Economic Systems Review

REAL ESTATE ECONOMICS

The Historical Evolution of Economic Systems

Hunter Gatherer Societies Agricultural Societies Trading Societies Slavery Colonization Developmental State

Hunter Gatherer SocietySimple production processes

No Markets, no intermediaries between resources and final product, and no wage labor—production is for (extended) family—and no ownership

Hunter Gatherer SocietyProduction

Little to no surplusProduce to satisfy basic needsHunter her Societies are NOT driven by

scarcityProduction is based on what is needed for own

consumption“Use value” will vary from one individual to

another, “exchange value” is not relevantEveryone shares in acquisition of goods, except

if too frail to do so

Hunter Gatherer SocietyDistribution:

Cultural customs determine how goods are distributed.

Distribution is not a major concern because there is little production beyond subsistence.

Generally Equal Distribution Risk is shared equally also

Agricultural SystemsSettled agriculture allows for the

production of surplusProducer roles change, and trade has a useful

purpose. Renter class evolves: resource rich labor rich Producer and Consumer roles originate

Ownership of resources (land) becomes important Exclusivity of use Control over embedded resources

Agricultural SystemsLabor Rich Households must sell their

labor in order to survive. They sell their labor to the resource rich

households. Resource rich households can now get

enough food without having to work.

Agricultural SystemsThus, this allows the development of a

class of people who do not work, but are physically able.

This class has dominance in bargaining power and is therefore capable to develop a social role that is more exclusive (scarce) authoritative and powerful:priest or philosopher classmilitary class, etc.

Agricultural SystemsThe powerful are land owners.The powerful have people working for

them who have bargaining disadvantages.

Slavery evolves.

Agricultural SystemsThe powerful receive proportionately

more of the surplus than the labor rich.They invest surplus and take chances on

technological innovations that pay off and improve yields (irrigation, fertilization and hybridization).

Agricultural SystemsAs a result of expanded food production

population expands.During food shortages, populations

decline—some empires collapse along with economic prosperity.

Malthus’ theory …

FeudalismThe landed resource rich become feudal

lords Labor rich population growth as food

supply increases

FeudalismLabor roles increase in order to manage

more complex societal organizations.EnslavementExpansion in productivity and production

through political tyranny.

FeudalismProtecting the wealth of land lords

becomes important: military role of government is born.

Before, military resources were a tool to expand territorial scope of an empire.

Now, it becomes a tool to oppress internal discord in civilizations.

FeudalismAs knowledge increases, and resource rich

households grow larger, roles for powerful take on more dimensions, filled by their own ranks.

FeudalismHierarchical labor assignations evolve—

nepotism, oligarchy and ultimately monarchies and empires take shape from consolidations of power through military force.

MercantilismMercantilists were an educated urban

class that served the lords by mediating between the powerful from different regions.

Mercantilism evolved first in Asia (6th-7th century) and Africa (12th century), then in Europe.

MercantilismMercantilists bridged transportation gaps,

cost effectively.They assumed risks and roles that

monarchs would not, lest they be perceived as “weak” by their enemies.

MercantilismMercantilists NOT interested in

(attachment to) land because of history and culture—nomadic traditions, militarily/resource poor.

Thus they continually were dispossessed: overseas Chinese, Arabs, Jews, Persians, Armenians, Lebanese, and other ethnic and religious minorities (the old immigrants).

MercantilismThe development of this urban class was

frequently derived from a cultural separation from the community. Ethnic minorities became the traders.

MercantilismInnovations in maritime transportation

allow powerful to export their influence and military might.

This projection of power, combined with the every growing desire to acquire more resources (human and otherwise) results in colonialism.

ColonialismOrigin: To acquire land, and embedded

resources, including “slaves”.Evolution: Exported know-how to colonies

so as to import processed/fabricated goods.

Control: Colonialism’s unfairness led to revolt and wars for independence.

England, and the Jewel in the Crown

IndustrializationTechnological innovations from European

“knowledge” and/or “innovation” movements: the renaissance and the enlightenment.

IndustrializationLand and agriculture become less

important to the powerful, as opportunities to mass produce goods by using capital goods creates greater wealth opportunities.

IndustrializationMineral and energy resources are the

commodity markets of the new rich and powerful.

IndustrializationSlavery is abolished in most of the

Americas between 1811-1815.Slavery’s moral deficiencies outweigh

its perceived agro-economic advantages to the United States, but still is a major cause of the 1856 civil war, which institutes emancipation in our country.

IndustrializationMagnifies the contrast between the

resource rich and the massively large class of labor rich persons, giving rise to redistributist political philosophies and institutions: Socialism, Crony-Capitalism, Globalization or Integrated Socialism.

Modern Economic SystemsDiverse brands of capitalismGovernment role varies from system to

systemBut, “Hamilton won the debate, Jefferson

lost”. In most well-to-do modern economies, government makes up 1:2 to 1:8 parts of the economy.

Western CapitalismProduction is for exchange Produce goods based on exchange value Drive to accumulate more capital Investment and innovation Division of labor

Different workers with different skills or talents perform different parts of the production process.

Same drive to increase profits leads to cut-throat competition

If technological possibilities (productivity increases) are exhausted the only way to increase profit is by lowering wages.

Distribution and Appropriation in Western Capitalism

Agricultural System:Distribution is

controlled by land owners

Appropriation is via conquest or physical force

CAPITALIST ECONOMY Distribution is

bargained for in a market

Appropriation is rendered invisible through exchange

Western CapitalismSurplus is divided between consumers and

owners of production resources and means, in regulated markets.

Drive to innovate arises from improving living standards.

Western CapitalismBalances Efficiency with Fairness.Oversees and protects markets from

imbalances in bargaining power between buyers and sellers and between workers and owners of capital.

Asian CapitalismCollectivism not competitionSolidarity with worker (team)Extensive government involvement to

promote survival not growth

KeiretsuGroup of interrelated firms Firms are in different industries Each group includes a bank Each firm is linked through stock ownership Each firm has independent leadership Business transactions are based on long term

relationships rather than short term savings Firms are insulated from risk and stock price

fluctuations because the bulk of their financing is derived from these long term relationships