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
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http://www.undiscoveredscotland.co.uk/usbiography/stu/images/adamsmith-portrait.jpg
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
http://snoedel.punt.nl/upload/09/native20village.jpg
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.
http://www.product-reviews.net/wp-content/userimages/2007/08/nasdaq.JPG
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
http://farm3.static.flickr.com/2210/2535096348_f9d9ba324c.jpg?v=0
Free Market
• Free Market economy arose
in Europe in 1450-1650
• 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
http://www.flatrock.org.nz/topics/history/assets/krup_industrial_revolution.jpg
• 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
http://www.flatrock.org.nz/topics/history/assets/living_in_cities_1850.jpg
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:
Until 1861 the Tsar owned
1/3 of Russian people as serfs
– No freedoms, opportunities,
ownership.
– Example: Russia until 1990s
http://www.gmu.edu/departments/economics/bcaplan/museum/serf.jpg
Core Controlled Markets
• Core evolved power
because of its control
of markets and finance
• Markets and finance
were not competitive,
but were monopolies
http://www.escapeartist.com/OREQ11/Femme_Gaastra2.jpg
Political Hierarchies
• By the 18th 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
http://www.martinfrost.ws/htmlfiles/april2007/britemp8.jpg
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
http://www.womeninworldhistory.com/HmillWoman.jpg
History of World GDP
Wealth
• Tributary – surplus production taken by
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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
http://nefertiti.iwebland.com/economy/plowing_oxen.jpg
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
http://165.176.125.169/schools/projects/photoproject/history/lowell/womenworker3.JPG
http://www.facade.com/celebrity/photo/Karl_Marx.jpg
Karl Marx
Capitalism
• Means of production
controlled
• Distribution controlled
• Labor must now buy goods
produced
Unemployed, 1930
http://www2.jsonline.com/news/2000/y2k/ourcentury/images/CENTURY-DEPRES.jpg
– People without means of
production must become labor
to live
– But full employment not
necessary for successful
capitalism
Capitalism is Autocatalytic
• Goal: to maximize surplus
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– 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
http://www.fresno.k12.ca.us/divdept/sscience/history/devilfish.jpg
Modernization Theory
• Modernization theory:
– poor nations copy what rich
nations have done
• Modernization requires
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– 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 1950-1995
Per capita GDP 1950-1995
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
http://images.quickblogcast.com/94244-86968/modernization_china1.jpg
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
Tata Nano built in India
Cost: $3,000
http://www.redlineblog.com/autos/wp-content/uploads/2008/01/tata-nano-profile.jpg
– 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
Modernization
Global Economies by 2050
http://www.allianzinvestors.com/imageLibrary/commentary/20070701_ATM_chart1.gif
http://cdn2.spectator.co.uk/files/2012/07/12901.jpg
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
http://www.treasury.gov.au/documents/1185/images/chart1.gif
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:
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Producing
Processing
Transporting
Storing
Merchandising
• Thus control prices
• Cheap labor found in poor
Nike factory, Vietnam
http://i.a.cnn.net/cnn/2005/TRAVEL/08/12/vietnam.economy/story.nike.vietnam.jpg
countries
Multinational Corporate Wealth
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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.
http://www.mapsworldwide.com/mwwlive/itm_img/9706212302sam.jpg
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
Ferdinand Marcos, former
Philippine President
– can never generate sufficient
economic growth
– to compete equally with the
developed world
• that controls their markets.
http://www.wellesley.edu/Activities/homepage/filipina/philippines/history/gmarcos.jpg
African Middle Class is Growing
http://www.teacheconomicfreedom.org/.a/6a0133f1f74f92970b01538e85dcf0970b-500wi