Lecture 1. Stages of Capitalism
Recommended reading: 【Economic History】 Table of Contents for Economic History
1. Capitalism
2. Stage 1. Spontaneous Order
3. Stage 2. The State Based on Public Authority
4. Stage 3. Market Integration and Globalization
1. Capitalism
⑴ Definition
① An economic system in which each individual pursues private interests
② An economic system in which the market mechanism operates
⑵ Stages of capitalism
① Stage 1. Spontaneous Order
② Stage 2. The State Based on Public Authority
③ Stage 3. Market Integration and Globalization
⑶ Critical perspectives : Led by anti-globalization movements
① An economic system where even things that cannot (or should not) become commodities turn into commodities : environment, human rights, etc.
② An economic system where capitalists exploit workers
③ An economic system that threatens subsistence economies through monopolistic markets
2. Stage 1. Spontaneous Order
⑴ Overview
① An economic system formed naturally
② Drove the economic history of the Middle Ages
⑵ The rise of long-distance trade
① Overview
○ Need for long-distance trade : diversification of goods
○ Downside 1. Frequent fraud and breaches of contract
○ Downside 2. Difficult to punish contract violations
○ Downside 3. Differences in trading customs
② 1st. Local trade : developed naturally
③ 2nd. As local trade developed, local commercial communities emerged
③ 3rd. Local commercial communities buffered the downsides of long-distance trade, thereby promoting it
⑶ Long-distance trade → activation of money
① (Reference) Money in the Roman era
○ Gold coins were central; silver coins and small change were supplementary
○ Gold coins : used under a tributary (tax-in-kind) system
○ After Rome fell, the gold–silver–copper tri-metallic system disappeared
② (Reference) Emergence of silver coinage
○ By the late Middle Ages, silver coinage emerged
○ Silver coinage: used seasonally for selling agricultural products at harvest time and paying rents/dues
③ Emergence of the gold–silver–copper tri-metallic system
○ Emergence 1. Circulation of gold coins with the expansion of long-distance trade
○ Example: the gold coin “florin” was introduced in Florence (1252)
○ Emergence 2. Circulation of small coins with the growth of the urban lower-middle-class economy
○ Result 1. Converted multidimensional rationality into one-dimensional rationality
○ Encouraged consumers to make economic judgments
○ Result 1-1. Resolved various disputes
○ Result 1-2. Deepened understanding of how money works
○ Result 2. The monetary system was used in a commodity economy
○ Rome : the monetary system was used to operate a tributary economy
○ Result 3. Mass circulation of money caused confusion : development of credit transactions
⑷ Activation of money → birth of commercial cities
① Determining factors
○ Areas favorable to commerce : zones advantageous for protecting property rights and business rights
○ Areas where profits from long-distance trade are maximized
② Factors of change
○ Regime change : the more autocratic the regime, the more commercial cities decline
○ Changes in distribution routes : altered by war, transport technology, regional specialization structures, etc.
3. Stage 2. The State Based on Public Authority
⑴ Overview
① The state controls the market
② Drove the economic history of the early modern period
⑵ Economies of scale → emergence of the state
① As group size increases, economies of scale are enjoyed, but the growth rate of total benefits gradually decreases
② Diseconomy of scale 1. Disagreements among members over which public goods to produce—self-interest, heterogeneity, etc.—increase the cost of reaching consensus
③ Diseconomy of scale 2. Additional public management costs arise for public goods
④ Borders form at an appropriate scale
⑶ Emergence of the state
① Cause 1. Struggle against the Church
○ Driving forces : the Renaissance (emphasis on human reason), the Reformation
○ Example : in 14th-century France, the king surpassed the pope
○ Example : the king became able to tax Church property as well
② Cause 2. Struggle against the Holy Roman Empire
○ The Holy Roman Empire was a system of pope and emperor
○ As papal authority declined, the Holy Roman Empire weakened
○ In states under the Holy Roman Empire’s influence, centralized states emerged later
○ Example : the Golden Bull (1356) weakened the emperor’s authority
③ Cause 3. Struggle against the nobility
④ What the emergence of the state looked like
○ Varied by region
○ Combined border formation, formation of national sentiment, and strengthening of the king’s bureaucracy
○ Accompanied by countless wars
⑷ Emergence of the state → legal control
① The state’s third-party enforcement system
○ Advantage : reduces transaction costs
○ Disadvantage : slows the development of the market economy
○ The character of the state is defined by the character of a small ruling class
② The case of England
○ 1st. Magna Carta
○ Applied not only to free peasants but also to the king
○ Development of human rights and property rights
○ Common law: establishment of a case-law-based order○ When lawmakers make laws, they tend to exclude rules unfavorable to themselves
○ The “golden rule” applied in the legislative process
○ 2nd. Glorious Revolution (1688)
○ After the Magna Carta, the English Crown increased revenue through selling various privileges
○ As this sale of privileges became excessive, Parliament weakened royal power in 1688
○ 3rd. Formation of government institutions
○ A Parliament was organized so that representatives of each estate could reach agreement within Parliament
○ After the Glorious Revolution, merchant representatives in Parliament captured the highest state power
○ 4th. Development of open competition for rent-seeking privileges
○ By making the acquisition of privileges an open competition, an appropriate allocation of privileges was achieved
○ In some cases, privilege allocation still failed due to cohesion among interest groups
③ The case of France
○ Formation of government institutions
○ A privilege-allocation system based on cronyism developed○ The value of privileges was not fixed
○ Even privilege-holders faced the risk of having privileges taken away : frequent concealment of techniques
○ Administrative bureaucrats were not well informed about industrial technology and commerce
④ The beginnings of patent law
○ The paradox of patent law
○ If patent law is weak : inventors’ incentives weaken
○ If patent law is strong : hinders competition, suppresses commerce
○ Solution : set an expiration period for monopoly rights
○ 1st. Venetian Patent Statute (1474)
○ 2nd. Ipswich textile worker case in England○ The court supported monopoly rights for new invention projects
○ Patent protection requirements (1624): anything lacking novelty and a limited term of validity is illegal
○ 3rd. U.S. Patent Act (1790)
○ Collected only the advantages of each country’s patent application system
○ Patent filing costs became very low
⑸ Legal control → control through economic policy
① 1st. Incorporation of merchant law
○ Disappearance of merchant courts
○ Around the 12th century, European governments systematically codified merchant law: they adopted a substantial portion of customary law
○ England’s Statute of the Staple (1353): judgments could be made by merchant law even in royal courts○ A policy to attract cases to royal courts
○ Merchant courts still remained
○ Edward Coke’s ruling (1606)
○ Ruling 1. What was done in merchant courts was “finding a compromise”
○ Ruling 2. What was done in royal courts was “confirming justice”
○ Final adjudicative authority was granted to royal courts
○ Led to the disappearance of merchant courts
○ Evolution of merchant law within common law
○ Continental civil law accepted new commercial practices better than common law
○ English courts tried to accept new commercial practices to some extent
○ Limitation : to be recognized as precedent, a long-established practice had to exist first, so adoption was insufficient
② 2nd. Emergence of national merchants
○ With the development of merchant law, systems for protecting domestic merchants developed
○ (Reference) The era of Hanseatic merchants○ Hanseatic merchants obtained commercial rights from foreign rulers, occurring simultaneously in many places
○ Competitive English merchants felt reverse discrimination : tariffs, various privileges
○ Emergence of national merchants
○ Shift from a passive trading nation to an active trading nation
○ Shift from a wool-producing country to a woolen-textile-producing country
○ Adventurer merchants developed and foreign trade expanded
○ Demand for reciprocity : enactment of protective ordinances for English merchants (1377)
○ English merchants were dissatisfied with the rights Hanseatic merchants enjoyed in England
○ Demanded reciprocity so English merchants could enjoy the same rights in Hanseatic cities
○ As absolutist states developed, Hanseatic one-sided privileged trade disappeared by the late 16th century
○ Market rules aimed at market control
○ With the emergence of national merchants, Hanseatic merchants felt threatened
○ Hanseatic merchants enacted “foreigner laws” to regulate the market
③ 3rd. Mercantilist economic policies
○ Economic policies of the nation-state
○ Pushed economic policies to strengthen the state, improving economic power
○ Used national power to promote economic growth
○ Economic nationalism
○ Competition among states to secure dominance over overseas colonies and trade
○ Merchants’ interest in securing business rights
○ The state’s interest in securing new revenue sources from overseas colonies
○ Alignment of the two interests
○ Economic control dispersed across localities moved to the central government
○ Tariffs
④ 4th. Introduction of a state monetary management system
○ Control of coin exports and imports
○ Bullionism emerged in the 16th century
○ The downfall of Spain, which obtained massive amounts of gold coins from colonies, is suggestive in many ways
○ Banknote issuance and state intervention : using the Bank of England as an example
○ 1st. Tried to establish a bank competitive with the Netherlands’ Bank of Amsterdam
○ 2nd. The Glorious Revolution institutionalized national debt distinct from the monarch’s personal debt
○ 3rd. Needed an institution to handle government finance
○ 4th. Founded by powerful London merchants and financiers (1694)
○ 5th. Monopoly on banknote issuance → era of free banking → monopoly on banknote issuance
○ 6th. Because banknotes circulated only in London, they could not be used for small transactions
4. Stage 3. Market Integration and Globalization
⑴ Overview
① As markets integrate globally, the importance of the state decreases
② Drove the economic history of the modern era
⑵ The occurrence and diffusion of the Industrial Revolution
① Britain’s Industrial Revolution
○ Long-term and irreversible institutional reforms
○ Progress in nationwide market integration centered on London and in the social division of labor
○ Increases in agricultural and industrial productivity and progress in capital accumulation
② Spread of industrialization in Western European countries : mid-to-late 19th century
○ Spread of a sense of tension about British industrialization
○ Spread of ideologies supporting industrialization
○ Two pillars of industrialization : institutional reforms by the state, allocation of capital by banks and the state
○ Heavy and chemical industries grew into new leading industries
③ Spread of industrialization in non-European countries : late 20th century
○ NIEs : grew by taking advantage of international economic conditions
○ BRICs : grew alongside changes in the international economic structure
⑶ Development of globalization
① Transportation and communications revolution
○ Development of transport equipment
○ Development of communications technology
② Increase in global mobility : mid-19th century
○ Movement of goods : repeal/revision of Britain’s Corn Laws (1846), Anglo-French Commercial Treaty (1860)
○ Movement of money : establishment of an international monetary order, 19th-century gold standard → late 20th-century Bretton Woods system
○ Movement of people : slave trade, the Great Irish Famine, waves of Asian migration
○ Movement of information : commodity exchanges, international financial markets, development of multinational corporations
⑷ Phases of globalization
① The first globalization : 1870–1914
○ Development of inter-industry trade
○ Declining transport/communication costs and free trade were important
○ Large-scale migration to the New World
○ Imperial regional blocs caused globalization to collapse
② The second globalization : late 20th century
○ Development of intra-industry trade : development of real-time communication networks
○ International capital movement took the form of foreign direct investment
○ Regionalism promoted regional exchanges and thereby promoted free trade
⑸ Rise and fall of the welfare state
① 1st. The late-19th-century Long Depression; the Great Depression of the 1930s : decline of the laissez-faire view of the state
② 2nd. World wars : rise of statism; contributed to building the infrastructure of the welfare state
③ 3rd. World wars caused globalization to retreat
④ 4th. Introduction of the welfare state
⑤ 5th. Crisis of the welfare state○ Promoted international outflows of capital
○ Promoted outflows of labor from underdeveloped regions
○ Economic development outside Europe : Japan, NIEs, ASEAN, BRICs
⑹ Dismantling of social integration mechanisms
① National standards and regulations : trade barriers, mechanisms of social integration
② In 1974, non-tariff barriers (each country’s standards and regulations) became subject to trade agreements
Entered: 2019.06.30 23:40