Unit 4: Economic change

Outcomes

10.0 explain developments in economics from the Paleolithic Era to the Early Modern Era

10.1 explain economics from the Paleolithic Era to the Ancient Era

10. 2 explain economic innovations from the Pre-Modern and Early Modern Early

11.0 explain economic innovations and ideas that developed during the Late Modern Era

11.1 explain factors that led to the rise of capitalism

11.2 explain how industrialism changed the economy during the late Modern Era

11.3 explain factors that led to the rise of socialism

Fundamentals of Economics

Many innovations relate to economics: the study of how to maximize the use of resources to meet

needs and wants.

What are needs and wants?

Needs – items required for survival (food, clothing, shelter)

Wants – those things you would like to have but not necessary for survival (cell phone,

Internet, quad)

Given that resources are finite (have a limit), scarcity is a fact of life. Usually people can only meet some

of their needs and wants. However, by seeking ways to maximize the use of resources, more of a

person’s needs and wants can be satisfied. The idea of scarcity and meeting our needs and wants is

addressed through new innovations and trade. In Unit 1 we discussed how innovations led to changes in

ways of living. Paleolithic innovations included the construction and use of primitive tools (e.g., knives,

spears, bows and arrows), keeping and creating fire, the development of spoken language.

How did these innovations make it easier for hominids to meet their needs and transform their way of

life?

These innovations led to greater efficiencies and greater effectiveness in resource gathering. This

allowed groups to be more successful (e.g., survive due to greater food sources) and grow in population.

10.1 explain the development of trade from Neolithic to the Ancient Era. (Trade and money)

With the development of farming approx. 10,000 ago, human ability to acquire a stable food supply

dramatically increased. The refinement of lithic tools (e.g., adding shaft to a point to create a spear or

arrow) or in metal working (e.g., bronze to iron) provided greater effectiveness, as better tools meant

more food can be produced. As we know, farming also meant that people settled down to live in

particular areas, resulting in the establishment of towns and cities. These settlements had greater

populations (up to 50,000 people) requiring more food, tools, building supplies, and luxury items (e.g.,

silk, spices, jewelry, etc. due to specialization. Trade would be required to meet needs and wants. Trade

– the exchange of goods and services.

How can trade help a group of people prosper?

One group sells extra (surplus) goods and services they can produce for profit, so they can trade for

other goods and services they need or want. This is often done through the following methods:

Imports – goods bought from another group/country

Exports – goods produced and sold to another group/country

Early civilizations met their needs by trading locally, but as not all of our need could be met locally,

people began to extend their trade connections. There is evidence to suggest that the civilizations of

Sumer traded textiles and food in exchange for copper, lumber, precious stones, cotton, and luxury

goods from the Indus River valley. The growth of trade is linked to the desire for luxury goods. As large

towns appeared throughout Mesopotamia and Egypt during the Neolithic period, self-sufficiency started

to fade as marketplaces appeared. A farmer could now trade grain for meat, or milk for a pot, at the

local market, which was seldom too far away. Cities started to work the same way, realizing that they

could acquire goods they didn’t have at hand from other cities far away, where the climate and natural

resources produced different things. This longer-distance trade was slow and often dangerous, but was

lucrative for the middlemen willing to make the journey. Historians believe the first long-distance trade

occurred between Mesopotamia and the Indus Valley in Pakistan around 3000 BC. This long-distance

trade was limited almost exclusively to luxury goods like spices, textiles and precious metals. Trade

would come to be of two primary types: land-based and sea-based. The Silk Road was a land-based

trade route that extended from the eastern Mediterranean to Asia and was one of the primary methods

whereby luxury goods were exchanged. Merchants would trade goods at different points along the

route. Sea-based trade routes would be common in the Mediterranean and connected many parts of

eastern and western Europe. The Phoenicians were early beneficiaries of this method of trade and

helped these people spread their civilization.

Components of Trade NETWORKS

New cities would grow and develop along trade routes:

These grew rich providing services to merchants and acting as international commercial centres. As

trade networks developed, trading partners began to manufacture goods specifically for sale in other

places. They supplied merchant caravans and helped police trade routes. The trade routes were the

communications highways of the ancient world. New inventions, ideas, religious beliefs, artistic styles,

languages, and social customs, as well as goods and raw materials, were transmitted by people moving

from one place to another to conduct business

Complete the activity “Trade in Ancient Rome” and place it in your folder.

10.02 explain developments in economics during the Medieval and Early Modern Eras

Money (any item that has value to people as an item of exchange) had developed in the Ancient period

and made trade easier as it could be used in almost any transaction. During the Middle Ages, it was

common for kings to mint their own coinage. This provided a type of propaganda to promote the

interests of the monarch, while increasing the amount of available money in circulation. With the

decline of the Roman Empire and the development of early feudal Europe, trade had decreased: It was

no longer as safe to trade as it had been under the empire & Roman provinces splintered to form

smaller kingdoms that were more isolated. The basis of the feudal economic system became the manor.

What does it mean to say the medieval manor was self-sufficient economically? Explain.

How might the decline of trade during the early Middle Ages have contributed to the self-sufficiency

of the manor system? What benefits did the manor provide to the following groups: nobles, clergy,

serfs?

The manor was the lord’s estate that was large enough to contain resources necessary to be self-

sufficient (crops, milk and cheese, fuel, cloth, leather goods, and lumber). Manors were usually a few

square miles in size and supported 15-30 families. Serfs worked the lord’s land (called a demesne),

cared for his animals, and maintained the estate. In return the lord provided housing, farmland and

protection from bandits. Commerce refers to the activity of buying and selling on a large scale. Medieval

manors, though self-sufficient, would still trade for materials that would improve local production or

quality of life (e.g., iron, mill stones, etc.).

Trade Guilds

Trade would expand with the development of the first guilds. A guild was an organization of individuals

in the same business or occupation working to improve economic and social conditions of its members.

Merchant guilds were the first to form. This allowed them to work together to control the number of

goods traded in an area and to keep prices up, resulting in greater trade security. Craft of skilled artisans

guilds (tailors, glassmakers, wheelwrights, winemakers, etc.) would also form to set standards of work

production, wages, and working conditions.

The late Middle Ages saw an expansion of craftsmanship (guilds), trade and finance, which we call the

Commercial Revolution.

Fairs and Trade: Peasants brought goods produced on manors to local towns and cities on fair days

(held several times a year). They could buy food items, leather, ropes, knifes, tools, etc.. This created

greater variety for manor residents. Merchants would travel from place to place and set up stalls

wherever a great fair was held. This made foreign goods available to people living on manors or in

towns/cities.

Expansion of Trade Routes Trade routes between major European cities were established during this

time allowing goods to flow freely across the continent. In addition, these routes were both land-based

and sea-based connecting Europe with Asia, North Africa, and Eastern Mediterranean ports. New

inventions, religious beliefs, artistic styles, languages, and social customs, as well as goods and raw

materials, were transmitted by people moving from one place to another to conduct business.

As merchants travelled across Europe to buy and sell goods, what problems might they encounter?

Large amounts of cash needed to be transported from one place to another, which was awkward as well

as tempting for bandits. Each country used difference currencies that had different values.

Business and Banking

To address these newfound problems, some merchants developed new ways of doing business. Bills of

exchange were documents that clearly indicated exchange rates between coinage systems. Letters of

credit were official letters that could be issued in one country and shown in another that allowed a

merchant to withdraw cash or pay for items with credit without having to carry cash around. Merchants

required easy access to money in order to increase business and profits, so borrowing money became

necessary. Banks were established as institutions to provide this service. The Medici were a wealthy

family in Florence, Italy that ruled the city through their wealth and influence. They were active in the

1400s. They established a family bank called the Medici Bank with branch offices throughout Italy and

eventually in other major European cities. Cosimo de Medici, the wealthiest European of his time, ruled

Florence by influencing city councillors and other powerful people by giving them large loans to achieve

their goals. He was able to dictate much of what happened in the city and was essentially dictator for 30

years. The establishment of bank branches and the increase in lending by the Medici Bank contributed

to increased business by merchants. Other banks would be established across Europe.

Complete the activity “17.3 Medieval Economy

By 1500, economic development would continue to expand beyond local European markets. We know

from Unit 1 that the Renaissance stimulated curiosity of the physical world. This would lead the voyages

of discovery to seek out knowledge and sources of valuable trade goods. The European states enjoyed a

long history of trade with places in the Far East such as India and China. This trade introduced luxury

goods such as cotton, silk, and spices to the European economy.

Why Sail West?

In the late 1400s and early 1500s there was a tremendous increase in exploration to the west, towards

what we know now as the Americas. There were two main reasons for this:

1. New innovations in maritime navigation and ship construction allowed Europeans to

travel further and explore parts of the globe that were previously unknown to them.

2. Europeans were trying to locate their own sources of luxury goods, which were in high

demand on their own, thereby eliminating the need to trade with East using the ancient

trade routes.

The caravel was the ship of choice in the 15th-17th centuries and was used during exploration. They were

small and maneuverable, but did not have much cargo space.

The carrack was another common ship characterized by its larger size, having 3 or 4 masts, and greater

storage capacity.

Both ship types were expensive to produce (estimates may be around $250K+ in today’s money

depending on the size of the ship). Even though ships were improved the person who owned them took

on considerable risk. If you owned a ship that was lost at sea, you lost a huge amount of wealth.

A joint-stock company is a business venture where people combine their wealth for a common purpose.

This distributes the costs and risks of trade and colonization and reduces the danger for individual

investors. Multiple investors would contribute to the construction of one or more ships, reducing the

cost and risk. Joint-stock companies were supported by government charter (a legal document issued by

government to outline rights and privileges):

These charters outlined that only one company would be able to use a particular trade route, or trade in

a specific good. This gave the joint-stock company a monopoly and made people more likely to invest in

them. Historically, joint-stock companies typically sell shares to raise money for trading enterprises and,

again, to spread the risks and profits of business among many shareholders. The English were the first

to use joint-stock companies, the earliest recognized company being the Company of Merchant

Adventurers to New Lands, chartered in 1553 with 250 shareholders. A more well known, wealthy, and

powerful joint-stock company was the English (later British) East India Company, granted a charter by

Elizabeth I in 1600. The intention of this company was to develop trade privileges in India and it was

given a 15 year monopoly on all trade in the East Indies.

Benefits of joint-stock companies

Distributes and lessens investment risk

Allows for raising of large sums of money

Successful voyages reaped huge profits with trade in new items / markets

A substantial middle class of merchants continued to develop, which in turn attracted more

investors (early form of stock market)

Most of the voyages of discovery (see map) in the 1500s were funded by joint-stock companies.

Joint-stock companies were used to set up the first colonies in North America.

Once established, these companies tended to not only control trade in the colonies, but took on

governmental roles.

Mercantilism

As trade expanded across the globe, European countries sought to gather as much wealth as

they could because they assumed wealth was finite: there only a specific amount to go around.

Mercantilism: an economic policy from 16th-18th centuries under which nations sought to

increase their wealth and power by becoming self-sufficient. To do this they:

obtained large amounts of gold and silver

maintained a positive balance of trade

Balance of trade refers to the value of exports minus the value of imports. A positive balance of trade

means the country exports (sells) more than it imports (buys).

Consequences of Mercantilism

Mercantilism was based on countries acquiring as much wealth as possible. This resulted in:

1. Colonization - some countries acquired overseas territories for the purpose of securing

resources and creating markets for the sale of goods. This basically meant conquering lands

where newly discovered peoples lived. (examples: Newfoundland, Columbian Exchange)

2. Strict Government intervention - governments controlled business activities through charters

that gave government owned companies exclusive rights to operate in a certain region

(example: British East India Company)

3. Increased wealth for European countries at the expense of newly colonized territories

A part of mercantilism in Europe was the use of triangular trade: this meant trade was

conducted between three regions, in particular Europe, African territories and North America.

This global transfer of plants, animals, disease, slaves, and food is referred to as the Columbian

Exchange.

Using the map, answer the following:

1. What was beneficial about the Columbian Exchange? What was harmful? Who benefitted the

most?

European nations were the primary beneficiaries:

They received a variety of trade goods from Africa and North America. They sold their manufactured

goods to the colonies.

Complete the activity “Mercantilism” and place it in your folder.

Modern Era Economics

In this outcome we will…

explain factors that led to the rise of capitalism

explain how industrialism changed the economy during the Late Modern Era

explain factors that led to the rise of socialism

Remember what we learned about mercantilism…

Government controlled the economy (heavy tariffs, trade restrictions for other

merchants and nations)

Wealth was finite and must be collected through new territories

Drove quest for colonies

Increased wealth for the privileged in European nations (but majority of people

remained poor)

Magnified the horrific slave trade

Inspired nations to build up their navies (for conquest and protection of colonies)

Who might be opposed to this system of trade?

Criticisms of mercantilism

1. Trade restrictions hurt many merchants and companies:

Only certain merchants and joint-stock companies were allowed to participate

in trade (i.e., royal charters granted monopolies)

2. High tariffs (taxes on imported foreign products) hurt international trade:

Tariffs are used to make foreign products more expensive, thereby encouraging

people in your country to buy locally made goods. More tariffs restricted trade

with other countries.

Both of these criticisms are due to the fact that government controlled how trade and the

economy was run.

What would help change this?

Laissez-Faire is the idea that the best way to generate wealth is if government does not

intervene with or regulate industries and businesses.

French for “let do” as in “let industry do as it will”

Supporters of laissez-faire economics argued that heavy tariffs and restrictions hurt generation

of wealth.

This economic system is based on idea that wealth isn’t finite. More wealth can always be

created if government adopts a “hands off” approach to business and allow it to expand as it

needs.

Advocated for free-trade — the flow of commerce in the world market without government

regulation (i.e., more trade with fewer tariffs or limits)

Adam Smith (1723-1790) was a Scottish economist, who first developed the argument for

laissez-faire economics.

His 1776 book, The Wealth of Nations, he argued economic freedom from government

involvement would guarantee economic progress.

He developed 3 laws of economics that supported his idea:

1. The law of self-interest — People work for their own good

2. The law of competition — Competition forces people to make better products

3. The law of supply and demand — In a free market economy, prices would rise and fall based on

consumer wants and availability of products/raw materials

4. In a nutshell, Smith argued that the forces of supply and demand in the market place will

determine economic success:

1. High demand= Rising prices

2. Low demand= Falling prices

In other words, if businesses charge too much for a product, people will not want it and if people really

want a product they will pay more to get it.

3. Plentiful supply= Low prices

4. Scarce supply= High prices

In other words, if businesses have produced too much of a product, it is no longer rare or highly desired

(they have to drop their prices to sell it) and if the product is rare people will spend more to get it. As his

ideas became more popular, powerful countries began to put policies and laws in place to allow greater

freedom for businesses to function as they wanted. In order for businesses to be successful, they had to

keep the needs and desires of customers in mind, while being efficient in production. This would allow

businesses to:

Increase profit and, therefore, grow larger

Specialize in areas/products they could profit from

Become major employers and be more responsible for hiring and firing of workers,

working conditions, etc.

Succeed or fail based on their competitiveness in the marketplace

The idea was that government did not have to be as involved in the economy, because business would

take care of most of society’s needs.

explain how industrialism changed the economy during the Late Modern Era

For thousands of years following the Neolithic Revolution and rise of civilization, most people lived and

worked in small farming villages. When comparing their daily lives, most Europeans in 1700 had more in

common with the ancient world than with us. The Industrial Revolution (c. 1750-1850) was the process

by which production of goods shifted from simple hand tools to complex machinery. The changes it

brought affected people’s lives as much as any political revolution. But unlike a political revolution, it

happened gradually. By 1900, industrialization had spread from Britain throughout Europe and the

North America transforming the West into the dominant region of the World. After the Neolithic

Revolution, the Industrial Revolution is considered by many to be the most significant period of change

in human history. Video – Why the Industrial Revolution Happened Here

https://youtu.be/UM2Aw4kmA0s)

Complete the activity “Industrialization Begins” and place it in your folder

What was life like before the Industrial Revolution?

Daily life in pre-industrial times changed very little for Europeans:

Majority of people lived and worked in rural areas (areas with small, spread out populations). Most

people worked the land using hand-made tools. From 1300 to 1750, for the average peasant, people’s

work and social life mixed, as families lived on small plots of land, growing crops mostly for home

consumption. Lived in simple cottages lit by firelight & candles. Little travel from village (walking or

horse-drawn cart).

The Second Agricultural Revolution

In the 1700s, Britain began to experiment with new developments in farming, which would have a

massive impact on the population and people’s way of life.

In particular, five farming innovations occurred:

New foods

Crop rotation

Technological innovations

Livestock Breeding Techniques

Enclosure movement

The Second Agricultural Revolution

New Foods

The Columbian Exchange had created a revolution in diet.

New foods from the New World (North and South America) became increasingly available in the 17th & 18th centuries.

Potatoes and corn were among the most important because they were highly nutritious, cheap, and relatively easy to grow.

Contributed to improved diets an overall healthier population Crop Rotation

For hundreds of years, farmers left a field fallow:

Fallow meant a field wasn’t farmed for a period of time in order to restore its fertility. There was always a field that wasn’t being farmed, limiting potential production.

By using crop rotation (the system of growing a different crop in each field each year to preserve the fertility of the land), Charles Townshend increased production and different crops would replenish the nutrients in the soil.

It increased food for humans and animals.

Technological Innovations

New technology led to improved farming methods

Iron ploughs emerged to replace wooden ones. These were more durable and provided consistent performance

Seed drills led to more efficient planting which resulted in high crop yields (amount grown).

Mechanical harvesters emerged to increase production. One harvester could do the work of many people in a fraction of the time.

Livestock Breeding Techniques Livestock breeders improved their methods too, increasing availability of meat:

In the 1700s, for example, Robert Bakewell increased his mutton (sheep meat) output by allowing only his best sheep to breed. The offspring were larger, healthier and supplied more meat. Between 1700 and 1786, the average weight for lambs climbed from 18 to 50 pounds. Other farmers followed Bakewell’s lead with cattle and other livestock. Enclosure Movement

■ In the 18th-19th centuries, privatization (private ownership) of land and production occurred at

an increased rate in Britain (the result of laissez-faire economics).

Enclosure is when land that was traditionally held and used in common for the community is

fenced by private owners.

Enclosure in England occurred between 1750 and 1860 as a result of parliamentary acts and

resulted in private owners using the land how they wanted, which resulted in new, more

efficient methods.

Consequences of New Farming Developments

With more food, there were constant improvements in diets / health / life span, leading to

population increases (a sharp increase of from 1801 to 1901 by over 22 million).

More population led to new demands for manufactured products (goods made by machine).

With more efficient farming methods, many people living in rural areas lost jobs.

Many of these unemployed people moved to cities to look for work (where most factories were

found). This trend towards the growth of cities is called urbanization.

Consequences of New Farming Developments

The Industrial Revolution that started in Britain was spurred by a revolution in technology. As we

have seen, the first area to consistently develop new technology and practices was agriculture.

The demand for clothing in Britain had greatly increased as a result of the population boom

caused by the agricultural revolution.

The first area of high manufacturing developments was in the textile industry.

Progress in the textile industry spurred industrial developments in other areas.

The pre-industrial economy

Prior to the 18th century, Industrial Revolution, economic life was characterized by the following:

Most people produced goods for their own need with little being sold (e.g., growing

enough food to support your own family). This is called subsistence and was common

since the middle ages.

Goods were produced on a small scale, normally by hand

There was little machinery, most of which was human or animal powered.

The Cottage Industry

Rural industry was a major part of European economic life prior to the Industrial Revolution.

Prior to the Industrial Revolution, and even during its early years, entrepreneurs (people who

organize, manage, and take on the risks of business) provided poor families with raw materials

for spinning, weaver, and garment making in their own homes.

Workers brought the final product to the entrepreneur/merchant, who paid them for their

labour and then sold the goods to make a profit. This system of production was referred to as

the cottage industry.

The Cottage Industry

The cottage industry, used to produce inexpensive cotton goods, involved the following:

Spinners made cotton thread from raw cotton

Weavers wove the cotton thread into cloth on looms

However, a series of tech innovations in the 18th century made the cottage industry inefficient.

Coal – a new energy source

Prior to the Industrial Revolution, wind, water, tide and muscle - both animal and human - provided

sources of energy, which neither caused pollution nor depleted finite natural resources.

The use of coal, which can be burned to create steam power, dramatically changed the nature of work.

It was 2-3 times more effective than burning wood.

James Watt created an efficient steam engine that burned less coal. This was first used in the mining

industry (making it cheaper to mine more coal), but others would use steam engines to power factories,

boats, and locomotives (trains).

This dramatically increased production in many areas.

How would life change because of the Industrial Revolution?

Major changes would occur due to industrialization – the development of industries for the machine

production of goods. Rural way of life gave way to industrial towns and cities, based on manufacturing

and production. The factory system would replace the cottage industry. People were able to buy food

and clothing produced by someone else. People could travel great distances, more rapidly by train or

steamship. Messages were sent along telegraph wires. New inventions and scientific “firsts” were

emerging to improve the lives of people. These changes would grow even more stunning into the

twentieth century

Complete the activity “Case Study: Manchester” and place it in your folder