Western Economic Systems in the Early Modern Era

AP World History

Transition from Feudalism• Growth of political stability in

late middle ages = increased population in cities/towns

• Serfs could escape manors to cities

• Open markets broke down traditional manors

• Merchants able to acquire more wealth than feudal lords - supported kings, shifting power away from aristocrats to merchants

Economic Control• Governments, Kings want to

use economic power to increase political power - domestically and internationally

• Government helped focus economic pursuits that benefited the state

• Called mercantilism 

Mercantilism Basics• Strength of a nation based

upon wealth - especially possession of gold and silver

• Balance of trade had to be favorable

• Protective economic policies - high tariffs, subsidies for domestic industries

• Colonies to provide raw materials, only trade with controlling nation

• Governments grant monopolies to companies

Mercantilism Basics• British East India Company

Transition to Capitalism• New World trade increased

wealth of merchants• Money reinvested• Rising prices keep profits high

- due to influx of New World silver and gold

• New business organizational methods developo Joint-stock companieso Shareso Companies finance

colonies

Adam Smith• 1776 - Wealth of Nations• Advocated for a free market,

with no government control - more beneficial to society, people would be more productive

• Laissez Faire - Hands Off• Believed in the "invisible

hand" of the market• Opposed trade restrictions