Economics of the Modern Age

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The economy of the Modern Age developed between the 15th and 17th centuries. It is characterized by agriculture, as the main economic activity, the emergence of capitalism, the growing influence of the bourgeoisie and an increase in commercial relations.

The Modern Age not only brought with it events such as the discovery of America or the Renaissance. It also meant great progress on an economic level.

Thus, the bourgeoisie assumed a much more active role in the economy compared to the nobility, or the first elements of capitalism began to appear. And it is that, during this historical epoch, large commercial operations began to develop, mercantile companies arose, at the same time that credit mechanisms were developed.

Economy of the Modern Age: Preponderance of the primary sector

Agriculture continued to be the great economic activity of the Modern Age. Thanks to agriculture wealth was generated, the nobles could have income and also the States collected taxes thanks to the income generated by this activity.

In those times, agriculture was extensive, that is, large areas of land were dedicated to a single type of cultivation (monoculture); which was mainly the cereal. As for land ownership, he continued to focus on the nobility and the Church.

However, dependence on an activity such as agriculture subjected the people to strong ups and downs. Thus, the fall in agricultural activity could lead to very convulsive scenarios at the economic and social level. This could occur in unfavorable weather conditions, which could lead to famines.

The role of the bourgeoisie

If the bourgeoisie emerged in the Middle Ages thanks to trade, in the Modern Age it will acquire an even more important role. We are talking about bankers, owners of textile workshops and shipowners, among others. Their loans would contribute decisively in the consolidation of the new States and in the financing of the armed conflicts.

In view of the increasing relevance of the economy, the kings carried out measures to enjoy greater economic power. In this way, relations with the bankers who not only paid for the wars were strengthened, but also financed great voyages of the explorers.

Mercantilist capitalism

The economy of the Modern Age was characterized by a great expansion of trade, not only within cities, but between different countries. States such as Spain, France or England were the main protagonists, achieving a great commercial expansion thanks to their new colonies and the precious metals that came from them. Thus, there is an evolution from merchant trade to a mercantile capitalism, based on the accumulation of wealth.

In this way, the States sought to increase their precious metal reserves, while the development of banking and loans allowed to give a boost to the economy. Therefore, the prosperity of a nation depended on the gold and silver they possessed, which is why, for this, they sought to obtain a favorable trade balance, in which sales clearly exceeded purchases.

Development of credit instruments

Under the protection of commercialism and growing international trade, the first stock exchanges and mercantile companies appeared. But there was an element that increasingly had more weight in politics and in the economy: banking. For this reason, new credit instruments were developed such as:

  • The bill of exchange: Document that forced a person or bank to pay a debt.
  • Promissory note: Document that specifies a promise to pay within a specified period of time.
  • Credit: Receiving a loan allowed a merchant to carry out his economic activity and obtain a profitability with which to profit and return the amount borrowed. For their part, the lenders received interest on the amount loaned beyond the good or bad performance of the business.

Economic thought in the Modern Age

A historical period as extensive as the Modern Age gave rise to various currents of economic thought. Among them, three must be highlighted: mercantilism, physiocracy and liberalism.

  • Mercantilism: Defend the accumulation of precious metals to obtain wealth. To do this, it will be essential to boost national trade in manufactures and protect the foreign economy through the establishment of tariffs. It is also characterized by significant state intervention in the economy.
  • Physiocracy: The land is the great source of wealth and prosperity. Therefore, agriculture will be the great economic activity. Its greatest exponent was the French economist François Quesnay, who was also in favor of great economic freedom (the so-called laissez faire), so the intervention of the State should be minimal.
  • Liberalism: From the hand of the famous economist Adam Smith emerged liberalism. Thus, the law of supply and demand determines prices, while a balance between production, wages, price and consumption is necessary. For this, it is essential that there is competition between the bidders and that the State limits itself to acting as a guarantor of the proper functioning of the free market economy.

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