Western Civilization & CultureEconomic Thought Through 1776

While much of the trade in ancient Greece and Rome was barter, coins were also present, providing the functions of money: establishment of value and a convenient medium

of exchange. Such coins were often privately minted.

A copper Roman coin with a bust of the Emperor

Constantine

A pair of privately minted Greek silver coins

There was a shortage of labor caused by a shortage of slaves.

To ensure a steady supply of grain, the Roman Emperor Diocletian decreed that the estates throughout the empire would be worked by families who were bound to the soil for life. These were called coloni.

A colonus was given a piece of land to farm. He could never leave it, but neither could he ever be removed from it. He could not be sold, as a slave could, nor would his family ever be broken apart. Many coloni entered into this arrangement this voluntarily.

This system remained in effect throughout much of Europe during Medieval times in the form of FEUDALISM – with lords, vassals and serfs bound together around land ownership, agriculture, and military protection.

Late Roman Empire (300 AD)

Europe’s economy changed remarkably between 1100 – 1500

An Amazing Time

Technological Change Pours into Europe

Three very significant new technologies become part of the European fabric and are connected to the major economic changes of the time:

1. The advent of paper, printing and books.

2. The introduction of gunpowder

3. Changes in the production of textiles.

The technology brought together several things:

- Wine press

- Movable type

- Paper (rather than vellum or parchment)

- Oil-based inks

First books were religious, but printing quickly moved into books on secular subjects, also expanding the need for education.

Johanes Gutenberg

A press of the type developed by Gutenberg in

1452.

Printing and Books

The Advent of Gunpowder

Changes in warfare due to the use of gunpowder and firearms occurred

slowly, beginning in The Hundred Years War. Cannon were used at the Battle of Crecy in 1346. There is some evidence

that English ships called cogs were armed with cannon as early as ten

years prior to Crecy.

Weapons improved and gunpowder manufacture was refined. This

innovation increased in importance, making the Medieval knight vulnerable

and obsolete.

Gunpowder doesn’t become important in mining until the 1600’s.

A 15th Century engraving depicting the

mounting of a cannon on its carriage

Where did gunpowder come from?

Most scholars believe it came to Europe from China, via Persia and Arabia. Marco Polo describes the Chinese use of gunpowder as early as 1280.

Europeans first saw gunpowder when it was used against them by Arabs during the Crusades.

Others believe that Roger Bacon, English scientist, mathematician, and scholar may have independently developed a recipe for gunpowder as early as 1242. An encoded formula is found in his writings of that year.

Advances in textile production

A lively trade in textiles grows up in Italy, especially in Florence and Venice. Fabric finishing as well as trade in Asian silks is the center of this commerce.

The introduction of new strains of sheep into England produces much finer wool. Techniques are developed to process this wool in water-driven mills to provide a soft, flannel-like finish. Trade in British wool increases across the continent.

Technology and Ideas on the move

800 – 1300 A.D.

ChinaArabia and Persia

Europe

• Gunpowder

• Paper

• Printing

• Textiles

• Spices

(And Pasta)

What moves?

Socio-economic Changes that Occur Along with Technology

Shifts• The Rise of Cities

• Shift from Agriculture to Trades

• Rise of guilds and merchant associations

• Improvements in transport and navigation

• Development of banking

• Development of accounting

The Rise of Cities

The Black Death actually contributes to the rise of cities. Workers see more opportunity in crafts and trades in cities than on feudal farms. Paid jobs are plentiful.

Italian cities, especially Venice, Florence, Milan, and Naples grow and become prosperous with trade from the East.

Other major cities in Europe grow, usually on water trade routes. Paris, London, Cologne, Hamburg and Lubeck all become major trade centers.

Hamburg and Lubeck form an alliance in the 12th century bringing together a fishing industry (Lubeck) and the salt industry (Hamburg). This became The Hansa – a merchant association – with merchants banding together for protection and trade.

The Hanseatic LeagueThe Hanseatic League was a collection of merchant associations with its own diet (parliament) that controlled monopolies in fish, salt, honey, grain, timber, amber, and other bulk and precious commodities. At its peak, merchant associations from more than 60 cities were members, stretching from Novgorod in present day Russia to Cologne in France.

It developed many of the aspects of a government, with its own ship-building yards, and a small army and navy.

• Christopher Columbus sailed west from Spain hoping to reach India, but “discovered America” instead in 1492– He reached The Bahamas and island of

Hispaniola – He died in 1506 believing that he had reached

India

• Vasco da Gama, from Portugal, reached India in 1497 and returned with a ship full of spices

European Explorers

The Rise of Guilds

As cities grow and people move into cities to become crafts or trades workers, merchants form guilds:

• Formed as groups to protect wagons and goods while traveling

• Guilds grew into associations that sought to improve markets, monopolize certain forms of business, and provide for the security of families.

• Merchant guilds often formed towns, built churches and public buildings, and provided a variety of civic and charitable services.

Leischester Guild Hall

Leichester, England

Definition: government intervention in business to:

– Create a favorable balance of trade so that gold and silver flow into the nation, making it wealthier

– Increase the political power of the government

– Increase the military power of the state

Precious metals - gold and silver - were viewed as the measurement of the wealth of the state

Mercantilism Circa 1600 - 1800

• Place high tariffs on imported goods to discourage imports

• Encourage and even subsidize export of goods to other countries

• Subsidize new industries to produce more exports, and protect them with tariffs

• Create colonies overseas to create sources of raw materials and markets for finished goods (or, in the case of the Spanish, simply take all of the gold and silver and bring it home to Spain)

Mercantilist Policies

• Individuals and corporations invest money - using their capital, not labor, to make more money

• Production, distribution, and exchange of goods are controlled by private individuals or corporations, not by the state

• Prices are set by supply and demand in the marketplace, not by the government

The Rise of Capitalism

• Individuals pooled their resources to form companies larger than any one individual or family could finance

• Shares of the company (stock) were issued• Stockholders shared in the profits of the

company in proportion to the percentage of the stock they held

• Some, such as the East India Company, were endorsed and given special treatment by the government

Joint Stock Companies

Growth in business and enterprise also brought about

the development of two practices necessary for the success and security of the

new class of merchants.

Banking and Accounting

Cosimo de Medici

Banking, as we know it today, begins in the city states of Italy, especially in Florence and Venice.

It is initially funded by the wealthy merchant families, in particular the Medici’s.

Banking practices develop:

• Guaranteeing the safeguard of funds (deposits)

• Lending at interest (loans)

• Mortgaging (loans against property)

• Payment of interest on deposits

All these practices grow up in Italy, despite prohibitions against them by the Church, because of the influence of these powerful families had on the Church.

BANKING

- The Catholic Church, influenced by Aquinas, forbids lending money at any rate of interest (usury) which stifled business for centuries

– Since Jews were not members of the Catholic Church, they could be the bankers of Europe

– When Christians realized how much money some Jews were earning in banking, they ignored church teachings and became wealthy bankers too

Image of Shakespeare’s Shylockfrom The Merchant of Venice

Throughout the rest of Europe

Some of the first paper money

(Chinese – circa 900)

Government-issued paper money doesn’t come into use in Europe until the 17th century. Individually issued

certificates of deposit or indebtedness are used as currency in the Italian city states as early as the 1400’s.

Accounting

The modern practice of double-entry accounting begins in the Italian city

states. It is codified in 1494 when Friar Luca Pacioli publishes a book that includes a system of

bookkeeping that is still reflected in modern

accounting practices. Fra. Pacioli

To appreciate the rapidity with which change took place in this era and the interconnection of the changes that occurred, consider that more than 500 copies of Pacioli’s book were in use by 1500. He published the book in San Sepulcro, Italy on November 10, 1494 – just 42 years after Gutenberg printed the very first Bible in Germany in 1452.

Second Treatise on Government (1690)

• The purpose of government is to protect life, liberty, and property

• Property rights are legitimate because property is based on a person’s labor

• Land, for example, is only valuable after people add their labor to work on it and produce crops from it, so it becomes their property

Early Economic Theorists

John Locke (1632 – 1704)

Discourse on Inequality• People were happy in the

State of Nature because everyone was equal

• Nature provided all the food, shelter, and clothing that people needed

• As soon as private property was introduced, people became unequal, corrupt, and abused each other

Early Economic Theorists

Jean-Jacques Rousseau (1712-1778)

Wealth of Nations (1776)• Criticized Mercantilism as bad

economics• Governments should not try to

control the economy• Advocated Free Trade among

nations• If everyone produced whatever

they could produce most efficiently and traded freely, everyone would be more prosperous

• A free market was more efficient than government at setting prices

Early Economic Theorists

Adam Smith (1723 – 1790)