| This article is an authorized excerpt from | | | | capture and explain the essence of the |
| Ryan's book, Zero to One MillionOne of the | | | | marketplace. He did so in his famous 1776 |
| most important advances needed for the | | | | work An Inquiry into the Nature and Causes of |
| creation of a market system took place | | | | the Wealth of Nations, slaying the |
| sometime between 12000 and 10000 B.C. with | | | | mercantilist dragon in the process. Within, |
| the advent of specialization and the start of | | | | Smith outlines certain laws of the market, |
| the Neolithic Age. Instead of each tribe | | | | that are worthy of mention.Smith explains |
| hunting and gathering their food, different | | | | that self-interest acts as a guiding force |
| persons within each tribe would become | | | | toward the work society desires. As Smith |
| experts at a certain task such as hunting, | | | | notes in Wealth, "It is not from the |
| gathering, cooking, tool making, shelter | | | | benevolence of the butcher, the brewer, or |
| making, or clothes making. As methods of | | | | the baker that we expect our dinner, but from |
| agriculture improved, the first towns and | | | | their regard to their self-interest." While |
| cities were seen. Dependable food supplies | | | | one would naturally assume that everyone |
| allowed people to build permanent houses and | | | | following only his or her self-interest would |
| settle in one area. As settlements increased | | | | not create a very good society, there is |
| in size, new forms of society such as | | | | another force that prevents selfish |
| religious centers, courts, and marketplaces | | | | individuals from exploiting the marketplace. |
| developed. The advent of towns produced | | | | That regulator is competition.This principle |
| further specialization, creating jobs in tool | | | | can be explained best with the following |
| making, pottery making, carpentry, wool | | | | excerpt from The Worldly Philosophers.A man |
| making, tool making, and masonry, among | | | | who permits his self-interest to run away |
| others. The specialist created items faster | | | | with him will find that competitors have |
| and of a better quality than if each family | | | | slipped in to take his trade away; if he |
| made its own, increasing standards of | | | | charges too much for his wares or if he |
| living.The earliest signs of the market | | | | refuses to pay as much as everybody else for |
| system at work can be seen with the advent of | | | | his workers, he will find himself without |
| bartering within tribes as far back as 6000 | | | | buyers in the one case and without employees |
| B.C. in Mesopotamia. If Tom had twenty cows | | | | in the other.Those workers will go to the |
| and Igor had eighty hens, and Tom and Igor | | | | competitor who is willing to pay more and |
| agreed that one cow was worth four hens, then | | | | those customers will go to the competitor who |
| the trade could take place. The problem with | | | | charges less. The wonderful paradox of the |
| the barter system, however, was that in order | | | | market, through the interaction of supply and |
| for a trade to take place, both parties had | | | | demand and competition, creates a price that |
| to want what the other party had. This | | | | properly allocates industry so as to produce |
| 'co-incidence of wants' often did not happen. | | | | the proper quantities of goods and services. |
| The demands of growing business and trade | | | | No intervention, planning, or forethought is |
| caused a money system to be developed. Silver | | | | needed to create exactly what society |
| rings or bars are thought to have been used | | | | desires, in the exact amount it desires. What |
| as money in Ancient Iraq before 2000 B.C. | | | | a wonderful contraption the market is! As |
| Early forms of money would usually be specie, | | | | long as society can promote competition and |
| or commodity money. Examples range from | | | | innovation, standards of living will continue |
| seashells, to tobacco leaves, to large round | | | | to grow and wealth will increase. So the |
| rocks, to beads.While the money system still | | | | theory goes.Unfortunately, our world cannot |
| had much development to go through (credit | | | | be simplified to quite this degree. Such |
| and paper money did not yet exist), its | | | | things as crime, corruption, and market |
| invention over four thousand years ago was of | | | | failures do exist. There are some cases where |
| crucial importance to the world we live in | | | | the government should be involved, and there |
| today. The use of an accepted medium to store | | | | are other cases when the government should |
| value and enable exchange has greatly | | | | have less involvement. This topic will be |
| enhanced our world, our lives, our potential, | | | | dealt with in a later section of this |
| and our future.In the year 1100, the | | | | chapter.Now that we understand the basics of |
| prevailing system in the Western World was | | | | how the market system works, let's progress |
| feudalism. It was a world of kings and lords, | | | | with its history up to the present day. |
| vassals and serfs, kingdoms and manors. Long | | | | Following Smith there were many other |
| distance trade was expanding and new worlds | | | | economists, ideologists, sociologists, and |
| of foreign spices, oriental treasures, and | | | | philosophers that pontificated on the |
| luxurious silks were discovered. Three | | | | workings of the increasingly complex |
| hundred and fifty years later, after | | | | marketplace. Ricardo outlined the all |
| weathering a Black Death and the Hundred | | | | important principles of trade while Malthus |
| Years War, Europe emerged by expanding trade | | | | predicted overpopulation and doom. Mill |
| to new levels and building the foundation for | | | | contemplated on liberalism while Bentham |
| the start of the competitive market economy | | | | promoted utilitarianism. Marx painted a bleak |
| we know today.With a population spurt | | | | picture of forced labor and surplus value |
| starting around 1470, cities, markets, and | | | | while Keynes later showed there sometimes was |
| the volume of trade grew. Banking, initially | | | | reason for an active government.By the of |
| started by Ancient Mesopotamians, grew to new | | | | Smith's death in 1790, the nascent Industrial |
| heights and complexities, the guild system | | | | Revolution had already reared its head. The |
| expanded, and the idea that a business was an | | | | effects of the Renaissance, the humanist |
| impersonal entity, with a separate identity | | | | movement, and the new focus on science and |
| from its owner, took hold. Silver imports | | | | empiricism would translate into the launch of |
| from the new world drove expanded trade and | | | | movement that would impact the world as none |
| bookkeepers created standardized principles | | | | before it had. It was this revolution, often |
| for keeping track of a firm's accounts based | | | | harsh and cruel, that prompted thoughts of |
| on Luca Pacioli's advances. Early | | | | communism, created robber barons and titans, |
| entrepreneurs, called merchants and | | | | and led to the development of the |
| explorers, began to raise capital, take | | | | innovations, technology, and standards of |
| risks, and stimulate economic growth. | | | | living we have today.From the Industrial |
| Capitalism had begun.It began with much | | | | Revolution, the concept of mass production |
| resistance, however. The idea of gain was | | | | and economies of scale came about. Bigness, |
| shunned and shamed. The practice of usury, | | | | trusts, and horizontal integration became the |
| charging interest on loans, was banned by the | | | | key to riches in the day. It was Andrew |
| Church. Jobs were assigned by tradition and | | | | Carnegie and J. P. Morgan in steel, John D. |
| caste. Innovation was stifled and efficiency | | | | Rockefeller in oil, and Henry Ford in |
| was forcefully put down, punishable by death. | | | | automotives. While many of these titans often |
| In sixteenth-century England, when mass | | | | had questionable ethics, no one can deny that |
| production in the weaving industry first came | | | | they were innovators. They forged alliances, |
| about, the guildsmen protested. An efficient | | | | developed new ways of doing business, and |
| workshop containing two hundred looms and | | | | created efficiency across industries.Out of |
| butchers and bakers for the workers, was | | | | necessity, regulatory organizations such as |
| outlawed by the King under the pretense that | | | | the Environmental Protection Agency, |
| such efficiency was improper. Makers of | | | | Antitrust Division of the Department of |
| innovative buttons in France in the late | | | | Justice, the Securities and Exchange |
| 1600s were fined and searched and the | | | | Commission, the Food and Drug Administration, |
| importation of printed Calicos cost the lives | | | | the Financial Account Standards Board, and |
| of 16000 people.The world would soon see, | | | | the Federal Trade Commission would soon be |
| however, that innovation was generally a good | | | | created in the United States while similar |
| thing that made lives better and that | | | | organizations were created across the |
| efficiency was a path toward a higher | | | | developed world. Theodore Roosevelt would go |
| standard of a living. As Robert L. Heilbroner | | | | on his trust-busting and anti-monopoly |
| says in The Worldly Philosophers, "The | | | | campaigns while Franklin D. Roosevelt created |
| precapitalist era saw the birth of the | | | | new laws relating to the distribution of |
| printing press, the paper mill, the windmill, | | | | wealth. John Maynard Keynes would go on about |
| the mechanical clock, the map, and a host of | | | | public spending while Milton Friedman and |
| other inventions. The idea of invention | | | | Frederick A. Hayek would fight large |
| itself took hold; experimentation and | | | | government in the name of freedom. Lyndon |
| innovation were looked on for the first time | | | | Johnson would forge his Great Society while |
| with a friendly eye."With the advent of a | | | | Reagan lowered taxes. The Berlin Wall would |
| complex marketplace and capitalists, the | | | | fall and the Internet as well as increased |
| battle of ideas raged to explain the sources | | | | trade and flow of capital would create |
| of wealth and to explain the workings of | | | | profound change in business. The markets |
| market. Between approximately 1550 and 1800, | | | | would go dot com crazy and then crash and |
| a philosophy called mercantilism was at the | | | | burn. We've gone from hunting, gathering, |
| forefront. The mercantilists had the | | | | bartering, and grunting to specialization, |
| misguided notions that a country's wealth was | | | | miniaturization, internationalization, |
| solely based on how much treasure and gold it | | | | mass-production, and six sigma-all due to the |
| could obtain and how much more it exported | | | | invisible hand, innovation, and industry. And |
| than imported. Monopolies and tariffs were | | | | such is the history of the market system.Ryan |
| promoted and competition and trade were | | | | Allis is the founder of a leading |
| discouraged. They had gotten it all | | | | entrepreneurship resource with over 3000 |
| wrong.Fortunately for Europe, new schools of | | | | articles, 100 interviews, and a free monthly |
| thought sprung up in the 18th century that | | | | newsletter The Entrepreneurs' Chronicle. Ryan |
| promoted commerce, and not the hoarding of | | | | is the author of the book Zero to One |
| gold, as the source of wealth. Adam Smith | | | | Million. |
| further backed this idea and was the first to | | | | |