The Evolution to Modern Economics

This essay was selected from 150 entries in the Minneapolis Fed's 11^th annual essay contest for Ninth District high school
juniors and seniors.

The market scene in Antwerp, painted in the late 16th century by an unknown artist, hangs in the Royal Fine Arts Museum in Brussels, Belgium. The painting strongly depicts the intensity of a market set up on a market square surrounded by streets, shops, guild houses and a town hall.

¹ Antwerp was the leading trading port of northern Europe at the time. From the details in the painting, economic inferences can be made just as economists do today. Consistent with the view that economics is "a study of mankind in the ordinary business of life," then this market scene demonstrates the economic principles of the market at that time, as well as certain aspects of the development of today's capitalistic economies. In particular, the increase in competition, the diminishing of class lines, the increased importance of transportation and the relationship between land, labor and capital distinguish this mercantile economy. These four aspects continue to characterize today's capitalistic economy.

Antwerp's success began in the middle of a transition to a more structured economy. More specifically it was in the stage of mercantilism in which "the basic elements of capitalism had been created and waited for a full trial."² As displayed in the painting, the merchants test these new principles by selling primary goods such as eggs, bread, cheese, poultry, fruits and beverages all from tables in the foreground, and some stalls and shops in the background. Presumably it was there that textiles, spices and other more important products were sold, since these goods were more valuable, and therefore less likely to be sold in the open air. The sale of similar products increases competition and forces man to act as Adam Smith describes, "an anxious animal"³ -anxious to sell, anxious to make profit. Yet, in a capitalistic-based economy, man is restricted in production through competition which forces man to produce "not at the price he dreams of charging, but at a price reflecting how much his neighbors value what he has done."⁴ The close proximity of the merchants in Antwerp further drives the merchants to outsell their competitors. Whether in Antwerp or in today's capitalistic economy, competition provides the basis for efficiency, as well as a source of commotion-support that the early capitalistic principles present in Antwerp are present in today's capitalistic economy.^{5, 6}

Merchants and customers, all with different status, power and wealth, congregate to trade. The feudal system, present before capitalism, did not provide a mingling of such diversity. Yet after the landlords issued enclosures, forcing the serfs to the cities, all classes for the first time came together in a market, which began to break down the barriers that had separated them. The painting supports the absence of class lines through the variety of merchants and customers, distinguished by their dress, mixing, trading and working together in the market. Specifically, on the left of the painting a group of merchants dressed in black cloaks shake hands with a man of higher class wearing a red suit and riding a white horse-a scene not likely to occur before the market system was introduced. Throughout the rest of the market scene, it is difficult to find three merchants next to each other wearing the same dress—a detail which portrays the mixing of classes. The lowering of class lines in a market is mentioned by Adam Smith as he looks to each class equally for market success. In short, Smith "approaches economic society without a biased brief for a particular party or class."⁷ Even in today's capitalistic economy, class lines diminish as people congregate in the markets. This freedom of diversity is what helps distinguish a capitalistic economy. Without diversity in the market, the population would not be as large, and the wealth not as great. Similar to Antwerp, today's capitalistic economy chooses the road to efficiency.

Any market would fail if it did not have an efficient method of distributing its products and trade goods in and out of the market. Antwerp, the trading capital of northern Europe, had such a system in the 16th century. The market scene gives evidence of Antwerp's regional transportation system. On the far left of the painting a man pushes a wheelbarrow filled with some sort of produce. On the right a man appears to be loading a wheelbarrow and in the center of the activity two carriages pulled by horses also transport goods. Finally, in the upper left two men on horseback gallop off on some urgent mission.

Without wide-ranging trade routes, little efficient transportation could occur, especially from distant sources of goods; thus, trade would be inhibited in quantity, diversity and cost of goods. The establishment of trade routes, to and from Antwerp, increased the efficiency of international transportation. The simplicity in transportation of imports and exports reduced the distribution and shipping costs, and made the general economy more efficient. Antwerp was located 88 kilometers away from the North Sea via the River Sheldt—a river with numerous branches, canals and tributaries which together formed the perfect environment for successful trade routes. Antwerp's success, aided by its location and efficient transportation, soon transformed it into the "Venice of the North"⁸ as the population increased to 100,000. ^{9, 10} Production Possibilities Frontier

Much like that of Antwerp, today all capitalistic economies would fail if they did not each have efficient transportation systems. Without a mode of transportation, all three of the coordination tasks of the economy-output selection, production planning and distribution-would fail. The tasks of production planning and distribution would be useless as few goods would sell if the consumers could not receive them. Furthermore, the effect of technology in a growing economy would diminish as many consumers would be cut off from the market. For example, the effect of advertising would not be as significant as the consumers would not be able to get their hands on the newest products. More specifically, consider an instance in which an economy, with the absence of a transportation system, attempted to produce a combination of bread and cheese.

The combination would be irrelevant if the consumers didn't have equal chances of receiving both products. Soon to develop would be either a massive shortage or surplus, depending on which of the two products one could receive. Thus the success of the markets with efficient transportation systems caused growth in the use of transport domestically and internationally. Capitalistic markets today continue to rely on transportation for success.

Some observations about the relationships between land, labor and capital—the factors of production—can be made from the painting. The painting gives evidence that the land is not specifically assigned. In the center of the market square there appears to be both an overcrowding of merchants and insufficient organization of products by location. This is not how a modern market would be laid out. The role of labor seems disorganized because of what appears to be, based on their clothing, a mix of classes performing similar tasks. Peasants, more commonly dressed in the less elaborate clothing, appear to be selling and transporting goods, just like the people of higher class dressed in finer clothing. Efficiencies result when roles are clearly defined. Perhaps if labor had been more efficiently organized, then Antwerp could have been more successful in the globalization of its trade in products such as spices and cheese. Capital, the third factor of production, is evident in the prosperity of the market scene. But capital soon reaches a plateau unless innovations and better organization of labor and land bring about increased production, lower costs and greater wealth. Partially due to the less than full and efficient organization and use of the factors of production, Antwerp's economy was unable to sustain its competitive leadership and the city fell behind Amsterdam in the second half of the 16th century. In a more modern capitalistic economy, land, labor and capital are organized and used more efficiently. Such organization creates a "society with a specific history of acculturation and institutional evolution, [that] solves its economic problems."¹¹ Although Amsterdam surpassed Antwerp, Amsterdam itself would be surpassed by other European cities. The economic process never ceases to evolve. ¹²

As mentioned, many economic principles depicted from the observations made of the painting exist in today's capitalistic economy. What is important to recognize is how the Dutch markets continue to supply, through the use of trade and the mentioned principles, many of today's products, specifically: Dutch chocolate, Dutch cheese and Dutch beer.

The market scene in Antwerp is interpreted through inferences drawn from its details. The economic principles and state of development of its mercantile economy are observed. The "ultimate object [of mercantilism] is always the same, to enrich ... by its advantageous balance of trade."¹³ Specifically, the rise of competition, the lowering of class lines, the increased use of transportation, and the relationship of land, labor and capital supplied the foundation for the evolution to modern, capitalistic economics.

See more on the Minneapolis Fed's essay contest and the second place essay.

Endnotes

¹ Hale, John. The Civilization of Europe in the Renaissance. Macmillan Publishing Co. New York, 1993 (pp. 170-175).

² Heilbroner, Robert L. The Making of Economic Society. Prentice-Hall Inc. New Jersey, 1968 (p. 61).

³ Buchholz, Todd G. New Ideas From Dead Economists. Penguin Books USA Inc. New York, 1989 (p. 11).

⁴ Ibid. (p. 22).

⁵ Heilbroner, Robert L. The Making of Economic Society. Prentice-Hall, Inc. New Jersey, 1968 (p. 63).

⁶ Hale, John. The Civilization of Europe in the Renaissance. Macmillan Publishing Co. New York, 1993 (pp. 170-175).

⁷ Buchholz, Todd G. New Ideas From Dead Economists. Penguin Books USA Inc. New York, 1989 (p. 19).

⁸ Heilbroner, Robert L. The Making of Economic Society. Prentice-Hall, Inc. New Jersey, 1968 (p. 150).

⁹ Buchholz, Todd G. New Ideas From Dead Economists. Penguin Books USA Inc. New York, 1998 (p. 29).

¹⁰ Mason Anthony. Brussels/Bruges, Ghent, Antwerp. Redwood Books Ltd. Great Britain, 1998 (pp. 345-374).

¹¹ Heilbroner, Robert L. The Making of Economic Society. Prentice-Hall, Inc. New Jersey, 1968 (p. 61).

¹² Ibid. (pp. 61- 67).

¹³ Hutchins, Robert Maynard. Great Books of the Western World. Vol. 39, Adam Smith,"The Wealth of Nations." Encyclopaedia Britannica Inc., Chicago, 1952 (p. 279).