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"Understanding the Economic Basics & Modern Capitalism: Market Mechanisms and Administered Alternatives"
by Dan Blatt - Publisher of FUTURECASTS online magazine.

Smith: Wealth of Nations.   Ricardo: Principles.
Marx: Capital (Das Capital).   Keynes: General Theory.
Schumpeter: Capitalism, Socialism and Democracy.

Economics is the miracle science. Even imperfect capitalist markets routinely raise billions out of poverty.

Table of Contents & Chapter Introductions


David S. Landes

Page Contents

History of Economic Development

Industrial Revolution

Comparative Advantage

FUTURECASTS online magazine
Vol. 7, No. 1, 1/1/05
(From Vol. 1, No. 4, 11/1/98.)


 Capitalism and the Triumph of Western Culture:

   The determinants of modern economic prosperity are geography and key characteristics of Western culture.

Revisionist stupidity:




 Why some advanced and others fell behind:







  This is plainly obvious, of course. However, because of the efforts of certain "politically correct" revisionist scholars to obscure or even deny the leading role of Western civilization in shaping the modern economic world, David S. Landes has felt obliged to emphasize the obvious in his thoroughly researched, impressive history of the last 1,000 years of economic development. His book covers all the most important and secondary regions of the world, and provides a wealth of detail and insight.
  Writing prior to the end of the 20th century, Landes explains:
  • How Japan developed so fast while China stopped developing, and why India had so much trouble developing, although both Chinese and Indian expatriates were thriving in nations all around the world;
  • Why English nations led the charge into the modern economic world while Spanish and Portuguese lands floundered;
  • The economic problems posed by geography and climate in tropical regions; and,
  • The impact of iron tools on European development, and of the lack of iron tools on Asian development.

  Landes provides an unblinkingly realistic, harsh indictment of those scholars who, for ideological reasons, are striving to grossly distort economic history. Rejecting political correctness, he traces modern economic development to two European characteristics, one geographic and the other cultural.

  Geography is destiny - for economies:

  Geography has clearly played an important role in determining which societies and nations have progressed and which have lagged behind. Landes points out that peoples in tropical and semi-tropical zones have obviously been severely handicapped by the climatic and weather patterns of those regions.

Divided they rose!

 Hot climates are enervating. They breed a wide variety of dispiriting and incapacitating diseases. When not dominated by deserts, their weather patterns alternate between drought and torrential downpours that are inimical to farming. While modern medicine and technology now offer some hope for overcoming these natural handicaps, it is still grossly stupid to ignore or deny the problems.
  The author points out that Europe, too, had its geographic limitations - until the development of iron tools. These permitted the clearing of the great hardwood forests that dominated Europe and restricted the area suitable for farming.
  The pertinent geographic difference between Europe and other temperate regions was the fragmented nature of European topography. Overland transportation and communications were simply too difficult. It proved impossible, after the fall of the Roman Empire, for any one nation or autocrat to conquer all of Europe.

  However, they kept trying. The obvious downside was 1500 years of interminable and bloody conflict.

  Landes asserts that nations dependent on irrigation systems from great rivers inevitably fall under the despotic authority capable of organizing, constructing and maintaining great irrigation projects. Autocrats inevitably smother individuality and economic freedom - characteristics essential for modern economic development. These characteristics can also be smothered by powerful fundamentalist religions.

The beginnings of individuality:

  The differences for Europe cultural development - especially within Western Europe - involved the relationship of the individual to the ruler or the state. There was a pervasive sense of property rights, and that god is above - rather than on a par with - the ruler.

Property and propriety:




Political and religious rivalry and the right of exit:


Competition provides good results in politics and religion as well as in economics.






The power of freedom, individuality, and property rights:

  People felt free to be - discreetly - judgmental with respect to the conduct of kings and aristocrats. They had a sense of what was proper and what was improper. These principles arise from diverse sources, including the Judeo-Christian bible and ancient works on Greek and Roman philosophy. All of these works were published and became widely accessible in the vernacular in the 16th century, simply because there were always some countries in Western Europe where people were free to publish as they wished.
  In addition, in Western Europe, with its variety of nations, principalities, and semi-autonomous commercial cities, Landes points out that people could "vote with their feet" and opt for the location where enterprise was possible and knowledge could be pursued. With the variety of political powers existing within the confines of Western Europe, and within individual states as well, commercial interests became important players in political power struggles, bringing with them concepts of contracts and individual rights.
  Competition provides good results in politics and religion as well as in economics. "Political rivalry and the right of exit made all the difference."
  Ultimately, fragmentation also allowed competing religious attitudes to carve out places for themselves, with similar beneficial results. "Europe was spared the thought control that proved a curse in Islam," Landes asserts. At each moment, there were political and religious leaders in much of Europe who tried to control events and throttle dissent or innovation. However, there were always some places in Europe where innovation and enterprise and dissent were permitted to flourish.
  The wealth, power and influence of such places inevitably forced changes throughout Europe, as it now does throughout the world. Wherever people could work for their own interests instead of for the interests of overlords, inventiveness and commercial development flourished.

 The importance of freedom




  In 1000 A.D., Europe was a barbaric backwater, well behind the civilizations of China, India and the Islamic world. There were flourishing centers of trade and industry in many regions of the Asian landmass and around the Indian Ocean. Muslim and Chinese traders crisscrossed the Indian Ocean from East Africa to Southeast Asia. Muslim trade in slaves from East Africa flourished for centuries before the coming of Europeans (and for a century after the ending of the European slave trade).

Why try?

  However, invention and commerce were limited by the absence of freedom. As Landes points out, in China and India, there was "an absence of incentive to learning and self improvement." In the Islamic world, there was religious opposition to anything new. In China there was a lack of competitive pressures on the autocratic rulers.
  The peasant belonged to the emperor. He had only very limited rights in land or personal property, and no incentive to improve the land or productive tools. With China usually a single, unified, great empire, there was no exit for those who felt stifled in their economic ambitions. India, too, suffered from religious taboos, autocratic governments, and lack of rights in land or personal property. Any wealth could be expropriated.
  "In short," says Landes, "no one was trying. Why try?"
  Early in the 15th century, China launched grand fleets, with hundreds of great ships and tens of thousands of men, that cruised the Indian Ocean all the way to East Africa, decades before the coming of the Portuguese. But these were imperial displays, at vast cost. Although they did conduct trade, the emperor felt little economic incentive. Ultimately, a new emperor came to power, and the Chinese expeditions ended. The emperor felt no need for these expensive expeditions. (Note the similarities with the NASA moon landings.)

Profit incentives:






Despotic control was more important than economic prosperity, or even military strength.


Despotic power was hard but brittle.

  However, the European expansion was profit-driven, and thrived. By the 15th century, Europe had the upper hand in economic power and weaponry. With the cruel attitudes of those times, they drove forward towards empire, with disastrous results for native peoples in the backward regions of Africa and the Americas
  Landes spreads before us the great bloody tableau of expanding European imperialism, providing perceptive insights into the successes and failures of the various players. At each point along the way, the nations where men of enterprise were most free to pursue wealth and/or knowledge slowly pulled ahead of those autocracies and theocracies that stifled individual ambitions.
  Repeatedly, in Asian nations like China, Japan and India, and then in European nations like Spain and Portugal, governments and religions demonstrated that their first priority was control of the minds and bodies of their subjects and flocks, even though that meant slow descent into economic and military weakness.
  Europeans conquered empires because those empires were despotic and oppressive in nature, with no real interest or loyalty extending from the subjects to their rulers. Their strength might be hard, but it was always brittle. Repeatedly, the populace welcomed and assisted the strangers who came to overthrow the indigenous tyrants. Frequently, the populace was tyrannized as badly by the newcomers.

The Industrial Revolution:

  The advantages bestowed by geography and freedom on such nations as England and The Netherlands were also decisive in their rapid industrialization.


The Protestant advantage:









Victimology propaganda is a self defeating escapism.


The Industrial Revolution was the result of European cultural characteristics.

  In addition, there was the Protestant Reformation that gave Northern Europe an important intellectual advantage over Catholic Southern Europe.

  "It gave a big boost to literacy, spawned dissents and heresies, and promoted the skepticism and refusal of authority that is at the heart of the scientific endeavor. The Catholic countries, instead of meeting the challenge, responded by closure and censure."

  Landes constantly does effective battle with modern revisionist economic history. For example, he skewers those who challenge the accelerated growth rates that define the "Industrial Revolution." He points out that the revisionist statistical analyses leave much to be desired. Just adding in the advances in quality (and variety, too) such as improved metals and improved engines, etc., greatly increases growth statistics.
  Ignoring the dictates of modern political correctness, the author emphasizes the cultural factors that, for centuries, held back Chinese and Indian development, and hindered development where Catholicism and Islam were strong. He is rightly dismissive of modern victimology propaganda, which seeks to blame continued third world economic failure on European and American political and economic domination. He characterizes such victimization as "a self-defeating escapism."
  Landes explains the Industrial Revolution as the result of European characteristics that permitted intellectual autonomy, the development of the scientific method of analysis, and the development of research as a routine human activity, with its own language and methods, developed and accepted across national boundaries and independent of religious considerations.

Freedom, individuality, and property rights:

  The focal points of intellectual freedom and ferment shifted from country to country over time. However, there were always some places in Europe where men could pursue intellectual and scientific pursuits free of political or religious constraints. There were always places where ideas could be freely discussed, published and contested, and where nongovernmental institutions could be created that encouraged the dissemination of scientific inquiry.
  Each technological triumph built momentum for additional advances that drew some of the Western European nations ahead of the rest of the world at an accelerating pace. England led the charge because its ordinary citizens knew greater freedoms and property rights and legal rights than in any other major nation. With some inevitable exceptions, merit governed commercial relationships, and comparative advantage ruled its markets and industry.

  The people of England also benefited as citizens of an island naval power that didn't need a standing army for protection. A navy is expensive to maintain, but not much use for collecting taxes or oppressing the population. English monarchs periodically had to dicker with its wealthier subjects for financial resources.

  Landes provides many examples of instances where economic freedom permitted the pursuit of profitable results and achieved commercially rational results, while similar efforts in government directed systems achieved inferior economic results. The building of roads and canals for commercial purposes in England are a primary example.
  Country by country, region by region, he explains the differing results of industrialization in terms of geography, institutions, society and culture, industry and finance, and the acquisition of manufacturing know-how and scientific knowledge. He also explains the later transformation of the Industrial Revolution from a process where economic advances were driven by mechanical innovation to one where economic advances were driven by scientific advances.

Comparative advantage:

"In the long run, only optimism pays."

  Aside from contempt for revisionist scholarship, Landes offers many questions and only one conclusion: "In the long run, only optimism pays." He is skeptical about the effectiveness of government economic policy initiatives, but hesitates to place all bets on the market and comparative advantage.

 The mixed blessings of industrial policy:



When governments pick winners and losers, we should not judge success just by looking at the winners.

  This leads to the only - minor - problem with this book. Comparative advantage is a constant concern for Landes. He repeatedly points out how comparative advantage for various industries shifted favorably or unfavorably between nations due to advances in technical knowledge, education, or the development of transportation and communication infrastructure. He notes the major role government policies often played in these shifts. He notes that the theory had been used to justify the international division of labor prevailing at various times, and rightly criticizes the notion that governments should meekly accept a particular status quo.
  Even after noting the many cultural factors and protectionist and obstructive government economic policies that have held back development in India and Latin America, he indicates that some of the blame should be placed on laissez faire acceptance of the prevailing comparative advantage. (He appears unaware of the contradictory nature of these positions.)
  He notes that Portugal and Spain opted for empire rather than being content with the commercial advantage possible with their comparative advantage. (However, pursuit of empire left these nations impoverished for centuries.)
  He notes with approval that Germany and Japan opted for heavy industry.

  However, this favoritism for defense industries led these nations - and the world - into disastrous world-wide conflicts that left Germany and Japan in ruins. Certainly they would have been far better off, and would have industrialized in a far more commercially rational manner, if their governments had just concentrated on infrastructure improvements, education, and similar general policies - as they did after WW-II - rather than choosing to favor defense-related industries.
  How much did the German and Japanese people benefit from the building of great military fleets? When governments pick winners and losers, we should not judge success just by looking at the winners.

Facilitate commerce, burden commerce, or plunder commerce:

  Indeed, as Landes frequently points out, not all government efforts at altering comparative advantage prove commercially favorable. More often than not, their efforts are designed to benefit favored economic entities rather than the economy as a whole - or are directed at enhancing military strength rather the material prosperity of the nation. Then, of course, there are the kleptocracies.

  Improvements in education and infrastructure, the provision of property rights and an effective commercial law, widespread access to credit, the cultivation of an empowered civil society, and similar government policies that facilitate commerce, are likely to favorably alter comparative advantage for a nation as a whole. Tariffs generally burden the whole for the benefit of political favorites or defense industry.
  This distinction is ignored by Landes. He also never distinguishes between occasional propaganda use of laissez faire arguments and the reality of constant and intense government involvement in economic policy even in all the advanced capitalist nations. See, "The 'Laissez Faire' Straw Man" in "Future Economic Myths."

  At any rate, as he notes, those major nations that historically made little or ineffective efforts to favorably influence their comparative advantage acted in that manner because they were willing to surrender economic and even military advantage in favor of assuring religious or political control. Their policies were not based on any high regard for a static view of comparative advantage.

  Static comparative advantage is really just a propaganda straw man, like its near relative, laissez faire. Just as there has been no major industrial nation during the history of the Industrial Revolution that actually, at any time, had a laissez faire economic policy, See, Government futurecast, Part I, "Economic virtues of the U.S. political system," static comparative advantage has also never been considered acceptable.
  The real question is not whether the markets should be left to their own devices. The real question is

  • whether and to what extent governments strive to facilitate commerce in general for the benefit of the populace as a whole, or 
  • burden commerce in general for the benefit of political favorites or defense industry, or 
  • just squeeze commerce for the kleptocratic benefit of the ruling clique.

  In his critical statements about comparative advantage, Landes debates the virtues of the static straw man rather than the dynamic reality.

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Copyright 1998 Dan Blatt