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3 Economic History and Economic Systems

Economic history can be divided many different ways. This chapter identifies the sweeping transformation through four stages of history, from primitive food gathering and hunting to the present information age. The chapter also contrasts the different models for economies—the market model and the command model. In the modern era societies have adapted these models to form the three main “isms,” which include capitalism, socialism, and communism.


Economic history is often divided into four stages: primitive food gathering and hunting, permanent agriculture and animal domestication, the industrial age, and the information age. The progression from one economic stage to the next has been irregular, occurring in different countries and world regions at different times. Even today, where information and communications technologies have opened pathways to nearly infinite amounts of information, there is still a significant portion of the world's population—mainly in the developing world—that lacks the technology to fully join the information age.

Food Gathering and Hunting

The earliest stage of economic history, primitive food gathering and hunting, took place during the Old Stone Age, or Paleolithic Age (500,000 BCE to 10,000 BCE). At this time small nomadic tribes met their survival needs by “following the food.” These tribes were scattered throughout the world with concentrations in China, Southeast Asia, Europe, and East Africa.

Tribal organization featured a rigid division of labor determined mainly by gender and physical strength. Men typically made weapons of stone, bone, and wood and hunted animals for food. Women gathered food, collecting nuts, berries, seeds or wild grains, fruits, roots, shellfish and other foodstuffs available from the natural environment. Women often maintained the campsite, which might consist of caves or temporary shelters. Women also tended the tribe's fire and to the children's needs.

Over time, the food gathering and hunting societies developed additional skills and tools to cope with their environment. For example, they developed language, which enabled them to pass on knowledge from one generation to the next and to learn from other tribes. They also created more advanced survival tools such as weapons, cutting tools, and needles. These primitive forms of real capital were devised mainly to enhance the tribe's survival through food gathering and hunting. Tools and weapons were made from natural resources such as stone, wood, and animal bones.

Permanent Agriculture and Animal Domestication

The second stage of economic history, permanent agriculture and animal domestication, began during the New Stone Age, or Neolithic Age (10,000 BCE to 3500 BCE). The term “agricultural revolution” is used to describe the momentous shift from a nomadic lifestyle to a more sedentary lifestyle on farms and in permanent settlements. Agricultural societies and nomadic groups coexisted throughout the Neolithic Age and beyond. Some of the regions that were earliest to embrace the agricultural revolution were located in the Middle East, northeastern China, Central and South America, and eastern Africa.

The agricultural revolution affected economic development in a number of ways. First, it enabled the rise of permanent settlements such as villages, towns, and cities. Many early settlements were established on fertile territories near rivers, such as the Tigris and Euphrates in the Middle East, the Nile in northeastern Africa, the Indus in India, and the Yellow in China. Cultivation was enhanced by fertile soil, water from rivers, and domesticated animals. Second, the rise of permanent agriculture encouraged specialization. This is because food surpluses produced on the farms were used to support a more sophisticated division of labor in the growing cities. Freed from the toils of farm work artisans, merchants, artists, engineers, and other skilled workers built and maintained cities. Third, the production of surpluses expanded trade among peoples. Surpluses of food, luxury items, natural resources, and other items provided incentives for civilizations to aggressively seek out new markets for their output. Fourth, new contacts among peoples accelerated technological advances. Innovations such as the wheel and the sail revolutionized the transport of goods, people, and ideas among the ancients.

Another innovation of the period was the creation of money. Money is any item that is commonly accepted in payment for goods or services or in payment of other debts. The introduction of money progressed in fits and starts over thousands of years. Slowly, money came to replace barter, a system of exchange in which one good is exchanged for a second good. Ancient civilizations used different items for money. In the Americas, for example, the Maya and the Aztecs used cloth and cocoa beans as money. Some west African kingdoms used cowrie shells. A significant breakthrough in the development of money was the introduction of coins. Over a thousand years before the Common Era, the Chinese used spade coins to facilitate transactions. In the seventh century BCE, the Lydians minted the stater, a coin originally comprised of a gold and silver mixture. About a century later the Athenians introduced the tetradrachma, ushering in an era of coin use by the Greek city-states.[1]

  • [1] Federal Reserve Bank ofMinneapolis, “The History ofMoney,” Moneys of the World (New York: Chase National Bank Museum of Moneys of the World, 1953), 15-17
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