The Psychology of Limited Wealth

By: Mr. Moore using contributions by Susan Pojer High School of Economics & Finance NYC, NY

Why Did Europe Follow The Psychology of Limited

Wealth?

1) Changes in population2) Practices in agriculture and industry3) The rise of Dutch commercial capitalism4) The rise of property and privilege5) Women and the rise of witch hunts6) The Price Revolution7) Mercantilism as the economic philosophy of nation-states

Stagnation in Europe’s Population

1) Rise in population till 1590s

2) Drop in population due to famine and plague

3) England and Netherlands experienced growth

4) Population rose again after 1715

1) Productive capacity for food increased

2) A brown rat replaced the black rat – disease was not spread as easily

A plague hospital in Vienna – congregating the sick and buried the dead here

Practices in Agriculture and Industry: Limited Thinking = Limited

Growth1) Varying agricultural

practices – success in England, France, and the Netherlands; not in Spain

2) Industry showed regional differentiation - use of the putting out system, with use of semiskilled hand labor

3) Limited industrial production of heavy industries

4) Travel hindered by poor

roads

The Dutch Economy

Economic Prosperity Through Trade

The Bourse - Jewish refugees helped found it in 1602

How Society Defined Limited Wealth and the Social Impact on Europe

1) A psychological division between “haves” and “have nots”1) Wealth meant being able to live extravagantly2) Wage laborers seen as much of a drain on economy as paupers 3) Different definitions for “liberty” and “freedom” than today4) “Unprivileged” meant not being able to claim any rights5) Repressive laws kept the unprivileged in their place 6) In this mindset, approximately more than 1.5 million Africans were

shipped as slaves to the Americas in the sixteenth and seventeenth centuries

The Price Revolution Puts Pressure on Governments Which Follow the

Psychology of Limited Wealth 1) Definition – an inflationary increase in

prices on goods while real wages lagged behind

2) Effects:1) Strained government budgets & massive

debt2) Some governments successfully adapted

(i.e. England and the Netherlands), while others suffered (i.e. Spain and France)

Mercantilism

Characteristics of Mercantilism1. “Bullionism” the economic health of a nation

could be measured by the amount of precious metal [gold or silver] which it possessed

2. Each nation must try to achieve economic self-sufficiency

3. Thriving agriculture should be carefully encouraged

4. Sea power was necessary to control foreign markets

5. Impose internal taxes of all kinds

Characteristics of Mercantilism6. Colonies would provide captive markets for manufactured

goods & sources of raw materials

7. Trade is a “zero-sum” game8. A large population was needed to provide a domestic labor

force to people the colonies9. Luxury items should be avoided10. State action was needed to regulate and enforce all of

these economic policies

Manufactured goods

Raw materials

Mother

Country

Colony

Cheap labor

Impact From Mercantilism

1) Certain groups benefited from mercantilism2) Development of French-British Rivalry3) Coveted same territory4) By eighteenth century, mercantilist

assumptions far removed from reality5) Colonists of different countries wanted to trade

with each other – the “golden age of smugglers”