Lesson 2: Globalization

of World Economy
Overview
Lesson 2: History of the
Globalization of World
Economy
 Galleon Trade

Historians Dennis O. Flynn and Arturo Giraldez argued…

MERCANTILISM
Mercantilism was an economic system of trade that
spanned the 16th century to the 18th century. Mercantilism
was based on the principle that the world's wealth was
static, and consequently, governments had to regulate
trade to build their wealth and national power. Many
European nations attempted to accumulate the largest
possible share of that wealth by maximizing their exports
and limiting their imports via tariffs.
Characteristics of MERCANTILISM
1. The Belief in the Static Nature of Wealth

Financial wealth was considered limited (due to the rarity of precious metals).
Nations that sought prosperity and power needed to secure as much wealth
as possible, at the expense of other nations.

2. The Need to Increase the Supply of Gold

Gold represented wealth and power. It could pay for soldiers, seafaring
exploration for natural resources, and expanding empires. It could also
protect against invasion. A lack of gold meant the downfall of a nation.
MERCANTILISM
3. The Need to Maintain a Trade Surplus

This was integral to building wealth. Nations needed to focus on selling their
exports (and collecting the associated revenue) more than on spending on
imports (and sending gold out of countries).

4. The Importance of a Large Population

Large populations represented wealth. Increasing a nation's population was

integral to supplying a labor force, supporting domestic commerce, and
maintaining armies.
MERCANTILISM
5. The Use of Colonies to Support Wealth

Some nations needed colonies for raw materials, a labor supply, and a way to
keep wealth within its control (by selling colonies the products their raw
materials helped to produce). Essentially, colonies increased a nation's
wealth-building power and national security.

6. The Use of Protectionism

Protecting a nation's ability to build and maintain trade surpluses

encompassed prohibiting colonies from trading with other nations and
imposing tariffs on imported goods.
 Mercantalism System Question

What is the main advantage and

disadvantage of the MercantalismSystem?
Gold Standard System
In 1867, US, UK and other European countries. adopted the gold
standard at an international monetary conference in Paris.

The gold standard is a fixed monetary regime under which the

government's currency is fixed and may be freely converted into
gold. It can also refer to a freely competitive monetary system in
which gold or bank receipts for gold act as the principal medium
of exchange; or to a standard of international trade, wherein some
or all countries fix their exchange rate based on the relative gold
parity values between individual currencies.
Characteristics of Gold Standard System
1) The gold standard is a monetary system backed by the
value of physical gold.

2) Gold coins, as well as paper notes backed by or which

can be redeemed for gold, are used as currency under
this system.
Gold Standard System
3) The gold standard was popular throughout human
civilization, often part of a bi-metallic system that also
utilized silver.

4)Most of the world's economies have abandoned the

gold standard since the 1930s and now have free-floating
fiat currency regimes.
Gold Standard System Question

What is the main advantage and

disadvantage of the Gold Standard
System?
The GREAT DEPRESSION
GREAT
World War 1 World War 2
DEPRESSION

1914 to 1918 1929 to 1939 1939 to 1945

Gold standard is still a very restrictive system and The Great Depression
showed the flaw of it.
The GREAT DEPRESSION Questions

1)Which is worst Inflation or deflation?

2)What ended the Great Depression?

The Bretton Woods System
After the two WORLD WARS, world leaders sought to create a
global economic system that would ensure a longer-lasting
global peace. They believed that one of the ways to achieve
this goal was to set up a network of global financial institution
that would promote economic interdependence and
prosperity. The Bretton Woods System was inaugurated in
1944 during United Nations Monetary and Financial
Conference to prevent the catastrophes of the early decades
of the century from reoccurring and affecting international
ties.
Bretton Woods was inspired by Keynesianism
2 Financial Institutions BWS created
1) International Bank for Reconstruction and Development
(IBRD, or World Bank) to be responsible for funding post
war reconstruction projects.
2) International Monetary Fund (IMF) which was to be the
global lender of last resort to prevent individual countries
from spiraling into credit crises.

***General Agreement on Tariffs and Trade (GATT) – signed in 1947 by 23

countries, is a treaty minimizing barriers to international trade by eliminating
or reducing quotas, tariffs, and subsidies. It was intended to boost economic
recovery after World War II.
The Bretton Woods System VS Neoliberalism

Oil Crisis
Keynesianism Neoliberalism
(Stagflation)

1945 - present 1973 to 1974 1945 - present

Gold standard is still a very restrictive system and The Great Depression
showed the flaw of it.
Oil Crisis of 1973-74
The 1973 energy crisis, also known as the Oil Shock of 1973–74,
was a period of skyrocketing energy prices and fuel shortages
resulting from an embargo by Arab oil-producing/exporting
nations (OAPEC/OPEC) in response to U.S. support for Israel
during the Yom Kippur War. During this period, the price of a
barrel of oil nearly quadrupled in less than a year.

***Yom Kippur War – war between Israel and a group of Arab countries, led
by Egypt and Syria, from October 6 to 24, 1973.
Stagflation
Stagflation occurs when there is a persistent high inflation
combined with high unemployment and stagnant demand in a
country's economy.

Question:
How did the Oil Crisis of 1970s caused Stagflation?
Neoliberalism
A political and economic philosophy that
emphasizes free trade, deregulation, globalization,
and a reduction in government spending. It's
related to laissez-faire economics, a school of
thought that prescribes a minimal amount of
government interference in the economic issues of
individuals and society.
Neoliberalism
1) The policies of neoliberalism typically support fiscal
austerity, deregulation, free trade, privatization, and a
reduction in government spending.

2) Neoliberalism is often associated with the economic

policies of Margaret Thatcher in the United Kingdom
and Ronald Reagan in the United States.
Neoliberalism
3) There are many criticisms of neoliberalism, including its
potential danger to democracy, workers’ rights, and
sovereign nations’ right to self-determination.

4) It's also been accused of giving corporations too much

power and worsening economic inequality.

5) However, neoliberal initiatives concerning free trade,

industry deregulation, income tax and capital gains tax
cuts all had bipartisan support.
Neoliberalism
The Global Financial Crisis 0f 2008-2009
The Global Financial Crisis 0f 2008-2009
The Global Financial Crisis 0f 2008-2009
“Mortgage-backed securities” (MBS) - a combination of
multiple mortgages that they assumed would pay a
steady rate.

Sub-prime Mortgages – bundles of MBS sold to

Institutions that are willing to assume the task of
collecting the money from the mortgages.
Pandemic and Inflation of 2020-Present
 Neoliberalism Question

What is the main advantage and

disadvantage of the Neoliberalism?
 The Bretton Woods System VS Neoliberalism
Question
Which is better Keynesianism or Neoliberalism
System? Why?

*****
Describe the Economic Globalization today
based on what we discussed.
Questions & answers