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June 24, 2019

Economic History: Self-Interest, Human Survival, and History

Economic History: Self-Interest, Human Survival, and History

In a general sense, economic history concerns itself with the ways that mankind has structured the environment in the past in order to provide food, shelter, and clothing. In other words, economic historians are interested in examining the process through which society provides for its material well-being. Indeed, it would not be off the mark to state that the study of economic history is the study of human survival.

The implication is that in our study, we will need to take into account all human characteristics and how these characteristics shape our behaviors. In economic history, we concern ourselves with the interplay between economic and social, political, and cultural behaviors.

Central Concepts of Economic History

The late Nobel Prize–winning economic historian Douglass North suggested that what is of particular concern to the economic historian is explaining the institutional structures that underlie (and account for) the performance of an economic system and how these institutions change over time.

For the economic historian Rondo Cameron, the most pressing concern was to explain the origins of unequal levels of development in the world.

Perhaps the thinking of David Landes, however, is the most useful for our course. Landes was a professor of history at Harvard who wanted economic historians to trace and understand the main streams of economic advances and modernization, that is, how mankind came to where—and what—we are, in the sense of making, getting, and spending.

Questions of Economic History

We will need to ask some important questions if we are to understand the main streams of economic history:

What was produced? Even the most primitive societies had to grapple with this question. Primitive societies might think of it in terms of what they could hunt or what they would plant. But this is also a question that entrepreneurs have been asking for thousands of years and startup tech firms still seek to answer.

How was it produced? This question forces us to look at resources, such as labor and machines, to understand how goods were made in the past. Looking at the changes that were made to how things were produced helps us understand how we got to where we are today.

How did what was produced get distributed? This question can be asked of the family, of the community, and at the regional, national, and international levels. Asking this question helps us to understand commerce, the allocation of resources, and social welfare practices.

These three questions might seem fairly simple, but they lead to discussions of prices, resource allocation, production methods, technological development, labor, supply and demand, and more. The questions also point to issues that both economists and economic historians address, while doing so in very different ways.

Economists, for instance, practice something that few historians are comfortable doing: They look to the future and try to predict what will happen and what could influence decision making. Historians, including economic historians, are oriented toward the past; we don’t try to predict the future.

Historians and economists also approach questions from different methodological perspectives. Economists tend to try to isolate independent variables in order to identify regularities that might predict human behavior. But to historians, this notion of isolating variables is not attainable. Instead, historians suggest that in attempting to explain what happened in the past, we need to consider as many variables as possible. Actually, most historians consider all variables to be interdependent. Removing any one of them alters the situation, and thus, the explanation suffers.

Highlights of Economic History

If we were to list some of the highlights of the economic history of the past 500 or more years, we might include the following events:

  • The development of productive agricultural. Mankind moved from hunter-gatherer to cultivator millennia ago. But only recently has agriculture been productive enough to allow people to focus our efforts on other activities. Agricultural surpluses created important changes for how mankind provides for itself.
  • The development of business contracts and agreements. Business contracts have existed for thousands of years, but the form these took changed over time and—hundreds of years ago—gave rise to a variety of partnerships and corporative relationships.
  • The expansion of trade. In addition to the great European voyages of discovery, trade has expanded in a multitude of ways over the centuries.
  • The development of economic nationalism or what Adam Smith would have called the mercantile system.
  • The development of science and technology and the routinization of knowledge. New ideas and technology have radically affected how we produce things.
  • The shift to industrial production. As probably the greatest process in modern economic history, the transition that we refer to as the Industrial Revolution was not really as sudden an occurrence as the term revolution implies. But it changed how we produce, what we produce, and how we distribute our products in significant ways.
  • Population growth. Global population growth brought with it a demographic revolution, changes in our methods of production, and resulting increases in agricultural productivity.
  • Free trade and mass consumption. These concepts became increasingly important in the newly industrial world.
  • Imperialism, colonization, and warfare. The forces of imperialism, colonization, and warfare touched much of the world’s population and set up an enduring divide between the global haves and the have nots.

Economic Growth and Development

Defining Capitalism

One recurring theme that will thread its way through every one of these topics is the concept of capitalism. How do we define this term?

The word itself is rather new. Capital—basically meaning assets—dates as far back as the Middle Ages. But the word capitalism originated only in the middle of the 19th century, in the context of referring to an economic system. And then it was usually used by socialists.

Today, most people think of capitalism as a method of organizing economies and markets through flows of capital, or cash and its equivalents.

Some characteristics of capitalism include the following:

  • Clearly defined private property rights
  • Enforceable contracts
  • Markets that set prices
  • Institutions favorable to the above elements.

Thus, capitalism can be defined as: an economic system in which rational private property rights and enforceable contracts provide for the efficient functioning of markets that generate price signals and for which favorable institutions exist to create incentives for participation in the system. In this general statement, private property rights refers to the ownership, control, and exchange of a resource or a good.

Unfortunately, this conceptualization represents more of an ideal, a way of thinking about the economy, than it is a description of reality at any point in the past. Aspects of it can be found in most historical periods, but rarely does the entire system seem to have functioned according to this description.

The Role of Institutions

Another concept we will pay close attention to in this course is the role of institutions in economic history. This is an even more difficult concept to describe than is capitalism. At its core, the study of institutions is the examination of the interaction between (and among) individuals, firms, states, social and legal norms, cultural cues, and so on.

Obviously, institutions change over time. The rules that govern much of human behavior, such as social and legal norms, tend not to be fixed and constant. Rather, they can change dramatically.

In turn, such changes can produce great confusion among historical actors, when they are thrust into situations that put them into contact with new and unfamiliar institutional arrangements.

For example, when parties from different cultures come together to engage in trade, certain misunderstandings and miscues are likely to occur, until each party adjusts to the new institutional arrangements.

Ideological Perspectives on Economics

Three ideological perspectives offer a sense of the differences we will encounter in the study of economic history:

Neoclassical economics. In general, neoclassical economic historians apply economic theory to historical processes in the interest of understanding the past.

This approach follows in the tradition of Adam Smith and holds in high regard the study of price theory, utility, profit maximization, and the presence of rational economic actors.

One drawback of neoclassical economics, as it applies to the distant past, is that it often struggles with the so-called free-rider problem (which refers to those who benefit from something without paying for it), and it has difficulty accounting for ideology in human action.

Marxian economic history. Marxist thought has had a significant impact on economic history and continues to do so, to some degree, even today. The basic focus of Marxian economic thought is the mode of production.

The Marxist historian views every historical period as having its own identity, shaped by the ways in which the means of production are owned, by how people relate to one another in the process of production, and by the material forces of production.

In this view, all modes of production have built-in contradictions that must be resolved through some kind of struggle. Thus, to the Marxist, the driving force of human history is the struggle of one class with another.

World systems theory. Although not a theory of economics per se, world systems analysis has had an important role to play in economic history. Rather than viewing the nation-state as the most important focus of historical analysis, world systems theory seeks to substitute a regional or inter-regional, approach.

World systems theory also rejects the notion that Marxists and most neoclassicists commonly hold: that there is only a single path to economic development for most countries and regions.

A Note on Eurocentrism

To understand the world we live in today, we must begin by focusing on Europe. Admittedly, economic history has suffered from a significant amount of Eurocentrism—a point of view that is of a distinctly European perspective.

Our focus, to the extent that it falls in Europe, reflects the fact that the world economy has for so long been dominated by Western ideas and ideals. It can be difficult to get past this rather parochial viewpoint, but we will.

In the distant past, Europe’s economy was rather insignificant compared to the economies of the great empires of Asia, such as India and China.

Still, in our modern world, the economic system and institutions that developed in Europe over the past 500 years are the ones that have taken hold. To understand how the world economy reached the point where it is today, then, we will focus on Europe, beginning in medieval Europe, sometime after the breakdown of the Roman Empire.

Questions to Consider

  1. What do we mean by economic history?
  2. What are the different approaches to economic history?
  3. What is capitalism?

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