History 1


The Economic Revolution 1

Since most of society is no longer explicitly in a state where pure survival is the goal, this no longer provides the motivation for labour. Norms of kinship and exchange for the greater good can provide this in more advanced societies. However this is not the case for modern societies, where human unpredictability could lead to societal  breakdown. It does not however, as it is organised in one of three ways:

  • Tradition - handing down tasks between generations. For example caste systems as seen in some countries still today.
  • Authoritarianism - the orders of an authority, and the penalties for non-compliance, organise tasks.
  • Market - each should do what is to his best monetary advantage.  The interplay between individuals results in task allocation.
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The Economic Revolution 2

  • The idea of personal gain is relatively recent; religious ideas, amongst others, essentially outlawed it. Maintaining the status quo was simply easier.
  • Labour was governed by guilds, land wasn't bought and sold as today.
  • Capital was even more 'backward' as such; traditional, labour-intensive production methods were used. It was usually forbidden to advertise and the concept of differing quality of products was foriegn. 
  • Concentration of wealth was generally outlawed outside of nobility.
  • People were limited in their ability to move and seek work.
  • The entire process of economic change ran from the 13th throgh to the 19th Century.
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Forces Behind the Great Revolution 1

Emergence of National Political Units in Europe

  • Monarchs rose from feudalism, the idea of a national identity grew.
  • National standards emerged such as laws, measurements and curruncies.
  • Shift from private lives to public lives; the notion of the state emerges.
  • The state enlists people on its behalf, such as adventurers to search for treasures in foreign lands.

Decline of Religious Influence

  • The Italian Renaissance brought with it stornly skeptical, humanist views
  • The idea of life after death diminished and with this the 'current' life rose in importance. Notions of material standards and comforts followed.
  • The rise of Protastantism led to new attitudes towards work and wealth. new preachings were that one should make the most of given talents in business.
  • Acquiring wealth was seen as virtuous as it was seen as collecting for the good of God and was soon followed by connections being drawn between riches and spiritual excellence with the richest individuals sometimes being identified as saintly.
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Forces Behind the Great Revolution 2

Material Changes to Make the Market System Feasible

  • Power began to shift from the nobility to the merchants
  • the development of accounting pracices allowed for large-sclae business operations to be run effectively.
    • Although this had been taking place significantly earlier, it was not until the 17th Century that a standardised system became widespread

Rise in Scientific Curiosity

  • The idea of invention took hold, leading to widespread experimentation and innovation which would previously have been prohibited.
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The Economic Revolution 3

Many of these changes had occured by 1700, although their full effects took longer to permeate through society.

At first, they were realised by the accumulation of trasure, notably gold. The Mercantilists believed that national power came as a result of economic endeavour, with the single most influential factor in this being gold.

Leviathan (Hobbes, 1651) argued that an all-powerful state is necessary to prevent humans from falling into a "solitary, poore, nasty, brutish and short" state. Mercentile activities could distrub as well as support the State, such as when they take riches to foriegn countries.

However by the 18th Century the focus had shifted somewhat to commerce in general, with the State aiming to progress the wealth and accumulation of the merchant class. This led some, including Bernard Mandeville to believe the poor must remain poor so that they work hard.

Samuel Johnson claimed that "There is nothing which requires more to be illustrated by philosphy than trade does".

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William Petty 1

Petty was part of the Royal Society, an organisation that aimed to standardise experiments and disprove arguments laid down by authority. Notable members includes Newton, Boyle and Pepys. He served for a short time as assisstant to Hobbes and was a strong believer in the principles of Francis Bacon of induction based from observed empirical facts.

In his (published posthumously) book Political Arithmetick (Petty, 1690), he used mathematical calculations rather than subjective arguments to make the point that England was wealthier than ever before.

In his book, he produced the first set of national accounts by estimating the expenditure of the population, rents and profits and then deriving labour. he introduced multiple ideas:

  • National expenditure and national income are equivalent
  • National income is the sum of factor payments
  • Asset values are linked to their incomes by a common discount rate
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William Petty 2

Although his numbers were not necessarily accurate, his methods were sound. 

His economics was somewhat mercantilist in that he believed in the benefits of accumulating treasure and that a tax on imports might work to achieve this. 

He recognised that money is not perishable and is wealth in all situations. He noted that it was also valuable as it allowed trade and that increases in the money supply reduce the interest rate. 

Although Petty's work was important, the magnitude of its scope meant that it was not until the 20th Century when resources were available to realise true national accounting.

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Thomas Hobbes

During the 17th Century, the idea of mankind being driven by their 'passions' (greed, envy, etc.) was being replaced with the concept of 'interests'. One of the most influential discussions in this process was Leviathan (Hobbes, 1651). The main argument was that a civil society is only possible if there is a government to make and enforce laws:

  • Without government, society would return to a free-for-all state since a rational assumption of hman nature is that in the absence of restraints, people will be aggresive towards their neighbours in pursuing their own security.
  • The solution is that a sovereign body is chosen to create and enforce laws, with the sovereignty being absolute (that is, not restricted by a constitutuion, laws of its predecessors or limited in areas of influence).
  • Hobbes argued that any restriction on sovereignty would create conflict and saw both the English civil war and the Thirty Years War in Germany as prime examples of this.

Although his ideas were not popular, his work was still influential as his arguments were compelling.

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The Balance of Trade Doctrine 1

Between 1620 and 1624 there was a commercial crisis in England caused by a reduction in cloth exports which caused widespread unemployment. Two schools of thought emerged as to the root cause of the crisis:

  • Traditional explanation - Gerard Malynes 
    Malynes claimed that silver left England becuse the English coin was undervalued. Since dealers could affect the value of the coin, it could be set below its par value and hence be worth more as precious metal, meaning it was in high demand overseas. he wanted to regulate foreign exchange transactions and restore the exchange rate to its proper level.
  • Balance of trade theorists - Edward Misselden and Thomas Mun
    These two merchants argued that the flow of foods influenced the exchange rate and bullion flows, not vice-versa. They argued to reduce imports, particularly of unnecessary items, and to increase exports.
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The Balance of Trade Doctrine 2

In his book England's Treasure by Forraign Trade (1664), Mun describes a theory of growth based on foreign trade, rather than production which was so fundamental at the time. He argued (to the benefit of his company) that the export of treasure would in fact lead to greater treasure in the long term.

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John Locke

In his 1668 work 'Some Consequences That are Like to Follow upon Lessening of Interest to 4 per cent', Locke argues that a reduction in interest rates reduces the supply of funds for lending. He further argues that a 'natural' rate of interest exists, determined by the quantity of money reltive to the volume of trade.

Therefore determining the amount of money needed for trade became imortant to him, and he discovered the idea of 'quickness of circulation'. he also began to examine issues such as the relationship between money supply and the price level. He theorised that a high money supply would reduce the vakue of money and make goods expensive. Although he notes that in isolation this is not significant, when dealing with international trade it becomes problematic. 

He argues that a country with less money relative to trade will experience price falls, or that not all goods will be sold as there is insufficient money to buy them. He makes the point that low domestic prices would mean a country would lose out, as it's exports would be cheap and it's imports expensive.

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17th Century England in Context

This period brought with it new considerations with respect to both wealth and growth:

  • Many thinkers focused on the role of trade, ratehr than domestic production, to satisfy demand. 
  • Concumption becames the aim of economic activity.
  • The only way to satisfy desires is through purchaisng power, which in turn only happens when  selling more goods in markets, meaning that producers must be competitive and aim to reduce costs.
  • This train of thought led to the idea of self-interest ruling human affairs and the market being able to hold society together.

However, during this time some foreign competition was damaging the economy, and so import restrictions and heavy domestic investment occured to combat this.

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