POWER AND PLENTY

TRADE, WAR, AND THE WORLD ECONOMY IN THE SECOND MILLENNIUM
By Ronald Findlay Kevin H. O'Rourke

PRINCETON UNIVERSITY PRESS

Copyright © 2007 Princeton University Press
All right reserved.

ISBN: 978-0-691-14327-9

Contents

Acknowledgments........................................................................................xiii
Preface................................................................................................xvi
1 Introduction: Geographical and Historical Background.................................................1
Western Europe.........................................................................................4
Eastern Europe.........................................................................................11
North Africa and Southwest Asia: The Islamic World.....................................................15
Central (or Inner) Asia................................................................................24
South Asia.............................................................................................29
Southeast Asia.........................................................................................33
East Asia (China, Korea, and Japan)....................................................................37
2 The World Economy at the Turn of the First Millennium................................................43
The Golden Age of Islam................................................................................48
China: The Sung Economic Miracle.......................................................................61
The Indian Ocean and Southeast Asian Trade.............................................................67
The Pirenne Thesis.....................................................................................71
Eastern Europe: The Viking Connection..................................................................73
The Economy of Western Europe..........................................................................80
3 World Trade 1000-1500: The Economic Consequences of Genghis Khan.....................................87
Trade and War in the Mediterranean and the Black Sea, 1000-1350........................................88
The Indian Ocean and the South China Sea, 1000-1350....................................................98
The Pax Mongolica and Overland Trade, 1000-1350........................................................101
Eurasia on the Eve of the Black Death..................................................................109
The Black Death........................................................................................111
Trade between Western and Eastern Europe, 1350-1500....................................................120
Overland Trade, 1350-1500: The Aftermath of the Pax Mongolica..........................................124
The Emergence of Russia................................................................................126
The Middle East, the Mediterranean, and International Trade, 1350-1500.................................127
Southeast Asia and China, 1350-1500....................................................................133
Quantifying the Late Medieval Spice Trade..............................................................140
4 World Trade 1500-1650: Old World Trade and New World Silver..........................................143
Portugal, the Atlantic, and the Indian Ocean...........................................................145
Spain, Portugal, and the New World.....................................................................158
The Pacific and East Asia..............................................................................167
The Dutch Rise to Primacy in World Trade...............................................................175
Russia, Sweden, and the Baltic, 1500-1650..............................................................187
Southeast Asia during the Age of Commerce..............................................................194
The Cape Route, Venice, and the Middle East............................................................204
Silver, Silk, and Spices...............................................................................212
5 World Trade 1650-1780: The Age of Mercantilism.......................................................227
Origins of the British Empire: Trade, Plunder, and Settlement..........................................229
Mercantilism, Commercial Rivalry, and the Anglo-Dutch Wars.............................................238
Britain, France, and the Dutch Republic................................................................245
Britain and France: Commercial Expansion and the Second Hundred Years' War.............................247
India: The Disintegration of the Mughal Empire and the Transition to Colonial Rule.....................262
Southeast Asia and the End of the Age of Commerce......................................................275
The Manchu Empire......................................................................................284
China's Overseas Trade.................................................................................286
Chinese and Russian Overland Trade.....................................................................295
Conclusion.............................................................................................304
6 Trade and the Industrial Revolution..................................................................311
Trade during the Industrial Revolution.................................................................324
Trade, Overseas Expansion, and the Industrial Revolution...............................................330
Why Britain? Why Europe and Not Asia?..................................................................346
Conclusion.............................................................................................364
7 World Trade 1780-1914: The Great Specialization......................................................365
War and Revolution.....................................................................................366
The Revolutionary and Napoleonic Wars: Short-Run Implications..........................................369
The Revolutionary and Napoleonic Wars: Long-Run Implications...........................................371
The Industrial Revolution and Transportation Technology................................................378
Bulk Commodities and Heckscher-Ohlin Effects...........................................................383
Nineteenth-Century Imperialism.........................................................................387
Nineteenth-Century Trade Policy........................................................................395
Commodity Market Integration, 1815-1914................................................................402
Complementary Factor Flows and the Great Frontier......................................................407
Trade and the Global Division of Labor.................................................................411
Trade, Tropical Frontiers, and the Great Divergence....................................................414
The Terms of Trade.....................................................................................424
Conclusion.............................................................................................425
8 World Trade 1914-39: Deglobalization.................................................................429
World War I............................................................................................429
The Aftermath of War...................................................................................435
Interwar Commercial Policy.............................................................................443
Transport Costs........................................................................................455
The Volume of World Trade..............................................................................458
Price Convergence and Divergence.......................................................................461
The Great Depression, the Collapse of World Trade, and the Developing Countries........................465
The Collapse of the Ottoman Empire.....................................................................469
Conclusion.............................................................................................471
9 Reglobalization: The Late Twentieth Century in Historical Perspective................................473
World War II...........................................................................................473
Geopolitical Consequences: Communism, the Cold War, and Decolonization.................................476
The Gradual Reconstruction of the Atlantic Economy: 1950-70............................................489
Policy Divergence: 1945-80.............................................................................493
Reglobalization: 1980-2000.............................................................................496
International Transport Costs..........................................................................501
Trends in Openness: Quantities and Prices..............................................................505
Unraveling the Great Specialization....................................................................512
Openness and Convergence in the Late Twentieth Century.................................................515
Conclusion.............................................................................................525
10 Globalization at the Dawn of the Twenty-First Century...............................................527
The Future of Globalization: Economic Challenges.......................................................534
The Future of Globalization: Political Challenges......................................................539
Bibliography...........................................................................................547
Index..................................................................................................593


Chapter One

INTRODUCTION: GEOGRAPHICAL AND HISTORICAL BACKGROUND

The subject of this book is the evolution of the pattern and structure of world trade over the past millennium. If we used the expression "world trade" for the current year or any period in the recent past it would have a clear and unambiguous connotation. The component units would be individual sovereign nation-states and "world trade" would be the goods and services that flow between them, across national borders. The individual nation-states, or "countries," could be classified in various ways: geographically on the basis of continent or climate zone, "stage of development" in terms of level of per capita income, or by their relative endowments of factors of production. We would then relate some classification of the commodities that enter world trade, say "primary products" and "manufactured goods" or "capital-intensive" and "labor-intensive" goods, to the geographical or other characteristics of the countries and this would constitute what is meant by the "structure and pattern of world trade."

It is when we turn to the question of the long-run evolution of this "structure and pattern of world trade" that a host of problems arises. What are the beginning and end points over which this evolution is to be examined? What if political boundaries shift, as they undoubtedly do, so that "countries" which exist at the end point did not exist at the beginning, or which existed at the beginning did not at the end? The longer the time span chosen the more acute this problem becomes, and a millennium is a very long time. A bold solution to this difficulty was offered in an influential article by Mauro (1961), who proposed an "intercontinental model" for the study of world trade in the early modern period, in the form of an interregional input-output table or matrix that would record the flows of goods and precious metals between the continents over time. This would eliminate the problem of shifting political boundaries by replacing the evanescent nation-state with the presumably immutable geographic entity of the continent. Toward the end of his article, Mauro explicitly evoked the invaluable work of the interwar International Scientific Committee on Price History (Cole and Crandall 1964), which collected internationally comparable price data for several countries, and expressed the hope that such a collaborative endeavor would fill in his trade matrix for the early modern period, and presumably other periods as well. While this hope has not as yet been fulfilled, we will adopt Mauro's basic organizing framework throughout this book. While not ignoring flows of goods and services within regions, our main focus throughout will be on interregional and intercontinental flows.

As Lewis and Wigen (1997) have pointed out, however, in the very title of their stimulating work, the notion of continents as fixed and self-evident divisions of the Earth's surface is itself something of a myth. They coin the useful term "metageography" (p. ix), to mean "the set of spatial structures through which people order their knowledge of the world." Examples of metageography, in addition to the familiar example of the continents, would be the "North-South" division of the world between advanced and developing countries, or the First, Second, and Third World classification that was common during the Cold War. While Australasia, Africa, North and South America, and Antarctica are clearly distinct physical entities with well-defined physical boundaries, the separation of Europe from the rest of the contiguous Eurasian landmass is arbitrary and problematic. The frequently invoked Urals have never been an effective barrier, and it has long been debated whether Russia is in Europe, Asia, or both. Indeed, at the time of writing the question of Europe's eastern boundaries was one of the key political headaches confronting the leadership of that continent.

Some classification of the Earth's surface, however, is obviously essential for our purposes. Lewis and Wigen (p. 13) propose the concept of "world regions," namely "multi-country agglomerations, defined not by their supposed physical separation from one another (as are continents) but rather (in theory) on the basis of important historical and cultural bonds." In what followswe will demarcate seven "world regions" covering theEurasian landmassandAfrica north of the Sahara. These are

(i) Western Europe, (ii) Eastern Europe, (iii) North Africa and Southwest Asia, (iv) Central or Inner Asia, (v) South Asia, (vi) Southeast Asia, and (vii) East Asia.

The regions are defined and separated not solely on geographical lines but more importantly on social, political, and cultural lines that give each of them at least a modicum of coherence and unity while distinguishing it from the others. Economic integration was more advanced within each region than between the regions, largely as a result of these political and cultural divisions: according to David Northrup (2005) the end of the first millennium marks a turning point when the forces of cultural and political divergence between world regions, as populations adapted to their local environments, began to be overtaken in importance by countervailing forces of convergence.

We initially confine ourselves to this "Afro-Eurasian Ecumene" because our focus is on intercontinental and interregional trade, and prior to the European voyages of discovery in the 1490s the Americas or Australasia were not engaged in trade with other world regions. On the other hand, we will be considering trade flows between our seven regions and an eighth, sub-Saharan Africa, when appropriate, although without analyzing sub-Saharan Africa as a separate region. We acknowledge that the early chapters of our work are thus "Eurasia-centric," and that this is a shortcoming, although it is an inevitable shortcoming given the limits of our knowledge.

On the other hand, our seven regions accounted for the vast majority of the world's population in 1000, at least if the figures in the admittedly highly conjectural but nevertheless indispensable Atlas of World Population History by McEvedy and Jones (1978) are to be believed. The population figures we obtain on the basis of their work are 25 million for Western Europe, 15 million for Eastern Europe, 28 million for the Islamic World, 9 million for Central Asia, 79 million for South Asia, 9 million for Southeast Asia, and 67 million for East Asia (with China alone accounting for 60 million). This gives a population of 232 million for the essentially Eurasian world with which we begin our study, as compared with a world population for the year 1000 of 265 million. Our seven regions thus accounted for almost 90% of the world total at the beginning of our period. The list of "world regions" that we work with will later be augmented and adjusted in the light of the evolution of the world economy subsequent to the 1490s.

Western Europe

We use this term to designate the western extremity of the Eurasian landmass, starting roughly at the eastern borders of the contemporary nation-states of Poland, Hungary, and the former Czechoslovakia, including also all the offshore islands in the Atlantic and the Mediterranean (see figure 1.1). The eastern boundary is chosen to reflect the extent of the cultural influence associated with the Roman Catholic Church and the Latin script. Thus the western Slavic nations of the Poles and Czechs are included while the eastern Slavic Russians and the southern Slavic Serbs are not. The Hungarians are also included on the basis of their religious affiliation with the Roman Catholic Church, despite their ethnic and linguistic differences from the rest of Latin Christendom. Our division of Western and Eastern Europe therefore turns on the difference between the heritages of the western and eastern branches of Christianity in the shaping of the political and social institutions of the two regions. Linguistically, our definition of Western Europe includes all Romance languages, except Romanian, all Germanic and Celtic languages, Polish, Czech and Slovak, Latvian and Lithuanian, Basque, Finnish, and Hungarian.

Geographically, this region has many natural advantages that have often been remarked upon. Perhaps the most important is the high ratio of coastline to land area, greater than for any other continent according to Rhoads Murphey (1970, p. 87). Western Europe also has the lowest average elevation and the greatest proportional extent of plains (ibid., p. 90). It enjoys a relatively mild temperature in relation to latitude, due to the effect of the Gulf Stream. The Great European Plain that stretches unbroken from the Atlantic to the Urals has long been highly fertile and productive. The many rivers, draining into the Baltic, the North Sea, the Atlantic, and the Mediterranean, have kept transport costs low and market areas connected. The mountain ranges that form the central spine of the peninsula provide valuable woodland and pasture for livestock in the high valleys, and are traversed by accessible passes that connect the shores of the Mediterranean in the south to those of the Baltic and the Atlantic in the north. At the same time, Eric Jones (2003) has observed that there are a sufficient number of natural barriers within the region-the Alps, the Pyrenees, and the English Channel, to name but three-to make its political unification militarily difficult. Finally, Murphey (p. 90) notes that Western Europe is "the tip of the great triangle formed by Eurasia as a whole" and is the "point of the land funnel" along which influences of all kinds can flow from east to west.

Historically, the region has been shaped by the inheritance of the cultural, legal, and administrative institutions of the Roman Empire and the doctrine and practice of the Roman Catholic Church, not only in the southern areas of direct Roman rule but also as they were absorbed by the northern Germanic tribes that overran the empire in the fourth and fifth centuries, as well as by regions that had never been part of the empire in the first place, notably Ireland, Scotland, and Scandinavia. This fusion of the "southern" legacy of late antiquity with the energy and warlike prowess of the northern invaders resulted eventually in the establishment of the Carolingian Empire that extended from the Atlantic and the Pyrenees to the Elbe and the Danube, in other words most of continental Western Europe as we have defined it, except for the Iberian and Scandinavian Peninsulas. This political unity, marked by the crowning of the Frankish ruler Charlemagne as Holy Roman Emperor by the pope in 800, did not last long, however, and the empire disintegrated into competing kingdoms and principalities.

Charlemagne's grandfather was Charles Martel, the Merovingian "mayor of the palace" who defeated an invading Arab force from Spain at the Battle of Poitiers in 732, marking the limit of their penetration into Europe. His father was Pepin the Short, who deposed the last Merovingian king in 751 and took the Frankish crown for himself. Charlemagne succeeded Pepin as king of the Franks in 768. The new ruler undertook a series of aggressive military campaigns against the Saxons, forcibly converting them to Christianity, and the Avars, nomadic invaders from Central Asia who had established a base in central Europe. The Avars were utterly destroyed and their enormous hoard of looted treasure distributed to the church and his followers by Charlemagne. An appeal from the pope for help against the Lombard king of northern Italy led Charlemagne to cross the Alpsanddepose the Lombard ruler, after which the grateful pontiff crowned Charlemagne as king of the Franks and Lombards and emperor of the Romans. After Charlemagne's death in 814 the empire was ruled somewhat precariously by his son Louis the Pious until his death in 840, at which time the empire passed to his eldest son Lothar, whose claim to the undivided territory was vigorously challenged by his brothers Charles the Bald in the west and Louis the German in the east. The younger brothers joined forces to defeat Lothar decisively at the Battle of Fontenoy in 841, compelling him to divide the empire between all three of them, while he retained the imperial title.

This division of Charlemagne's empire into three contiguous vertical north-south blocks by the Treaty of Verdun in 843 is often taken as marking the beginnings of the subsequent nation-states of France in the west and Germany in the east, providing the "birth certificate of modern Europe" as Riche (1993, p. 168) eloquently puts it. The central band, stretching from the North Sea to Italy, was the territory that went with the imperial title to Lothar. The Carolingian line eventually died out, to be replaced in France by the dynasty of the Capetians in 987, and in Germany by the Ottonians of Saxony.

At its height the dimensions of Charlemagne's empire were undeniably impressive. According to Becher (2003, p. 118) it encompassed 1 million square kilometers with 180 dioceses, 700 monasteries, 750 royal estates, 150 palaces, and nearly 700 administrative districts. Given the available technology and resources, however, it was impossible to impose any unified central administration over such a vast domain. The court could not remain permanently in the capital at Aachen and wandered peripatetically from place to place throughout the year. The administrative districts were under counts, with dukes sometimes overseeing groups of counties. Central control was attempted through the dispatch of royal emissaries, known as missi, while diplomatic correspondence and administrative records were in the hands of clerics in the royal chapel. After the breakup of the empire toward the close of the ninth century the various dukes and counts, and even lower-level local leaders, increasingly began to govern independently, tied together only by the looser bonds of feudal vassalage. This tendency was particularly marked in the western sections of the empire, what is now France.

In the eastern or German section of the empire, the unity of the state was preserved to a much greater extent. Here the last Carolingian died in 911, to be replaced from 918 as king by Henry, duke of Saxony, who founded the Ottonian dynasty that lasted until 1024. The German kingdom in this era was a sort of federation of a few great duchies, such as Saxony, Bavaria, Franconia, Thuringia, and Swabia. The ducal ruling houses, as Barraclough (1976, p. 111) noted, were mostly descended from the commanders of imperial frontier armies, with a tradition of loyalty to central authority. They were willing to elect or nominate one among them to be somewhat more than "first among equals" in their own collective interest against barbarian and other enemies. During the long reign ofOtto the Great (936-73), the German kingdom was established as clearly the most powerful state in all of Europe, with military victories over the eastern Slavic tribes as well as (and in particular) the Hungarians, who had been ravaging all the settled lands around them for decades, at the Battle of Lechfeld in 955.

Like Charlemagne, Otto also invaded Italy to protect the pope and was crowned Holy Roman Emperor in Rome in 962, a title that survived until it was abolished by Napoleon in 1806. Despite its prestige, in practice this title did not imply much more than the addition of northern Italy to the territories that Otto and his successors ruled in their native land, and considerable influence over the other states and cities in both Germany and Italy. In addition it involved them in a lengthy and exhausting struggle with the papacy over the investiture of bishops and other issues involving the "separation of church and state."

Despite the glamor of these Italian incursions, the main thrust of the Ottonians was their relentless pressure and expansion on the open plains to the east against the pagan Slavic tribes. Just as the Franks had done to the Saxons themselves two centuries earlier, the Saxons followed a policy of conquest and forced conversion of the Slavic tribes in their way. The frontier was extended eastwards by the establishment of fortresses and garrisons along the "marches," and also by episcopal foundations, the most important of which was at Magdeburg. A great uprising of the Slavs in 983 halted the expansion temporarily, but it was resumed after a generation. Support of the church was a major political technique of the Ottonians, enhancing their power not only on the frontier but also within the duchies themselves. Otto the Great's grandson, Otto the Third, died in 1002 at the age of 21 before his grandiose plans for a reunification of the eastern and western empires and churches through marriage to a Byzantine princess could be realized. The power and prestige of the Ottonians was maintained and preserved by the succeeding Salian dynasty, starting in 1025.

A notable development of the tenth century, reflecting the success of the Ottonians, was the adoption of Roman Catholic Christianity by the western Slavic peoples of Bohemia and Poland and by the previously nomadic Hungarian invaders soon after their defeat at Lechfeld. The Czechs of Bohemia, inhabiting the valley of the Vltava, a tributary of the Elbe, converted under German pressure early in the tenth century, with a bishopric established later at their capital Prague. Bohemia functioned henceforth as a duchy of the German Empire, closely related to Bavaria. The Polish ruler Mieszko the First, of the Piast dynasty, converted in 966 and shrewdly placed his realm under the protection of the Holy See to prevent complete German domination. His successor, Boleslaw Chrobry, the "Brave," expanded the domain in all directions against other Slavic peoples, while maintaining generally good relations with the empire. Otto the Third assisted him in the establishment of the capital Gniezno as an archbishopric in 1000. The year 1000 also saw the crowning of the future Saint Stephen as king of Hungary, after his conversion together with his father Géza in 995, followed by the establishment of an archbishopric at Esztergom. Thus by the year 1000 the eastern limits of Roman Catholic Christianity had just about been reached, with only the Prussians, Balts, and Finns still awaiting conversion.

(Continues...)



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