Proto-Industrialization & Mercantilism, War of Spanish Succession Chapter 17

Medieval “Warm Period” The “Little Ice Age” – 1350-1700 Medieval “Warm Period” In the 17c, Europe relied on a very inefficient agricultural system to feed its population.

Feudal Common Field System

Yield Ratio for Grain Crops (1400-1800)

Grain Supplies in 16c Europe

Cottage Industry – a business or manufacturing activity carried on in a person’s home. “Putting-Out” System – “subcontracting” – merchants sent out materials to rural producers

Supplemental Income  Cottage Industries: “Putting-Out” System

Advantages of the Putting-Out System Peasants could supplement their agricultural incomes. Take advantage of winter when farming was impossible. Merchants could avoid the higher wages and often demanding regulations of urban labor. Easier to reduce number of workers when economy was bad. Merchants could acquire capital, which would later play a part in funding industrialization itself. Peasants acquired future skills. Young people could start separate households earlier, thus contributing to population growth.

Disadvantage of the Putting-Out System When demand rose [which it did in the 18c] this system proved inefficient. Merchant-capitalists found it difficult to induce peasant-workers to increase their output. This dilemma eventually led to the factory system All the workers were concentrated in one place under the supervision of a manager. Water or steam power could easily be applied there.

Population Density: 18c Europe

18th century Population Growth Rate

European Urbanization 1500-1800

Industry & Population: 18c Europe

Characteristics of Mercantilism “Bullionism”  the eco. health of a nation could be measured by the amount of precious metal [gold or silver] which it possessed. ‘Hard’ money was the source of prosperity, prestige, and strength for a nation. Bullionism dictated a “favorable balance of trade.” Export more than you import [a trade surplus]. High tariffs on imported manufactured good. Low tariffs on imported raw materials. Each nation must try to achieve economic self-sufficiency. Those founding new industries should be rewarded by the state.

Characteristics of Mercantilism Thriving agriculture should be carefully encouraged. Less of need to import foods. Prosperous farmers could provide a base for taxation. Sea power was necessary to control foreign markets. Less need to use the ships of other nations to carry your trade goods. Your own fleet adds to the power and prestige of the nation. Impose internal taxes of all kinds.

Characteristics of Mercantilism Colonies would provide captive markets for manufactured goods & sources of raw materials. Trade is a “zero-sum” game. A nation can gain in international trade only at the expense of other nations. Manufactured goods Mother Country Colony Raw materials Cheap labor

Characteristics of Mercantilism A large population was needed to provide a domestic labor force to people the colonies. Luxury items should be avoided They took money out of the economy unnecessarily. State action was needed to regulate and enforce all of these economic policies. State-sponsored trade monopolies.

Jean Baptiste Colbert (1619-1683) Architect of French mercantilism or “Colbertism.” He was a bullionist. There are four professions of importance to the nation: Agriculture Trade Army Navy Uniform weights & measures. Opposed tolls on internal trade.

Who Benefited Most From Mercantilism? Monarchs. Merchant capitalists. Joint-stock companies. Government officials.

Capitalism and Adam Smith (1723-1790) Appointed to the chair of logic in 1751 at the University of Glasgow, Scotland. In 1752 he transferred to the chair of philosophy. On his travels to France, he was influenced by the writings of the physiocrats. Agriculture was source of wealth 1776  The Theory of Moral Sentiments and an Inquiry Into the Nature of Causes of the Wealth of Nations was published. A vehement attack of the mercantilist system.

The Wealth of Nations (1776)

Adam Smith’s Attack on Mercantilism He was making a political argument, NOT an economic one. Part of the argument was for new economic policy, but.. An essential part of the argument was for new social and political arrangements. He argued that the basic unit for social analysis should be the nation, not the state. He was against the belief that trade was a zero-sum game It was a positive-sum game. Both nations gained.

Basic Capitalist Principles Goods & services are produced for profitable exchange. Human labor power is a commodity for sale  LABOR IS THE SOURCE OF VALUE. Goods & Service Businesses Households Consumer Spending Wages Labor & Investments

Basic Capitalist Principles The “Invisible Hand” of the market Problem  How do we survive in a world where we must depend on many others, but where humans are by nature self-interested individuals?? Solution  the free market, while appearing chaotic and unrestrained, is actually guided to produce the right amount and variety of goods by a so-called “invisible hand.” “The unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically” Therefore, the basic market mechanism is self-regulating!

Basic Capitalist Principles Individuals seeking success are driven by self-interest  Profit Motive 5. Law of Supply and Demand Individuals who are free to pursue their self-interest will produce goods and services that others want, at prices others will be willing to pay.

Basic Capitalist Principles Law of Competition The competitive market system compels producers to be increasingly efficient, and to respond to the desires of consumers. A social division of labor will maximize the satisfaction of individual wants and needs, given scarce resources. Government should interfere minimally with the free and efficient workings of the market Laissez faire [“Leave things alone.”]

The War of Spanish Succession 1701-1713 Considered the first ‘world war’ of modern times Charles II of Spain dies (1700) without heir Last of the Hapsburgs Leopold (Austria) and Louis XIV claim

1698 – 1700: Partition Treaties, Wills, & Royal Drama 1698, William III and Louis XIV sign treaty to divide up Hapsburg domain held by Charles II sign partition treaty accepting right of young Joseph Ferdinand of Bavaria to all of Spain’s territory except Italy but…Charles II not dead yet outraged at blatant carving up of his territory responds with will naming Joseph Ferdinand as heir to all of Spanish possessions son of Leopold I’s daughter and her Bavarian prince husband Joseph Ferdinand dies, 1699

Further Treaties of Partition 1699 – William & Louis come up with second partition treaty more generous to Hapsburgs  son of Austrian emperor (Archduke Charles) to get everything except Italy and Lorraine (to France) ticks Charles II off again, so he changes his will again! leaves everything to Bourbon prince Philip, grandson of Louis XIV then Charles dies a month later ignoring the most recent partition treaty, Louis XIV accepts grandson’s inheritance and treats him as Philip V of Spain Austrians don’t accept this, though, and begin preparations for war!

Choosing Sides France Spain Bavaria Britain The Dutch Austria Prussia Portugal

Treaty of Utrecht Philip V keeps Spain and colonies France and Spain would not be able to combine thrones England wins most Gibraltar Eastern Canada Control of slave trade to Americas