Last week, we traced part of the history of the beginning of capitalism and how it played a role in Europe and the United States in different time periods. One idea of capitalism is best understood as “laissez-faire.” This is a French term meaning the absence of government getting involved in economic affairs. The idea is that individuals will better make decisions for themselves and their families than someone in government. At the end of the Medieval Ages and the beginning of the Early Modern Ages, many European kingdoms followed the economic policy of mercantilism. Mercantilism is very different than capitalism. Under mercantilism, kings established colonies to acquire gold and natural resources. Colonies existed to enrich the kings and the mother country. Because mercantilism always favored the kings at the expense of the colonies, colonists eventually demanded freedom.
In the 1600s and 1700s, there are many examples of mercantilism. Led by the “Sun King” Louis XIV, France established her empire in North America. Spain had already built a huge empire in the 1500s, conquering most of South America and large parts of North America. The 1600s was known as the “Golden Age of Spain” in part because of all the gold Spain took from the Incas and the Aztecs. Great Britain had colonies all around the globe, in North America, South America, and Asia. The Dutch and the Portuguese also had colonies. Each colonial power sought to reap benefits of having cheap raw materials to take back to the home country. And, each kingdom had economic control over its colonists, making laws that restricted the economic freedoms of the colonists. This means that the central government, not the individuals, controlled the colonists.
The American Revolution (1775-1783) was the first of many where colonists overthrew the royal powers and established republics with much greater economic freedom. After founding a republic in 1776, the United States of America implemented a laissez –faire economy, and individual Americans had great freedom over their economic decisions. The U.S.A. was an experiment for capitalism. This freedom over their economic lives continued at least until 1913, when the United States passed the 16th amendment, which allowed for federal taxation of income. In the 1800s, America was the immigration destination for most of the world. In 1776, the United States of America was the newest county in the world, with no navy and no standing army. By the time of World War I, the country was perhaps the mightiest. Economic freedom was one of the main factors that led to the rapid growth of the American economy in the 1800s.
History provides us with two examples of the effects of an economic system run by a central government, and one run by individuals in society. In the mercantilism that Europe’s kings practiced in the 1600s, 1700s, and 1800s, colonists eventually objected to the tight control kings placed on them and eventually revolted, like the Americans in the American Revolution. In the late 1700s and 1800s, American benefitted from capitalism. Under this economic system, Americans became the wealthiest and freest people of the world, and the poor had the greatest opportunities to better their own lives.
On November 8, 2016, Americans will vote for a U.S. President and Vice President. Because Americans currently have a president who cannot run for office as President Obama is in his second term, candidates are more active than normal, even though the election is more than one year away. One idea that is a large part of the election is how each candidate thinks the U.S. government will get involved, or leave alone, the economic activities of Americans. Because the U.S. President has great influence on American economic policy, it’s important to know the differing views on economic policy to choose which one works the best. This article is the first of many to discuss the history of economic policies and U.S history.
Up through the 1400s, Italian city-states had a big advantage over other European cities. Italians controlled the trade between Asia and Europe. Italian control of the Mediterranean trade and with Asian products ended when the Atlantic countries explored and colonized much of the world, beginning with Columbus discovering America in 1492. Power shifted from the south of Europe to the Atlantic countries. New ways of thinking and acting regarding money led what historians call The Commercial Revolution.
Perhaps most important to the Commercial Revolution was capitalism. Capitalism is an outlook and behavior taken by people who freely make, buy, and sell goods. In capitalism, people take risks in the hopes of improving their financial situation. Money that is earned is called profit. Individuals who earn a profit reinvest for more profit. In capitalism, hard work and risk taking is rewarded. Individuals tend to work harder for themselves because they get to enjoy the benefit of their labor. Bankers are ready to loan people capital in the hopes that they will be repaid with interest. The government’s role in capitalism is to be a sort of umpire, who makes sure that each citizen has a fair chance of competing. Government is not supposed to become an active participant in the affairs of the economy under capitalism.
Generally, material ambition became more accepted in European society. It had once been that all Christians were forbidden to earn interest from loaned money. Some elements in society were against the drive for wealth, as William Shakespeare expresses in his play “The Merchant of Venice,” set in 16th century Europe. Johannes Fugger of Augsburg was the head of a very successful banking family. The Fuggers funded the quest of Spanish King Charles I (1500-1558) to become Holy Roman Emperor Charles V.
New kinds of businesses emerged. The idea of the corporation emerged: a legal entity that had the rights of an individual. A joint-stock company was one where business people could put their money together to raise huge amounts of capital. Each person bought stock in the company and owned a share of it. These large amounts of capital were used to fund large enterprises, take huge risks, and reap or lose great amounts of wealth. Insurance products came into existence that guaranteed business ventures.
Merchants used their money to build new businesses, like manufacturing things. Cloth manufacturing was one such business. In a company that worked as a “domestic system,” weavers were paid to make cloth in their homes. Capitalists paid weavers with wages and raw materials. They then sold the goods in the market for a profit. Over time, they brought the raw materials and workers in one location, called the factory system.
Global trade increased the European standard of living in the 1700s and 1800s. Europeans invested in tobacco and sugar plantations in America and in coffee plantations in Asia. Owners took the profits from these businesses and reinvested them. The standard of living of citizens who lived in countries that followed some practices of capitalism greatly increased, while the standard of living of people who lived in countries that did not adopt capitalism either stagnated or decreased. From the 1500s on, Europeans, though not representing the largest population of the world, enjoyed the fruits of capitalism and rapidly modernized.
John De Gree
John De Gree writes the current events with a look at the history of each topic. Articles are written for the young person, aged 10-18, and Mr. De Gree carefully writes so that all readers can understand the event. The perspective the current events are written in is Judeo-Christian.
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