The Market as a Principle of Exchange E. L. Shusky - Culture and Agriculture Eric Wolf – Europe and the People Without History

Adam Smith Adam Smith published the Wealth of Nations in 1776 Foundation for understanding of capitalism Defines Market, laws of Supply and Demand Thought that each person was pursuing their own best interest This meant maximizing profits

Economics in Simple Societies Adam Smith’s view does not apply to simpler societies –Huge cultural differences Before large impersonal societies, individuals did not seek to maximize ownership of material goods –Did not seek to profit from distribution of goods Kin and close friends had rights and obligations that precluded trading to advantage

The Market Market exists solely for profit Kinship, friendship, loyalty, personal relations not valued –only goods and services Market is recent –not “natural” –not “simple” – could arise only after the appearance of impersonalized societies.

Price Price: determined at the intersection of supply and demand. This “equilibrium” can fluctuate Need variety of sellers willing to compete with each other Also need a variety of buyers willing to compete with each other –Produces hostility –Not suitable for tribal or community solidarity

Free Market Free Market economy arose in Europe in Occurred when trade expanded –without corresponding spread of a political entity. No central authority like Roman or Chinese empires

Why NW Europe Became Dominant Agricultural diversification –wool and dairy Serf system died rent-based tenant system Cottage industries: textiles Large cities: skilled labor –factories arose Freedoms: individualism Protestant revolution –free thinking Manufacturing and shipbuilding: – goods sold abroad Industrial revolution started here

Wallerstein’s Core Wallerstein’s “Core” refers to N.W. Europe Productivity required free/skilled labor. –Serfdom at an end. –Nobility lost power to those who produced Cheap goods meant expanded markets. –Grains from Eastern Europe –Gold, sugar, lumber, cotton from Latin America

Periphereral Areas Wallerstein’s “Peripheral” areas = Eastern Europe, New World Workers wages were low –Based on Serfdom or Slavery –Production went for export Low production = famine Low specialization Low motivation of workers: –No freedoms, opportunities, ownership. – Example: Russia until 1990s Until 1861 the Tsar owned 1/3 of Russian people as serfs

Core Controlled Markets Core evolved power because of its control of markets and finance Markets and finance were not competitive, but were monopolies

Political Hierarchies By the 18 th century –trade increased –search for markets motivated solely by profit –Increased power of political hierarchies European nations raced to control raw materials –to feed national factories with guaranteed markets –Resulted in colonialism European Colonialism in Africa

Industrial Revolution The Industrial revolution led to more wealth in Europe –sense of superiority –Periphery became poorer New wealth of Europe can be seen as derived from the labor and raw materials of –Africa –Asia –and Latin America

History of World GDP

Wealth Tributary – surplus production taken by elite as wealth Mercantile – trade of surplus production to make a profit –Markets created by web of trade –Means of production stays same Capital – profits invested in technology to improve means of production –Larger surplus, larger profits –Means of production owned by capitalist –Labor sold to capitalist in exchange for wages

Labor Labor is an attribute of human beings –Used to produce goods and services to sustain life For humans to produce, must have –Tools –Resources –Land

Capitalism In Capitalism, tie between labor and means of production is severed Holders of wealth acquire means of production People must sell their labor to operate means of production Produces a division of classes –Owners –Workers Karl Marx

Capitalism Means of production controlled Distribution controlled Labor must now buy goods produced –People without means of production must become labor to live –But full employment not necessary for successful capitalism Unemployed,

Capitalism is Autocatalytic Goal: to maximize surplus –Keep wages low –Raise output of workers –Increase Technology Huge pressures to –Out-produce competition –Undersell competition Must constantly be reinvesting in technology Autocatalytic Therefore means of production transformed : progress

Western Wealth Is Western wealth the result of ingenuity –or due to exploitation of the periphery? Can developing world catch up? –Modernization Or is first world dominance too entrenched? –Dependency Theory

Modernization Theory Modernization theory: –poor nations copy what rich nations have done Modernization requires –Industrial base first light, then heavy –Capital from World Bank, USAID –Skilled work force –Hope placed on technology but may displace people

Modernization Economic growth in S. Korea Per capita GDP

Modernization in China China’s economy growing at 7.5% yr (2012) –50% of GDP from Industry –By 2050 GDP will be second behind USA GDP per capita rising –will rise 10x by 2050 Population –Will peak at 1.4 billion in 2030 –Will be overtaken by India in 2030 Education –8x number science and engineering graduates of USA

Modernization in India India’s economy growing at 5.5% yr (2012) –20% of GDP from Industry –By 2050 will be third behind USA, China GDP per capita rising –Will rise 7x by 2050 India’s population –1.5 billion by 2050 –will overtake China in 2035 India now adding 1 million cars/yr –By 2050 will have 600 million cars –Most of any country in world Tata Nano built in India Cost: $3,000

Modernization Global Economies by

Global Economic Growth

Global Middle Class

Difficulties with Modernization Difficulties with Modernization: –Population growth –Capital accumulation from where? –Ability to control markets absent Market control is more important than any product innovations. –Actively pursued by U.S. and multinational corporations G7: U.S., U.K, Canada, Germany, France, Italy, Japan

Why do Poor get Poorer? Some underdeveloped countries getting poorer New Imperialism –Multinational corporations control profits. Profits from production go to core countries Profits are not used for investment in production Source: The End of Poverty, Sachs

Multinational Corporations Cross national lines Integrate: –Producing –Processing –Transporting –Storing –Merchandising Thus control prices Cheap labor found in poor countries Nike factory, Vietnam

Multinational Corporate Wealth

Dependency Theory Peasants tied economically to capital city – which is tied to core countries Regions within poor nations – do not trade, compete or cooperate with each other – –only with the capitol city –where goods leave for other countries Goods coming in to poor countries come from the West –via the capitol city.

Dependency Theory Elite within the capitol city –controls economics and politics of a country. Elite always conservative –to retain power. But elite do not control overseas markets –These are controlled by core capital Underdeveloped nations –can never generate sufficient economic growth –to compete equally with the developed world that controls their markets. Ferdinand Marcos, former Philippine President

African Middle Class is Growing