This theme focuses on the role that economic development, especially the development of capitalism, played in Europe's history as well as its social and political impact.
In the centuries after 1450, Europe first entered and then gradually came to dominate a global commercial network. Building off the voyages of exploration and colonization, the commercial revolution of the 17th and 18th centuries involved a wide range of new financial and economic practices, such as joint-stock companies, widely capitalized banks, and triangular trade -- all of which supported an emerging money economy. New commercial techniques and goods provided Europeans with an improved diet and standard of living, and in turn, wealth from commerce supported the growth of industrial capitalism in subsequent centuries.
Commercial wealth helped transform a preindustrial economy based on guild production, cottage industry, and subsistence agriculture into one driven by market operations. Commercial wealth generated resources for centralizing states, many of which, prior to the French Revolution, justified government management of trade, manufacturing, finance, and taxation through mercantilism. Mercantilism assumed that existing sources of wealth could not be expanded; accordingly, the only way to increase one's economic power over others was to gain a greater share of the existing sources of wealth. As a result, mercantilism promoted commercial competition and at times resulted in warfare overseas.
Market demands generated the increasingly mechanized production of goods through the technology of the Industrial Revolution. Large-scale production required capital investment, which led to the development of capitalism: based on Adam Smith's 1776 work, The Wealth of Nations, this economic system prioritized private investment by individuals and institutions.
The growth of large-scale agriculture and factories changed social and economic relations. Peasants left the countryside to work in the new factories, giving up lives as tenants on landlords' estates for wage labor. Improved climate and diet supported a gradual population increase in the 18th century followed by a population explosion in the industrial 19th century. Industrialization generated unprecedented levels of material prosperity for some Europeans, particularly during the second industrial revolution (1850-1914), when an outburst of new technologies ushered Europe into modern mass society.
According to its critics, capitalism led to an unequal distribution of wealth and opportunities: it created interconnected financial markets that periodically crashed, which could lead to widespread repercussions. Capitalism's emphasis on free trade shifted production from expensive to inexpensive regions, like the overseas colonies in Africa and Asia, which had the impact of reducing or holding down the wages of workers in Europe. In the 19th century, these criticisms found expression in socialism -- a new social and political ideology that called for state ownership of property and economic planning as a means to promote equality. Throughout Europe, socialist-inspired parties and organizations called for reforms and in some cases the overthrow of the capitalist system.
The devastating impact of two world wars and the Great Depression transformed pre-1914 economic patterns and complicated the task of governments in managing the unstable economic situation. Soviet Russia and its post-World War II satellites represented one path, communism, which pursued a policy of planned economies that collectivized agriculture in the name of forcing rapid industrial growth, and which ultimately experienced economic and political collapse. Nations in Western Europe, Scandinavia, and parts of Central Europe modified laissez-faire capitalism with Keynesian budget and tax policies and in some cases an expanding welfare state. Consumerism, always an important factor in economic growth, took on even more importance in the second half of the 20th century when Western European nations experienced what was termed an economic miracle. The post-World War II period also witnessed the movement toward European economic unity and a common currency, as well as the creation and challenges of maintaining social welfare programs.
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