Brief Summary
This lecture discusses the emergence of capitalism and mercantilism, tracing the historical context from the agricultural revolution to the rise of sovereign states and the dynamics of global trade. It highlights the shift from feudal systems to capitalist reinvestment, the impact of events like the Black Death, and the evolution of state power through religious and economic conflicts. The lecture also addresses modern economic tensions, such as the trade war between the U.S. and China, and questions whether these reflect a return to mercantilist policies.
- Capitalism emerged from agricultural and merchant activities, marked by reinvestment for increased production.
- The rise of sovereign states was influenced by religious conflicts and the challenging of traditional authority.
- Mercantilism, characterized by state-directed economic policies and zero-sum trade competition, drove colonial expansion and wars.
Introduction
The lecture introduces the course outline, which includes 10 lectures covering the evolution of global economics from early times to the present day. The speaker emphasizes the importance of understanding historical context to anticipate future economic trends and strategies. All systems discussed are framed as organizational and strategic approaches to economics.
The Agricultural Origins of Capitalism
The emergence of capitalism is explained through an agrarian perspective, starting with the agricultural revolution. As people settled down to farm, they became vulnerable to bandits. Clever bandits realized they could repeatedly steal from farmers if they protected them from other bandits, leading to the concept of "stationary bandits." This evolved into a feudal system where lords controlled land and serfs, extracting a share of their produce. Over time, hereditary succession replaced merit, and the justification for rule shifted to the divine right of kings, supported by religious institutions.
The Impact of the Black Death
The bubonic plague, or Black Death, which arrived in Europe in 1347, significantly altered the feudal system. Killing 30-60% of Europe's population, it led to a labor shortage that increased the value of labor. Serfs were able to bargain for freedom, becoming tenants who paid rent and owned what they produced. This shift incentivized more efficient farming and labor-saving devices. Consolidation of land ownership occurred as lords died and common land rights were removed, forcing many into cities where the industrial revolution was beginning. Factories paid wages, and capital was reinvested in production, marking the start of the capitalist system.
The Origins of States and Sovereignty
The lecture transitions to the origins of states, explaining how European questioning of religious authority led to the modern system of sovereign states. By 1050 AD, Catholic Christianity had spread across Europe, with the Pope anointing kings and justifying their rule through the divine right of kings. Questioning Catholic doctrines was dangerous, often leading to torture and death during the Inquisition. In 1517, Martin Luther challenged the Catholic Church's corruption, particularly the selling of indulgences, and introduced the idea of the priesthood of all believers, undermining the Pope's authority.
The Reformation and the Thirty Years' War
Martin Luther's challenge to the Pope's authority sparked rebellions and civil wars across Europe, driven by the desire of princes and kings to avoid paying taxes to the Church. The Peasants' War of 1525 and subsequent conflicts evolved into the Thirty Years' War, drawing in major European powers and the Ottoman Empire. Religious motivations intensified the brutality of the war, leading to widespread destruction and famine.
The Peace of Westphalia and the Birth of International Law
Amidst the devastation of the Thirty Years' War, lawyer Hugo Grotius advocated for a society of states governed by the rule of law rather than force. His ideas formed the basis of the Peace of Westphalia treaties, which established the modern international system of states. The treaties enshrined the sovereignty of each state, granting rulers the right to choose the religion within their borders and ensuring religious freedom for minority groups. They also made it illegal to use religion as a justification for war, marking the beginning of the separation of church and state.
The Rise of Merchant Capitalism
The lecture shifts to the merchant capitalist story, focusing on the Dutch East India Company (VOC) as a prime example. As the Thirty Years' War raged, trade shifted to the sea, with spices becoming highly valuable commodities. The Dutch, seeking to break the Portuguese dominance in the spice trade, formed the VOC in 1602. The VOC was the first company to sell stocks to the general public, raising significant capital and dominating the spice trade for 200 years.
The Dutch East India Company (VOC) and its Decline
The Dutch East India Company (VOC) became the wealthiest company in the world by 1669, with a vast fleet and army. Amsterdam became the wealthiest city in Europe. However, starting in 1670, increased competition, corruption, and costly wars led to the VOC's decline. By 1799, the VOC was liquidated due to massive debt and seized assets. The VOC exemplifies how public investment in a company with a fleet of ships reduced risks and increased profits, marking a key beginning of capitalism.
Mercantilism and its Characteristics
Mercantilism is defined as state-directed capitalism, where the goal is to strengthen the state through economic means. It is based on the idea that wealth is finite, making trade a zero-sum competition. Mercantilist strategies include subsidizing domestic production, imposing high tariffs on imports, and seeking colonies for raw materials and markets. This system often led to empires and constant wars as states competed for resources.
Modern Mercantilism and the U.S.-China Trade War
The lecture discusses whether the world is returning to a modern version of mercantilism, citing Brexit and the election of Donald Trump as examples of concerns over free trade and globalization. Trump's trade war with China is examined, focusing on issues such as the trade deficit, intellectual property theft, subsidies to Chinese companies, and currency manipulation. Despite a "phase one" trade deal, fundamental issues remain unresolved, potentially leading to continued economic conflict.
Conclusion
The lecture concludes by summarizing the two versions of capitalism's origins and emphasizing the importance of reinvesting profits to increase production. It highlights how states, driven by war, used capitalist ideas to compete economically, leading to a cycle of conflict and expansion. The speaker expresses concern over the potential return to mercantilist competition and its historical association with wars and exploitation.
