Free Market Economics: A Syllabus

15. ECONOMIC HISTORY

SUGGESTED ACTIVITIES

1. By now the students should have enough background to analyze specific current events from the economic point of view. Some of them might try writing letters to the local newspaper editor. They could discuss a recent newspaper editorial concerning high prices, a proposal for a new factory, shopping center or industry coming to town, a shift in the demand for a local product on the world market, some economic shortage due to a new law, government regulation or ruling affecting local citizens, the effects of a new tax, a Congressman’s statement for or against controls, etc. Any such change analyzed on the basis of the economic theories covered in this course, should interest local readers and might, therefore, appeal to local newspaper editors as well. They might discuss, for instance, the effect of the change—will it help or hurt consumers? individuals with, or without, jobs? businessmen? taxpayers? young people? retired persons? etcetera?

2. Student papers or reports, assigned but not handed in earlier, should be turned in or presented to the class. Especially suitable in connection with this Unit would be those dealing with some aspect of economic history—the development of private property, the history of tools, labor unions, working conditions, production methods, changes in transportation, trade routes, production and marketing techniques, etc., or reviews of books on specific industries, biographies of industrialists or entrepreneurs.

3. Any stock market transactions, carried out as explained in Unit 7 (activities 4 and 5) and Unit 11 (activities 4 and 5), should be wound up at this time. The most successful speculator in the class might be recognized in some way for proven entrepreneurship—perhaps with a credit bonus or with the presentation at a simple ceremony of a certificate or “trophy,” as suggested in Unit 11, such as inexpensive jewelry with a design showing bear, bull, dollar sign or facsimilies of old coins.

4. Visits to historical homes or museums in the vicinity would supplement this Unit nicely. Point out the relationship between (a) the earlier more primitive living conditions, the less efficient production techniques, distribution and marketing methods, trade routes, methods of transportation, etc., and (b) the relatively less savings then available. Compare the self-sufficiency of individual households in years past with the tremendously complex specialization, division of labor, social cooperation, mass production and trade that has evolved over the years. Students might be asked to comment on the role played in this development by (a) ideas and entrepreneurial initiative and (b) savings and investment.

5. Ask the students to read, or re-read Burton Rascoe’s “The Cow in the Apartment” (Reading No. 49), perhaps also Readings Nos. 19-27 on savings. With Mr. Rascoe’s thesis in mind, discuss the current popularity of opting out of society, returning to nature and primitive living conditions, performing simple handicrafts, farming with crude agricultural methods, etc. In a society where freedom of choice is possible, individuals may refuse to participate in the market if they choose, reduce their living standards and live a life of relative self-sufficiency. However, if everyone were to adopt primitive, less efficient and more timeconsuming methods of farming and production, fewer goods and services could be produced and the quantities available for consumption would drop drastically; there just would not be enough food and shelter to support the present population. Mr. Rascoe’s article illustrates how much easier it is to obtain milk—and also other foods and clothing—through the market than it is to produce them from scratch. If some students engage in handiwork, they may be able to compare the time and trouble it takes to weave or knit the yard goods necessary for a suit or dress, for instance, or to make paper, print and bind a book by hand, or to grind grain for flour and bake bread at home, with what it would take to eam the money on the market—by doing what one does best and easiest— to pay for similar items.

6. A great deal of economic history may be learned from TV. Some producers of historical shows take great pains to be accurate in portraying former means of communication, transportation, production and living conditions. A number of advertisers stress the role of ideas, inventions, savings and time required to produce and supply their product to the market. Perhaps some students might volunteer to monitor TV shows, looking for material illustrating economic changes in the use of savings, tools, specialization, etc., over the years. Alert the students also to be on the look-out for inaccuracies, historical inconsistencies and incorrect or misleading representations of an historical period. Are the costumes, vehicles, tools, guns and other items shown in a period piece all typical of the time portrayed? Written or oral reports may be made on the information and/or mis-information on economic history available to TV viewers.

7. Grandparents may be rich sources of information on economic history. Perhaps some students can question a grandmother or grandfather on the economic conditions under which they used to live and work. Where did they live? Work? Shop? What utensils, appliances, tools, did they use daily? At home? On the job? How did they travel to work or play? Daily? Week-ends? Vacations? Do they now buy things they used to make for themselves? Or vice versa? If they need repairs or chores done at home, do they hire helpers or do it themselves? Did they do things differently 20-30 years ago to obtain similar help?

8. There are many interesting topics suitable for reports or papers in connection with this Unit. Challenge the students to use references other than economic books. See, for instance, books describing life, fashions, work, production and living conditions at various times and places—in old Rome, on an English manor, in the American colonies, and so on. Refer also to histories and encyclopedia articles dealing with specialized topics such as clipper ships, piracy, the Crusades, transportation, trade routes, particular industries, production techniques, biographies, and the Wild West. Look for ways trade, production and/or living and working conditions were helped, hindered or disrupted by various historical events, when researching such topics as the following:

Life in old Rome

Life in a medieval French or German castle

The travels of Marco Polo

The spice trade

The Crusades

The slave trade

The development of merchant shipping, American clipper ships, etc.

The economic effects of war on two nations who had formerly traded with one another—viz. England and the U.S. during the War of 1812, the North and South during the Civil War The economic effects of opening up the west, i.e., the competition of food grown on rich farm lands in the Western U.S. with that produced by farmers on the eastern seaboard and in Europe

The effect of pirates on merchant shipping, adding to the cost of goods from abroad because of extra risk, uncertainty and losses The development step-by-step of some of the early industries, during the Industrial Revolution

The effects of the recent conflicts in Africa, the Mideast, Southeast Asia, etc. on the production and trade of copper, rubber, rice, oil, tea, coffee, etc.

The economic life of isolated primitive tribes in the 20th century—i.e., those native to Africa, Brazil, the Philippines (e.g., the Tasaday) etc. The economic arrangements—the ownership of property, division of labor and production methods—prevailing in early American cultures among the Indians of North America, the Aztecs of Mexico, the Incas of Peru or the Mayans of Central America

9. List and compare typical jobs and professions during various historical periods. Describe the type of work and duties performed in each. Such information may be gathered from books and encyclopedia articles dealing with specific historical periods (Roman Empire, Middle Ages, Feudalism, Mercantile System, Industrial Revolution, etc.), specific industries (farming, mining, pottery making, shipbuilding, merchant shipping, fishing, animal husbandry, transportation and commerce, banking, machine tool manufacture, electronics, printing, textiles, clothing, etc.), forms of industrial organization (handicraft, cottage industries, tools, apprenticeship system, factories, craft guilds, labor organizations, mass production, assembly lines, etc.). This type of research should lead the students to recognize that the modern counterparts of a pre-industrial Revolution craftsman would now include countless workers in various highly specialized fields of production. For instance, the work of a cobbler who made shoes from beginning to end is now divided into many narrow tasks, performed by countless persons, each of whom contributes something to many pairs of finished shoes, usually by doing easier work for shorter hours than their predecessors did. Not only are shoe machine operators needed in a complex market economy to transform raw materials into finished shoes in the hands of consumers, but also machine makers, leather buyers, producers of canvas and rubber, truckers, salesclerks, janitors, accountants, secretaries, etc. The result of their many specialized contributions, made possible by tremendous capital accumulations and investments is more and better shoes, more readily accessible to customers, than if consumers had to rely on the output of handicraftsmen.

10. An historical study of tools, machines, methods of production and industrial technologies may interest some students and quite a few books are available which describe and illustrate them and explain their development. However, ask the students to keep in mind that this is a course in economic principles. Therefore, in reviewing such technical books, they should emphasize the economic aspect—i.e., whether or not the tools and technologies discussed enabled individuals to better relieve their felt-uneasinesses. Here are several questions to help guide their analyses into economic channels:

a. Are the names known of the specific individuals —the innovators, inventors, ideamen, etc.—who were responsible for developing the tools or techniques described?

b. Were rainy-day and/or capitalist savings required to introduce—i.e. to conceive of, invent, develop, manufacture and put into use in production—the new tools or technologies? If so, who supplied the savings needed?

c. Were all private individuals then permitted and/or able to own private property? If not, why not? Or were only a privileged few, allowed to own, accumulate, use and exchange private property and savings as they saw fit?

d. To what extent did the attitude then prevailing toward private property affect the economic conditions, living standards and savings of the people and their freedom to use what they had —their ideas, knowledge, abilities and property —to experiment and to try new ways of doing things?

e. Were innovators, inventors, ideamen, savers, investors and entrepreneurs hampered in any way by other individuals or by governments in their efforts to develop new tools, machines, factories, plants and/or other productive facilities?

f. What effect did new technologies, tools or machines, have on the kinds of jobs people performed? Did they increase the degree to which labor could be divided and specialized?

g. Did the tools or technologies described make it possible for individuals to accomplish their own personally-selected (subjective) values, ends and goals more fully, more satisfactorily, more promptly and/or more easily? If so, how?

11. To increase their understanding of how modern capitalism developed, the students might report on a particular phase of recent economic history—the situation in a particular country or the development of a specific industry, technology or market process. The earlier Units of this syllabus (especially 6-12 and 14) contain the reason and logic needed to interpret recent economic history and to appreciate the respective influences of individual initiative, ingenuity and savings and government controls and regulation. Here are a number of questions the students might keep in mind when researching for this project:

a. Did individuals have the opportunity to experiment, to try out new things?

b. Were individuals allowed to keep their earnings and any profits received from their ventures?

c. Did people have the right to own and control property, and to use it precisely as they wished?

d. Were people free to save and invest as they chose?

e. Was the right to make private contracts assured? Were the terms of such contracts enforced and violators penalized by the courts?

f. How were productive enterprises owned and managed?

g. What kinds of work did individual workers do? Did they work with their hands? Simple tools? Or with expensive, complex mechanized, automated equipment?

h. How was production arranged? Who owned productive enterprises? Who took risks? Who reaped profits, if any? What percentage of a worker’s earnings or an entrepreneur’s return did he have to pay to government?

i. Did the government regulate or control the operations of productive enterprises? How were prices affected?

j. Was more or less produced than at other times and places? Were the goods and services people wanted more (or less) accessible? Was the quality of goods and services generally considered better (or worse)?

k. Were individuals in a position to accomplish more (or fewer) of their own personal (subjective) values?

l. Were people able to relieve felt uneasinesses more (or less) easily, promptly and successfully?

EXPLANATORY TEXT

Economic history can be studied in many ways. The economic activities of men may be discussed (1) age by age—primitive caveman, tribal community, town life, feudalism, mercantilism, industrial revolution, modern capitalism, etc.; (2) country by country—each modern nation being considered chronologically from its settlement or founding to modern times; (3) industry by industry—agriculture, trading, commerce, marketing, communication, manufacture, etc.; (4) according to tools and technologies used; (5) from the viewpoint of working conditions, living standards, home life, sanitation, and so on. Local libraries should have considerable information on many or most of these topics. Consult the card catalog or encyclopedias for material on the history of specific countries, industries, production techniques, etc. One or all of these approaches may be used in presenting economic history in the classroom. In any case, however, the teacher should interpret historical data in the light of the approach taken in this Unit—stressing the role of (a) individual conscious, purposive actions, choices, values and ideas, (b) the entrepreneurial, profit-and-loss, incentive, (c) capitalist savings and investment and (d) peaceful cooperation, exchange and the market.

1. How did economic production start? Back in the days of cavemen, long before civilization as we know it began, people lived in a real wilderness. They had to straggle against many obstacles to survive—the vagaries of nature—cold, rain, storms, heat, drought, floods, starvation, wild beasts, disease, etc. It wasn’t easy to acquire even the barest necessities of life. Like animals, most primitive men probably took things for granted as they found them, became accustomed to being cold, wet and hungry a good bit of the time, endured pain when necessary, brushed insects aside when irritated by them, scratched when they itched, starved when food was scarce, stuffed when they had a lucky catch or find and died young after a hard and brutish existence. Persons living under such primitive conditions had ample cause for recognizing the “niggardliness of nature.” However, they probably didn’t analyze their situation critically enough intellectually to be able to look at it in that way. Nor did they have the vocabulary or language to express such thoughts if they had them. The development of a few simple expressions was a long, slow process and, without words, a clear understanding of any concept as well as any profound interpersonal communication was probably impossible. Thus the development of ideas about communication and/or cooperation must have awaited the evolution of language which took centuries or, more likely, millenia.

Men living under primitive conditions were rivals for available resources. If food was scarce, two families or family groups who happened on the same nest of eggs, pack of wolves or tribe of goats were fierce competitors. The “law of the jungle” prevailed among men as well as animals. Only the fittest survived—until men began to apply their superior powers of reason and came to recognize the advantages of interpersonal cooperation. For a review of this development, see Unit 5. Recognition and application of the potential gains to be derived from cooperating with other persons were probably attained separately many times over, among individuals in isolated groups of several families, only to be lost time and again if disease, pestilence, inter-tribal warfare and/or natural catastrophies killed off the persons who had acquired this superior understanding before they could pass along this insight to others. In time, however, as the advantages of social cooperation reasserted themselves again and again, contacts among persons and groups increased and the ideas of specializing, cooperating and exchanging gradually gained wider and wider acceptance.

One idea inevitably leads to another. As people learned it was to their advantage to cooperate and trade with persons in other communities, as well as within the tribal group, trade routes and markets began to develop. The right to own property accompanied this trend—as explained in Unit 4— for unless a person has exclusive ownership and control of an object he is not in a position to offer it in trade. Men also showed intellectual superiority over animals by developing tools to help them accomplish more, more easily. Persons who develop new tools are usually spurred to invention by the desire to have more production to consume:

Tools and machinery are primarily not labor-saving devices, but means to increase output per unit of input.

Ludwig von Mises, Human Action (3rd ed., 1966), p. 774

Although the primary reason for using tools was to increase output, tools were labor-saving devices too. Once men discovered the use of tools, learned the advantages of social cooperation and specialization and began to trade, their productivity increased step by step. The economic history of the world is the history of production and trade from the time of the primitive caveman down to the present time. Starting with nothing but their own physical powers, energies and mental abilities, plus natural resources—the land, plants and animals they found around them—men applied reason and logic to transform what was available into goods, services and tools they could consume or use in some way to serve their various purposes, to relieve their most urgent felt uneasinesses and to attain their most important values and goals. Taking the very early steps in this process—locating, subduing and preparing raw resources for consumption—was a tremendously difficult process that took considerable time and effort. Few goods are consumable or usable in their natural state. Remember the saying attributed to Confucius:

Man with mouth open

Must wait long time

For roast duck to fly in.

2. What course has production followed? The economic history of the world has been extremely uneven, with alternating ups and downs, successes and setbacks, progress and regression. Step by step as individuals conceived ideas that were helpful and discovered how to accomplish some tasks more easily than before, goods and services became more readily accessible and people could have more things. Also, as they learned to do things cheaper (i.e., with the expenditure of less hard physical labor, physical resources and time) and better (i.e., resulting in a good or service more suitable for the purpose intended) they were gradually in a position to improve their living standards. Then in time when they were able to produce a little more than they needed for bare survival, they could set something aside to consume or to use later—on proverbial “rainy days.”

Unfortunately, however, the course of economic history is never steadily in the direction of more goods and services. Efforts spent on production may come to naught, due to human error, natural disaster and/or interpersonal violence. Goods produced at great cost and savings accumulated by care and forbearance may be lost or destroyed. Life inevitably has ups and downs. As individuals are free to produce, trade and save in peace, conditions may improve for a time. But then inevitably there will be setbacks—personal, accidental, local and/or widespread obstacles, mistakes, changes, diseases, pestilences, epidemics, criminal activities, natural catastrophes, wars and/or governments—all of which may interfere with private activities and even confiscate wealth. Some consequences of a disaster may possibly be overcome very soon; other effects may be long-lasting and perhaps never remedied at all.

The economic history of the world since life began is the outcome of the struggle of countless individuals, each trying as best he or she can, in the face of various obstacles, to use goods available on the existing “smorgasbord” of resources to improve his or her situation, as he or she sees it, to relieve their most urgently felt uneasinesses, attain their most important needs, wants and goals on their value scales. Every single individual always tries to use time, energy and other available resources to best advantage—so as to reduce the inevitable gap between these various resources and their individual needs, wants and wishes, i.e., to alleviate his or her own personal “economic problem.” The total amount of goods and services produced and available at any instant—as well as the important events and large scale trends historians write about—are all consequences of the ideas, choices and actions of separate individuals, acting alone, in cooperation or in combination with others, under the influence of various ideas and values. To describe the economic history of the world in this way, as the outcome of the purposive actions of countless individuals is to approach it from the viewpoint of micro-economics.

Thus, the history of production throughout the world may be traced to the actions and interactions of countless individuals, every one of them an entrepreneur in the sense that he or she makes decisions and choices and then acts, speculates, in the attempt to cope with changes, bringing about further changes, hopefully in the direction desired. Every one of us is always acting in the hope of profit, psychic and/or monetary, as explained in Unit 8. Individuals will succeed in attaining their various values and ends if they correctly anticipate the future. Entrepreneurs will succeed in avoiding monetary losses and will earn monetary profits on the market if they (a) make good use of the “halfbaked cake” (described in Unit 8, p. 73) of raw materials, factors of production, semi-finished products and finished consumers goods, (b) cope with changes successfully and (c) provide consumers with things they need and want at prices over their production costs but not over what consumers can and will pay. When natural forces intervene, or other persons interfere with force or threat of force, entrepreneurial efforts are disrupted or sidetracked into different, non-consumer directed channels, perhaps damaged, lost or even destroyed completely. The outcome of these competing and counteracting forces is history.

World history, therefore, is the outcome of what countless individuals have done over the ages in the face of changes. People make economic history by their purposive actions—taken alone or in cooperation with others—under the influence of ideas, various pressures and exigencies of the moment due to natural and/or interpersonal forces or threats. Every historical event—other than changes due to natural causes—can be explained as the outcome of the actions of specific individuals in their respective attempts to relieve felt uneasinesses, attain various ends and cope with their own “economic problems” in the light of their ideas, values and conditions as they view them.

3. How have people organized interpersonal relationships throughout the ages? World economic history encompasses such a tremendous amount of material and miscellaneous data that it is completely incomprehensible unless systematized and arranged in some logical order—by events, time periods, production methods, characteristic institutions or some other common denominator. Perhaps the simplest way to make the countless purposive actions of men comprehensible is to arrange them according to economic organization and production methods. We shall consider the means men adopted and the institutions they established. Were they suitable for relieving individual felt uneasinesses? Did they help or hinder individuals in accomplishing their personal, subjective values, ends, goals? Did they contribute to reducing the gap between what people had—their resources, skills and aptitudes—and what they wanted—satisfaction of their needs, wants, wishes, “castles in Spain,” etc. Here are brief descriptions of the more important economic arrangements men have adopted from time to time:

a. Primitive economies in which men live in small groups, relying almost entirely on foraging and hunting for the necessities of life.

b. Nomadic tribes which acquire and domesticate a few animals, and move from time to time in search of fodder for their flocks. Their livestock are their major source of food, clothing and shelter.

c. Agricultural societies, substantially self-sufficient, made up of families, tribal groups or small communities which have learned to till the soil and so seldom move around. The system of feudalism, under which the majority of the people lived clustered around the manor of a privileged lord or ruler, in practically selfsufficient communities, has much in common with primitive agricultural societies.

d. The development of tools permitted men to produce more goods and services more easily and quickly. Tools range in sophistication from the simplest wooden club, stone hammer or lever concocted from a tree branch, through the wheel, down to extremely huge, complicated and highly productive modern vehicles, tooling machines, assembly lines, transistorized computers, etc. For convenience sake, historians sometimes label civilizations according to the most important materials out of which men of that era made their tools. For instance, the earliest period in the history of man-made tools has been called the Stone Age. Then at various times and places, with considerable variation and overlapping, came the Copper, Bronze and Iron Ages. Then perhaps the Steel Age and the Age of Electricity, and now the Electronic Age or the Age of Automation.

e. Specialization, cooperation and trade developed as people learned the advantages they offer over individual, family or tribal self-sufficiency and autarky. Progress in this direction was slow. Among the first to trade were communities linked by waterways along which travel was easier than through raw and underdeveloped wildernesses. The earliest interregional traders sought raw materials not obtainable locally and exotic items such as spices. As transportation and knowledge of the world expanded, so did interregional trade.

f. The development from barter to a money economy. Many, many centuries ago, individuals began to discover, one by one, that it was easier to trade if they didn’t have to exchange what they had for what they wanted directly, but could arrange transactions in terms of a third commodity which was wanted by many people. In time, it became apparent that some certain commodity was considerably more acceptable in exchange by the inhabitants of a community than any other commodity. That certain commodity then became that community’s medium of exchange or money. The larger the trading area in which this commodity money was accepted in exchange, the more opportunities there could be to expand the division of labor and, thus, to improve efficiency and increase production and trade.

g. The “Industrial Revolution” was named for the “revolution” in production methods which took place from about 1750 to 1850. Small handicraft enterprises were replaced in many areas of production by large-scale assembly line techniques. This shift in production methods was really only a part of the long-term economic evolution which began when men first devised tools to help them produce more of the things they wanted. It was the outcome of (1) increased specialization and division of labor, (2) the development of more efficient tools, technologies and transportation and (3) greater accumulations of capitalist savings, larger investments and wider interregional trade. During the 18th and 19th centuries one man’s ideas about improving production followed another’s in rapid succession in response to the greater freedom then permitting producers to seek profits by serving consumers, retain their earnings, accumulate savings and invest. Because economic changes were coming along so fast, later historians described that time of striking and noticeable changes as “revolutionary.”

h. modern capitalism with its many large scale enterprises, economies of scale, computerized and automated plants, expanded international trade and increased worldwide economic cooperation of the long-term evolution in mass production methods which gained momentum with the “Industrial Revolution” of the 18th and 19th centuries.

4. Describe the more important economic systems in the history of the world. It is logical to study history chronologically. However, economic history should be approached from the viewpoint of the economic arrangements men have worked out and adopted at various times and places. In this Unit, a compromise between these two approaches will be attempted. The history of the western world will be divided into six major more or less chronological time periods, civilizations or cultures, each to be discussed from the viewpoint of the economic arrangements then prevailing: (a) primitive societies; (b) the ancient civilizations which centered around the Mediterranean; (c) Feudalism of the Middle Ages; (d) Mercantilism; (e) the “Industrial Revolution” of the 18th and 19th centuries, and (f) modern large-scale, mass-production capitalism.

NOTE: A word of caution against thinking of world history as a series of neatly defined time periods, each with clear and distinct characteristics. The history of acting men cannot be divided precisely by dates into sharply defined and distinctly separate civilizations, cultures or economic systems. These are all outcomes of ideas, ideas conceived by specific individuals at particular places and times, ideas passed on one by one from one person to another. It takes time for a new idea to become accepted by enough persons to have any significant influence. Thus civilizations, cultures and economic arrangements overlap; the lines dividing them are blurred and indistinct; some ideas from an earlier culture linger on when times are changing while other new ideas, later associated by historians with a new civilization or culture which is still to come, are advanced by pioneer thinkers during an earlier historical period. Thus changes from one social system to another generally take place very gradually. Yet every event in history, even the beginnings, widespread manifestations and final dissolutions of the most important civilizations, cultures or economic arrangements have all been products of the ideas and actions of specific individuals. Their classification as typical of distinct historical periods with certain characteristics is an arbitrary device on the part of historians who try in this way to explain historical events and to arrange extremely complex data in some logical and comprehensible order.

The six major chronological periods listed below should illustrate how the institution of private property evolved, the division of labor and trade developed, inventions were made, savings were accumulated, investments were permitted and a society based on status was replaced by a society based on contract. These developments throughout the six historical periods discussed below were not without interruptions. Progress from simple economic arrangements with relatively little specialization and crude tools to more sophisticated specialization, more finely divided labor, increased savings, capital accumulation and the wider use of contracts, more complex and efficient tools, mass production and expanded trade had many setbacks over the years.

1. Primitive societies: Primitive economies which rely primarily on foraging, hunting, herding domestic animals and simple farming have been mentioned from time to time in earlier units of this syllabus and need not be discussed here. The students have probably seen exhibits of primitive artifacts and museum reconstructions of primitive family units or tribal communities. The major lesson to be learned from such simple economic institutions is that they were relatively inefficient and unproductive. Production with the simplest of tools yields so little food and shelter that primitive peoples barely exist from hand to mouth. Even the slightest miscalculation or calamity of nature may tip the scales against survival in favor of hunger and starvation. It was probably only as a result of extreme effort and/or luck that a few individuals gradually were able to produce enough so they could abstain from consuming a part of what they produced in order to set something aside for the morrow. Until they could begin to save a little in this way, they were completely at the mercy of the elements, disease, animals and other potential enemies. The numbers of persons who could be sustained and nourished to maturity by such primitive production methods are extremely limited. Unless disturbed by outside factors, such communities are not apt to change much in size. War, famine and pestilence may reduce their numbers. Good fortune might permit a community to grow but then it is likely to split up lest the competition among so many persons for the resources available in a limited geographical area become too keen, leading to extreme want and perhaps serious disputes within the group.

It is difficult for men to accumulate savings when they have available only the very most primitive of tools. However, it is still possible. After all, the tremendous complex of capitalist savings and investments available to producers today had their origin in the simple “rainy day” savings of some certain individuals living and producing under inefficient and primitive conditions.

One by one, specific individuals existing under the most primitive, almost animal-like conditions, found it was possible at times—and advantageous— to abstain from consuming all they produced, so as to set something aside to consume later or to use in making tools to increase their production. Step by step, some of our early ancestors began to divide tasks up among several persons, to specialize more, to develop tools and money, to trade over wider areas, to accumulate capitalist savings and to expand their investments. As they were able to save a little something, they could produce a bit more. As they developed more productive arrangements, they were able to move out of caves. Then gradually they learned to make pottery, tools, houses, wagons, ships, textiles, etc., and began to construct more substantial communities. The next economic institutions in this chronological survey will be those characteristic of the major ancient civilizations which centered around the Mediterranean Sea—the Egyptian, Babylonian, Assyrian, Phoenician, Cretan, Greek and Roman.

2. Ancient civilizations: By the dawn of the early Egyptian civilization—about 3500 B.C. or 3000 B.C.—tremendous progress in production methods had been made since the age of primitive man. The wheel had been invented. The crude tools of the Stone Age had been improved. The Bronze Age came along, followed by the Iron Age, as people discovered how to use these metals to produce more efficient tools. Many skilled craftsmen and artisans developed special skills. Considerable knowledge about mechanics was accumulated, enabling the Egyptians to construct spectacular monuments, the Pyramids and other huge structures. Their ruling monarchs enjoyed many conveniences and luxuries, although the majority of the people barely survived. Production still depended to a large extent on manual labor. The wealth of the few was acquired from the masses of the people by force, taxation, confiscation and compulsory labor.

Throughout the ancient world, sharp distinctions existed between the privileged classes and the working serfs and slaves. This class structure, this status society, was reinforced by beliefs in pagan gods depicted as cruel, vengeful and intolerant of revolt against the existing social system. Changes took place, of course, and new ideas were developed. Living conditions and production methods shifted over the centuries so that distinctive characteristics developed at different places, times and among different peoples.

The Phoenicians took to trade, built ships and in time opened extensive trade routes throughout the Mediterranean, through the Straits of Gibraltar to the western coast of Africa and perhaps even as far afield as Great Britain.

The Greeks were known for their contributions to rational thought. By questioning the nature of the universe and the basis of ethics and morality, their leading thinkers developed an intellectual understanding of much that had previously been accepted only on faith or out of superstition. They made important contributions in the fields of philosophy, astronomy, mathematics and mechanics. Yet production of economic goods and services continued to be done largely by slaves. Their idea-men and inventors had little incentive to put their knowledge of math and mechanics to practical use in production. Production was the province of slaves, whose time and energy there seemed no reason to economize.

Although broad generalizations tend to oversimplify, it was generally true throughout the ancient world that religious beliefs contributed to holding physical labor in contempt. When work is looked down upon, there is little incentive for the smarter, brighter, more clever and ambitious persons to devote time, thought and ingenuity to trying to improve working conditions and production efficiency. Consequently, the intellectuals of that era devoted their efforts to art, literature, oratory or philosophy and so had little impact on economic relations, production and trade.

The Romans introduced significant changes in government, developing a legal system which promoted law and order and provided greater protection of life and property. The system of Roman Law was spread through military conquest and the expansion of the Roman Empire. The development of law and order, combined with road building throughout the Roman Empire improving overland transportation substantially, made it possible to expand communications and trade over larger and larger areas. Division of labor increased as a result, production became more specialized, trade expanded, larger markets developed and the people became increasingly integrated and economically interdependent. Even so, production still depended to a large extent on manual labor and the work of slaves. Any demand for more goods and services to consume represented a demand for more slaves to do the work. The source of more slaves was war and conquest, so the use of slaves in production encouraged military action.

Reliance on slave labor tends to depress the social status and earnings of individuals in the nonprivileged classes. It tends to undermine the independence of the people, as well as social cooperation through the market and the strength of the economic system. This made it difficult for free citizens in the Roman Empire to earn their own living as farmers, for instance, artisans or manual workers. Many who could not support themselves as a result joined the army. Others drifted into the cities where the government issued free food to gain their favor and votes and to prevent unrest among them. Government expenses to pay for the armed forces and for the food handouts rose. Yet taxes declined because of the inevitable drop in the production due to these government policies. To obtain funds, therefore, the government of Rome began to expand the quantity of money by reducing the metallic content of the coins, by clipping or by debasing the alloy from which they were made. Not surprisingly, producers then asked higher prices for their goods and services in terms of the depreciated currency. The government’s next step, in an attempt to keep prices from rising, was to fix maximum prices above which produce could not be sold. The owners of large agricultural estates who had formerly supplied the cities with foods and other commodities then refused to ship their produce. The cities had evolved in a climate of law and order, which respected private property and encouraged specialization, fairly large scale production, economic integration and interregional trade so they had become economically dependent on produce grown throughout the Empire. When the large agricultural estates, manned by slaves, stopped shipping produce to the cities and bent their energies toward becoming self-sufficient, the cities could no longer survive. The Roman economic system, erected on a broad base of interpersonal cooperation, then began to disintegrate. In place of the system of social cooperation, production for a market and interregional trade throughout the Roman Empire there arose widely scattered, isolated, selfsupporting agricultural estates, the predecessors of the feudal manors of the Middle Ages.

What brought about the decline of the empire and the decay of its civilization was the disintegration of this economic interconnectedness, not the barbarian invasions. The alien aggressors merely took advantage of an opportunity which the internal weakness of the empire offered them.

Ludwig von Mises, Human Action (3rd ed., 1966), p. 767

3. Feudalism: Rome was sacked by Alaric, the Goth in 410 A.D., and again in 455 A.D. by the Vandals under Genseric. Then in 476, the German chieftain Odoacer ousted the last Roman emperor and assumed power. By that time, Attila, the Hun, had overrun large sections of the Roman Empire in Europe. The Empire’s huge integrated market economy was broken up and the advantages of interregional cooperation were lost. Roman roads, over which large armies had traveled long distances and over which traders had shipped goods and produce, were not kept in repair and gradually disintegrated. Communication and transportation among widely scattered communities became more and more difficult and dangerous. The lord of a feudal estate could protect only the territory in his immediate neighborhood. Once a traveler was outside the sphere of his lord’s influence, he was on his own, with no assurance of help in defending himself against attacks from highwaymen who might steal or murder for their own immediate gain. Thus, contact and trade with neighboring estates was rare. Under such conditions market transactions were difficult and risky and imports exceedingly expensive. Each feudal estate then became of necessity practically self-sufficient. The peasants whose huts clustered around the walls of a lord’s castle grew their own food, made their own clothing, built their own homes and hunted within the area of their lord’s influence. They were not free to do as they wished or to go where they chose. They were required to spend a certain amount of their time working for their lord and they had to serve in his regiment in time of war. In return, they were given small plots of land to cultivate, some protection and allowed to take refuge within the walls of the castle at the sign of danger. On the whole, however, the peasant’s life was difficult and harsh. He had only very crude tools to work with so that his output was low. As a result, relatively few goods and services were produced and available for consumption. Only a very few persons living under feudalism could expect to have more than the bare necessities of life.

With the fall of the Roman Empire, most of the libraries and books of the ancient world civilizations had been lost or destroyed. Considerable knowledge was kept alive during the following centuries, by the priests in monasteries, although the established church did little during that time to encourage independent thought among the masses. Lack of freedom, the rigid class structure, religious superstitions, tradition, customs and isolation combined to discourage thought and experimentation as to how to develop new and better ways of doing things and so improve conditions. As a result, the age of feudalism is sometimes known as the Dark Ages.

Many historians have treated this period of feudalism—roughly the eight centuries from 500 to 1300 A.D.—as if conditions remained essentially the same throughout. In doing this, they probably intend to call attention to the fact that economic conditions did not show a noticeable trend in any one direction; the material well-being of the people in general did not improve or decline substantially over these centuries. But conditions did change from time to time. Some events brought significant changes in their train. Many persons were profoundly affected by wars, plagues and local conditions. Also new ideas did crop up and some innovators were successful in carrying out projects. For instance, the age of feudalism is known for its Romanesque structures, and Gothic arthitecture was developing during this period also.

Religious ideas were extremely important and influential during these centuries. It was under feudalism that Christianity became the major religion of western Europe. Slavery died out and a new attitude of respect for labor developed. Between 1096 and 1272, countless thousands of persons embarked on religious Crusades to the Middle East; they marched across Europe to do battle against the non-Christian “infidels” and to wrest Jerusalem from them for the Christians. The Crusades also had far-ranging consequences outside the area of religion. Survivors brought back many new ideas and many Europeans came to realize, as a result, that there was a large and varied world beyond the borders of the feudal estates where they were born and raised. Many learned about strange commodities previously unknown in Europe. Thus, in time, some Europeans arrived at an awareness that interregional trade and the exchange of ideas with others could bring advantages.

NOTE: This is a good place to remind the students, when studying the economic institutions of any historical period, to look for indications of artificial obstacles which interfere with the freedom of individuals to think, make decisions and act. Natural forces—i.e., time, gravity, space, nature, weather, inborn personal characteristics, etc.—may be serious obstacles to individual choices and actions at any time in history. However, the important consideration from the economic viewpoint is the extent to which some persons, groups of persons or other agents impose artificial obstacles in the path of others. Granted of course, no one should be free to use force or threat of force to interfere with the freedom of others to do the same. Nor should anyone be permitted to do injury to others maliciously. Once these exceptions have been acknowledged and explained, ask the students to determine, so far as they can, how much freedom people have had at each period in history to develop and implement new ideas, act and experiment on the basis of new ideas and use their own personal peacefully acquired or produced property to put new ideas into operation.

REMEMBER: (1) THE ESSENCE OF A FREE MARKET ECONOMY IS THE OPPORTUNITY TO EXPERIMENT WITH NEW IDEAS (2) ESSENTIAL FOR EXPERIMENTING IS THE RIGHT TO OWN AND CONTROL THE USE OF PRIVATE PROPERTY.

To analyze how much freedom people had at different periods in history to try out new ideas, the students will, of course, have to look at the opposite side of the coin too. Were artificial (not natural) obstacles threatened or imposed by some individuals, groups of individuals or their agents, during an historical period hampering, restricting, regulating, barring or prohibiting the freedom and opportunity of some or all other individuals to develop, acquire, use and/or experiment with their own personal (a) new ideas? (b) knowledge? (c) production, earnings, profits? (d) private property? (e) savings? (f) investments? (g) tools, technologies or production methods? (h) etcetera? in their attempts to relieve personal felt uneasinesses.

4. Mercantilism: It is said that Rome was not built in a day. And it is just as true that it did not fall in a day. As we have seen, the preparation for its final collapse took a very long time. The principle of interregional cooperation and pride in the Roman Empire made it powerful and vital wherever its influence extended. However, these ideas were eroded very slowly bit by bit over several centuries before Alaric, the Goth, and Genseric, the Vandal, sacked the city of Rome itself. Similarly, the “Dark Ages” of feudalism which followed did not come to a sudden end. The Crusades helped to open the eyes of many people to the fact that there was much to know about the world beyond their horizons. Wars and political conditions during the 1300s disrupted the prevailing economic institutions. There was considerable unrest among the people, both on the continent of Europe and in England. The bubonic plague, the dreaded Black Death caused by rat fleas, started in 1347 in Constantinople and spread throughout most of Europe, wiping out almost half of the population. As a result previously existing economic and political arrangements were seriously disturbed.

Peasants, ousted by the widespread turmoil from the feudal estates where they lived, had to find new places to live and work. Surviving landowners were desperate to replace the workers they had lost. The competition among them for men to till their soil and operate their establishments placed the relatively few workers still available in better bargaining positions than they had been before. With all these upsets, adjustments and population shifts, the old system based on self-sufficient feudal estates centered around fortified castles of privileged lords began to change. The authority of the feudal lords gradually waned. Bit by bit, people moved off the feudal estates and towns began to spring up. With the decline of feudal authority, power gravitated into the hands of national governments.

As national governments assumed greater prominence, kings and queens sought wealth and prestige. Not only did they relish great riches for themselves, but also it was generally believed that a wealthy monarch was the sign of a prosperous nation. In the hope of adding to the nation’s wealth and gaining advantages over military rivals, kings and queens financed many expensive voyages of exploration in the search for gold, silver and spices. An entire complement of laws evolved to implement the ideas of Mercantilism by assuring a “favorable” balance of trade, i.e., a net import surplus of the precious metals.

Privileged landholders and political authorities were jealous of their entrenched positions and fearful of change. They made use of their power to enact laws intended to protect their established positions, preserve the status quo and prevent economic innovations. Countless restrictions were imposed on trade and commerce during this time. Mercantilist legislation was enacted to give special assistance to domestic “infant industries” such as the manufacture of cloth, glass, cutlery and paper in the desire to reduce imports. To encourage the domestic fishing industry in England, it was made compulsory to eat fish on certain days. The export of goods produced by domestic artisans and merchants was subsidized with tax funds. The mobility of workers was restricted. Wages and hours of work were regulated. Privileged craft guilds were given the power to bar the sale in their communities of competing products produced with the labor of unauthorized, non-guild members and lower-paid workmen. Special monopolies and privileges were granted by the Crown to many firms— for the exclusive right in a certain locality to produce playing cards, wine, textiles, bread, shoes, etc. The freedom of aliens living in the country to go into business was severely restricted. And so on, and on, and on.

In spite of the attempts to preserve the status quo by enacting “mercantilist” programs, changes destined to have tremendous impact were taking place. The development of towns and larger communities brought increased division of labor, specialization and interregional trade. Interpersonal communication and contact gradually increased. The horizons of many persons were being broadened bit by bit. With the rediscovery of ancient Greek and Roman documents, some old, long-forgotten ideas were being revived. A number of new ideas were also being introduced, arousing interest and creating a certain skepticism among many Europeans as to the value of traditional “knowledge,” customs and practices. Thus gradually the way was being paved for the “Renaissance” of the 14th-16th centuries. Doubts as to the dictates of the established church caused men such as John Wycliffe, John Huss, Savonarola, Martin Luther, Ulrich Zwingli and John Calvin to ask questions about religion, laying the groundwork for the “Reformation” of the 16th and 17th centuries. Intellectual curiosity about the universe sparked the inquiring minds of Galileo, Copernicus, Leonardo da Vinci and Francis Bacon. The scientific data these men developed spurred the adventurous spirits of Columbus, John Cabot, Amerigo Vespucci, Vasco da Gama, Ponce de Leon, Balboa, Magellan and many others who crossed uncharted seas in search of spices, gold and other precious metals. These explorations expanded the size of the known world and opened more regions to trade, settlement and economic development.

Bit by bit over the centuries, the intellectual climate was being prepared to permit a veritable “revolution” to take place in production methods. Scientists had added to available knowledge. Philosophers had raised serious doubts about many ancient superstitions and the infallibility of the official church hierarchy. Intellectuals had begun to question long-standing governmental policies and even the authority of kings and queens themselves. Montesquieu, Locke, Hume and others were developing the concept of individual rights, furnishing the rationale for limiting the power of government, protecting individual lives and property and leaving people otherwise free. Increasing numbers of persons were beginning to insist that government stay out of their personal affairs. As this trend spread, government interventions of the Mercantilist type were repealed, ignored or bypassed and government reforms were instigated to protect individual privacy, private property and the freedom of individuals to worship as they chose. With fewer restrictions, more opportunity to experiment and better chances of retaining what they gained from their efforts, people had greater incentive to look for ways to make their work easier, more efficient and more productive, to develop new and better tools and machines, to search for new sources of raw materials and larger markets for their increasing output. The foundations for an industrial “revolution” were being prepared. The groundwork had been laid by earlier thought leaders who prepared a climate of opinion which permitted inventors, innovators and entrepreneurs to experiment and to try to put their own ideas into practice. Keep this in mind when discussing the development of modern industry.

Ideas engender social institutions, political changes, technological methods of production, and all that is called economic conditions. . . . New ideas do not originate in an ideological vacuum. They are called forth by the previously existing ideological structure; they are the response offered by a man’s mind to the ideas developed by his predecessors. . . . We know the names of the men who invented and step by step perfected the motorcar. . . . We do not know the names of the men who, in the beginnings of civilization, made the greatest inventions—for example lighting a fire. But . . . it is always an individual who starts a new method of doing things, and then other people imitate his example. . . . The historical process . . . is the composite outcome of the intentional actions of all individuals. . . . Every idea originated at a definite point of time and space in the head of an individual.

Ludwig von Mises, Theory and History (Yale, 1957/Arlington, 1969), pp. 137-8, 192, 196, 225

5. Industrial Revolution: After the decline of the feudal system until the 18th century, industrial production shifted gradually, as we have seen, to cities and towns. Government, under the influence of the prevailing Mercantilist philosophy, often granted town and city guilds of craftsmen and merchants the power to restrict prices, limit the number of apprenticeships and regulate production, commerce and trade for the benefit of their members. Freedom of entry to such privileged industries and protected markets was denied would-be entrepreneurs and producers. Thus established producers enjoyed a special protection from potential competition. Under such an arrangement new products were necessarily limited in quantity, high in price and available primarily only to the more well-to-do. Anyone with a new idea about how production might be improved had to look outside the jurisdiction of the guilds for an opportunity to put his scheme into practice. Thus, any significant change in economic arrangements could arise only outside the cities and towns, outside the protected markets of the privileged guilds, outside established economic channels. And that was where the “Industrial Revolution” began.

To understand the “Industrial Revolution” of the 18th and 19th centuries we must realize that it was the outcome of the ideas and actions of countless individuals. No single idea about a new way to produce something may have seemed particularly noteworthy or important at the time. But over the years many such ideas added up to an “industrial revolution.” The textile and clothing industries were among the first affected. Before the “Industrial Revolution,” the majority of the people lived in abject poverty, often lacking even the bare necessities of life. Standards of cleanliness and medical care were distressingly low. At times, people starved—witness the high death rate, especially among babies and small children. Yet the poverty-stricken multitudes had little hope of bettering their conditions, for the guild system precluded large numbers of persons from looking for work in the towns and condemned countless thousands to near-starvation.

However, the new ideological climate of opinion —pioneered by the intellectuals of the Renaissance and the Reformation—was beginning to have an effect on persons engaged in production. Sooner or later, some bright young man was led by the freer situation to recognize an opportunity no one had seen before. Denied the opportunity of becoming a guild member and, as a result, unable to compete in the towns, he conceived the idea of hiring on a piece work basis some of the hungry and homeless people, some of the poor country peasants living outside the towns. He may have started by buying raw wool on the market and hiking out into the country with the wool in a knapsack on his back, looking for persons willing to spin the wool into yam or to weave it into cloth. To earn a little money doing such piece work at home, even if the small sums they paid were considerably less than what guild members received for similar work in the towns, was a godsend to the wives and children in many poverty-stricken households. As a result, the young entrepreneur’s enterprise paid off. In time others began to notice what this young innovator was doing and before long many smalltime peddlers were roaming the English countryside on foot, packs on their backs, delivering wool to be spun or woven by women and children, then retracing their steps several days or weeks later to pick up the finished work and pay for what had been done.

Once small-time peddlers had shown that production could be accomplished without using high-priced guild labor, the idea occurred to someone to assemble several spinning wheels and looms in one building and to hire workers from the surrounding countryside. Many spinners could then be employed at one location, even if they had no tools of their own. Several operations could even be handled under one roof. In time, larger and more efficient machines, which could not have been accommodated in a peasant’s tiny hut came into use, for they could be run to advantage by artificial power—water power if the factory was located by a stream, or steam power furnished by the newly invented steam engines. In addition to all these advantages, time and energy were saved as peddlers no longer had to traipse all over the countryside. Thus, step by step, the factory system of mass production evolved.

Then at about the same time, other small-time entrepreneurs were considering the possibility of importing from the British colonies in America cotton which was starting to come into production there. Still other small-time merchants were beginning to look for new markets for the textiles being produced in the growing number of little factories that were spotted over the English countryside. Prior to this time, the market for anything new, which was usually handmade and expensive, had been extremely limited. The majority of the people grew a large part of their own food and made most of their own clothing or wore hand-me-down woolen clothing. Only a well-to-do minority made any substantial purchases on the market. Thus production of things to be sold was geared primarily to handicrafting small quantities of high grade commodities for the wealthy. The masses of the poor had never been good customers for anything, let alone anything new. However, some small-time speculator, noting that American cotton was cheaper to produce than British wool must have reasoned that perhaps the poor might be able to buy new cotton clothing if it were cheap enough. Perhaps inexpensive raw cotton might be brought from the colonies, woven into cloth and sewn into garments on a piece work basis by workers who were glad enough to work at lower wages than those privileged guild members insisted upon. This should make it possible to produce and sell cotton textiles cheaply so that the poor workers themselves might represent a potential market for great quantities of cotton clothing. This line of reasoning proved correct. Thus, step by step, many smalltime operators made countless changes which in time completely overturned the textile and clothing industries. By the middle of the 19th century, this “revolution” was complete. New production methods, new sources of supplies and new marketing outlets were in operation. The earlier economic arrangements based on small-scale enterprises of skilled handicraftsmen producing small quantities of quality merchandise for the well-to-do had been largely phased out by the “Industrial Revolution” and replaced by large-scale, standardized assembly line production for mass markets. The poor whose labor made possible the “revolution” in the textile industry were its principal beneficiaries.

New and more extensive channels of trade were also gradually being opened up. More natural resources were being brought from far-flung suppliers throughout the world, and markets within a country’s borders were also expanding. Farmers, for instance, were beginning to expand their operations to grow more than they needed themselves, in order to feed greater numbers of people living in the cities and in the growing factory towns. We can’t know precisely, but we can think through the way this shift might have started. Consider, for instance, the production of eggs. We can know that there was a time when eggs were relatively very cheap in the country where they were plentiful, but considerably more expensive in towns and cities where most of the people were craftsmen, merchants, factory workers and very few raised chickens. Perhaps the son of an 18th century dairy farmer may have noticed the egg situation and acted on the theory that he might be able to profit from this difference. He visited farmers near his home, collected eggs from many farms and carted them off to the city to sell. As his scheme caught on, several of his suppliers began to increase their flocks of layers and expand their egg production. At the same time, some of the town and city people who had kept a few chickens themselves began to realize that they could always find eggs to purchase at the market and disposed of their chickens so as to use their time, energies and property for other things they preferred and found more profitable than raising chickens. Thus, new channels of distribution were gradually opened up, markets expanded, and increased specialization, division of labor and larger scale agricultural production for bigger markets became possible.

The “Industrial Revolution” was an age of steam. James Watts’ steam engine freed production from its dependence on the water wheel and factories from locations next to waterways. Improved transportation contributed tremendously to the “revolution” that was taking place. Networks of canals were opened up, making it much easier to move raw materials substantial distances to factories and finished goods to markets. Then along came the railroads. Prior to the 19th century, communication among isolated farms and villages had been difficult at best. Travelers went on foot or horseback, always at the mercy of the elements, or they spent long uncomfortable hours in coaches or wooden wagons, being shaken over rutted and dusty or muddy highways. The canals represented a tremendous improvement, and so did the trains. In spite of the cinders and dirt of the early railroads, they made the transport of goods much easier, quicker and cheaper, and travel for persons became much smoother, swifter and more comfortable. However, the application of steam engines to move containers holding produce and carriages carrying people would not have succeeded nearly so well if no one had thought of having the single steam engine pull trains of cars on special tracks made of metal rails mounted on wooden planks or ties. If the steam engines had had to travel on the narrow and rutted roads of that era, they certainly would never have been accepted so promptly and enthusiastically. The ideaman who conceived of building rail roads made a valuable contribution to increasing production.

Agricultural methods improved as well. The attitude of intellectual curiosity that developed out of the ideas of the Renaissance thinkers led some innovators to experiment with new farming techniques—crop rotation, fertilizing, stock breeding, etc. As a result, larger scale, more efficient agricultural operations became possible. Using newly developed techniques, farmers were able to bring more land into cultivation. With the introduction of new and more efficient farm machinery, agricultural output rose. Many landholders then chose to fence in, i.e. to “enclose,” and to develop acreage which they owned, but which they had not been using before because farming it with the old methods was not worthwhile. Small tenant farmers, accustomed to using this land belonging to these large landholders as “commons” for grazing their own personal livestock, resented these “enclosures.” Many found their best hope for survival by moving into the towns to work in the newly developing factories. Many others emigrated to America and Australia. Nevertheless, in spite of the exodus of so many people from England during this period, the population was increasing. People were living longer and infant mortality was declining—due largely to the availability of more and better food. Thanks to improved farming methods, one farmer could then feed more people than ever before in history so fewer people were needed on the farms. Many of the persons freed from agricultural labor went to work in other areas of production making goods and services consumers wanted more urgently, under the changing situation, than they did additional quantities of farm products. In this way, agriculture not only benefitted from the “Industrial Revolution” but also helped to expand specialization, division of labor, production, trade and worldwide markets.

The English people of the 18th and 19th centuries were freer than people had been at almost any time before in history. As a result, the British led the rest of the world in that period in improving production. They could own and accumulate property, confident that they would be able to keep most of their earnings or profits. This assurance gave them the incentive to try to develop new and better ways of doing things in the hope of earning profits. Once small-time peddlers had shown the way, other entrepreneurs began to pioneer in many different directions. New inventions were developed and adapted to industrial production. Transportation was improved substantially. Agriculture was improved. New trade routes were opened throughout the world. As workers had more and better tools available, the productivity of a single worker rose, the competition for his services increased and therefore necessarily his real wages went up also. When workers could produce and earn more, they were in a position to have more and better food. Being better nourished, their children had a better chance of living to maturity. With more goods and services available, living standards improved. Increased production also permitted people to save and invest more. More savings and investment helped to expand the production of the things consumers wanted still further. And so the spiral appeared to become self-propelling—more savings and investment led to increased productivity, which made more savings possible, and so on.

NOTE: Many factors combined, as has been pointed out, to spark the “revolution” in industrial methods that began in England of the 19th century—the atmosphere of freedom, the generally prevailing respect for private property, the opportunity people had in the developing contract society to live and work in peace, to cooperate, to take risks, to experiment, to make profits or suffer losses and to spend, keep, use or save and invest their earnings. The result was the development of many new tools, machines and methods, leading to significant improvements in productivity and living standards. Thus, the teacher should find the “Industrial Revolution” a good historical illustration of the inevitable advantages of:

a. leaving people free (Unit 3)

b. protecting private property (Unit 4)

c. allowing prices and wages to fluctuate (Unit 6)

d. permitting people to save and invest (Unit 7)

e. letting entrepreneurs keep, accumulate and use their profits, if any, from their ventures (Unit 8)

However, we should not ignore the serious charges that have been levied against businessmen of the “Industrial Revolution” for having made people (including many women and children) work such long hours, for very low pay, under terrible conditions. Certainly the conditions and wages in the early “Industrial Revolution” factories appear dreadful to us today, when we compare them with the situation in modern factories. However, they represented a significant improvement to the workers of the 18th and 19th centuries, over the still poorer living standards, the still worse working conditions, the still lower wages and the near starvation they had endured before. By making it possible for the individual worker to produce more, the new methods of production enabled him to earn more. With more goods and services produced, more was available for consumption. As a result of the “Industrial Revolution,” therefore, many people had more and better food, as well as many other things they couldn’t have before. And they lived longer!

6. Modern capitalism—mass production and automation: The various elements that came together in the 18th century and inspired so many ideamen—thinkers, scientists, inventors, entrepreneurs, etc.—did not disappear with the close of the period known as the “Industrial Revolution.” The atmosphere of freedom continued in most major countries throughout the 19th century. The goal of their governments remained substantially the same—to protect the lives and property of individuals without interfering in private affairs, except when some person or persons used force or threat of force to injure others. The spirit of inquiry survived in all fields—the physical sciences, philosophy, religion, political science, etc. Wherever these conditions prevailed, people were free to think, to work, to worship, to experiment, to save, and to have fun as they chose—so long as they refrained from using force or fraud to hurt others. Specialization and the division of labor developed still further. Private property and private contractual agreements were respected. Transportation facilities continued to be improved substantially and trade expanded materially. Market transactions increased tremendously in number and significance. In effect, many new “industrial revolutions” were in the making. As a result, economic production flourished. More goods and services became available for consumption. Living standards, sanitation facilities and medical care improved. People had more and still they could save and invest more too. Isolated and economically self-sufficient families or groups became rarer and rarer. Practically everybody in the world became integrated into the market economy. Changes were taking place all over the world and people everywhere were affected.

NOTE: Change, as we learned in Unit 2, is one of the six categories of a priori knowledge. So long as a person is still living, he will always be thinking, deciding, acting and making changes to the best of his ability— in the attempt to relieve his various felt uneasinesses and so to improve his situation. As a matter of fact, the study of how changes come about and how people act, consciously and purposively, in response to prior changes, in the attempt to bring about the particular changes they desire in the future, is precisely the subject matter of economics.

No change can take place without disrupting the lives of some people. But barring mistakes, accidents and human error, the changes resulting from voluntary choices and actions tend to benefit the parties directly concerned. Voluntary changes reflect the combined best judgments of everybody as to how best to improve their respective situations —all things considered—in the light of conditions as they view them. The intervention of force or threat of force alters the picture considerably. Some persons inevitably benefit at the expense of others from a change brought about by force. However, the changes that come about as a result of the voluntary choices, actions and cooperative efforts of individuals tend to help everyone. And modern capitalism evolved, by and large, as a result of voluntary actions building on ideas that had their origins in the years of the “Industrial Revolution.” The years since then have simply brought about their further expansion, intensification, application and/or refinement:

a. Mass production for mass markets

b. Tremendously increased specialization and extremely fine division of labor

c. Substantially improved—faster, easier and cheaper—transportation facilities

d. Expanded trade throughout the world, tapping far-flung supplies of natural resources and developing far-flung markets for finished goods

e. Introduction and development of larger, more efficient and more finely specialized, mechanized and automated machines, tools and technologies, thanks to increased savings and investment

f. Much wider use of money in market transactions, expanding the monetary economy substantially. Isolated, self-sufficient families or tribal groups are exceedingly rare in today’s highly integrated exchange economy.

In the one and a quarter century since the “Industrial Revolution,” innovators have continued to improve and expand production methods. Many modern plants are so huge that the early factories of the “Industrial Revolution” appear extremely crude, primitive and small-scale in comparison. With increased production and more readily available food, sanitation and medical care, the population has grown at a prodigious rate. As a result, producers have experimented with much larger-scale production than ever before so as to cater to still larger mass markets. New means have been developed to power the huge machines on which mass production depends. The single worker who operated the crude water or steam-powered machines of a small “Industrial Revolution” factory has been replaced by a worker who has at his finger tips, with precision control, machines capable of exerting tremendous power representing the force of hundreds or thousands of horses. To make possible these new developments in mass production for mass markets, tremendous capitalist savings had to be accumulated. People saved over many years and huge stocks of capital goods and factors of production were gradually built up. Only then could entrepreneurs invest huge sums in great plants, and more efficient and complex tools and machines. Thus the mass production of recent years, on a scale never before seen in history, has been a result of the combined efforts of many persons—inventors, savers, entrepreneurs and workers.

The economic developments of modern capitalism—described and explained at some length in Units 7-12 and 14—may be approached from two major points of view:

1. The conspicuous shift in production methods, making use of more and more mechanical and automated equipment to mass-produce for larger and expanding markets, made possible by increased savings

2. The effect of government policies on industry —(a) encouraging private initiative and enterprise by protecting individual rights, private property and freedom of opportunity or (b) discouraging private initiative and enterprise by arbitrary and unequal treatment of different individuals, and by imposing heavy taxes, regulations and controls.

Anyone interested in some aspect of the first of these two approaches should find ample material in local libraries. See books and encyclopedia articles on machines, tools, inventions, technologies, enterprises, production methods, markets, distribution channels and specific industries, as well as biographies and reports on the experiences of individual inventors, entrepreneurs, industrialists, businessmen, etc. Many innovators led interesting and exciting lives. Some inventors made remarkable discoveries or scientific breakthroughs. Some of them—for instance Charles Goodyear who discovered how to vulcanize rubber and Isaac Merritt Singer who invented the sewing machine— struggled for years and endured real poverty and hardship trying to persuade financial backers, entrepreneurs, customers, etc., of the merits of their innovations. No doubt many inventors failed and their names are unknown to us today. However, many did succeed. Some were extremely lucky, or rather were prepared to recognize and take advantage of lucky breaks when they had them. In any event it was the inspiration and hard work of many such ideamen and innovators that helped make modern industrial production possible.

Nowadays some scientists and inventors have a much easier time than did many of their predecessors. Quite a few of them earn regular salaries as employees of large industrial firms. Scientists and thinkers often cooperate, work in groups and/or exchange experiences and ideas with others because one person’s ideas and experiments may spark another person to come up with a new idea of his own. But such arrangements do not alter the fact that every new development of any kind springs originally from an idea in the mind of some specific individual. Just as in the 18th and 19th centuries, all new inventions, techniques and economic developments still originate from the ideas and experiments of specific individuals. To inspire a maximum of ingenuity, invention, experimentation, innovation, etc. (a) there should be no artificial barriers to discourage individual thought, innovation and experimentation; (b) there must also be private property which individual inventors, innovators and/or savers and investors interested in an invention or innovation are absolutely free to dispose of as they think best.

REMEMBER: (1) THE ESSENCE OF A FREE MARKET ECONOMY IS THE OPPORTUNITY TO EXPERIMENT WITH NEW IDEAS; (2) ESSENTIAL FOR EXPERIMENTING IS THE RIGHT TO OWN AND CONTROL THE USE OF PRIVATE PROPERTY.

POSTSCRIPT

Discussion of one important phenomenon of economic history—the trade cycle—has been omitted from this syllabus on purpose. It is really too complex to cover in a course for high school students. However, a few brief words for the benefit of the teacher may be in order.

Economic ups and downs, booms and busts, peaks and depressions (or recessions) are considered by many persons to be inherent in the capitalistic system. However, this is not the case. Rather they are results of government interference with the capitalistic system. When government acts to manipulate the quantity of money and/or credit, and to determine interest rates by fiat rather than leaving them to the market, it disrupts all prices and monetary transactions. Economic calculations are then distorted, entrepreneurial speculations upset, wealth and income shifted and contractual relationships altered. These results lead in time to serious imbalances causing alternating periods of (a) false economic “prosperity,” i.e., the boom produced by artificially-stimulated credit expansion and (b) depression, i.e., the bust.

People generally applaud the illusory “prosperity,” but they abhor the relative economic stagnation, recession or depression which follows. As a result, officials in control of money and banking try to do everything they can to prolong the artificial boom. They do not realize that they cannot forever avoid paying the price of the malinvestment their inflationary policies have caused. Sooner or later there must be a day of reckoning, an economic crisis of some kind. When the monetary expansion is halted and/or when people are no longer induced by it to expand production further, the crisis will come. The depression that follows is a period of recovery. Once the depression sets in, prices begin to readjust and the economy starts to redirect production and to liquidate the malinvestments undertaken during the time of the preceding illusory boom-prosperity. If government then refrains from further interference with the market, the market’s checks and balances will soon see to it that economic flexibility revives and economic imbalances in the future are kept to a minimum. Entrepreneurs, savers and producers will then resume producing to satisfy as best they can the wishes of consumers who have received the money they spend by working in production and/or as voluntary gifts from others who worked and saved.

The most famous, or infamous, depression of all time was that of the 1930’s. Since then, out of fear of a recurrence of such an economic catastrophe, most government officials have advocated continued and increasing credit expansion. They try desperately to postpone a depression or recession and hope—in vain it should be added—to avoid future economic crises. The consequences of inflation and credit expansion arising out of the system of fractional reserve banking are bound to come— sooner or later!

For the benefit of the teacher as well as of those few students who may be interested in reading about the causes and consequences of the trade cycle, here are several references on the subject:

Greaves, Percy L., Jr. Understanding the Dollar Crisis (Western Islands, 1973). Chapters V-VII.

Mises, Ludwig von. Human Action (Yale, 1949; 2nd ed., Yale, 1963; 3rd ed., Regnery, 1966). Chapters XVII-XX.

__The Theory of Money and Credit (Yale, 1953; FEE, 1971)

Rothbard, Murray N. America’s Great Depression (Van Nostrand, 1963; Nash, 1972)

Sennholz, Hans F. “The American Economy is NOT Depression-proof” in The Freeman, November 1972

__“The Great Depression” in The Freeman, April 1975

Stevens, Paul. “The Making of an International Monetary Crisis” in The Freeman, April 1973

GLOSSARY WORDS

(For definitions, see glossary, pp. 223 ff.)

Agricultural economy

Ancient civilizations

Autarky

Capitalism

Command society

Contract society

Crusades

“Economic problem”

Feudalism

Forage

“Industrial Revolution”

Mass production

Mercantilism

Micro-economics

“Niggardly,” “niggardliness” of nature

Nomadic tribes

Primitive societies

Reformation

Renaissance

Slavery, serfdom

Status society

Usury

RECOMMENDED READINGS

More advanced materials are indicated by an asterisk (*)

Articles

In the BASIC READER:

13. “The War on Property,” Paul L. Poirot

19. “Letter to His Grandson,” Fred I. Kent

20. “Technological Status,” John W. Campbell

25. “The Liberation of Women,” Bettina Bien Greaves

28. “If Men Were Free to Try,” John C. Sparks *34. “Why Speculators?” Percy L. Greaves, Jr.

* 75. “Food Control During Forty-six Centuries,” Mary G. Lacy

76. “How to End Poverty,” Dean Russell

77. “American Communism, I & II,” Percy L. Greaves, Jr.

* 78. “Facts About the ‘Industrial Revolution,’” Ludwig von Mises

79. “Progress or Regress?” Hans F. Sennholz

Additional titles:

“Capitalism and Morality,” Edward Coleson—in The Freeman, October 1973

* “Marx, Mises and Socialism,” Dave Osterfeld—in The Freeman, October 1974

* “The Puritan Experiment in Common Ownership,” Gary North—in The Freeman, April 1974

* “The Puritan Experiment with Price Controls,” Gary North—in The Freeman, May 1974

* “The Puritan Experiment with Sumptuary Legislation,” Gary North—in The Freeman, June 1974

Books

* Ashton, T. S. An Economic History of England: The 18th Century (Barnes & Noble, 1954)

* --The Industrial Revolution: 1760-1830 (Oxford, 1948/1962/1973)

Carson, Clarence B. Throttling the Railroads (Liberty Fund, 1971)

Chamberlain, John. The Enterprising Americans (Harper & Row, 1963, 1974)

* Dietze, Gottfried. In Defense of Property (Regnery, 1963; Johns Hopkins, 1971)

* Greaves, Percy L., Jr. Understanding the Dollar Crisis (Western Islands, 1973)

* Hayek, F. A. (editor). Capitalism and the Historians (Chicago, 1954/1963)

Hazlitt, Henry. The Conquest of Poverty (Arlington, House, 1973)

* Mises, Ludwig von. Human Action (3d ed., Regnery, 1966). (“Observations on the Causes of the Decline of Ancient Civilization,” pp. 767-769)

Polo, Marco. The Travels of Marco Polo

* Rougier, Louis. The Genius of the West (Nash, 1971)

Weaver, Henry Grady. The Mainspring of Human Progress (FEE, 1953)

White, Andrew Dickson. Fiat Money Inflation in France (1912). Many editions.