of payments problem and its reserves were flooding out. The increase in discontent led to a coup and the removal of the Tokugawa from power. Japan began to improve its economy and industrialize - the Meiji introduced a new tax system, they solidified their civil service procedures with exams, they adopted a nationwide education system, began to send people abroad to import knowledge into the country (opposite of LatAm in that it was able to invest in its human capital - LatAm did not set up system for education and encomienda system actually resulted in the depletion of human capital. Invested heavily in infrastructure, most gov't enterprises were also sold. After WWI, Japan saw its real growth. it had previously been confined domestically but now was able to expand given that it was competing less with european exports and had made significant strides in industrialization.