economic history - book summary, Sintesi del corso di Storia Economica

Scarica economic history - book summary e più Sintesi del corso in PDF di Storia Economica solo su Docsity! MERCANTILISM The region’s rulers supported their military machines with an economic system called mercantilism, which they used to manipulate their economies for military advantage. Around 1750 British industrialist introduced some technological innovation that revolutionised production: new machineries, new energy sources and new form of organization/transport. THE ECONOMIC INTERESTS CREATED BY BRITAIN’S INDUSTRIAL REVOLUTION SAW MERCANTILISM AS HARMFUL AND IRRELEVANT. British manufacturers wanted to eliminate trade’s barriers in order to access inexpensive goods: strong desire for FREE TRADE. INDUSTRIAL REVOLUTION (in Britain) It was a long term organisational change in the economy and led to a new model of economic system: the market economy. It was an irreversible process of growing, self-sustaining, with a growth in productivity (thanks to innovations). It was possible due to economic, political and social factors present in Britain: -prod uction improvement -new form of market spread -new political institutions (ex. Liberalism) +advantages of natural order: «island + lower defence spending -structure orographic + abundance of navigable rivers -mineral resources + coal and iron Economic conditioning: foreign trade (access to raw materials), manufacturing, availability and low price of food (surplus, free labor) Social conditioning: cultural (urbanisation, wage labor, entrepreneurship) + legal (new laws) This was a period of growth, a period in which the western European country spread the economic market around the world. High volume of trade. Mercantilism was dead, the trade of the advanced countries grew as fast as their economy. In the meantime transportation and communication advanced dramatically too. Markets were the dominant force. This advance marked the onset of mass production, in which standardized parts could be assembled by relatively unskilled workmen into complete finished products. GOLD STANDARD (1850-1914) It was the most powerful organising principle of global capitalism during the 19th century Isaac Newton standardized the English currency and put the country on a gold standard in practice while new silver discoveries drove down the price of silver. Great Britain’s status as the global market leader led other countries to use the same monetary system (pound was the global reference currency for international trade). The gold standard was an international monetary system based on gold/pound ratio. The exchange rates were fixed so the value of each currency was defined in terms of a fixed quantity of gold and in terms of others. Gold became a common global money for all the countries on the gold standard, but under different names (marks, francs, pounds...) in different countries. The aim was to regulate international trade and payments between countries, in fact, the predictability of the gold standard facilitated world trade, lending, investment, migration and payments. A nation’s gold reserves determined the physical amount of money supply. The world economy was more integrated, so fluctuations went from one country to another and so on (fluctuations could be transmitted internationally). However, The dramatic fall in farm prices devastated many rural areas and advances in agricultural productivity made farmers almost useless. The technological and industrial gap that opened between rich and poor nations led to a new round of colonial conquest. FIRST GLOBALISATION (1850-1873) - economic integration of the world (1870-1914) The economic integration of the world started with the spread of English market economy around the world: gold standard and free trade. It consisted in a growth in the rate of movement of: Goods, Capital, Services and Labor. This integration was due to: trade flows, migrations, international investments. Golden age: The years from 1896 to 1914 were the high point of international economic integration. The gold standard was central to the golden age of international economic integration. It brought stability and predictability facilitating in this way international trade, investment, finance, migration.. Being on gold standard for financiers meant being an economic reliable country. Adherence to gold standard meant that a country needed to adjust and balance imports and exports. If a country ran a trade deficit too much gold was leaving the nation and the way to rebalance this situation was to cut prices and decrease wages (spend less and produce more cheaply —> decrease the production costs). Deficit case: If we have a deficit in trade balance, it means there are more imports than exports. The imports have to be paid in gold or pounds, so if we have a deficit in trade balance, this determines a deficit of payment balance (summary of all monetary transactions between a country and the rest of the world). Subsequently, the deficit of payment determines a slowing down in purchasing power (amount of good, services that a country can purchase with a unit on currency). Solutions: reduction of imports (slowdown of growth —> less consumption —> crisis), print money (inflation, devaluation —> increase of prices —> less consumption), public debt, RECOMMENDED: reduction of production costs (especially cost of labor) because REDUCING WAGES—>REDUCING PRICES—> GOOD MORE COMPETITIVE IN THE INTERNATIONAL MARKET— > INCREASE IN THE LEVEL OF EXPORTS Market integration was determined by: Technological innovation: transfer of production systems around the world Reduction of transport costs (the Suez Canal of 1896 and railroads) Peace between the main “empires”: reduction of trade barriers and colonies —> Western European countries was a net exporter of manufactures and financial assets and a net importer of primary products Global capitalism made specialization possible. The classic economic theorists went against mercantilism stating that a greater division of labor made societies wealthier; in fact specialization increased productivity and productivity fed economic growth. FREE TRADE (1860-1873) The free trade period started with the Cobden-Chevalier Treaty, the Anglo-French Trade Agreement (1860). It reduced tariffs and duties between the two countries but it also introduced the MOST- FAVOURED NATION CLAUSE: «if one party negotiated a treaty with a third country, the other party to the treaty would automatically benefit from any lower tariffs granted to the third country». David Ricardo was a London banker who sustained free trade in his theory and he was the most influential one. He introduced the principle of free trade, that is, the free movement of goods, capital services and labor (vs accumulation of goods —> mercantilism). David Ricardo introduced the principle of comparative advantage. This principle assumed that the division of labor and specialization applied to the whole economic system: goods must be produced where it is more economically profitable. The comparison compares activities within one nation not between one nation and another. In fact nations gains most by exporting what they produce most efficiently in order to pay for imports of the best products of other countries. If the mercantilism wanted to restrict imports to stimulate the internal productivity the classical economists think the opposite, importing goods allows the nation to focus its productive energies on making goods they do best. Comparative advantage attributed the cause and benefits of international trade to the differences among countries in the relative opportunity costs (costs in terms of other goods given up) of producing the same commodities. There was a virtuous circle at work in international trade, money and finance. The shift to a global network affected also the American politics: as the free trade spread, Democrats gained strength and they managed to won the elections and finally they reduced tariffs dramatically. Effects of free trade: and reduction of public spending, the final effect is the reduction of the level of consumption. This increased the crisis, it did not helped to end it. Inflation —> problem for the middle class —> for people which have fixed wage, resulting in lower purchasing power, because of higher price due to the increasing circulation of money Solution adopted: fiscal policy—> to reduce the public debt —> increase of taxation and reduction of the public expenses Result was an increase of the crisis after the WWI TROUBLES OF GOLD STANDARD AND TRADE: The European attempted to reestablish normal international monetary conditions by restoring the gold standard, but there were some issues (national public debt, inflation, loans to pay, economic sustainability and development) Restrictive monetary policies to cut wages, profits and prices; International trade also faced difficulties: barriers not removed; THE INTERWAR PERIOD (FAILED RETURN TO NORMALCY) Direct consequences: -POPULATION LOSSES + UNEMPLOYMENT -PHYSICAL DESTRUCTION AND CAPITAL LOSSES -DISTORTION OF NORMAL DOMESTIC ACTIVITY (protectionism) -LOSS OF FOREIGN MARKETS -EXHAUSTION OF STATE FINANCES: PUBLIC DEFICIT (the war changed the industrial system that were in those periods aimed to build military tools, this transformation of production was paid by the government with public resources) The consequences of deficit financing: . abandonment of gold standard . using up of metallic reserves . printing of new paper money . currency depreciation . inflation USWNH Why was “pre-1914 normalcy” attractive? -There was no serious disparity in the rate of economic progress among the major industrial countries and the developments in both continents (Europe and America) were partly complementary -European supremacy was not at that time seriously threatened -The international division of labor which had developed during the previous century and the freedom with which resources were transferred between nations (food and raw materials from the periphery to the industrial centres) gave stability to the system -The international gold standard could work at its best The peace treaties: -to punish the “guilty countries” which had caused the war, that is Germany and the Austro- Hungarian Empire -to reconstruct the historic frontiers, so as to quickly return to normalcy and to economic recovery -to assert national determination (President Wilson's 14 points) on ethnic principles Issues with peace treaties: 1.spoil of Germany 2.war debt issue 3.reparations issue (HYPERINFLATION in Germany) Social effects of inflation: -Inflation reduced the revenues and the saves of German people in banks. -It had negative effect for people that lived with fixed income (workers and pensioners) because it reduced purchasing power of their wages or pensions, it reduces the value of their savings and so it causes a decline in their standard of living -It causes social unrest and makes the extremist parties (e.g. Nationalists) seem more attractive New States, new boundaries Important concept —> Treaties redefined the European map with 2 principles: + National and ethnic identity e Economic nationalism - Ten new state - The large free trade area of the Russian and Austria-Hungarian empire disappeared. The Dawes Plan for Germany, 1924 Made to solve the problem of reparation - Scaling down of annual reparations payments - Reorganisation of the German Reichsbank (new currency) —> Germany failure of the national monetary system (failure of national bank) —> introduction of new currency - The US introduced International loan of $200 million to Germany, which was used by Germany to: go on with the paying of reparations and return to the gold standard Dawes Plan —> hyperinflation The international loan is an issue because even more money gets into the German market so hyperinflation arises. To pay reparation Germany had a new debt with the US. The US is the winner of this situation—> the international loan was used in the new York stock exchange market. It was a private loan by international bankers in wall street. The winners were the brokers of wall street that sold the German bonds around the world. Why investors wanted to buy Weimar bonds? There was an high level of interest rate (14%) Also this is linked to the negative trend, more money needed to be printed to repay. ROARING 20s There was a recovery (Us and Japan at the centre): improvement of standard of living; period of sustained economic prosperity and great dynamism in society, arts and culture. How was the recovery possible? * It was related to a change —> an increase in supply and demand at the same time. * the recovery was possible thanks to the big corporations and the American model. The roaring twenties were determined by the mass production which determined the mass consumptions. The increase in supply happened thanks to mass production in both industry and agriculture thanks to the application of fordism and assembly line. Fordism's features -assembly-line, that is division of labour; -standardization of the final product and of its parts; -payment of higher wages because workers are considered as potential consumers. The increase in demand —> increase in wages caused mass consumption of both necessary and unnecessary/luxury goods and services. Issues: 4 negative elements —> laissez-faire model (unequal income distribution and imbalance), stock market boom (highly speculative), growth of credit and mortgages (indebtedness), increase of new consumer goods (overproduction). CREDIT CRUNCH OF 1929 (DIRTY 30s) The roaring twenties ended with the issue of lack of demand for the USA production which let to overproduction, before the financial crunch. The reasons of this slow down of demand were: -big recovery -disappearance of two economic systems (Russia-URSS and Germany- Weimar Republic) The decrease in demand for USA led to the overproduction and, during the winter of 1928 and spring of 1929, to a fall of prices in rural and industrial market, which finally determined a fall down of price in the stock market. Therefore, the heart of the crisis is not the financial market but the negative trend in the real economy, the overproduction in agricultural and industrial sectors. 1927: speculation started with the stock exchange market 1928: Fed reaction introducing a restrictive monetary policy, which decreased demand and investments and created deflation Spring 1929: prices started to fall October 1929: stock exchange crash - the market collapsed October 1930: bank panic with bank run, because there was the need of liquidity and banks run out of cash and therefore: bankruptcy Due to the lasting depression, financial and currency panics spread around the world. Until 1933 —> bank panic determined again the slowdown of investments Credit crunch: lt was from 1929 to 1933, this change from a financial crisis to a economic depression was due to the monetary policy issued by the Federal Bank (1928 to 1930) The United States responded with trade protectionism: Smoot-Hawley Tariff (1930): It was a tariff on imported goods (protective policies). End of international trade system. Classical economic system did not work The classical economic system (gold standard) implied that government should not act because of the idea that the market is self regulating and the economy has a natural cycle. Unemployment remained high, production did not increase. Deflation was not the solution and many governments harnessed union effort to sustain prices and wages to a general attempt to reverse the deflationary circle. However, gold standard doesn't have the instruments to sustain demand because the market is self regulating, it consider the supply not demand. USA stayed on gold during the crisis Herbert Hoover (31st president of US, 1929-33) was the president during the crisis, a republican president, he decided to follow the classical economic system of the time (gold standard): -the market was self regulating and the economy has a natural cycle -Government, the policy, has no action -Politicians, bankers, industrialists were not prepared to face deflation, unemployment and monetary instability at the same time. The gold standard system can operate in only one of these three effects not on the three at the same time. This because MONETARY POLICY IS AGAINST ECONOMIC SYSTEM, World crisis —> due to the interconnection of the systems the economies pulled one another down - 1929: decrease of turnover (decline of expectations for profits of multinationals) - 1930: cut of the industrial investment (determined by federal reserve policy) - 1931: rise of unemployment (in US industrial system) and stagnation - 1932: recession 1930's-1944 instability and protectionism THE EXIT STRATEGIES In 1944 there were two processes to reduce the negative effects of the credit crunch of 1929: 1. New Deal introduced by US during Roosevelt’s presidency (1932) 2. Autarchic system (Germany and the Nazi scheme) 1. The New Deal was a new policy that wanted to introduce a new economic model based on a direct action of public institutions in the market. The state had a new role with a specific goal: with a high level of infrastructures, shortages of food and other necessities due to the destruction of industrial and rural production. To face the problem of reconstruction 1944-45: emergency rations for the civilian population 1943-47: the United Nations Relief and Rehabilitation Administration (UNRRA) gave 20 million tons of food, clothing, blankets, medical supplies. Who did this? The USA and several United Nations members —> a different role played by the USA with a different aim: COOPERATION (not isolationism but international responsibility —> multilateralism) The planning for reconstruction: -INTERNATIONAL LEVEL (some settlements): 1944 Bretton Woods (conference for agreements - 44 nations to set up a system of rules, institutions, and procedures to regulate the international monetary system) -It was a system of fixed exchange rates system based on dollar-gold ratio -Had a center in Wall Street -In this system, the dollar was the key currency (values at 1 dollar=1/35 oz. of gold); it was convertible to gold -Each currency was ties to dollar: all currencies were linked to that price in a fixed rate system This required international entities to manage the new economic system, in fact supranational institutions were introduced and had a “supranational” power over nations: 1945 IMF (Internatiinal Monetary Fund) -It managed the structure of exchange rates and financed short-term imbalances of payments among countries (managed the trade imbalance) -Each member had to pay a quota to the IMF pool, so it could manage and solve the deficit of trade and payments among countries in the international monetary system -IMF approval was necessary for any change in exchange rates in excess of 10% -The aim was to stabilise currency exchange rates 1945 IBRD (International Bank for Reconstruction and Development) known as the world bank -It granted long-term loans for reconstruction -After reconstruction, it started to lend money to poorer countries in the hopes of reducing global poverty 1947 GATT (General Agreement on tariffs and trade) -to fix a cost of duties for the trade in the international system -promote economic development —> support and develop free trade in the world 1947 THE MARSHALL PLAN (THE EUROPEAN RECOVERY PROGRAM) Two problems to be solved: * The dollar gap: only the US was the country with development after WWII « The reconstruction of Germany: problem occurred during the 20s (reparations issue) Two reasons: + The economic reason:The Marshall plan is good for the establishing the international trade between EU and USA (the trade flow) * The political reason: Soviet system refused the plan —> the Cold War started during the implementation of Marshall Plan (preventing Soviet communism —>economists pointed out that the Marshall plan was an important opportunity to reduce the influence of the soviet and communist model in European countries) It consisted in the distribution of economic aid that the USA provided to Western Europe -16 nations were part of this program, including Germany and they received $13 billion in aid: food, staples, fuel, raw materials, machinery and technologies (it was a transfer of raw materials/technology, not financial resources/money) How did it work? Each nation made a four-year development plan, including a list of the goods they wanted/ needed. This list had to be approved by the Economic Cooperation Administration (ECA). Once approved, each government of these nations sold the goods it had received from the USA on its domestic market (internal market —> restore infrastructures, factories): the companies paid them in their own national currency. With these earning, the nation could establish a “counterpart fund” in the local currency: the fund had to be invested in development projects agreed upon with the ECA. —> Aim: Restore the national monetary system _> Final step: Increase of consumption The reconstruction of the capitalistic system of Western Europe (WE) was against the Soviet model: Soviet Union (USSR) refused to join the Marshall Plan. The Marshall plan marked the beginning of a competition with the Soviet system. So, there were two blocs with same goals and similar policies implemented by the states but different economic and political models * The Soviet Union (communist model) exercised a sphere of influence on the Eastern European satellites * The United States (capitalistic model) exercised a sphere of influence on Western European countries «NATIONAL LEVEL (mixed economy: an economic system combining private and state enterprise): The new order was based not on an agreement between nations —> the new economic order was based on the idea that there is an international power over the nations; —> The postwar reconstruction of Western economies involved a much larger role for the state in economic and social fields; It was a system based on the role of the state in the economic fields with the cooperation with private operators (industrialists, bankers, and financial system), so there was a direct action of the state. This direct action of the state for investment was financed by a progressive taxation, introducing the idea that tax was a contribution to the direct state in the economic system and not only a distribution of income (like in the classical model’s gold standard system). The monetary policy had the goal to guarantee a low level of the cost of money and low interest rate on financial assets in the system in order to stimulate investment by keeping low the level of earnings on banking deposits.