Economics 4130 Sp13 Midterm 2

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1 (AI). The evolution of economic organization from hunter-gatherer to settled agriculture to more complex civilizations proceeded at vastly different paces in different parts of the world. A) Explain why the pace of development on the Eurasian landmass was so much more rapid than in Africa and the Americas.

Geography
Europe
China

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The Role of Geography:
Europe:
Agriculture began in the Fertile Crescent and exploded into North Africa and Eastern Europe
All of the beasts of burden came from the F.C.
This power allowed them to produce more food and expand their population
China
Rice cultivation led to settlement b/c of intensive irrigation systems

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1 (AII). The evolution of economic organization from hunter-gatherer to settled agriculture to more complex civilizations proceeded at vastly different paces in different parts of the world. A) Explain why the pace of development on the Eurasian landmass was so much more rapid than in Africa and the Americas.

Advancements
Africa

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Advancements: paper, money, silk, abacus, compass, iron tools, plows
Africa
Hunter-gatherers
Bantu ppl: settled agriculturists; got domestic animals via Egypt
Diffusion of ag. was slow due to North/South Axis
Colonization kept in check by insert-born disease

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1 (AIII). The evolution of economic organization from hunter-gatherer to settled agriculture to more complex civilizations proceeded at vastly different paces in different parts of the world. A) Explain why the pace of development on the Eurasian landmass was so much more rapid than in Africa and the Americas.

America

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Americas
mostly hunter-gatherers
fertile soil --> settled agriculture --> urbanization in central US, mexican ^lands, east woods, & SW US; Mayans also advanced (writing/calendars)
Diamond: "rate of human invention is faster and cultural loss is slower in areas with many competing societies"

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1 (B). The evolution of economic organization from hunter-gatherer to settled agriculture to more complex civilizations proceeded at vastly different paces in different parts of the world. B) Describe and explain Australian development before European settlement.

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Australia
longer persistence of h/g societies
no farmers, herders, writing, metal tools, govts when Europeans came in 17th
New Guinea had bows/arrows, agriculture, domestic animals, pottery, via Indonesia
Tasmania had no fire starting technology, bone/stone tools, sewing, nets, traps, ropes, no fishing
even smaller societies died out

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6. Why does J.U. Nef characterize the 16th Century as a First Industrial Revolution in Great Britain? (Hint: list the 3 characteristics of an industrial revolution according to Nef and provide the relevant examples of each).

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A. New industries
1. Paper mills
2. Gunpowder mills
3. Cannon foundries
4. Iron and Copper
5. Sugar refineries

B. New Techniques
1. Mining
2. Pumping water out of mines.

C. New Technology—Conversion of wood to coal as basic source of fuel.

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7. Explain Kenneth Pommeranz’ explanation for the “Great Divergence.” In particular, explain how differential factor endowments and having to simultaneously meet the following needs played a role: food, fuel (for both warmth and eventually as a source of energy), clothing, and building materials (wood vs. iron)

England

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i. Food
1. Importation of potatoes (and corn) increased calorie yields per acre and per man hour, freeing up land for food and forestry.
2. Potatoes and Corn helped diversify their food source.
3. Calories yield per acre and man hour increased dramatically

ii. Fuel
1. Reliance on fossil fuels (coal) stopped the deforestation, in the nick of time. Burned coal to keep warm and eventually as power source (steam)

iii. Clothing
1. Textiles—Need to meet food, fuel, fiber, and building materials demands.
2. a. Colonization provided at once source of materials and markets for cheap cotton cloth in which the British enjoyed a technological advantage.

iv. Building Materials (wood vs. iron)
1. Britain’s coal/steam/iron complex.
2. Severe timber shortage stimulated increased use of coal for heat and fuel.
3. Coal sources close to population centers.
4. The need to pump water out of coal mines spurned diffusion of steam engines. Coal mines were too wet. Led to the innovation of the steam pump, which was then refined into the steam engine

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7. Explain Kenneth Pommeranz’ explanation for the “Great Divergence.” In particular, explain how differential factor endowments and having to simultaneously meet the following needs played a role: food, fuel (for both warmth and eventually as a source of energy), clothing, and building materials (wood vs. iron)

China

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i. Food
1. Superior irrigation
2. Very efficient stoves.
3. Agricultural techniques compared favorably with European farming despite livestock shortage.
4. cottage industries—farmers increased time spent in manufacturing goods and sold those goods, rather than just consuming (similar to changes in Europe over 5 centuries later)

ii. Fuel
1. b. water-powered spinning machines for hemp and ramie (both coarse fibers)–Widely Used–Europe had to wait until 1700s to develop such technology.
2. Halt of technological development during the Ming-Qing period
3. a. per capita production of iron fell substantially
4. b. water-powered machinery was abandoned

iii. Clothing
1. Very efficient spinning and weaving techniques.
2. Meanwhile, the production of cotton cloth in China remained home-based. Very efficient techniques did not spurn innovation into the factory system

iv. Building Materials (wood vs. iron)
1. peak of iron-making in terms of iron per capita
2. The regression of the Chinese Iron industry.
3. By the end of the 11th century Chinese iron production exceeded that of 17th century Europe.
4. Iron production used wood and charcoal in the iron ore and wood-rich North.
5. Catastrophes struck China 1100-1400: invasions, civil wars, floods, and plague, population and development shifts to the South.
6. Loss of Iron technology. Not much iron in the south
7. Very easy to send timber by river from wooded North, to deforested South, no incentive to exploit coal.
8. Arid conditions made coal mining very dangerous due to frequent explosions.
9. No iron, no coal, no steam, no mass-production, no industrial revolution.

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8. What are the basic principles of Mercantilism?

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A. Basic principles. Mercantilism was a collection of vague, amorphous ideas that evolved over time. Central feature is MONEY = POWER. The power 0fntue state was seen as a function of the wealth of the state, as measured in silver and gold. So mercantilist policies focused on acquisition and retention of money–gold and silver. This goal is often called “bullionism.”


B. Mercantilism and trade: “Beggar-thy-neighbor” policies
1. Nations sought to increase their stocks of silver and gold by maintaining a favorable balance of payments.
2. Mercantilism implied that trade was a zero-sum game: one country’s gain was another’s loss.

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8. ? Contrast mercantilism with principles of mercantilism with that of neoclassical economics.

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1. Gains of trade. Mercantilism saw trade as a zero sum game; modern economic theory asserts that there are mutual gains from trade
2. Measuring national wealth. Mercantilists measured a nation’s wealth by its stock of gold and silver; modern economic theory measures wealth as the flow of productive capacity of a nation and its people (GDP).

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8. List and briefly expain 4 mercantilist policies typical of pre-modern governments.

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Mercantilism and national economic policy. Governments actively intervened in the economy, encouraging exports and discouraging imports. What were some of these policies?
1. Subsidies and tax rebates to export industries.
2. Tariffs and quotas on imports.
3. Sumptuary laws restricting the consumption of foreign goods.
4. Navigation laws restricting carriage of imports and exports to native ships. British Navigation Acts were intended to booster native shipping, bring more income into the native country. Also they were supposed to lower costs of shipping for domestic exporters, but they created a monopoly and not necessarily lower prices. Policy was also intended to foster the growth of a large merchant marine that could be easily transformed into a Navy during war time.

All trade in British empire (13 original colonies, Canada) had to be on British Ships (3/4 of crew had to be British citizens). Drove up price. Enumerated goods (tobacco from VA) would have to be sent to Britain first to be taxed, then sent to France for sale (middle men).

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9. Explain debt repudiation as practiced by the Spanish monarchy in the premodern era.

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3. Borrowing. First the major lenders were German and Italian bankers; Flemish and Spanish bankers and nobles and merchants.
a. By 1544, two-thirds of the regular annual revenues were pledged to pay the Crown’s debt.
b. In 1552, the Spanish Crown suspended all interest payments.
c. In 1557, it repudiated a substantial portion of its debt. Suspend interest, write down principle, and extend the terms.
d. The Spanish Crown declared bankruptcy 8 times between 1557 and 1680. Each time, it caused a disruption of financial markets and hence many commercial transactions.

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9.Why was excessive borrowing bad for their economy?

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Basically their creditors lost assets and sometimes they went bankrupt as well. Even w/o the default, excessive borrowing was disruptive b/c it caused “Crowding out”
Increased demand for funds, raises interest rates and crowds out private investment.

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9.Which 3 groups were expelled by the Spanish Crown?

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D. Religious intolerance. Another way the Spanish economy was hurt by the actions of the Crown was through the expulsion of different groups.
• 1492 Jews (120K-150K)
• 1502 Muslim Moors
• 1609 Moriscos (Moors who were considered nominal Christians)

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9. What was the Edict of Nantes?

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The Edicts of Nantes had provided for limited toleration of Protestants. Colbert had strongly supported this toleration and during his lifetime convinced Louise XIV to not persecute the Huguenots. But, after Colbert’s death, Louis XIV revoked the edicts in 1685 and Huguenots fled.

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10. Explain how the limits placed on the British Crown and the establishment of the Bank of England were important to Britain’s early industrialization.

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A. Tradition of limited monarchy.

1. Magna Carta (1215). English Barons forced King John at Runnymeade to concede limits to his power. This documents is seen as significant b/c it established the rights of subjects to enjoyment of their property without arbitrary expropriation by the monarch. But the English monarch was still powerful in the 16th century.

Led to much more secure financial markets. Financial mismanagement of the sovereigns in Spain and France that hampered those nations’ financial markets did not occur in Britain. This meant that British industrialists faced much lower interest rates than those in Spain and France. Moreover, since the British Govt. was more financially sound, it could borrow at a fraction of the cost of their rivals-important advantage of wars of the 18th century.

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10. What was the Cokayne project?

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Cokayne project and the Merchant Adventurers. British policy, like the policies of other national govts during this period, frequently backfired. A case in point is the Cokayne Project. In the 15th and 16th centuries, the major export for England was rough, unfinished wool cloth. The exports of this cloth were the monopoly of the Merchant Adventurers, a merchant guild. This cloth was exported to the Low countries where it was finished and dyed and then exported. In 1614, Sir William Cokayne convinced James I to revoke the monopoly of the Merchant Adventures and forbid the export of undyed cloth. He convinced the king to grant the monopoly of finished cloth to a company of which Cokayne was a leading member. Cokayne’s argument was that the finishing was the most lucrative branch of textile manufacturing and it would create jobs, profits, and export tax revenues for England. However it backfired terribly. The Dutch retaliated by forbidding imports of dyed cloth from England. Also England did not have the skilled artisans necessary to set up the fishing industry. So the result was a decline in cloth exports, unemployment in the woolen industry, and economic depression. In 1617, the Merchant Adventurers were given back their monopoly. But, the crisis continued and in 1624 the House of Commons opened the trade cloth to all.

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10. What was the College of the Fishery?

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The Netherlands: 1. Most industries operated entirely outside of the guild system; guilds that existed were not that powerful

Restrictions in Herring industry (The “College of the Fishery”) The ships of only five cities were allowed to participate in the “Great Fishery.” The college licensed vessels and imposed strict quality controls. When other European were able to adopt Dutch techniques and challenge their monopoly, these controls proved costly (another backfire)

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5. a. Why did the manorial system persist so much longer in Russia than in Northwest Europe?

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i. Very sparsely populated, about 2 people per square kilometer.
ii. All the favorable conditions for serfdom-slavery described by Domar.
1. a.Free land
2. b.Land owning gentry
3. c.Thus, serfdom (bound labor)
iii. 3.Additionally had very coercive centralized authority to impose slavery.
iv. 4.Very backward as a result of little economic incentive for progress.

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5.b. Why did Italy’s economic development lag behind that of Northwest Europe?

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i. Urban nature of Italy made it particularly susceptible to the Price revolution and plagues because of its relatively higher population density.

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5.c. Why did Scandinavia’s development also lag?

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i. Remained very sparsely populated.
ii. Subsistence, collective agriculture and primitive stock raising.
iii. Need for timber and Swedish iron eventually integrated Scandinavian countries into the western European economy.

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4. a. Describe the impact of the efforts of Prince Henry the Navigator (1418-1460) on the Portugese economy?

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i. Reached Cape Verde
ii. Profitable trade in Ivory, Gold, and slaves.

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4. b. What was the impact on intercontinental trade of the successful voyage of Vasco da Gama (1497-1499)?

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i. Pushed out non-europeans
ii. Split trade between Spain on west and Portugal on east
iii. Portugal supplants Venetians in long-distance trade across Eurasia.
1. In the first decade of 1500s, they swept Arabs off Indian Ocean , (notably Malaaca, in the straights connecting the Indian and Pacific oceans, and Hormuz at the entrance to the Persian Gulf) established fortified trade posts from Mozambique and Persian Gulf to the Spice Islands.
2. In 1493 Ferdinand and Isabella applied to the Pope for a “Line of Demarcation”- a line diving the non-European world between Spain and Portugal. Spain was given the West and Portugal the east. In 1494 the Treaty of Tordesillas moved this line further west giving Portugal the hump of South America, or the Area we now call “Brazil”

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4. c. Contrast Portuguese colonization of Africa and Asia with that of Spain in the New World.

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i. Portuguese: Centered on trade on the East (Spice trade). Did not try to colonize or effectively govern these areas. Set up forts for trading and content to control shipping lanes.
ii. Spain: Plundered these civilizations, then eventually mined them. Spain did not simply erect trading forts in the lands they conquered; they colonized them, bringing their religion and institutions. They set up mines to extract more hold and silver from their new territories

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3. a. What is the Malthusian Model?

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i. The Malthusian Model. Reverend Thomas Malthus described his model of population in Principle of Population, 1798, Basically a diminishing returns to scale. Malthus argued that population growth was limited by the resources of a society. His basic model:
1. 1. The primary resource is food.
2. 2. The law of diminishing returns is inevitable. The cultivation of new land and the intensification of labor in response to demographic growth adds progressively smaller increments to production for each additional unit of land or labor
3. As population grows, it eventually strains on the food supply.

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3. b. Explain how it describes population changes in Europes’ First and Second Logistics.

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i. There is also evidence that conditions of life for ordinary men and women were becoming increasingly difficult in the decelerating phases of the first two logistics (the first half of the fourteenth and seventeenth centuries, respectively), suggesting a decline in or at least stagnation of per capita incomes.
ii. As indicated, with a given technology the resources available to a society set the upper limits to its economic achievements, including the size of its population. Technological change, by increasing productivity and opening up new resources, has the effect of raising the ceiling, as it were, thereby permitting further growth in population. Eventually, however, without further technological change, the phenomenon of diminishing returns sets in, the society encounters a new ceiling on production, and population again levels off (or declines) until a new “epochal innovation” (the phase is that of Simon Kuznets, a Nobel Prize winner in economics; see Chapter 8) again increases productivity and opens up still newer resources. Figure 1-2 presents a simplified representation of the relationship between population and epochal innovations.
GRAPH**

iv. I. Europe’s Second Logistic (Figure 1-2, page 18)
1. Restoration of Growth in Population around 1450.
a. Decline in disease due to increased natural immunity.
b. Rising real wages/better nutrition/increased life expectancy.
c. Earlier marriage/higher birth rates.
2. Stagnation of population in 1600s
a. Wars: The Thirty Years War (1618-1648). Between 1600 and 1650 population in Germany fell by 4 million from 16 to 12 million.
b. Epidemics: catastrophic mortality due to disease and food shortages
c. 3. Fertility declines: changes in nuptiality

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3. c. Give examples of positive checks and preventative checks.

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1. Positive checks (excess mortality): famines, epidemics, wars
2. Preventive checks: population changes behavior to lower fertility-Abstinence, later marriage, abortion, infanticide

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2. a. According to Jared Diamond, the ability to grow what types of crops are most favorable to economic development? Why?

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i. With every round of planting and harvesting, they’d favor ears of wheat and barley whose seeds were the biggest, tastiest or easiest to harvest. Traits that were useless to the plant in the wild thrived under human cultivation.
ii. There are only a few parts of the ancient world that developed farming independently. Not long after the Middle East came China, where people grew another high yield cereal grass – rice. Pockets of farming also emerged in the Americas, based on corn, squash and beans. Later, in Africa, people farmed sorghum, millet and yams. And in most places where farming emerged, a relatively large, advanced civilization followed. But there was an exception to the rule. An area where farming didn’t bring the same benefits – the highlands of New Guinea.
iii. It’s an audacious idea that the inequalities of the world were born from the crops
we eat. According to Jared Diamond, Americans have had an advantage over New Guineans because for centuries they’ve grown crops that are more nutritious and productive. Crops like wheat, which provides about a fifth of all the calories they eat.

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2. b. List and briefly explain 3 characteristics of an animal that Diamond sees as necessary for domestication of that species.

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i. There is another crucial requirement for a domestic animal. It needs to get along with humans. Some animals don’t have the temperament to live on a farm.
ii. start giving birth
in their first or second years.
1. They will have one or maybe two offspring a year, so they’re productivity is actually high.
iii. Behaviorally they need to be social animals, meaning that the males and the females and the young all live together as a group
1. they also have an internal social hierarchy, which means that if humans can control the leader, then they will also gain control over the whole herd or whole flock.