History Quiz: Impact of the Printing Press and Colonialism

Economic Principles Lecture 03: History of Capitalism

• Lecture presented by Dr. Tim Jackson, University of Liverpool
• Focuses on the history of capitalism

Contact Information

• Dr. Tim Jackson: [email protected]
• University of Liverpool

Lecture 03: History of Capitalism - Recap

• Economists attempt to apply the scientific method, sometimes successfully, sometimes less
• Macroeconomics aims to make all people happier, acknowledging individual happiness is personal
• Revealed preference suggests raising incomes allows for greater happiness (Samuelson, 1938)
• Increased income leads to more consumption and free time
• How to make people richer is a key topic of discussion

GDP per capita (1 to 2018)

• Data adjusted for inflation and cost-of-living differences between countries
• A visual representation demonstrates GDP per capita growth across various countries (visual).
• Source: OWID, Maddison Project, Bolt, and Zanden 2020

Communism → Capitalism

• Market reforms lead to increased household incomes (with a lag)
• Visual representation of GDP per capita growth from 1939 to 2018 for various countries moving from communist to capitalist systems (visual).
• Source: Maddison Project Database 2020

North vs South Korea

• Visual comparison of development differences (satellite imagery) between North and South Korea
• Source: Earth Science & Remote Sensing Unit, NASA Johnson Space Center 2014

UK Living Standards (1270-2020)

• Summary graph of history of living conditions in England
• Data includes metrics such as GDP, food provision per capita, average years of schooling, life expectancy, literacy rate, women's literacy rate, child mortality rate
• Visual, key data points are shown (visual)
• Source: OWID, Roser 2020 and citations therein

Is Capitalism Making the World Better or Worse?

• Key question for discussion
• Historical context: The Industrial Revolution
• Modern context: Poverty levels in recent decades:
  • Decreased?
  • Increased?
  • Remained the same?
• Source: Data related to poverty levels is not mentioned.

Public Perception of Global Extreme Poverty

• Survey data on global perception of Extreme poverty over the last 20 years
• Data shows varying percentages across countries about perception of changes in global extreme poverty (visual)
• Source: Perils of Perception, Roser and Ortiz-Ospina 2020

Capitalism Reduces Poverty

• Analysis of worldwide regional poverty metrics and their trends (visual)
• Extreme poverty defined as living below a poverty line of $2.15 per day
• Source: World Bank Poverty and Inequality Platform 2023, OWID

Capitalism and its failings

• Capitalism works
• Problems with capitalism are:
  • Exploitation
  • Climate change
  • Inequality
• Further discussion on these are planned

How does Capitalism Make People Rich?

• Capitalism fosters cooperation
  • Quote of Friedman (1962) and Harari (2015)
• Benefits from specialization, Smith (1776)
• Use of machinery for increased efficiency
• Trade with others, Ricardo (1891)

Innovation

• Specialization in entrepreneurship and invention.
• Ability to create new things, enter existing markets and cut costs and prices
• Capital allows for financing projects that might require more upfront investment to make future returns

Opportunity

• Anyone with an idea can start a venture.
• Creates job opportunities because entrepreneurs hire people
• Capitalism creates social mobility.
• Freedom to try new ideas and the chance to get wealthy.
• Competition encourages innovation as firms strive for improved quality and lower prices

Incentives

• Harnessing self-interest for money and power as a motivating factor in society.
• Can be applied to democracy and politics
• One vote per person is a rule of democracy that does not apply to capitalism.
• Capitalism can lead to plutocracy without regulation.
• Discussion lecture on inequality planned

What does Capitalism Need to Flourish?

• Property rights and patents allow entrepreneurs to profit from inventions (Hayek, Mill, Smith,, Soto, 2000)
• Independent and impartial judicial system
• Limited government allowing for freedom of innovation.

Good and Bad Governments

• Limited government intervention associated with conservatism in the West, Neo-Liberalism (Hayek, Friedman, Thatcher, Reagan)
• Government interventions are seen as positive to address capitalism's worst excesses
• Historical context: Feudal systems, leaders as extractive (exploited masses)
• Wealth concentration and limited social mobility

Bad Governments Today

• Limited government means limiting negative impacts of dictators and corrupt leaders
• Bad governance is still a global problem
  • Sustains poverty
  • High inequality
  • Stifles innovation
  • Prevents aid reaching where needed
• Broadly benevolent governments are seen as an advantage

Necessary Conditions for Capitalism

• Capitalism requires freedom, property rights (and the rule of law), and markets
• The Enlightenment brought freedom and property rights to Europe

Road to Freedom in Europe

• Printing press (Gutenberg 1440) increased accessibility of ideas and challenged beliefs
• Reduced Church monopoly on knowledge and ushered in speech freedom
• Protestant Reformation (Martin Luther, 1517) challenged religious authority, leading to skepticism in leadership
• Development of freedom of religious thought
• Led to the Thirty Years War and the demise of the Holy Roman Empire
  • Less powerful leaders

Road to Freedom in the UK

• Magna Carta (1215): Peace treaty limiting king's power and establishing property rights for barons and principles of justice
• Glorious Revolution (1688–89): The overthrow of a monarch and establishing parliamentary supremacy, foundation for democracy
• Voltaire's praise of English freedoms and the rule of law, progress in science, and technology

Property Rights (Locke 1689b)

• Principle of natural rights granted by nature/God and independent of government
• Rights to life, liberty, and estate (property)
• Influence on Jefferson's work
• Right to revolution
• Social contracts, legitimate government from consent of people not divine right
• Argues for separation of powers (Executive, Legislative, Judiciary).

Sufficient Conditions for Capitalism

• The Enlightenment challenged traditional hierarchies and focused on humanism.
• Led to the establishment of human rights, including property rights, and the protection of freedoms
• This made switching from feudalism to capitalism possible but was not guaranteed.

Local Maxima

• Breaking traditions is difficult, people tend to get stuck in local optima
• Easy to be stuck in situations that are not necessarily the most profitable
• Alternatives to local maxima may be incredibly profitable

Malthusian Trap (Malthus 1798)

• Attempts to reduce poverty (child mortality) lead to more poverty as population growth outpaces resource production.
• Innovation is discouraged to maintain a balance of living standards with resource production.
• Poverty persists through agrarian economies.

Birth of Capitalism

• Pessimistic outlook on economics led to the "dismal science" description of Economics.
• England broke free of the Malthusian trap by embracing capitalism.
• Malthus underestimated the benefits of specialization and technological progress

Sufficient Conditions for Capitalism (cont.)

• How capitalism happened, why England was first, and necessary conditions for capitalism
• Enlightenment ideals in England led to property rights, freedom of investment, and free markets.
• Capitalism's profitability needs to be high enough to motivate change/competition.
• Significant scientific advancements and colonization were also necessary for capitalism.

Scientific Revolution

• Rediscovery of Classical writings from the Renaissance exposed western thought to Plato and Aristotle’s philosophies
• Invention of the telescope led to Galileo’s astronomical discoveries
• Advocating for skepticism and experimentation
• Math's development as a tool for reasoning led to discoveries like calculus and laws of motion and gravity

Technological Progress

• Mechanization of industrial processes, the steam engine replaced animal power, water frames
• Flying shuttle
• Power loom
• Formation of factories that took advantage of scale

Economic Innovations

• Dividing production across workers leads to greater worker specialization
• Specialization reduces training requirements resulting in cheaper labor for production
• Exploitation of skill differences through practice and training
• Tasks that can be automated boost economies of scale
• Economic gains from larger operations

Globalization

• Invention of the compass, exploration (Vasco da Gama, Columbus, Magellan), and trade of new good (sugar, coffee, fruits, etc.).
• Trade led to merchant wealth, the rise of social mobility, and ended suspicion of commerce.
• New connections expose diverse ideas, leading to a cosmopolitan outlook

Capitalism and Social Mobility

• Creation of merchant class with increased social mobility and decreased reliance on inherited wealth.
• Instrumental in creating democratic institutions
• Leads to a reduction in inequality (pre-capitalist societies much more unequal)
• Industrialists sometimes provided increased wages to incentivize good work for workers.

Why England?

• England was profoundly impacted by Enlightenment ideals
• The scientific revolution was crucial in England.
• Globalization and access to resources/new markets, supported development and growth.

Dark Side of Trade

• Exploitative trading practices, including the opium wars, Persian slave trade, and the rubber trade in the Congo
• Colonialization: Port cities and large-scale colonization efforts by Portugal, Spain, England, France, and Netherlands.

Extractive or Inclusive Colonies

• Some colonies had inclusive institutions with property rights and participation in government (especially those with low settler mortality rates)
• Other had extractive institutions where there were dictatorships, corruption, and unfair regimes.
• These institutional cultures persist today.

Settler Mortality and Modern GDP/Capita

• Relation graph between settler mortality and modern GDP per capita
• Showing relation between the two variables
• Source: Acemoglu, Johnson, and J. Robinson 2001

Malaria Incidence

• Malaria was a key factor in settler mortality
• Whether or not colonies were extractive or inclusive depended partially on malaria prevalence

Slavery

• Numerous nations started capturing Africans for slave labor in colonies
• Long-lasting impact and brutal treatment
• Majority of slaves were going to Brazil, Jamaica, Peru, Haiti, USA, and Columbia
• Slave trade peaked in the 18th century
• Slave trades were abolished in several locations and times over decades

No Ethics in Capitalism!

• Capitalism primarily prioritizes the desires of those who have money or capital
• Consumers' lack of concern about how goods are manufactured allows for a violation of human rights in production methods.
• The abolition of slave trade was an instance of British citizens becoming concerned over how goods and services were produced
• It's difficult to enforce broader human rights protections because it interferes with individual state sovereignty
• Developing countries frequently lack protections for basic human rights.

Development

• Market capitalism succeeds better with proper governance
• Rule of law, fair justice, and regulation for consumer protections
• Removal of corruption
• Without good governance, capitalism often becomes corrupted and can lead to plutocracy or kleptocracy

Shock Therapy

• Neo-conservatives often underestimate the importance of governance in capitalist reforms.
• The effectiveness of "shock therapy" in reforming economies (like in Russia, central America, Iraq) is frequently questionable because it does not consider existing governance factors

Summary

• Factors for Capitalism's Success
  • Profitability
  • Technological advancement
  • Global expansion
  • Extractive Colonization
  • Without proper governance, capitalism leads to plutocracy (excess of wealth)
• People prefer order over freedom.
• Good governance vital for capitalism's positive effects

Summary (cont.)

• Capitalism must have freedom, property rights, and markets to flourish
• Europe's Enlightenment is instrumental to developing these ideas
• Important to understand what drives markets and the factors that drive prices.

Bibliography

• Comprehensive list of sources cited in the lecture materials (included in the OCR data but not in a summarizing format)

This quiz explores significant historical events, including the impact of Gutenberg's printing press and the consequences of the Protestant Reformation. It also examines the conditions necessary for capitalism and the nature of colonialism. Test your knowledge of these pivotal moments in history.