He started his business in Taegu, Korea, trading noodles and other goods produced in and around the city and exporting them to China and its provinces. After the Korean War, Lee expanded his business into textiles and opened the largest woolen mill in Korea. He focused heavily on industrialization with the goal of helping his country redevelop itself after the war. During that period his business benefited from the new protectionist policies adopted by the Korean government, whose aim was to help large domestic conglomerates (chaebol) by shielding them from competition and providing them easy financing. In the late 1950s the company acquired three of Korea’s largest commercial banks as well as an insurance company and firms that made cement and fertilizer. Samsung in the 1960s acquired more insurance companies as well as an oil refinery, a nylon company, and a department store.
The simplest explanation for the growth of service industries is that goods production has become increasingly mechanized. Because machines allow a smaller workforce to produce more tangible goods, the service functions of distribution, management, finance, and sales become relatively more important. Growth in the service sector also results from a large increase in government employment.
At the apex of the social pyramid stood the ruler (often worshiped as a divinity in Mesopotamia and Egypt) and the nobles (probably grown out of a warrior group that had subjugated its neighbors). Closely aligned with them were the priests; possessing knowledge of writing and mathematics, the priests served as government officials, organizing and directing the economy and overseeing clerks and scribes. The traders and merchants, who distributed and exchanged goods produced by others, were below the noble-priest class in the social pyramid. A sizable group of artisans and craftsmen, producing specialized goods, belonged to the lower economic classes. Even lower in the social hierarchy were the peasants, and at the bottom of the social scale were the slaves, most likely originating as war captives or ruined debtors.
Military writers usually confine the term “war” to hostilities in which the contending groups are sufficiently equal in power to render the outcome uncertain for a time. Armed conflicts of powerful states with isolated and powerless peoples are usually called pacifications, military expeditions, or explorations; with small states, they are called interventions or reprisals; and with internal groups, rebellions or insurrections. Such incidents, if the resistance is sufficiently strong or protracted, may achieve a magnitude that entitles them to the name “war.”
Aggressive behavior usually arises from several drives: rivalry for possession, the intrusion of a stranger, or frustration of an activity. The major conflict situations leading to aggression among animals, especially those concerning access of males to females and control of a territory for feeding and breeding, are usually associated with patterns of dominance.
The term class first came into wide use in the early 19th century, replacing such terms as rank and order as descriptions of the major hierarchical groupings in society.
The dominant class, according to Marx, controls not only material production but also the production of ideas; it thus establishes a particular cultural style and a dominant political doctrine, and its control over society is consolidated in a particular type of political system. Rising classes that gain strength and influence as a result of changes in the mode of production generate political doctrines and movements in opposition to the ruling class.
The ideal of the nation-state is never fully achieved. In no historical case does one find all members of a particular nation gathered within one state’s boundaries. Conversely, many states contain sizable national minorities. This lack of full correlation has frequently given rise to dangerous tensions that can ultimately lead to war. A government inspired by nationalism may conduct a policy aiming at the assimilation of national minorities, as was the general tendency of central and eastern European governments in the interwar period; it may also attempt to reunite the members of the nation living outside its boundaries, as Adolf Hitler did. National groups that are not in control of a state may feel dissatisfied with its regime and claim self-determination in a separate state.
Nationalism is but one form of ideology: in all ages people seem to develop beliefs and try to proselytize others. Even within particular ideological groups, schisms result in conflicts as violent as those between totally opposed creeds, and heretics are often regarded as more dangerous and hostile than opponents. As long as individual states can identify themselves with explosive differences in beliefs, the probability of a war between states is increased, and its intensity is likely to be greater.
Military prowess was a major qualification for political leadership in primitive societies; the search for military glory as well as for the spoils of victory seems to have been one of the major motivations for war. Once the military function became differentiated and separated from civilian ones, a tension between the two became one of the most important issues of politics. The plausible view has generally been held that the military strive for war, in which they attain greater resources and can satisfy their status seeking and, sometimes, also an aspiration for direct and full political power. In peacetime the military are obviously less important, are denied resources, and are less likely to influence or attain political power directly. At the same time, a second, although usually subsidiary, consideration of the military as a causal agent in war holds that an officer corps is directly responsible for any fighting and is thus more aware of its potential dangers for its members and for the state as well. Although intent on keeping the state in a high state of preparedness, the military may be more cautious than civilians about engaging in war. It is often held, however, that increased military preparedness may result in increased tensions and thus indirectly lead to the outbreak of war.
Most international lawyers realistically accept that international law is, consequently, among rather than above states. It is, according to legal doctrine, binding on states but unenforceable.
Pacific settlement of disputes is based upon the assumption that war is primarily a technique for settling disputes, although it can, of course, also serve other purposes, such as allaying fears and seeking status. Further assumptions are that war frequently comes about because of the unawareness of decision makers of the possibility of settling disputes peacefully to the mutual advantage of both sides—an unawareness due to mere ignorance, pride, lack of imagination, or selfish and cynical leadership. It is thus possible that international organizations can contribute to the prevention of wars by devising and institutionalizing alternative, peaceful techniques for the settlement of disputes and by persuading the states to use them.
The scope of this approach is limited, for states are notoriously reluctant to abide by impartial findings on matters they regard as being of vital importance. Hence, what the procedures really offer is a means of slowing down the progression of a dispute toward war, giving reason a chance to prevail.
Guilds performed a variety of important functions in the local economy. They established a monopoly of trade in their locality or within a particular branch of industry or commerce; they set and maintained standards for the quality of goods and the integrity of trading practices in that industry; they worked to maintain stable prices for their goods and commodities; and they sought to control town or city governments in order to further the interests of the guild members and achieve their economic objectives.
Guilds became possible in Europe only with the appearance and growth of towns in the 10th and 11th centuries following the chronic dislocation and agrarian backwardness of the Dark Ages. Until this time, merchants had been merely itinerant peddlers who executed all of their own trading transactions, personally traveling from market to market and from town to town. Such merchants tended to band together in order to protect themselves from bandits or predatory feudal lords as they made their business rounds. Gradually, merchants expanded their activities and delegated such tasks as the transportation of goods to others, while the merchants based themselves and their operations in a particular town.
After completing a fixed term of service of from five to nine years, an apprentice became a journeyman, i.e., a craftsman who could work for one or another master and was paid with wages for his labour. A journeyman who could provide proof of his technical competence (the “masterpiece”) might rise in the guild to the status of a master, whereupon he could set up his own workshop and hire and train apprentices.
Apprenticeship was the basic element in the craft guild, since it secured the continuity of practice, tradition, and personnel on which the welfare of the guild depended. Apprenticeships in some trades came to be highly valued, and a family would have to pay a master a large sum of money for him to enroll their son as an apprentice. Often apprenticeships came to be restricted to the sons or other relatives of masters.
The craft guild policed its own members’ professional practices, and guild courts and officials investigated complaints of poor workmanship, unfair competition, and other problems, levying fines on those found in violation of the guild’s rules and standards.
Yet the guilds’ exclusivity, conservatism, monopolistic practices, and selective entrance policies eventually began to erode their economic utility. Apprenticeships became almost entirely hereditable, and masters set ridiculously high standards for apprentices to become journeymen and for journeymen to become masters. The guilds worked exclusively for their own interests and sought to monopolize trade in their own locality. They were frequently hostile to technological innovations that threatened their members’ interests, and they sometimes sought to extinguish commercial activities that they were not able to bring under their own control. The merchant guilds became parties of aristocrats who dominated the town and city governments, sometimes over the opposition of the craft guilds.
There are considerable differences within the working class, however, and a useful distinction exists between skilled, semiskilled, and unskilled workers that broadly corresponds to differences in income level. What characterizes the working class as a whole is a lack of property and dependence on wages. Associated with this condition are relatively low living standards, restricted access to higher education, and exclusion, to a large extent, from the spheres of important decision making.
The greatest city of antiquity was Rome, which at its height in the 3rd century CE covered almost 4 square miles (10 square km) and had at least 800,000 inhabitants. To provide for this enormous population, the empire constructed a system of aqueducts that channeled drinking water from hills as far away as 44 miles (70 km). Inside the city itself, the water was pumped to individual homes through a remarkable network of conduits and lead pipes, the equal of which was not seen until the 20th century. As in most early cities, Roman housing was initially built from dried clay molded about wooden frameworks. As the city grew, it began to include structures made from mud, brick, concrete, and, eventually, finely carved marble.
Most of the key words commonly used to describe governments—words such as monarchy, oligarchy, and democracy—are of Greek or Roman origin. They have been current for more than 2,000 years and have not yet exhausted their usefulness. This suggests that humankind has not altered very much since they were coined.
There was a king in Macedonia and a king in Persia, but the two societies, and therefore their institutions, were radically different. To give real meaning to the word monarchy in those two instances, it would be necessary to investigate their actual political and historical contexts.
Unfortunately—but, given human nature, inevitably—the young cities of Sumer quarrelled over the distribution of the rivers’ water, and their wealth excited the greed of nomads outside the still comparatively small area of civilization (a word deriving from the Latin word for city, civitas). War, perhaps the most potent of all forces of historical change, announced its arrival, and military leadership became at least as important an element of kingship as divine sanction. It was to remain so throughout the long history of monarchy: whenever kings have neglected their military duties, they have endangered their thrones. The wars of Sumer also laid bare another imperative of monarchy—the drive for empire, arising from the need to defend and define frontiers by extending them and the need to find new means to pay for troops and weapons, whether by the plunder of an enemy or by the conquest of new lands, or both.
The city-state was made possible by Mediterranean geography, which is such that every little fishing village had to be able to defend itself against attack from land or sea, for outside help could not reach it easily. A person’s dependence on his community, for physical as well as economic survival, was therefore obvious and complete. The city had first claim on his labour and loyalty, a claim that was usually freely recognized. It was this reality that led Aristotle (who himself came from just such a small commonwealth, Stageira) to define humans as political animals. In addition, coastal mountain ranges made it difficult for any community in Greece to dominate more than a few square miles of land. Therefore, in the Greek world (which by c. 600 BCE stretched from the coasts of Asia Minor to what is now southern France) there were dozens of centres of government. The term city-state expresses the double aspect of those small settlements.
Furthermore, passionate devotion to the idea that Athens was the greatest of all cities, the school of Greece and the wonder of civilization, misled them into basing their society in large part on slave labour, into wanton imperial adventure abroad, and into denying Athenian citizenship to all who were not born into it (even Aristotle), however much they contributed to the city’s greatness and however much more they might have done. The foundations of Athenian democracy were narrow, shallow, and fragile.
The Greeks did not know how to classify Rome. The Greek historian Polybius, who chronicled Rome’s rise, suggested that its constitution was such a success because it was a judicious blend of monarchy, aristocracy, and democracy. The Romans, a conservative, practical people, showed what they thought of such abstractions by speaking only of an unanalyzed “public thing”—res publica—and thus gave a new word, republic, to politics.
It is not surprising that what impressed the world most about the city was its military strength rather than its political institutions, even though the two were intimately related. As the weakness of Rome’s neighbours became apparent, the Romans began to believe in their mission to rule, “to spare the conquered and war down the proud,” as their greatest poet, Virgil, put it. Military strength, in short, led to military adventurism. By the 1st century BCE, Rome, having become a naval power as well as a military one, had conquered the whole Mediterranean basin and much of its hinterland. The strains of empire building made themselves felt. The Roman armies, no longer composed of citizens temporarily absent from the plow or the workshop but of lifetime professionals, were now loyal to their generals rather than to the state, and those generals brought on civil war as they competed to turn their foreign conquests into power at home. The population of Rome swelled, but economic growth could not keep pace, so many citizens became paupers dependent on a public dole. The aristocrats appointed to govern the provinces saw their postings chiefly as opportunities to get rich quickly by pillaging their unfortunate subjects. The republic could not solve those and other problems and was in the end superseded by the monarchy of Augustus.
The safety of the state, questions of war and peace, and most of the business of governing the empire were now in the hands of a monarch. Consequently, there was not enough for the Senate to do, and Augustus never went so far as to restore genuinely free elections or the organs of popular government. He kept the population of the city happy with chariot races, gladiatorial contests, and the dole of bread. Nevertheless, he could not give up the attempt to legitimize his regime. Like earlier monarchs elsewhere, he called in the aid of religion, even though the religion of Rome was as republican as its constitution. Later emperors made their own divinity a tenet of the public faith. Later still, they imposed Christianity as the sole legitimate and official religion of the empire, and they exploited the power and prestige of the church to buttress their own authority.
Seen against the background of the millennia, the fall of the Roman Empire was so commonplace an event that it is almost surprising that so much ink has been spilled in the attempt to explain it. The Visigoths were merely one among the peoples who had been dislodged from the steppe in the usual fashion. They and others, unable to crack the defenses of Sāsānian Persia or of the Roman Empire in the East (though it was a near thing), probed farther west and at length found the point of weakness they were seeking on the Alps and the Rhine.
The complexities of medieval society had permitted very little coercion of taxpayers. For the rest, money could only be secured by chicanery; by selling offices or crown lands (at the price of a long-term weakening of the monarch); by robbing the church; by a lucky chance, such as the acquisition of the gold and silver of Mexico and Peru by the king of Spain; or by dealing, on a semi-equal footing, with parliaments (or estates, as they were most generally known).
The truest symbol of its importance is the printing press. For one thing, this invention enormously increased the resources of government. Laws, for instance, could be circulated far more widely and more accurately than ever before. More important still was the fact that the printing press increased the size of the educated and literate classes. Renaissance civilization thus became something unprecedented: it acquired deeper foundations than any of its predecessors or contemporaries on any continent by calling into play the intelligence of more individuals than ever before. But the catch (from a ruler’s point of view) was that this development also brought public opinion into being for the first time. Not for much longer would it be enough for kings to win the acquiescence of their nobles and the upper clergy. A new force was at work, as was acknowledged by the frantic attempts of all the monarchies to control and censor the press.
The Spanish king Charles V and his son Philip II were as able as all but a few monarchs in recorded history, but they could not overcome the structural weaknesses of hereditary monarchy. There was no mechanism by which they could devolve their most crushing duties onto their ministers, so government moved slowly, if at all. As lawful sovereigns, they were bound by the customs of their numerous realms, which frequently blocked necessary measures but could not safely be challenged, as Philip found when he tried to rule the Netherlands autocratically. They also were unable to guarantee that their heirs would be their equals in ability. The only remedy discoverable within the system was for the king in effect to abdicate in favour of a chief minister. Unfortunately, a minister equal to the task was seldom found, and no minister, however gifted, was ever safe from the constant intrigues and conspiracies of disgruntled courtiers. Problems tended to accumulate until they became unmanageable. The same difficulties eventually ruined the French monarchy as well.
The Whig system was called constitutional monarchy. The increasingly rationalist temper of the times, exemplified in the works of the philosopher John Locke (1632–1704), finally buried some of the more blatantly mythological theories of government, such as the divine right of kings, and Parliament finally settled the issues that had so vexed the country by passing a series of measures that gave England a written fundamental law for the first time. Henceforth the country was to be ruled by a partnership between king and Parliament (in practice, between the king and the oligarchy of country gentlemen who controlled most parliamentary elections); if many Englishmen looked with distaste on the squabbles of party politics, which were the sordid result of that arrangement, few could propose a plausible alternative.
The limited British monarchy found it little easier to govern a seaborne empire than did the kings of France and Spain. If Britain’s North American colonies were to grow in population and riches—so as to become sources of strength to the empire, not military and financial liabilities—they had to be given a substantial measure of religious, economic, and political autonomy. However, that gift could not be revoked. Once British policy had created a chain of more or less self-governing communities along the Atlantic seaboard—communities much like the city-states of old—it could not undo its own work, even when it found its clients unreasonable, small-minded, and recalcitrant. Thus, when the British government attempted to impose tighter rule from London, the old empire broke down in bickering about taxation and in rioting, rebellion, and civil war—in short, the American Revolution.
When they did adopt a new constitution, it served them so well that it is still in operation. That durability is not unconnected with the fact that the Constitution of the United States of America opened the door to modern liberal democracy—democracy in which the liberty of the individual is paramount (see liberalism). “The consent of the governed” was agreed to be the key to governmental legitimacy, and in practice the phrase rapidly came to mean “the consent of the majority.” The principle of representation was embodied in the U.S. Constitution (the first section of which was entirely devoted to the establishment of Congress, the American parliament); this implied that there was no necessary limit to the size of a successful republic. From Plato to Jean-Jacques Rousseau, theorists had agreed that democracies had to be small, because by definition all their citizens had to be able to give their consent in person. Now that notion had been discarded.
The American example might have had little effect on Europe but for the French Revolution of 1789. The French had helped the Americans defeat the British, but the effort had been too much in the end for the monarchy’s finances. To avert state bankruptcy the Estates-General were summoned for the first time in 175 years, and soon the whole government had been turned upside down. The French repudiated the divine right of kings, the ascendancy of the nobility, the privileges of the Roman Catholic Church, and the regional structure of old France. Finally, they set up a republic and cut off the king’s head.
The kingdom of Prussia and the empires of Austria and Russia readily learned from the French Revolution that it was necessary to rationalize government. They had been struggling along that path even before 1789. Carrying out the necessary changes proved exceedingly difficult. (Russia, with its sacred, autocratic monarchy, in some ways more like ancient Egypt than a modern country, made far too few changes until far too late.) Meanwhile, the libertarian and egalitarian components of the revolutionary legacy were rigidly resisted. The great dynasts, and the military aristocracies that supported them, had no intention of admitting their obsolescence.
Nationalism intensified the competitiveness that had always been a part of the European state system. Peoples, it emerged, could be as touchy about their prestige as monarchs. But for a century there was no general war in Europe, leaving the powers free to pursue interests in other parts of the world. Asia and Africa thus came to feel the full impact of European expansion, as the Americas had felt it before.
Born in chaos, commonly sustained by violence, 20th-century dictatorship as a mode of government was always fundamentally unstable, however long it lasted; it was a distilled expression of that craving for order and hatred of perceived threats to order that had always been the justification for autocracy and monarchy. It enacted the belief that society was best governed by the discipline thought necessary in an army at war. Such, too, was the underlying principle of the Soviet Union, though it professed to be a democracy and to be guided by the most advanced and scientific social philosophy of its age.
All institutions of the Soviet state were designed primarily to assure the untrammeled power of the party, and no methods were spurned—from mass starvation to the murder of artists—in furtherance of that aim. Even the economic and military achievements of the regime were secondary to that overall purpose; its most characteristic institutions, after the party, were the secret police and the forced labour camps.
Many of South Korea’s fish, reptile, and amphibian species are threatened by intensive cultivation and environmental pollution except in the DMZ between North and South Korea, which has become a de facto nature preserve. Once farmland, and subsequently a devastated battleground, the DMZ has lain almost untouched since the end of hostilities and has reverted to nature to a large extent, making it one of the most pristine undeveloped areas in Asia.
The basic function of money is to enable buying to be separated from selling, thus permitting trade to take place without the so-called double coincidence of barter. In principle, credit could perform this function, but, before extending credit, the seller would want to know about the prospects of repayment. That requires much more information about the buyer and imposes costs of information and verification that the use of money avoids.
But there must also be something that can serve as a temporary store of purchasing power, in which the seller holds the proceeds in the interim between the sale and the subsequent purchase or from which the buyer can extract the general purchasing power with which to pay for what is bought. This is called the “asset” function of money.
Although deposits and banknotes began as claims to gold or silver on deposit at a bank or with a merchant, this later changed. Knowing that everyone would not claim his or her balance at once, the banker (or merchant) could issue more claims to the gold and silver than the amount held in safekeeping. Bankers could then invest the difference or lend it at interest. In periods of distress, however, when borrowers did not repay their loans or in case of overissue, the banks could fail.
The prevalence of the gold standard meant that there was, in effect, a single world money called by different names in different countries.
World War I effectively ended the real international gold standard. Most belligerent nations suspended the free convertibility of gold. The United States, even after its entry into the war, maintained convertibility but embargoed gold exports. For a few years after the end of the war, most countries had inconvertible national paper standards—inconvertible in that paper money was not convertible into gold or silver. The exchange rate between any two currencies was a market rate that fluctuated from time to time. This was regarded as a temporary phenomenon, like the British suspension of gold payments during the Napoleonic era or the U.S. suspension during the Civil War greenback period. The great aim was a restoration of the prewar gold standard. Since price levels had increased in all countries during the war, countries had to choose deflation or devaluation to restore the gold standard. This effort dominated monetary developments during the 1920s.
During World War II, Great Britain and the United States outlined the postwar monetary system. Their plan, approved by more than 40 countries at the Bretton Woods Conference in July 1944, aimed to correct the perceived deficiencies of the interwar gold exchange standard. These included the volatility of floating exchange rates, the inflexibility of fixed exchange rates, and reliance on an adjustment mechanism for countries with payment surpluses or deficits; these problems were often resolved by recession and deflation in deficit countries coupled with expansion and inflation in surplus countries. The agreement that resulted from the conference led to the creation of the International Monetary Fund (IMF), which countries joined by paying a subscription. Members agreed to maintain a system of fixed but adjustable exchange rates. Countries with payment deficits could borrow from the fund, while those with surpluses would lend. If deficits or surpluses persisted, the agreement provided for changes in exchange rates. The IMF began operations in 1947, with the U.S. dollar serving as the fund’s reserve currency and the price of gold fixed at $35 per ounce. The U.S. agreed to maintain that price by buying or selling gold.
Although a vestigial tie to gold remained with the gold price staying at $35 per ounce, the Bretton Woods system essentially put the market economies of the world on a dollar standard—in other words, the U.S. dollar served as the world’s principal currency, and countries held most of their reserves in interest-bearing dollar securities.
After the Bretton Woods system ended in 1973, most countries allowed their currencies to float, but this situation soon changed. Generally, small countries with relatively large trade sectors disliked floating rates. They wanted to avoid the often transitory but sometimes large changes in prices and costs arising in the foreign exchange market. Many of the smaller Asian economies, along with countries in Central America and the Caribbean, fixed their exchange rates to the U.S. dollar. Countries such as the Netherlands and Austria, both of which traded heavily with West Germany, soon fixed their exchange rates to the German mark. These countries ceased conducting independent central bank policy, so that when the Bundesbank or the U.S. Federal Reserve changed interest rates, countries that fixed their exchange rate to the mark or the dollar changed their interest rates as well.
A country on a fixed exchange rate sacrifices independent monetary policy. In some cases this may be a necessary sacrifice, because a small country that is open to external trade has little scope for independent monetary policy. It cannot influence most of the prices at which its citizens buy and sell.
Western European countries have traditionally done much of their trading with each other. Soon after the breakdown of the Bretton Woods system, some of these countries experimented with fixed exchange rates within their group. Before 1997, however, all such attempts had failed within a few years of their inception. Inter-European trade continued to expand under the aegis of the European Community (EC). Growth of trade fostered European economic integration and encouraged steps toward political integration in addition to the free exchange of goods, labour, and finance. In 1991, 12 of the 15 nations signing the Treaty on European Union (the Maastricht Treaty) had agreed to a decade of adjustment toward a single currency. The treaty took effect in 1993. Exchange rates were fixed “permanently and irrevocably” for the participating countries (tellingly, the treaty did not provide for a country’s withdrawal from the system). In 1995 the new currency was named the “euro.”
Domestic monetary systems are today very much alike in all the major countries of the world. They have three levels: (1) the holders of money (the “public”), which comprise individuals, businesses, and governmental units, (2) commercial banks (private or government-owned), which borrow from the public, mainly by taking their deposits, and make loans to individuals, firms, or governments, and (3) central banks, which have a monopoly on the issue of certain types of money, serve as the bankers for the central government and the commercial banks, and have the power to determine the quantity of money. The public holds its money in two ways: as currency (including coin) and as bank deposits.
It is hard to say precisely what “issued by the central bank” means. In the United States, for example, the currency bears the words “Federal Reserve Note,” but these notes are not obligations of the Federal Reserve banks in any meaningful sense. The holder who presents them to a Federal Reserve bank has no right to anything except other pieces of paper adding up to the same face value.
A credit card is not money. It provides an efficient way to obtain credit through a bank or financial institution. It is efficient because it obviates the seller’s need to know about the credit standing and repayment habits of the borrower. For a fee that each subscribing merchant agrees to pay, the bank issues the credit card, makes a loan to the buyer, and pays the merchant promptly. The buyer then has a debt that he or she settles by making payment to the credit card company. Instead of carrying more money, or making credit arrangements with many merchants, the buyer makes a single payment for purchases from many merchants.
In the United States, the 12 Federal Reserve banks, together with the Board of Governors in Washington, D.C., constitute the Federal Reserve System. The reserve banks are technically owned by their member commercial banks, but this is a pure formality. Member banks get only a fixed annual percentage dividend on their stock and have no real power over the bank’s policy decisions. For all intents and purposes, the Federal Reserve is an independent governmental agency.
The way in which a central bank increases or decreases the monetary base is, typically, by making loans (discounting) or by buying and selling government securities (open-market operations) or foreign assets. If, for example, the Federal Reserve System purchases $1 million of government securities, it pays for these securities by drawing a check on itself, thereby adding $1 million to its assets and $1 million to its liabilities. The seller can take the check to a Federal Reserve bank, which will exchange it for $1 million in Federal Reserve notes. Or the seller may deposit the check at a commercial bank, and the bank may in turn present it to a Federal Reserve bank. The latter “pays” the check by making an entry on its books increasing that bank’s deposits by $1 million. The commercial bank may, in turn, transfer this sum to a borrower, who again will convert it into Federal Reserve notes or deposit it.
The important point is that these bookkeeping operations simply record a process whereby the central bank has created, out of thin air as it were, additional base money (currency held by the public plus sums deposited with a reserve bank)—the direct counterpart of printing Federal Reserve notes. Similarly, if the central bank sells government securities, it decreases base money.
On a much broader scale, it follows that a central bank can vary the total face value of money by controlling the amount of the monetary base and by other less important means. The major problem of modern monetary policy centres on how a central bank should use this power.
Money has an “internal” and “external” price. The internal price is the price level of domestic goods and services. The external price is the nominal, or market, exchange rate. The principal responsibility of a modern central bank differs according to the choice of monetary standard. If the country has a fixed exchange rate, the central bank buys or sells foreign exchange on demand to maintain stability in the rate. When sales by the central bank are too brisk, the growth of the monetary base decreases, the quantity of money and credit declines, and interest rates increase. The rise in interest rates attracts foreign investors and deters local investors from investing abroad. Also, the increase in interest rates slows domestic expansion and reduces upward pressure on domestic prices. On the other hand, when the central bank’s purchases are too brisk, money growth increases and interest rates fall, thereby inducing domestic expansion and stimulating an increase in prices.
If a country has a floating exchange rate, it must choose a policy to go with the floating rate. At times in the past, many countries expected their central bank to pursue several different objectives. Eventually, countries recognized that this was an error because it focused the central bank on short-term goals at the expense of longer-term price stability. After high inflation in Europe and the United States in the 1970s and the hyperinflation (inflation exceeding 50 percent) in Latin America and Israel in the 1980s, many central banks and governments recognized an old truth: the main objective of a central bank under floating rates should be to stabilize domestic price levels, thereby maintaining the internal value of money.
Rule of law, the mechanism, process, institution, practice, or norm that supports the equality of all citizens before the law, secures a nonarbitrary form of government, and more generally prevents the arbitrary use of power. Arbitrariness is typical of various forms of despotism, absolutism, authoritarianism, and totalitarianism. Despotic governments include even highly institutionalized forms of rule in which the entity at the apex of the power structure (such as a king, a junta, or a party committee) is capable of acting without the constraint of law when it wishes to do so.
In particular, laws should be open and clear, general in form, universal in application, and knowable to all. Moreover, legal requirements must be such that people are able to be guided by them; they must not place undue cognitive or behavioral demands on people to follow. Thus, the law should be relatively stable and comprise determinate requirements that people can consult before acting, and legal obligations should not be retroactively established. Furthermore, the law should remain internally consistent and, failing that, should provide for legal ways to resolve contradictions that can be expected to arise.
In short, too much emphasis on procedures for preventing arbitrariness can lead to subverting the doing of justice according to what might otherwise find support in the rule of law, and the legal strictures then become themselves a form of arbitrariness that is no more legitimate. On the other hand, those who defend the negative value of the rule of law object to more substantive understandings of the ideal on the grounds that morally ambitious aspirations about the rule of law threaten to purge the concept of its specificity and usefulness. They argue that to open the concept to a whole host of extralegal considerations about substantive justice and wider societal goals is to conflate ideas about “the rule of law” with notions about “the rule of good law,” such that any distinction between the two is reduced to nothing. As a consequence, no discussion of the rule of law can be complete without some philosophical reflection on law, including on its purpose and meaning.
Over the centuries a bitter rivalry developed between the two that culminated in the naval war of Chioggia (1378–81), in which Venice defeated Genoa and secured a monopoly of trade in the Middle East for the next century. Venice made exorbitant profits by trading spices with buyer-distributors from northern and western Europe.
Although the origins of spices were known throughout Europe by the Middle Ages, no ruler proved capable of breaking the Venetian hold on the trade routes. Near the end of the 15th century, however, explorers began to build ships and venture abroad in search of new ways to reach the spice-producing regions. So began the famed voyages of discovery.
In most of the world the establishment of highly trained administrative, executive, or directive classes has made public administration a distinct profession. The body of public administrators is usually called the civil service.
Civil servants in every country are expected to advise, warn, and assist those responsible for state policy and, when this has been decided, to provide the organization for implementing it. The responsibility for policy decisions lies with the political members of the executive (those members who have been elected or appointed to give political direction to government and, customarily, career civil servants). Customarily, civil servants are protected from public blame or censure for their advice. The acts of their administration may, however, be subject to special judicial controls from which no member of the executive can defend them.
Tribal Viets inhabiting the Red River delta entered written history when China’s southward expansion reached them in the 3rd century BCE. From that time onward, a dominant theme of Vietnam’s history has been interaction with China, the source of most of Vietnam’s high culture. As a tribute-paying state after throwing off Chinese rule in 938 CE, Vietnam sent lacquerware, animal skins, ivory, and tropical products to the Chinese emperor and received scrolls on philosophy, administration, and literature in return. Sinic culture seeped deeply into society, but it shaped the aristocracy and mandarinal families more than it did the peasantry, which preserved distinctive customs, beliefs, vocabulary, lifeways, and gender relations.
In northern Vietnam the heavy monsoonal rains wash away rich humus from the highlands, leaving slow-dissolving alumina and iron oxides that give the soil its characteristic reddish colour. The soils of the Red River delta vary: some are fertile and suitable for intense cultivation, while others lack soluble bases. Nonetheless, the delta soils are easily worked. The diking of the Red River to prevent flooding has deprived the delta’s rice fields of enriching silts they once received, and it has been necessary to apply chemical fertilizers.
The Vietnamese have long made a distinction between the northern region, with Hanoi as its cultural centre; the central region, where the Nguyen dynasty established a capital at Hue; and the southern region, with Saigon (Ho Chi Minh City) as its urban centre. After the mid-19th century, Vietnam was similarly divided by the French into Tonkin in the north, Annam in the centre, and Cochinchina in the south.
During the period 1954–75, when the country was divided, there were three layers to the economies in both the north and the south: a bottom layer based on the cultivation of rice, a middle layer dominated by mining in the north and rubber plantations in the south, and a third wartime layer that relied on Soviet and Chinese aid in the north and American aid in the south. In the north, land reform in 1955–56 was followed by rapid collectivization of agriculture and handicrafts. Government investment favoured heavy industry at the expense of agriculture, handicrafts, and light industry, the traditional mainstays of the economy. Heavy industry grew, but efficiency was low, quality was poor, and further progress was hampered by deficiencies in agriculture and light industry. Economic aid from socialist countries masked many economic weaknesses.
The south also underwent a severe drain of human resources. Many well-educated people fled Vietnam after 1975. Hundreds of thousands more, mainly those who had been associated with the former government or the Americans and had not been able to leave the country, were placed in jails or reeducation centres, while other skilled but politically suspect people were forced to resettle in remote areas. The government’s efforts to abolish private enterprise and private property in the south and its deteriorating political relations with China affected Vietnam’s ethnic Chinese more than any other group and precipitated their flight from the country.
Although agriculture still employs more than half of the population and manufacturing accounts for a mere 8 percent of all employment, the output value of both manufacturing and services surpassed that of agriculture in the early 1990s. Yet, agriculture is the main source of raw materials for the processing industries and a major contributor to exports; by the late 1980s Vietnam was again exporting rice after years of shortages.
Known until 1975 as the National Bank of Vietnam in the north, the State Bank of Vietnam formerly functioned as a government monopoly in the banking sector. With the economic reforms of the late 1980s, however, the government recognized that this structure was inadequate to attract badly needed foreign trade and investment. Consequently, in a series of systemic changes from 1988–91, four state-owned commercial banks were created from preexisting institutions, and several joint venture banks were established. As international investment gradually increased in the 1990s, foreign commercial banks were allowed to establish branch offices in Vietnam. In 2004 branches of foreign and joint-venture banks were allowed to join the Viet Nam Bank Association, and two years later, foreign banks were permitted to offer a full array of banking services.
Formerly a neglected sector under central planning, services began to boom at the end of the 20th century. Since the early 1990s, the contribution of services to GDP has surpassed that of agriculture and matched or exceeded that of industry. By the early 21st century, services accounted for roughly one-fourth of total employment. The focus of the sector was processing and assembly; scientific research and design, marketing and market research, finance, and telecommunications were still in their infancy but growing.
Workers’ rights do not extend to organizing independent labour unions, however. The Vietnam General Confederation of Labour (VGCL) is the sole legal national trade union, and all unions must affiliate with it. The confederation is a constituent of the Vietnam Fatherland Front, a communist party coalition, and is under the party’s firm control. The president of the VGCL is usually a member of the party central committee. Unions may press the government to enforce laws and regulations as well as to organize strikes, albeit within strict legal limits. Direct action by workers and the formation of alternative unions, however, are forbidden.
The first constitution of the Socialist Republic of Vietnam, adopted in 1980, established a Council of State as a collective presidency and a Council of Ministers. In 1992 this document was superseded by a second constitution, which, in addition to replacing the Council of State with an elected president and otherwise reforming Vietnam’s government and political structure, also outlined major shifts in foreign policy and economic doctrine. In particular, it stressed the development of all economic sectors, permitted private enterprise, and granted foreign investors the right to legal ownership of their capital and assets while guaranteeing that their property would not be nationalized by the state.
A unicameral, popularly elected National Assembly is the supreme organ of the government. It elects the president, who is head of state, and the vice president, who is nominated by the president. The cabinet consists of the prime minister, who is nominated by the president and approved by the National Assembly, and deputy prime ministers and the heads of government ministries and various state organizations, who are named by the prime minister and confirmed by the Assembly. The cabinet (which superseded the earlier Council of Ministers) coordinates and directs the ministries and various state organizations of the central government and supervises the administrative committees at the local government level.
The country is divided administratively into more than 64 provinces (tinh), of which Hanoi, Haiphong, Da Nang, Ho Chi Minh City, and Can Tho are municipalities (thanh pho). These are further subdivided into several dozen urban districts (quan) and hundreds of rural districts (huyen). Nearly 10,000 communes (xa) comprise Vietnam’s lowest level of local administration. At the provincial, district, and commune levels, the highest government authority is an elected People’s Council, the actual work of which is carried out by a People’s Committee elected by the council.
The National Assembly supervises the work of the Supreme People’s Court, which is the highest court of appeal and the court of first instance for special cases (such as treason). This court, in turn, supervises the judicial work of both the local People’s Courts, which are responsible to their corresponding People’s Councils, and the Military Tribunals. The People’s Courts function at all levels of government except the commune, where the commune administrative committee functions as a primary court.
The Supreme People’s Procuracy, with its local and military subdivisions, acts as a watchdog for the state. It monitors the performance of government agencies, maintains vast powers of surveillance, and acts as a prosecutor before the People’s Courts. The Supreme People’s Procuracy is responsible to the National Assembly, or to its Standing Committee, when the Assembly is not in session.
Both the 1980 and 1992 constitutions institutionalized the Vietnamese Communist Party as the sole source of leadership for the state and society. The 1992 document, however, delegated much more authority to the president and to the cabinet; they were given the task of running the government, while the party became responsible for overall policy decisions. These changes reduced the role of the party. Notably affected were the Politburo and the larger Central Committee, which previously had been the major decision-making bodies of both the party and the state. Also impacted were the Secretariat and its presiding general secretary, which, through their control over party administration and their implementation of the resolutions of the Central Committee and the Politburo, had effectively governed the country.
Nonetheless, the Vietnamese Communist Party remains the dominant political institution within Vietnam. It leads the Vietnam Fatherland Front, a coalition of numerous popular political and social associations that disseminates party policies, serves as a training ground for potential party members, and submits lists of candidates for seats in the National Assembly. The Vietnam Fatherland Front embraces such important and active organizations as the Vietnam Women’s Union, the Ho Chi Minh Communist Youth Union, which is largely responsible for the Vietnam Youth Union, and local party units and agricultural cooperatives that assume leadership over the Farmers’ Union. The Vietnam General Confederation of Labour, also a member of the Vietnam Fatherland Front, has the responsibility of safeguarding workers’ welfare. It does not function as a Western-style bargaining unit, operating instead as a party organization responsible for labour matters.
Although Chinese civilization later became the main force in shaping Vietnamese culture, the failure of the Chinese to assimilate the Vietnamese people underscores the fact that strong elements of an authentic local culture must have emerged in the Red River valley long before China established its millennium of rule over Vietnam.
This legend and other related legends, most of which received their literary form only after 1200 CE, describe in mythical terms the fusion, conflicts, and separation of peoples from the north and south and of peoples from the mountains and the coastal lowlands. The legends show the immortals as mountain dwellers, while the people along the coast are descendants of the dragon lords—a division found in many legends throughout Southeast Asia.
According to legend, the Hung dynasty had 18 kings, each of whom ruled for about 150 years. Their country, called Van Lang (“Land of the Tattooed Men”), is said to have included not only the Red River delta but also much of southern China. The last of the Hung kings was overthrown in 258 or 257 BCE by a neighbouring warlord, Thuc Phan, who invaded and conquered Van Lang, united it with his kingdom, and called the new state Au Lac, which he then ruled under the name An Duong. Au Lac existed only until 207 BCE, when it was incorporated by a former Chinese general, Trieu Da (Chao T’o in Chinese), into the kingdom of Nam Viet (Nan Yue in Chinese).
The end of Au Lac in 207 BCE marks the end of Vietnamese legend and the beginning of Vietnamese history, as recorded in Chinese historical annals.
The elimination of Champa was followed by incursions into the Cambodian territory of the Mekong River delta, which the declining Khmer empire was no longer able to defend. Saigon (Ho Chi Minh City) became Vietnamese shortly before 1700, and the rest of the south followed during the next 60 years. With the exception of the southern province of Soc Trang, which was not annexed until 1840, Vietnam had reached its present size by 1757.
The concept of a division of powers was alien to the precolonial rulers. The emperor, with the help of high court mandarins, was not only the supreme lawmaker and head of all civil and military institutions but also the dispenser of justice in both criminal and civil cases, and he delegated his powers to the hierarchy of mandarins in the provinces and villages. Even public functions of a religious character were the sole prerogative of the emperor and his representatives at the lower levels of the administration. No military caste ever exercised control over the state, no religious hierarchy existed outside the mandarins, and no aristocracy with political influence was allowed to arise. Titles of nobility, bestowed as honours, were not hereditary.
Vietnam’s rigid absolutism was limited to a certain extent by the importance given to the family in accordance with the Confucian concept that the family is the basic unit of civilized society; submission to the authority of the family head thus was the foremost moral obligation of every citizen, even more important than obedience to the ruler. The autocratic character of society was also eased slightly by the limited authority granted to the village administration; local affairs were handled by a council of notables elected, as a rule, from the more prosperous or otherwise prominent citizens. Among the duties of these notables were the enforcement of law, the conscription of army and forced-labour recruits, and the assessment of taxes. Next to devotion to family, loyalty to the village was the duty of every Vietnamese.
Vietnamese resistance prevented the French from advancing beyond Saigon, and it took French troops, under new command, until 1861 to occupy the three adjacent provinces. The Vietnamese, unable to mount effective resistance to the invaders and their advanced weapons, concluded a peace treaty in June 1862, which ceded the conquered territories to France. Five years later additional territories in the south were placed under French rule. The entire colony was named Cochinchina.
It had taken the French slightly more than eight years to make themselves masters of Cochinchina (a protectorate already had been imposed on Cambodia in 1863). It took them 16 more years to extend their control over the rest of the country.
Medical care was well organized for the French in the cities, but in 1939 there were only 2 physicians for every 100,000 Vietnamese, compared with 76 per 100,000 in Japan and 25 per 100,000 in the Philippines.
One was the absence of any kind of civil liberties for the native population, and the other was the exclusion of the Vietnamese from the modern sector of the economy, especially industry and trade.