History of Economic System

Historical past has witnessed the development and decay of many economic systems. The ancient and medieval economies have gradually given rise to several economic systems which reflect the political, social and economic requirements of particular social set ups.

  1. Ancient and Medieval Economics:

In ancient and medieval times, the scope of the economic systems was limited due to limited means production, communication, transportation and marketing. During these periods, the production was based on cottage and domestic level on limited scale. Only the local population benefited from the cottage products. Originally, goods were exchanged through barter trade but later on introduction of coins and paper currency expanded the scope of trade. Caravans carried goods from one place to another at great risks. Interaction between the people at international level was very restricted due to the feudal control over small states. Similarly, the church also was dominant force forming the apex of the socio-economic structure. The the change in economic order was very slow as stated by Lekachman, “Change was slow in towns and slower elsewhere partly because of the conception of life which emanated from the periods dominant social institution, the church. The church formed the apex of socio-economic structure as it frowned on materialistic values and the development of commercial and industrial activities.”

Consequently, under these limitations the economic interaction remained localized. This type of feudal economies continued till the emergence of the age of exploration led by European nations.

2. Age of Discovery and Exploration:

Age of discovery and exploration began in the 15th century A.D. During this era, the European explorers, merchants and soldiers discovered and conquered new lands in Asia, Africa and Americas. As a result, the European nations dominated world trade and their ships ruled seven oceans. Almost all the continents tied into one world economic system which was spearheaded by England, France, Spain, Netherlands and Portugal. The traders of these nations carried European products to other parts of the world in return for cotton cloth (India), spices and silk (Far East), gold (Africa) and Slaves (Africa). By the middle of the 18th century, Europe had become the dominant world economic power an honour which it retained up to 1940.

Age of exploration was marked by the slave Trade which was at its climax from 1700 to 1860. It is estimated that during this period European slave traders carried about 30 million African Negroes to the Americas. these slaves worked at large American plantations because they were well trained in settled agriculture. According to Walter Rodney,

“At the same time Europe itself had a very small population and could not afford to release the labor required to tap the wealth of Americas. Therefore they turned to the nearest continent Africa which had a population accustomed to settle agriculture and disciplined labor in many spheres.”

3. Industrial Revolution and Colonialism:

Industrial revolution is defined as the social and economic transformation of agricultural societies into industrial societies. The industrial revolution in Europe began in the 18th century and by 1870 England, France, Germany and USA had developed a strong industrial base. The invention of steam engine in 1769 by James Watt was the main driving force behind the revolution. This invention provided basis for the development of steam ships, railway transport, printing press, power loom and other power-driven machines. As a result, many factories were established and towns developed into cities. At first the doctrine of Laissez-Faire allowed the growth of industrialization with out restrictions on working conditions but the Factory Acts (1802 onwards) brought regulations in employment.

In 1851, Great Exhibition in London put on display the variety of products from Britain’s factories and those of its empire. USA also benefited greatly from the industrial revolution and by 1855 there were 52 cotton mills in Lowell, Massachusetts, and employing more than 13,000 workers, two-thirds of them women. Industrialization also resulted in urbanization and by 1900 there were 16 cities in the world which had a population exceeding one million and 27 places with a population of half a million.

Colonialism is defined as subordination of indigenous people and a cultural process of imposing European superiority. Or in other words, it was a drive towards the creation and expansion of a colonial empire. The process of colonialism which began in the 16th century reached its climax during the 18th and 19th centuries, when the British, French, Spanish, Portuguese, Dutch and Belgians consolidated their holdings. However the Germans and Italians were late cancers on the colonial scene. Later on Russia and Japan also built major powers. After establishing the control over the colonies the colonial powers developed systems of railroads, mines, ports, plantations canals and highways in the occupied territories for the smooth flow of raw materials. Main economic benefits from colonialism enjoyed by European nations were as given below:

  • The European Countries got control over all the natural resources and manpower of the colonies.
  • Colonial powers got guaranteed access to the raw materials and markets for their industries.
  • The large colonies provided a variety of jobs to the unemployed people of the colonial nations.
  • Large quantity of food products were made available at cheep rates in Europe.
  • Large number of consumers in the colonies purchased European goods.

4. Multinationalism:

The 20th century witnessed the growth of multinational organisations which worked in more than one countries. A multi-national corporation in defined as an international firm which has power to coordinate and control over several countries. This concept is given the name of universalism, multi-nationalism or super-nationalism. The phenomenon of interstate cooperation originated during the times of Greek city states when they formed leagues to protect and promote common advantage. Later on, this practice was followed by the Europe’s Hanseatic League. The United Nations Organisation (UNO) is also a shape of an international body representing near 200 countries of the world. On smaller scale, multinational corporations such as IBM, Mitsubishi, Nestle, General Motors and Goodyear have their headquarters in developed countries but have a large business network in many other countries.

The multinational companies work in other countries in many ways which include trading of goods and services. However, the MNCs also become a part of the economies of other nations through Direct Foreign Investment (DFI). The MNCs enjoy many facilities in the countries where they work. They enjoy following advantages:

  • Readily available raw material
  • Cheap labor force
  • Environment without labor unions
  • Accessibility to local markets
  • Lesser burden of taxes and more profits
  • Friendly environmental laws
  • Professions and occupations

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