The Roots of Economic Systems
WHY AND HOW DO ECONOMIC INSTITUTIONS CHANGE?
Why do economic systems change?
How do they change
technological change
population growth.
EVOLUTIONARY AND REVOLUTIONARY CHANGE
evolutionary school stress the gradual nature of change.
Revolutionary school
laws of motion Marx
superstructure
Darwin.
ECONOMIC SYSTEMS IN HISTORICAL PERSPECTIVE[1]
HUNTER-GATHERER SOCIETIES
“ORIENTAL DESPOTISM”
Classical Slave Economies
latifundia
The Feudal System
[A] kind of dispersed biker gang: armor, horses, and their propensity to resort to violence elevated them above most of the rest of the population in the same way as leather and Harleys elevate movie bikers where State authority is absent.[2]
Peasantry -- 90 percent of the rural population.
Serfs
Free peasants
Command economy
Mercantilism
Feudal was under attack from without and within.
Rise of trade, towns and markets.
Mercantilism Defined
creation of an integrated economic space
state involvement in the development of the national economy
positive balance of trade was desirable
Adam Smith’s derision in the Wealth of Nations,
“Bullionists”
“Cameralists”
balance of employment.
The Institutions of Commercial Capitalism
Industrial Capitalism
1.The replacement of muscle power (whether animal or human) by machine power, first water power and then steam
2.The replacement of skill and craftsmanship by the artificial and repetitive precision of the machine
3.The replacement of organic sources of raw materials by inorganic ones
4.The replacement of natural “time” by the clock (This last development was especially important for the creation of workforce discipline in the factory system.)
Gain in influence of the manufacturing class.
Corn Laws
The Industrial System in Continental Europe
Finance Capitalism
Imperialism
CONTEMPORARY ECONOMIC SYSTEMS
Socialism and Communism
The Growth of the Welfare State
Corporatism and Fascism
Economics and Islam
The declared purpose of Islamic economics is to identify and establish an economic order that conforms to Islamic scripture and traditions. Its core positions took shape in the 1940s, and three decades later efforts to implement them were under way in dozens of countries. In Pakistan, Malaysia, and elsewhere, governments are now running centralized Islamic redistribution systems known as zakat. More than sixty countries have Islamic banks that claim to offer an interest-free alternative to conventional banking. Invoking religious principles, several countries, among them Pakistan and Iran, have gone so far as to outlaw every form of interest; they are forcing all banks, including foreign subsidiaries, to adopt, at least formally, ostensibly Islamic methods of deposit taking and loan making. Attempts are also under way to disseminate religious norms of price setting, bargaining, and wage determination. And for every such initiative, others are on the drawing board[3].
KEY TERMS AND CONCEPTS
balance of employmentindustrial capitalism
balance of tradeIslamic economics
commercial capitalismlaws of motion
communismmercantilism
the corn lawsOriental despotism
corporatismpopulation growth
evolutionary schoolsuperstructure
fascismtechnological change
Feudal systemsocialism
finance capitalismwelfare state
“hydraulic” societies
QUESTIONS FOR DISCUSSION
1.Why does technological change frequently cause changes in the economic system? Can different economic systems be compatible with a single technology?
2.Why did the system of irrigated agriculture practiced in much of South and East Asia allow the surplus to be appropriated by the state?
3.How did the revival of trade and the advent of the Black Death undermine the feudal system?
4.What economic rationale might there be for a merchant class to favor a balance of payments surplus?
5.In what ways did the repeal of the Corn Laws in Britain represent a victory for the manufacturing classes over the landowners?
6.In what ways did economic development on Continental Europe differ from development in Britain?
7.Distinguish between socialism and communism as economic systems.
What defines a corporatist state?
9. “Fascism should be more correctly called corporatism.” Should this be a criticism of contemporary corporate America?
9.In what ways have Islamic economies found alternatives to handle the restriction on the use of interest rates?
RESOURCES
WEB SITES
This chapter is largely concerned with economic history and the history of economic thought. A good starting point for any research into the history of economic thought is the “History of Economic Thought” Web site, which is currently at although it is in the process of relocation. It provides links to Web information on all major economists (living and dead), providing access to biographies, critiques, and their work that is downloadable from the Web. Two particularly useful sites in the context of this course are the following:
- A searchable and downloadable copy of Adam Smith’s An Inquiry into the Nature and Cause of the Wealth of Nations, which is at
- The Marx/Engels Internet Archive has links to all of the Web-accessible work of Karl Marx and Friedrich Engles, as well as a lot of commentary. It is at
3. There are a growing number of sites that provide information about Isalamic economics from the point of view of its proponents. One can be found at
BOOKS AND ARTICLES
Cameron, Rondo. A Concise Economic History of the World, 2d ed., 363. Oxford: Oxford University Press, 1993.
Coleman, D. C. Revisions in Mercantilism. London: Methuen, 1969.
Farouqui, Mahmood, ed. Islamic Banking and Investment: Challenge and Opportunity. New York: Kegan Paul, 1998.
Fei, John C. H., with Gustav Ranis (Contributor). Growth and Development from an Evolutionary Perspective. London: Blackwell, 1997.
Hansen, Ejvind Damsgard, European Economic History: From Mercantilism to Maastricht, Copenagen: Copenhagen Buisness School Press, 2001
Hodgson, Geoffrey M. Evolution and Institutions: On Evolutionary Economics and the Evolution of Economics. White Plains: Edward Elgar, 1999.
Kuran, Timur. “Islamic Economics and the Islamic Sub-Economy,” Journal of Economic
Perspectives 9, no. 4 (Fall 1995): 155–173.
Kuran, Timur, "The Genesis of Islamic Economics: A Chapter in the Politics of Muslim Identity,” Social Research, Vol. 64, no. 2 (Summer 1997)
Nelson, Richard , Evolutionary Theory of Economic Change, Cambridge: Harvard UP, 1985
Presley, John, and John Sessions. “Islamic Economics: The Emergence of a New Paradigm,” Economic Journal 104 (May1994): 584–596.
Schwartz, Herman. States Versus Markets: History, Geography, and the Development of the
International Political Economy. New York: St. Martin’s Press, 1994.
[1]This section is concerned with the evolution of societies in historical perspective and can be omitted without damaging the overall flow of the text. It is recommended that any reader rejoin the discussion with “Contemporary Economic Systems” on page 57.
[2]See Herman Schwartz, States Versus Markets: History, Geography, and the Development of International Political Economy (New York: St. Martin’s Press, 1994).
[3] Timur Kuran, "The Genesis of Islamic Economics: A Chapter in the Politics of Muslim Identity, Social Research, Vol. 64, no. 2 (Summer 1997)