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Western Economic Systems in the Early Modern Era
AP World History
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Transition from Feudalism• Growth of political stability in
late middle ages = increased population in cities/towns
• Serfs could escape manors to cities
• Open markets broke down traditional manors
• Merchants able to acquire more wealth than feudal lords - supported kings, shifting power away from aristocrats to merchants
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Economic Control• Governments, Kings want to
use economic power to increase political power - domestically and internationally
• Government helped focus economic pursuits that benefited the state
• Called mercantilism
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Mercantilism Basics• Strength of a nation based
upon wealth - especially possession of gold and silver
• Balance of trade had to be favorable
• Protective economic policies - high tariffs, subsidies for domestic industries
• Colonies to provide raw materials, only trade with controlling nation
• Governments grant monopolies to companies
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Mercantilism Basics• British East India Company
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Transition to Capitalism• New World trade increased
wealth of merchants• Money reinvested• Rising prices keep profits high
- due to influx of New World silver and gold
• New business organizational methods developo Joint-stock companieso Shareso Companies finance
colonies
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Adam Smith• 1776 - Wealth of Nations• Advocated for a free market,
with no government control - more beneficial to society, people would be more productive
• Laissez Faire - Hands Off• Believed in the "invisible
hand" of the market• Opposed trade restrictions