CHAPTER 2: The Economic Revolution

• The conflict
• man's self-centered nature
• the need to cooperate as society for survival

• Primitive society: environment forces men to work together for survival
• Advanced societies: economy falls apart if each man not faithful to his work
• e.g. not enough miners work the mines, not enough farmers plow the fields, not enough students study medicine/engineering...
• the society threatens to break down if any one of the countless interdependences should fail

• History has come up with only three solutions to this calamity
• Customs & Tradition
• carpenter's son becomes carpenter, farmer's children take over family farm...etc
• esp. Medieval ages
• Command/centralized authoritarian rule
• enforcement by dictatorship
• e.g. building of pyramids in Egypt, Five-Year-Plans of Soviet Union in post- WWII era
  
• Free Market Mechanism
• the above two were simple solutions ("the pull of tradition or whip of authority"), and thus no need for economists
• aka. Capitalism
• a system of buyers and sellers, motivated by self-interest, conduct business with the goal of making profits
• decentralized: each man decides what job to take, each household decides what to buy with income, each business decides what to produce, what method of production, where to sell product...etc
  
• supports & maintains a whole society, NOT same as simple exchange of goods in primitive society, nor commercial fairs of Middle Ages, nor a farm produce market/stock exchange
• brought about through Economic Revolution

• Factors that caused Economic Revolution
• The Renaissance (1350-1600)
• weakening religion: inquiring, skeptical attitude
• encouraged individualism in economic affairs
• contributed to breakdown of guild system
  
• The Scientific Revolution (1500-1700)
• laid foundation of Industrial Revolution
  
• Emergence of Nation-States (15th-17th century)
• gave rise to royal patronage for favored industries
• maritime trades
• standardization of laws, measurements, currencies
  
• Age of Exploration & Discovery (15th-17th century)
• rise of wealth in gold, silver, raw resources from colonies of New World
  
• Protestant Reformation(1500-1648)
• old religious thinkers: Thomas Aquinas, St. Augustine
• importance of salvation over acquisition of earthly goods
• "Love of money is root of all evil" (I Timothy 6:10)
• Calvinism
• encouraged enterprise
• prosperity as God's grace, poverty as evidence of damnation
• obliterated old concepts
• "just price"
• ban against charging interest on loans
• Basic Agents of Production (factors of production)
• Land
• Labor
• Capital