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AP European History
Review – Economics
Manorialism & Feudalism
Existed in Southeast England, Northern France, Western Germany
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Defined as a tightly disciplined community of peasants organized under authority of a lord
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Fundamental unit of economic, political, and social organization
Promoted cooperation in agriculture
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Large estates and serfdom were characteristic of the manorial system
Revival of Capitalism
Most important economic development of early modern times
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Capitalism is defined as an economic system in which investments and ownership of the
means of production, distribution, and exchange of wealth is made and maintained chiefly by
private individuals
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Capitalism declined following the collapse of the Roman Empire
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Between 500-1000 AD, capitalism largely disappeared in Western Europe
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Each community possessed virtual economic self-sufficiency: the manorial system
promoted cooperation in agriculture, while the guild system emphasized cooperation in
handicraft industry and trade
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Profits discouraged, as the church insisted on the concept of “just price” – cost of
materials plus labor
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Church condemned the lending of money
Over the course of the middle ages, the manorial system and guild system began to decline
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Trade increased, and towns grew in size and number
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The Crusades contributed to the revival of trade by familiarizing Europeans with the
goods of the East and creating a demand
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In Northern Europe, the Hanseatic League (13th C.) dominated trade
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Italy was the major center of trade, and developed banking (Medici family)
16th Century – the first joint-stock companies formed in response to demands for overseas
trade
17th Century – concerns controlling trade dominated overseas commerce
1694 – Bank of England formed
Mercantilism
Involved the regulation of economic activity so as to increase the power of the state over that of
its neighbors
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In this sense, Prussia was as mercantilist as Britain, because both regarded the economic
activities of individuals as subordinate to government policy
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Key tenet: need for a favorable balance of trade and an inflow of gold and silver
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Assumption that a nation’s share of wealth could increase only at its neighbors expense
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Colonies promoted a favorable balance of trade by providing raw materials for the mother
country and by providing a market for the mother country’s manufactured goods
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By tariffs and regulations, each government sought to restrict trade to its colonies and itself
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Colonial commerce provided new products, such as sugar, and new consumer demand, which
in turn created an impetus for manufacturing and capital accumulation at home, a cycle that
increased the opportunities for the English and French middle classes
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Slavery was the keystone of the 18th century empires
19th Century Liberalism
Adam Smith and the Physiocrats argued that government intervention on the marketplace merely
restricted the play of economic forced that if left to themselves would increase productivity
and wealth
David Ricardo (Principles of Political Economy and Taxation): the wealth of the community comes
from land, capital and labor; a product’s value results from the labor required to make it
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Iron Law of Wages: when labor is plentiful, the workers tend to be paid at the subsistence level
Modern Capitalism
Industrial Revolution
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Revolution in technology which dramatically and continuously raised per capita productivity
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England first: first to develop social structure supportive of innovation, balance of natural
resources, efficiency of transport, long tradition of skill, investment opportunities
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France later: deeply entrenched structural obstacles to economic growth – poor
transportation, federation of regional markets, constraints in legal systems, guilds and other
forms of monopoly exerted restrictive influence
Socialism
Karl Marx: most influential socialist thinker
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Communist Manifesto (1848): Marx & Engels
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Das Kapital (1867): society rests fundamentally on the organization of its economy and the
mode of production
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Class conflict is the mechanism of historical progress
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Inevitable proletariat revolution
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Ownership by the proletariat of the means of production and distribution
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Classless societies