REAL ESTATE ECONOMICS
Economic Systems Review
The Historical Evolution of
Economic Systems
Hunter Gatherer Societies
Agricultural Societies
Trading Societies
Colonization
Slavery
Developmental State
Hunter Gatherer Society
 Simple production processes
 No Markets, no intermediaries between resources and
final product, and no wage labor—production is for
(extended) family—and no ownership
Hunter Gatherer Society
 Production
 Little to no surplus
 Produce to satisfy basic needs
 Hunter her Societies are NOT driven by scarcity
 Production is based on what is needed for own
consumption
 “Use value” will vary from one individual to another,
“exchange value” is not relevant
 Everyone shares in acquisition of goods, except if too
frail to do so
Hunter Gatherer Society
 Distribution:
 Cultural customs determine how goods are
distributed.
 Distribution is not a major concern because there is
little production beyond subsistence.
 Generally Equal Distribution
 Risk is shared equally also
Agricultural Systems
 Settled agriculture allows for the production of
surplus
 Producer roles change, and trade has a useful purpose.
 Renter class evolves: resource rich  labor rich
 Producer and Consumer roles originate
 Ownership of resources (land) becomes important
 Exclusivity of use
 Control over embedded resources
Agricultural Systems
 Labor Rich Households must sell their labor in
order to survive.
 They sell their labor to the resource rich
households.
 Resource rich households can now get enough
food without having to work.
Agricultural Systems
 Thus, this allows the development of a class of
people who do not work, but are physically able.
 This class has dominance in bargaining power and
is therefore capable to develop a social role that is
more exclusive (scarce) authoritative and
powerful:
 priest or philosopher class
 military class, etc.
Agricultural Systems
 The powerful are land owners.
 The powerful have people working for them
who have bargaining disadvantages.
 Slavery evolves.
Agricultural Systems
 The powerful receive proportionately more of the
surplus than the labor rich.
 They invest surplus and take chances on
technological innovations that pay off and improve
yields (irrigation, fertilization and hybridization).
Agricultural Systems
 As a result of expanded food production
population expands.
 During food shortages, populations decline—
some empires collapse along with economic
prosperity.
 Malthus’ theory …
Feudalism
 The landed resource rich become feudal lords
 Labor rich population growth as food supply
increases
Feudalism
 Labor roles increase in order to manage more
complex societal organizations.
 Enslavement
 Expansion in productivity and production through
political tyranny.
Feudalism
 Protecting the wealth of land lords becomes
important: military role of government is born.
 Before, military resources were a tool to expand
territorial scope of an empire.
 Now, it becomes a tool to oppress internal discord
in civilizations.
Feudalism
 As knowledge increases, and resource rich
households grow larger, roles for powerful take on
more dimensions, filled by their own ranks.
Feudalism
 Hierarchical labor assignations evolve—nepotism,
oligarchy and ultimately monarchies and empires
take shape from consolidations of power through
military force.
Mercantilism
 Mercantilists were an educated urban class that
served the lords by mediating between the
powerful from different regions.
 Mercantilism evolved first in Asia (6th-7th century)
and Africa (12th century), then in Europe.
Mercantilism
 Mercantilists bridged transportation gaps, cost
effectively.
 They assumed risks and roles that monarchs
would not, lest they be perceived as “weak” by
their enemies.
Mercantilism
 Mercantilists NOT interested in (attachment to)
land because of history and culture—nomadic
traditions, militarily/resource poor.
 Thus they continually were dispossessed: overseas
Chinese, Arabs, Jews, Persians, Armenians,
Lebanese, and other ethnic and religious
minorities (the old immigrants).
Mercantilism
 The development of this urban class was
frequently derived from a cultural separation from
the community. Ethnic minorities became the
traders.
Mercantilism
 Innovations in maritime transportation allow
powerful to export their influence and military
might.
 This projection of power, combined with the every
growing desire to acquire more resources (human
and otherwise) results in colonialism.
Colonialism
 Origin: To acquire land, and embedded resources,
including “slaves”.
 Evolution: Exported know-how to colonies so as to
import processed/fabricated goods.
 Control: Colonialism’s unfairness led to revolt and
wars for independence.
 England, and the Jewel in the Crown
Industrialization
 Technological innovations from European
“knowledge” and/or “innovation” movements: the
renaissance and the enlightenment.
Industrialization
 Land and agriculture become less important to the
powerful, as opportunities to mass produce goods
by using capital goods creates greater wealth
opportunities.
Industrialization
 Mineral and energy resources are the commodity
markets of the new rich and powerful.
Industrialization
 Slavery is abolished in most of the Americas
between 1811-1815.
 Slavery’s moral deficiencies outweigh its
perceived agro-economic advantages to the
United States, but still is a major cause of the
1856 civil war, which institutes emancipation in
our country.
Industrialization
 Magnifies the contrast between the resource rich
and the massively large class of labor rich persons,
giving rise to redistributist political philosophies
and institutions: Socialism, Crony-Capitalism,
Globalization or Integrated Socialism.
Modern Economic Systems
 Diverse brands of capitalism
 Government role varies from system to system
 But, “Hamilton won the debate, Jefferson lost”. In
most well-to-do modern economies, government
makes up 1:2 to 1:8 parts of the economy.
Western Capitalism
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Production is for exchange
Produce goods based on exchange value
Drive to accumulate more capital
Investment and innovation
Division of labor
 Different workers with different skills or talents perform different
parts of the production process.
 Same drive to increase profits leads to cut-throat competition
 If technological possibilities (productivity increases) are exhausted
the only way to increase profit is by lowering wages.
Distribution and Appropriation in Western
Capitalism
 Agricultural System:
 Distribution is
controlled by land
owners
 Appropriation is via
conquest or physical
force
 CAPITALIST
ECONOMY
 Distribution is
bargained for in a
market
 Appropriation is
rendered invisible
through exchange
Western Capitalism
 Surplus is divided between consumers and owners
of production resources and means, in regulated
markets.
 Drive to innovate arises from improving living
standards.
Western Capitalism
 Balances Efficiency with Fairness.
 Oversees and protects markets from imbalances in
bargaining power between buyers and sellers and
between workers and owners of capital.
Asian Capitalism
 Collectivism not competition
 Solidarity with worker (team)
 Extensive government involvement to promote
survival not growth
Keiretsu
Group of interrelated firms
Firms are in different industries
Each group includes a bank
Each firm is linked through stock ownership
Each firm has independent leadership
Business transactions are based on long term
relationships rather than short term savings
 Firms are insulated from risk and stock price
fluctuations because the bulk of their financing is
derived from these long term relationships
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