Notes on Mark Thoma’s History of Economic Thought Lecture 1 and 2

I have been watching Mark Thoma’s History of Economic Thought class on YouTube for a refresher on the subject. Here are my notes:

  • Probably the most important part for the creation of the modern state is the creation of a unified market. True, the places that did open up to trade first were the Italian city states, but soon after the Dutch began to create cost-less trade networks, and then followed England. This is why I think the current level of development could not have been created if we skipped the formation of nation states [A conjecture I have raised].
  • Transition from Feudalism to Mercantilism and then to Capitalism
    • 3 field system of agriculture and other advances in agriculture and food production (like new husbandry) created a surplus to trade and thus a reason to expand trade.
    • Increase in long distance trade because of technological advances
    • Putting out system
      • The putting-out system was a means of subcontracting work. It was also known as the workshop system and the domestic system. In putting-out, work was contracted by a central agent to subcontractors who completed the work in off site facilities, either in their own homes or in workshops with multiple craftsmen. It was used in the English and American textile industry, in shoe making, lock-making trades and making parts for small firearms from the industrial revolution until the mid 19th century; however, after the invention of the sewing machine in 1846, the system lingered on in making ready made men’s clothing.
    • Decline of manorial system and the loosening of labor restrictions
  • To export more, the mercantilists believed it was beneficial to import less. The way that you would do this is to create trade monopolies and monopsonies. They created single entities to buy raw materials, i.e. an monopsony and single entities to produce goods at a lowered price to export.
  • The mercantilists believed in a zero sum game because it was this way (Malthusian) before the industrial revolution. But after the revolution it was the case.
  • Importance of colonialism is probably overstated: Japan is a great example of this in action. It opened up to the West after a 400 year closure only in 1853 when Commodore Perry came. By the late 19th century it would have taken on and won against Russia. The Empire largely came after their Industrial Revolution.
  • Until you have wealth accumulating, you dont have this capitalist system. Credit markets are not well developed at the time. But the standard story does not include in any meaningful way accumulation through exploitation. Spain was the largest approprier of gold and lost most of their colonies in the 19th century. Their economy was only able to catch up to the development of the rest of Western Europe in the last couple of decades. Even as early at 1776 as Adam Smith was able to say that the North America and new England especially was wealthy, while the South still mired in slavery was not.
  • Accumulation of fine tools (See Joel Mokyr)
  • How important was enclosure to the labor part of capitalist system? We know that for property rights, it was extremely important, but I don’t think it is as clear with
  • The Great Price Inflation –
    • An influx of gold  from the colonies and Africa drives prices up through price inflation
    • Maximum wage laws come into effect in the 1500s. (wiki link)
    • profit = (price*quantity) – (wage*hours of labor)
    • Nominal profits begin to increase.
    • Gold accumulates in the hands of merchants.
    • Thoma wonders: If wages are at subsistence levels and their nominal price stays put because of maximum wage laws, while prices rise through inflation, their ability to buy actually decreases, but how did they survive with less? As we know, sadly, people have a bit of leeway with their subsistence level.
  • The mercantilists did not distinguish between real and nominal prices.
  • The mercantilists were trying to minimize imports and maximize exports to bring in gold from other countries (i.e. wealth). Even developing countries today seem to go down the route of export led growth. An export tax is the same as a subsidy or the lowering of the price of a good.
  • A lot of things were prohibited and a lot of protections existed for domestic industries. The quality of information was poor at the time; the informational market that we have is not  the same as the world once was. We should remember, that before brands, there was no way to know the quality of a good. Once you get a good, it was impossible to exchange it. To boost the quality of all items, there were massive restrictions and proscriptions on how you would produce a good: the kinds of cloth you could use, and even with that the number of threads you had to employ over a given area, etc.
  • Mercantilists focused on exchange, not production because the value added at the time was not in the manufacturing process or the production of a good but on arbitrage and inflation. The guilds were not sources of value or entrepreneurship by their very nature. They were heavily restricted. But nor did the mercantilists believe that the internal machinations made a country wealthy. It was only the export. They were, in a large sense, driven by what we might call a macroeconomic perspective.
  • 1000 to 1300 A.D. the population doubled because of advances in agriculture; which pushed more people into smaller spaces and the creation of proto-cities. These would be more accurately called villages.
  • Merchant capitalists are just arbitrageurs. Today the emphasis is on production, but then the emphasis was on exchange. Marx was probably mixing the two, as there is no evidence that he actually visited factories.
  • Black Death destroyed the population without destroying a huge amount of capital, so wages rose because the command of labor increased (a la Gregory Clark)
  • English Poor Laws