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The History of Economics: What Are You Studying?

By Yann, published on 15/12/2018 We Love Prof - AU > Academia > History > Studying Economic History

When you decide to study social science, you will probably need to decide what to specialise in. If you want to become a historian, you will need to decide what aspect of history you want to study. You can focus on a specific era, or you can decide to focus on a special aspect of cultural history.

Economic history is one interesting aspect – how past societies assigned value to the world around them and found ways to trade and increase their perception of wealth.

Here on Superprof is a little overview of the types of historical economies you might come to know as an undergraduate of Economic History.

Barter Economies

Economy is part of social history, and that means that economy comes in different forms depending on the society. In fact, many early societies did not even use money.  But just because we are used to thinking of economy in terms of currency and market values and economic growth, of macroeconomics and microeconomics, of entrepreneurship and fiscal policy – from the point of view of anthropology, economic systems start as soon as somebody has something you want, and you use means other than violence to get it.

In barter economies, one object is “paid” for by providing another object of equal perceived or fixed value. They can be subject to market fluctuation such as inflation or devaluation and even include international trade.

Relative value barter economies

The most simple-seeming economic interaction is a relative value trade. In this model, objects of barter have no fixed value. The value of an object in trade can be determined depending on many factors:

  • Current need. If I have an overabundance of cows but nothing to milk them with, I might consider trading a cow for a bucket. In the same way, certain objects might be worth more or less depending on the season they are primarily used in.
  • Rarity. Something from far away might be bartered for more than a similar object created at home – or not.
  • Ceremonial value. Certain objects might not be traded for much in a private context, but might accrue value under certain circumstances – age, having belonged to a temple or ceremonial area or to a particular person, travelled a certain distance or been created at a certain time.

It is also important to note that the things traded in non-monetary economies are not necessarily physical objects. They can be culturally important stories, songs, ceremonies and even artisan techniques.

Gift-giving as an economic factor

Many early societies and non-monetary societies cemented their relations to other groups through elaborate systems of gift-giving. While a gift at first does not appear to contribute much to a dynamic economy, each gift is given in the expectation of a return gift of perceived equal or better value in the future. By putting themselves in each other’s debt, they establish stable relationships that prevent conflict – until, of course, one of the participants is unable to provide. This can lead to loss of status in a best-case scenario to open warfare in the worst case. One good example of such a society relying on ceremonial gift-giving is the Tlingit of the North American Pacific Northwest, where chiefs were expected to give elaborate potlatches at regular intervals where they distribute wealth such as blankets and copper to neighbouring clans.

Fixed value barter economies

Some barter economies – often early agricultural societies – rely on a fixed framework for determining the value of objects. This is similar to monetary economies, but without the actual currency – instead of paying with coins or bills, one object is exchanged for another of equal value.

One example is Ancient Egypt, where frequently bartered objects were assigned a worth in deben, a certain weight of copper. The deben value had nothing to do with the weight of the object, but their worth relative to the worth of that amount of copper. Thus, certain types of cows were worth more than others (a cow having already given birth was worth more than one who hadn’t, for example), and coffins came in a very wide price range.

Barter economies still had value. The Egyptians used a form of barter economy with a fixed assigned value to certain goods. Photo credit: kairoinfo4u on Foter.com

The use of the deben is documented in sales contracts and receipts and ensured that all the participants in a transaction were on the same page and felt that the exchange was fair. It is interesting that it is possible to chart inflation through the price of certain commodities over time.

Monetary Economies

Most often associated with our view of economy, money plays an important part in the history of economic thought.

What is money?

Money is an intermediate trade item, generally designed to be portable (though the Rai stones of Micronesian island of Yap could weigh several tonnes), the idea being that you can exchange for greater values without transporting too many trade goods with you.

Money with innate value

Some money was made of materials that were perceived to be valuable in and of themselves – such as precious metals. Gold and silver coins persisted for much of European history because these materials were perceived as having a certain intrinsic value.

There are different types of money. Today, money comes in many different forms – but its value is the same no matter what its shape – or physical existence. Photo on Foter.com

Money with mutually-accepted value

Other types of currency utilise common objects that are re-purposed for use as money or currency made of materials with no intrinsic value within the cultural framework of the society. It is, in fact, only a means of payment because everyone in the country accepts it as such. Some examples of money with mutually-accepted value are:

  • Cowrie shells. Quite common in coastal areas, they became a currency in many societies around the world.
  • Cocoa beans in South America
  • Paper money (paper is not considered a valuable commodity, yet paper money has an accepted fixed value)
  • Various types of virtual currency, in which information on a computer is considered to have a theoretical value.
  • Bottle caps in the made-up dystopian society in the Fallout games

Capitalism and Economic History

It’s hard to speak of economics without speaking of capitalism. History courses may not insist upon it, but much of world economic history is influenced by some form of capitalism. As soon as there are independent merchants and tradesmen who own their stock and seek to increase their profits, you have a form of capitalistic economy.

This said, there are hybrid economies where different economic systems incorporate aspects of capitalism.

The economic development of capitalism as we know it today is heavily influenced by the Industrialization of the nineteenth century. The innovation in the industrial organisation of the time eventually gave rise to modern production techniques and the organisation of firms. The mistakes made in labour conditions and wages gave rise to early modern and contemporary labour laws – and the whole subject of labour economics. Today, most of the world economy is run along a capitalistic principle.

Capitalism comes in many forms and the methodology has influenced political economy on many levels:

  • Agrarian capitalism, in which agriculture is the main means of production
  • Mercantilism, where trade for profit is the framework for the main contributor to the economy – first emerging with the great colonial empires of Europe
  • Industrial capitalism: with the Industrial Revolution in the nineteenth century, increased production through factories rather than workshops lead to a whole different business cycle than anything previous. Market failure, though certainly a factor previously, now became an ever-present threat.
  • Modern capitalism, in which production is not just linked to material goods, but services and non-physical goods as well. Through increasing globalization, modern capitalism is linked to global economic markets. Generally, you differentiate between liberal market economies and coordinated market economies. When studying business history you will generally be studying modern capitalism, as the basics of modern business practices – from behavioural economics to economic analysis- a generally not considered to predate it.

Capitalism has its detractors. Of course, not everyone thinks capitalism is the best economic model. Photo credit: Sterneck on Foter.com

Communist Economies

Communism is interesting in that it is a system that impacts political history, social history and economic history. The economic theory functions on the basis that wealth should not be accumulated by a limited amount of businessmen with access to distribution methods and investment capital, but rather that both property and production are public goods owned by the community rather than individuals.

Ideally, in a communist society, there is no unemployment or class inequality. Commonly-owned goods and production facilities are thought to improve productivity, since not only do your actions influence the community, but the other members’ slacking has an influence on your own life.

Local common-goods communities

On a local level, group participation in most activities and lack of commonly-owned goods (usually with a few exceptions) exist in several pre-technological societies.

Communism as a political system

Jean-Jacques Rousseau in the eighteenth century already noted that common-goods communities worked best on a local level. In practice, it is difficult to keep distribution fair across large distances, and many communist economies suffer from shortages through poor planning and insufficient logistics.

Some Origins of Common Economic Institutions

The Stock Market

While buying and trading debt and certain government securities and bonds existed in the Medieval and early modern periods, and the Van der Beurze family operated a house in Antwerp where commodity traders could meet directly, the first company to go public and sell stocks was the East India Company (VOC) of the Netherlands in the 1600s. Due to the high cost and high risk of early merchant ventures to the East Indies, the Company allowed people to invest in the ventures for a certain share of the profits. The more you invested, the bigger your share – and the Amsterdam stock exchange, where shares and bonds of the VOC could be bought and sold, is generally considered the first of its kind.

The stock market is older than you think. The origins of our stock market lie in early merchant ventures. Photo credit: rednuht on Foter.com

Paper Money

Paper money originated in China, where traders of the 7th century might carry merchant receipts with them as promissory notes and trade them for goods. The first local printings of paper currency began in during the Song Dynasty in the 11th century, spreading in use parallel to the metal coins.

The idea was brought to Europe through travellers to Asia such as Marco Polo.

Promissory notes – noting down a value to be paid for purchases on credit – were traded almost as soon as they appeared, soon being made out as “payable to bearer” rather than a specific person. In 1661, the Stockholm Banco issued the first actual banknotes, though it went bankrupt three years later due to printing more notes than the equivalent value of their holdings.

Promissory notes were used as currency. Promissory notes functioned as a kind of early paper money. Photo credit: Lichfield District Council on Foter.com

In 1695, the Bank of England introduced banknotes in an effort to finance the war with France. In 1716, as a result of several decades of war leaving France short on metals for coins, Scottish economist John Law established paper money in France.

John Law is best known for his philosophy that states that money itself is only an accepted means of exchange; a country’s true wealth can be seen in trade.

Banks

The first concept of banking emerged when merchants would give grain loans to farmers. In Renaissance Italy, the rise of the merchant empires meant that people needed loans on risky enterprises and ready access to money far from home.

Moneylending led to banking. Moneylenders invented interest rates – and were some of the first bankers. Photo credit: jean louis mazieres on Foter.com

In the seventeenth and eighteenth century, many merchants stored their gold with the goldsmiths of London – they would store the gold in their private vaults for a fee and issue receipts that could only be redeemed by the person they were issued to. Eventually, they would issue loans on the money with the permission of the owner (for interest) and issue promissory notes on loan capital that could be passed on to others – an early form of paper money.

Britain was a pioneer in banking reform, including the first banknotes from the Bank of England; with the first overdraft facility at the Royal Bank of Scotland. The Rothschilds for their part first brought international finance into large-scale projects by helping to finance the Suez Canal.

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